Kaszuk v. Bakery and Confectionary Union

• Decision Date: 11 February 1985
• Docket Number: No. 83 C 1177.,83 C 1177.
• Citation: 638 F. Supp. 365
• Court: U.S. District Court — Northern District of Illinois
• Parties: Josephine KASZUK, Plaintiff, v. BAKERY AND CONFECTIONARY UNION and Industry International Pension Fund, et al., Defendants.

638 F. Supp. 365

Josephine KASZUK, Plaintiff, v. BAKERY AND CONFECTIONARY UNION and Industry International Pension Fund, et al., Defendants.

No. 83 C 1177.

United States District Court, N.D. Illinois, E.D.

November 8, 1984.

Supplemental Memorandum Opinion January 3, 1985.

On Motion for Summary Judgment February 11, 1985.

COPYRIGHT MATERIAL OMITTED

John G. Jacobs, Susan R. Haerr, Jonah Orlofsky, Plotkin & Jacobs, Ltd., Chicago, Ill., for plaintiff.

James P. Daley, Bell, Boyd & Lloyd, Chicago, Ill., Kenneth F. Hickey, Margery Sinder Friedman, Morgan, Lewis & Bockius, Washington, D.C., Irving M. Friedman, Harold A. Katz, Katz, Friedman, Schur & Eagle, Chicago, Ill., for defendants.

MEMORANDUM OPINION

GRADY, Chief Judge.

In 1978, Walter Kaszuk died after suffering a massive heart attack while vacationing in Arizona. He was 63 years old. At the time of his death Kaszuk was, as he had been for 23 years, employed by the National Biscuit Company ("Nabisco") in Chicago, where he worked as a dough mixer. Surviving Mr. Kaszuk was his wife of many years, Josephine Kaszuk.

Shortly after the death of her husband, Mrs. Kaszuk filed an application for benefits with the defendant, Bakery and Confectionary Union and Industry International Pension Fund ("the Fund").¹ Mrs. Kaszuk believed she was entitled to survivorship benefits because Walter had contributed to and been a participant in the Fund for over 21 of his 23 years with Nabisco.

The Fund denied Mrs. Kaszuk's application, explaining that she was ineligible for benefits because, inter alia, her husband had never elected coverage in the Fund's pre-retirement husband and wife pension plan (the "pre-retirement pension").² After exhausting intra-Fund appeal remedies, Mrs. Kaszuk filed this lawsuit. Her complaint, brought under 29 U.S.C. § 1132, alleges that Mr. Kaszuk failed to elect the pre-retirement pension only because the Fund failed to notify him adequately of the pension's election procedures.³ Mrs. Kaszuk claims that the Fund's failure to provide adequate notice to Fund participants violated certain fiduciary obligations set forth in the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. §§ 1001 et seq. Had the Fund met its obligations and properly advised Mr. Kaszuk of the election procedures, according to the complaint, Walter Kaszuk would have made the necessary election, Mrs. Kaszuk would have received benefits when he died, and the pension would not have been "forfeited."

Plaintiff has moved for partial summary judgment under Fed.R.Civ.P. 56, arguing that the notice provided to Mr. Kaszuk was inadequate as a matter of law, and that the Fund therefore violated its fiduciary duties. The Fund has cross-moved for summary judgment, asserting that it satisfied all of its obligations to Fund participants, including that of giving adequate notice of the availability of and procedures for electing the pre-retirement pension.

Because the central issue in this case revolves around the adequacy of notice provided by the Fund concerning the pre-retirement pension, it is necessary to set forth in some detail the Fund's efforts in this regard.

The first action taken by the Fund to notify participants of the availability of and procedures for electing the pension came in fall of 1976, when the Fund placed an advertisement in the October 1976 issue of the B & C News, the newspaper of the union to which Mr. Kaszuk and his co-workers belonged. The ad, which comprised one and one-half columns, appeared on page 7 of the newspaper, and was captioned "Important Notice — Husband and Wife Option." The ad explained that the pre-retirement pension had become available on June 1, 1976, and discussed how the pension worked, and how it was to be elected. Although portions of the ad are easily understood, other parts appear to be quite confusing.

The Fund next notified members of their right to elect the pre-retirement option over one year later in a second ad, printed in the November — December 1977 issue of the B & C News. Once again, the ad was inserted on page 7 of the paper. This ad took up nearly a full page, and was somewhat more clearly phrased than the first ad.

