In Bafford v. Northrop Grumman Corp., No. 20-55222, __F.3d__, 2021 WL 1419055 (9th Cir. Apr. 15, 2021), the Ninth Circuit decided two important issues involving ERISA-imposed fiduciary duties and ERISA preemption.
Plaintiffs-Appellants are participants in Northrop Grumman’s pension plan (Plan), which is administered by an Administrative Committee (Committee). In the years leading to their retirement, Plaintiffs received incorrect online statements about what their retirement benefits would be under the Plan from Hewitt (now Alight Solutions), a company with whom the Committee contracted to provide administrative services for the Plan. After they retired and began receiving their benefits as noted in their online statements, Northrop informed them that the online statements were incorrect, and they were entitled to significantly lower monthly benefits. Plaintiffs filed suit alleging “that (1) Northrop, the Committee, and Hewitt breached their fiduciary duties pursuant to ERISA § 404(a), 29 U.S.C. § 1104(a); (2) the Committee violated ERISA § 105, 29 U.S.C. § 1025, by providing inaccurate pension benefit statements; (3) Hewitt was liable for professional negligence; (4) Hewitt was liable for negligent misrepresentation; and (5) Northrop, the Committee, and Hewitt violated ERISA § 406(a), 29 U.S.C. § 1106(a), by Northrop and the Committee paying Hewitt for recordkeeping services that were worthless.” The district court granted Defendants’ motion to dismiss for failure to state a claim and Plaintiffs appealed all but the last claim. The Ninth Circuit affirmed in part, vacated in part, and remanded for further proceedings.
On the breach of fiduciary duty claim, the court determined that Plaintiffs failed to state a claim for breach of fiduciary duty by at of the defendants because calculation of benefits pursuant to a formula is not a fiduciary function. The court explained that there are two types of fiduciaries: named fiduciaries designated by a plan instrument and functional fiduciaries who exercise discretionary control over management or administration of a plan. Here, the court addressed the questions of whether a named fiduciary must also be performing a fiduciary function to breach a fiduciary duty and whether calculating benefit amounts pursuant to a pre-set formula is a fiduciary function. The court followed the First and Fourth Circuits in concluding that the alleged wrong must occur in connection with the performance of a fiduciary function to be a breach of fiduciary duty. Calculating a benefit within the framework of a policy set by another entity does not involve the requisite discretion or control to constitute a fiduciary function such that Hewitt was not performing a fiduciary function in miscalculating retirement benefits. Thus, neither Northrup nor the Committee breached a fiduciary duty by failing to ensure Hewitt correctly calculated Plaintiffs’ benefits.
On the second claim for inaccurate pension benefit statements, the court affirmed the dismissal of this claim. The court held that use of an online platform to request a pension benefit statement can satisfy the “written” request requirement for 29 U.S.C. § 1025(a)(1)(B)(ii). But here, Plaintiffs did not allege that the online platform request was “written” or include specific allegations about the way they submitted their request for a pension benefit statement. The court directed the district court to permit Plaintiffs to file an amended complaint to plead facts adequate to allege they made written requests.
Finally, the court determined that Plaintiffs’ state-law professional negligence and negligent misrepresentation claims are not preempted by ERISA because they do not have a “reference to or connection with” an ERISA plan. In other words, the claims against Hewitt do not bear on the relationship between Plaintiffs and the Plan, between Northrop, the Committee, and the Plan, or between Plaintiffs, Northrop, and the Committee. The court explained that “[h]olding both that Hewitt’s calculations were not a fiduciary function and that state-law claims are preempted would deprive Plaintiffs of a remedy for the wrong they allege without examination of the merits of their claim. Broadly, this would be inconsistent with ERISA’s purpose.” The court vacated the district court’s dismissal of Plaintiffs’ state-law claims and remanded for further proceedings consistent with this opinion.