ERISA is a federal statute that regulates employee benefits such as pensions, 401(k) plans, health care, and disability—collectively some of the most important property and contract rights that working Americans have. Passed in 1974, ERISA preempts state law and imposes fiduciary duties on those who administer employee benefits. ERISA fiduciary duties largely track the duties of a trustee. So, ERISA requires employers to set aside funds in trust to pay pension benefits (including those offered under 401(k) plans). Employers need not, however, set aside funds to pay non-pension benefits (called welfare benefits), but may do so if they wish or to satisfy the demands of a labor union. The legal entity that pays ERISA-covered benefits is the “plan,” and any associated funds are “plan assets.”
An ERISA fiduciary who harms or abuses plan assets (e.g., by negligent investing) must make the plan whole by paying either damages or restitution. Trust beneficiaries may seek similar redress for breach of trust. Yet, unlike trust law, ERISA imposes fiduciary duties extending beyond the management and distribution of property. ERISA fiduciaries have discretion to pay or deny claims for benefits, and a wrongful denial of benefits can devastate an employee and her covered dependents. In Corcoran v. United Healthcare Inc., Florence Corcoran was suffering through a difficult pregnancy and asked her ERISA-covered health plan to pay for hospitalization, which her doctor had recommended. The reviewing fiduciary (United Healthcare) denied the claim, determining hospitalization to be medically unnecessary despite her doctor’s recommendation. About two weeks later, Mrs. Corcoran’s fetus went into distress and died. Mrs. Corcoran sued United Healthcare, but the Fifth Circuit—in interpreting Supreme Court precedent at the time—denied her any ERISA remedy.
Later Supreme Court cases confirm the result of Corcoran. Fiduciary breaches that harm plan assets warrant full relief. Breaches that do not harm plan assets warrant only “appropriate equitable relief,” which excludes most forms of monetary relief according to the Court. Most commentators, the Department of Labor, and several judges and justices would grant money damages to plaintiffs like Mrs. Corcoran. These reformers note that Congress based ERISA on trust law and argue that the Court should conform ERISA remedies with trust remedies, which aim to “make whole” beneficiaries who are harmed by fiduciary breach.
But this make-whole argument ignores the central role of property in trust law. The Restatement and treatises all define a trust as “a fiduciary relationship with respect to property, subjecting the person by whom the title to the property is held to equitable duties to deal with the property for the benefit of another person, which arises as a result of a manifestation of an intention to create it.” Trustees breach this “fiduciary relationship with respect to property” when they harm or misappropriate trust property, and the make-whole principle redresses such property-based breaches. Trust law does not routinely redress harm that is personal to the beneficiary with damages.
Health and other welfare plans often hold no assets and comprise promises to pay benefits. They impose “merely personal duties” upon the employer (or other administrator of the plan), precluding the application of trust law. Nevertheless, the courts roughly follow the remedial system of trust in ERISA cases, redressing breaches that involve plan assets but denying relief to employees for their personal harm. Trust law, rather than being the solution to ERISA remedies, is part of the problem.
The other part of the problem is the Supreme Court’s inconsistency in interpreting ERISA. The Supreme Court has consistently narrowed ERISA remedies, but has used inconsistent methods of statutory interpretation to do so. In Massachusetts Mutual Life Insurance v. Russell, the Court found that section 409(a) does not redress a fiduciary breach causing personal harm. Even though the text of section 409(a) would support granting “equitable or remedial relief” for any breach, the Court found that the overall purpose and context of the statute protected only plan assets and the plan itself. Yet, in Mertens v. Hewitt Associates and Great-West Life and Annuity Insurance Co. v. Knudson, the Court analyzed section 502(a)(3) textually, concluding that its narrower grant of “equitable relief” must mean something less than all relief. Based on historical equity practice, the Court held that section 502(a)(3) does not offer the remedies of damages or even legal (as opposed to equitable) restitution.
Those who would reform ERISA remedies focus their attention on Mertens, Great-West, and the need to incorporate the “make-whole doctrine” of trust law into section 502(a)(3). The make-whole theorists, though, overlook the limits of trust remedies and the textual barriers to interpreting the “equitable relief” of section 502(a)(3) broadly. The superior way of expanding ERISA remedies is through the broader grant of “equitable or remedial relief” under section 409(a). Unlike section 502(a)(3), section 409(a) is directed expressly at fiduciary breaches and avoids the trap of historical equity practice. By broadening section 409(a), the Supreme Court would point ERISA’s remedies away from the law of trusts and towards the text of the statute.