ERISA fiduciaries owe a fiduciary duty to tell the truth to plan participants. This "duty to inform is a constant thread in the relationship between beneficiary and trustee; it entails not only a negative duty not to misinform, but also an affirmative duty to inform when the trustee knows that silence might be harmful." A fiduciary breaches his duty "by materially misleading plan participants, regardless of whether the fiduciary's statements or omissions were made negligently or intentionally."
Dudenhofer v. Fifth Third Bancorp presented yet another installment of the floundering mess caused by the foray in this case of Fifth Third Bancorp into the subprime lending field. The plaintiffs were employees and participants in Fifth Third's profit sharing plan. The participants can direct portions of their pay into the plan, and the bank matched up to 4% of those contributions, the matching contributions being invested initially in Fifth Third stock. But the subprime mess caused Fifth Third stock to decline 74% from July 2007 to September 2009 costing the plan tens of millions of dollars.
The plaintiffs sued claiming that the trustees' had breached their fiduciary duties. One cited example were false or incorrect statements made in filings with the SEC that were expressly incorporated into the Plan's summary plan description (SPD). The district court ruled that the SEC filings were not fiduciary communications.
The Sixth Circuit reversed and framed the issue as "whether the express incorporation of SEC filings into an ERISA-mandated SPD is a fiduciary communication." The SPD is "a document ERISA requires to be sent to plan participants to provide specified information about the plan [and] is unquestionably a fiduciary communication." Since ERISA plan participants must be told the truth, SEC filings that are incorporated into the SPD must likewise be truthful and accurate:
The SPD is a fiduciary communication to plan participants and selecting the information to convey trough the SPD is a fiduciary activity. Moreover, whether the fiduciary states information in the SPD itself or incorporates by reference another document containing that information is of no moment. To hold otherwise would authorize fiduciaries to convey misleading or patently untrue information through documents incorporated by reference, all while safely insulated from ERISA's governing reach. Such a result is inconsistent with the intent and stated purposes of ERISA -- to impose fiduciary duties 'which are the highest known to the law" -- and would create a loophole in ERISA large enough to devour all its protections.