Varity Corp. v. Howe - 516 U.S. 489, 116 S. Ct. 1065 (1996)

Rule:

ERISA § 404(a), 29 U.S.C.S. § 1104(a)(1), requires a fiduciary to discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries. To participate knowingly and significantly in deceiving a plan's beneficiaries in order to save the employer money at the beneficiaries' expense is not to act solely in the interest of the participants and beneficiaries. Lying is inconsistent with the duty of loyalty owed by all fiduciaries and codified in section 404(a)(1) of ERISA, 29 U.S.C.S. § 1104(a)(1).

Facts:

After petitioner Varity Corporation decided to transfer money-losing divisions in its subsidiary Massey-Ferguson, Inc., to a separately incorporated subsidiary, Massey Combines, it held a meeting to persuade employees of the failing divisions to change employers and benefit plans. Varity, the Massey-Ferguson plan administrator as well as the employer, conveyed the basic message that employees' benefits would remain secure when they transferred. In fact, Massey Combines was insolvent from the day it was created, and, when it ended its second year in a receivership, the employees who had transferred lost their non-pension benefits. Those employees, including respondents, filed an action under the Employee Retirement Income Security Act of 1974 (ERISA), claiming that Varity, through trickery, had led them to withdraw from their old plan and forfeit their benefits, and seeking the benefits they would have been owed had they not changed employers. The District Court found, among other things, that Varity and Massey-Ferguson, acting as ERISA fiduciaries, had harmed plan beneficiaries through deliberate deception, that they thereby violated ERISA § 404(a)'s, 29 U.S.C. 1104(a)(1) fiduciary obligation to administer Massey-Ferguson's plan solely in the interest of the plan’s participants and beneficiaries, that ERISA § 502(a)(3) gave respondents a right to appropriate equitable relied to redress the harm that the deception had caused them individually, and that such relief included reinstatement to the old plan. The Court of Appeals affirmed, in relevant part.

Issue:

Under the circumstances, did the petitioner employer violate a fiduciary obligation imposed by the Employee Retirement Income Security Act (ERISA), 29 U.S.C.S. § 1001 et seq.? 

Answer:

Yes.

Conclusion:

On review, the court affirmed the judgment of the court of appeals, finding that in the factual circumstances as determined by the lower courts, the petitioner was acting in its capacity as an ERISA fiduciary when it significantly and deliberately misled the beneficiaries with regard to the benefit plan. Further, the court found that in misleading the beneficiaries, the petitioner violated the fiduciary obligations imposed upon plan administrators under ERISA § 404. Finally, the court concluded that the remedial provision of ERISA that the beneficiaries invoked, ERISA § 502(a)(3), authorized their lawsuit for individual relief.