A recent case highlights the importance of following a plan’s amendment procedures.
The case of Tatum v. R.J. Reynolds Tobacco Co. involves the restatement of an ERISA retirement plan sponsored by R.J. Reynolds (the “Plan”) as a result of the spin-off by R.J. Reynolds of its Nabisco foods business. Prior to its restatement, the Plan permitted investment in certain funds consisting of the stock of Nabisco Foods as one of its investment options (the “Nabisco Stock Funds”). By resolution in June of 1999, the Plan was restated. The restated Plan indicated that the Nabisco Stock Funds were frozen, i.e., no further contributions would be permitted, but neither the restated Plan nor the adopting resolutions stated that the Nabisco Stock Funds were to be removed from the Plan.
Later communications by the Company to the employees stated that the Nabisco Stock Funds were being removed from the Plan on January 31, 2000. A Summary Plan Description provided to participants in December 1999 reiterated that contributions into the Nabisco Stock Funds were frozen, and that “[i ]t is anticipated that these frozen funds will be eliminated early in 2000.”
The Plan provided that it would be administered by a committee (the “Committee”). The committee could take action by the vote of a majority of its members present at any meeting, or without a meeting by an instrument in writing signed by a majority of the members of the Committee. In November of 1999, the secretary of the Committee executed a document purporting to be an amendment to the Plan. The purported amendment removed the frozen Nabisco Stock Funds from the list of investment options effective February 1, 2000. However, at the time the secretary executed the November amendment, no formal Committee meeting had been held to discuss or vote upon the elimination of the Nabisco Stock Funds from the Plan, and no written consent in lieu of a meeting or any other type of document authorizing removal of the Nabisco Stock Funds effective February1, 2000 had been signed by the members of the Committee.
Therefore, despite the communications to plan participants and the purported amendment, the court found the required committee action was never taken. Accordingly, the purported amendment to eliminate the Nabisco Stock Funds was invalidated. The court rejected the argument that the amendment was subsequently ratified by the Committee, holding that ratification is not permitted where there is a clear and precise method by which the Committee was to act.
This case highlights the necessity of following the terms of the plan, including an explicit plan amendment procedure. The court’s rejection of the Summary Plan Description as an implicit amendment (even if the summary’s language was clear on this point) is consistent with a recent Supreme Court decision holding that plan summaries cannot override the language of the plan itself.
In our June newsletter, we discussed the importance of documenting plan fiduciary decisions to minimize liability for fiduciary actions (or inactions). The Tatum case illustrates the importance of utilizing the prescribed process for making employer, or “settlor” decisions with respect to the plan, as well as properly documenting those decisions.
