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Workers who are required to provide proof of work performed in order to receive the appropriate credit under a benefit plan must get notice of this requirement in the plan description, the 2nd U.S. Circuit Court of Appeals has ruled. Clarifying a plan administrator’s obligations under the Employee Retirement Income and Security Act of 1974 (ERISA), the circuit also held that a pension fund did not violate its fiduciary duties when it failed to audit plaintiff Abraham Wilkins’ employers to ensure that his benefits were properly calculated. And the court said there was nothing in ERISA that prevented a fund from requiring Wilkins, a construction worker, from producing some form of proof that he did not receive credit before it awarded him additional benefits. The appeal in Wilkins v. Mason Tenders District Council Pension Fund was decided by Judges Guido Calabresi, Robert Katzmann and Peter Hall. Calabresi wrote the opinion for the court. Wilkins alleged that some of his employers in his four decades in the construction industry underreported his earnings to the fund, leaving him with fewer retirement benefits than he was entitled to. The fund’s director denied Wilkins’ claim in June 2001 because the fund could not determine whether the extra earnings asserted by Wilkins represented “covered employment.” The fund required Wilkins to submit pay stubs to prove he had earned the money. But Wilkins said he had lost some stubs over the years and a fire had destroyed part of his records. Given that the fund had not conducted random audits of the employers during the years in question, and that Wilkins could not produce other proof of his hours worked, the claim was rejected. In the Eastern District, Wilkins sued for wrongful denial of benefits under ERISA Section 502(a)(1)(B) and equitable relief under Section 502(a)(3). He argued that the fund’s pay stub policy was arbitrary and capricious, and that the fund had violated its fiduciary duties by shifting the burden of keeping accurate records to him, failing to audit employers’ reporting of covered employment and failing to warn plan participants that they might be required to produce proof of employment. Judge John Gleeson denied Wilkins’ claim for recovery. The judge noted that the fund had since dropped the pay stub requirement but had nonetheless given Wilkins the opportunity to submit any other information that may have shown covered employment. Gleeson also rejected Wilkins’ claims based on the fund’s fiduciary duties. At the circuit, Calabresi said that in Central States, Southeast & Southwest Areas Pension Fund v. Central Transport, the U.S. Supreme Court held that trustees are “permitted to conduct random audits of employers’ payroll records.” But Wilkins, the judge said, was unable to cite “any authority for the proposition that trustees are required to audit employers continually.”’ He added, “Of course, if trustees took no effective action to ensure that the fund received the contributions it was due, such a failure might well constitute a dereliction of fiduciary duty in violation of the standard of ERISA Section 404(a)(1)(B). But the record suggests, and Wilkins does not contest, that it was the fund’s practice to conduct random audits of employers.” Therefore, the judge said, the fact that the fund did not conduct random audits during the years that Wilkins claims he was due extra benefits “does not, without more, establish a breach of fiduciary duty.” Publication Requirement But the court looked more kindly on Wilkins’ claim that he received inadequate notice of the pay stub policy – a violation of ERISA requirements for summary plan descriptions. The court agreed, in the language of the statute, that the failure to give notice of the policy ran afoul of ERISA’s command that any “circumstances which may result in disqualification, ineligibility, or denial or loss of benefits be published” in the summary plan description (SPD). Although he found it a close question, Gleeson had ruled that the fund’s interpretation was permissible under a “deferential standard of review.” But Calabresi said that “where, as here, a claim turns on whether ERISA requires that a practice not mentioned in the SPD be included in the SPD, our review of the SPD’s compliance with ERISA is de novo.” And under that more searching standard of review, the court concluded that ERISA required the plan description to state the policy. The judge added that the “SPD looks no more adequate when viewed in light of judicially-imposed standards for disclosure under ERISA.” Calabresi noted that employer underreporting was hardly an “idiosyncratic contingency” for defendant Mason Tenders District Council, which has a “demonstrated history of underreporting” as evidenced by a government racketeering suit against the union that alleged council officials “repeatedly extorted payoffs from employers in exchange for [their] condoning the employers’ . . . failure to make payments to the Trust Funds in accordance with collective bargaining agreements.” The court remanded the case for further development of the record on the issue of whether Wilkins’ was prejudiced by the violation, and, if so, the level of additional benefits he is due. Robert J. Bach represented Wilkins. Myron D. Rumeld and Russell L. Hirschhorn of Proskauer Rose represented Mason Tenders District Council Pension Fund. This article originally appeared in the New York Law Journal , a publication of ALM.

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