By Erin Cornell, Sedgwick San Francisco
For the second time this summer, the First Circuit Court of Appeals addressed whether an ERISA fiduciary’s use of a retained asset account (“RAA”) to pay death benefits is a breach of fiduciary duty. In Merrimon v. Unum Life Ins. Co., 758 F.3d 46 (1st Cir. 2014), the First Circuit held that an insurer acting as a plan administrator properly discharges its duties under ERISA when it pays a death benefit through a RAA, provided that the method of payment is set forth in the plan document. Eight weeks later, in Vander Luitgaren v. Sun Life Assur. Co. of Canada, Case No. 13-2090, 2014 WL 4197947 (1st Cir. Aug. 26, 2014), the First Circuit again addressed an administrator’s use of a RAA to pay death benefits pursuant to the terms of an ERISA plan. The court found that Vander Luitgaren could be decided on the basis of its opinion in Merrimon, but it wrote separately to address additional issues not present in Merrimon.
In Vander Luitgaren, the appellant was a beneficiary of an ERISA-governed life insurance plan. The insurer, Sun Life, paid the beneficiary the full amount of benefits owed, and placed the entirety of the funds ($151,000) into a RAA, which earned interest for the beneficiary at 2% per year. The beneficiary had the right to withdraw all or any part of the funds at any time, provided that no withdrawal could be for less than $250. Sun Life would close the RAA if the balance fell below $250, in which event the beneficiary would receive the balance. Within a matter of days, the beneficiary withdrew the entire $151,000. Sun Life then closed the account and mailed him a check for $74.48 in interest.
The beneficiary then sued Sun Life, contending that its use of the RAA breached its fiduciary duties. The district court granted Sun Life’s motion for summary judgment, and the beneficiary appealed. Sun Life challenged his statutory standing, an issue not raised in Merrimon, arguing that because he received the full amount of the death benefit when the sum was credited to the RAA, he was no longer entitled to a benefit under the plan and therefore lacked standing to sue under ERISA. The court declined to decide this issue and instead resolved the dispute on the merits. Unlike Merrimon, the plan applicable in Vander Luitgaren did not expressly provide that benefits would be paid via a RAA. Rather, the plan provided, “[t]he Death Benefit may be payable by a method other than a lump sum. The available methods of payment will be based on the benefit options offered by Sun Life at the time of election.” Nevertheless, the court found that this was a distinction without a difference – Sun Life did not breach its fiduciary duties because establishment of a RAA was among the payment options offered by Sun Life, the beneficiary had immediate and unrestricted access to the entire death benefit, and ERISA gives plan sponsors considerable latitude to set the terms of a plan. The First Circuit thus affirmed the district court’s judgment in favor of Sun Life.