Finally, the Fund provided notice of the election procedures in a "Summary Description Booklet" prepared in 1978. It is disputed whether Mr. Kaszuk ever received this booklet, as it was not available to employees until late summer 1978, close to the time Kaszuk died.⁴

DISCUSSION

Plaintiff's claim is premised on the notion that the Fund breached a fiduciary obligation to inform Fund participants in a meaningful way of the steps which must be taken to elect the pre-retirement pension. In arguing that the Fund had such an obligation, plaintiff relies on 29 U.S.C. § 1104 ("§ 1104"), which provides that fiduciaries such as fund administrators must:

.. discharge their duties with respect to a plan solely in the interest of the participants and beneficiaries and —

(A) for the exclusive purpose of:

(i) providing benefits to participants and their beneficiaries; and

(ii) defraying reasonable expenses of administering the plan;

(B) with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims ...

This section would appear to govern the actions challenged in this case.⁵ Indeed, the Fund has conceded that it had a fiduciary duty to give adequate notice of the availability of and election procedures for the pre-retirement pension. See Defendant's Opposition to Plaintiff's Motion for Partial Summary Judgment ("Defendant's Opposition Memorandum"), at 2.

Notwithstanding this concession, the Fund argues that as a matter of law, the notice it provided satisfied its fiduciary obligations because that notice adhered to a regulation promulgated by the Treasury Department. Plaintiff counters that compliance with administrative regulations would not in and of itself dictate a finding that the Fund satisfied its fiduciary obligations. Rather, plaintiff contends that under § 1104 the Fund, as fiduciary, had an overriding duty to act prudently and fairly in providing notice to Fund participants in light of all surrounding circumstances.

There is some force to plaintiff's argument that the fiduciary obligation imposed by § 1104 may require funds to do more than merely comply with applicable notice regulations. In enacting ERISA, Congress sought to ensure that "the private pension promise ... become real rather than illusory." H.Rep. 93-533, reprinted in U.S. Code Cong. & Ad.News (1974), pp. 4639, 4648. Application of an overriding fiduciary standard of fairness and reasonableness, apart from any question of regulatory compliance, would do much to facilitate the realization of this goal.

Moreover, other courts that have considered challenges to fund notice procedures have subjected fund actions to exacting judicial scrutiny. See, e.g., Palino v. Casey, 664 F.2d 854, 859 (1st Cir.1981) ("we judge the Trustees' actions with regard to notice in accordance with the principle that changes in a fund's eligibility rules must be made, and notice given, subject to the limits of fundamental fairness." (citations omitted)).

This "fundamental fairness" approach suggests that even if funds have technically complied with administrative regulations, a court must still test the notice for its fairness in light of all relevant circumstances. Cf. Burke v. Metal Carbides Corp., No. 81 C 2506, slip op. at 4 (N.D.Ill. Feb. 15, 1983) Available on WESTLAW, DCTU database (Grady, J.) (in age discrimination case, fact that notice posted by employer was supplied by Department of Labor did not necessarily mean notice was adequate; the employer's duty to provide accurate notice existed irrespective of compliance with departmental regulations).

On the other hand, there is also something to the Fund's argument that fiduciaries should be able to rely on the detailed and uniform guidance provided by administrative regulations without being subjected to the vagaries of a "fundamental fairness" or "prudent man" test, as those concepts are understood and applied by each reviewing court.

We do not find it necessary to decide the question of whether compliance with the regulations satisfies a fund's fiduciary obligation as a matter of law, however, for all would agree that if administrative regulations do suffice to provide funds with a safe harbor, then funds must comply fully with the terms of those regulations in order to avail themselves of that harbor. In this case, the Fund failed in every way to comply with the regulation it allegedly relied on.

Treasury Department regulation 26 C.F.R. § 1.401(a)-(11), relied on by the Fund, authorizes funds to notify participants of plan changes by mail, and provides that when notice is given by mail, one timely notice is all that is necessary to satisfy disclosure requirements. The Fund attempts to bring itself within this regulation by arguing that the advertisements in the B & C News constituted notice by mail, as the newspaper was delivered by mail to all subscribers.

The Fund's argument that it provided notice by mail is strained. We think it clear that when a regulation authorizes use of the mail to give notice, it contemplates the mailing of individual notices of some sort, rather than the insertion of an advertisement in a publication that happens to be mailed. See Staats v. Ohio River Co., 570 F.Supp. 22, 24-25 (W.D.Pa.1983), aff'd, 735 F.2d 1351 (3d Cir.1984). Our conclusion is bolstered by the fact that a separate Treasury regulation which lists approved methods of notification expressly distinguishes between, and sets out as alternative methods, notice "by mailing" and notice "by printing it in a publication of ... an employee organization...." 26 C.F.R. § 1.7476-2(c). Accordingly, the insertion of an advertisement or...