Earlier this week we discussed ESOP Litigation that found that participants can pursue a fiduciary breach when a fiduciary Omits or Provides Misleading Financial Information to Participants. When Representations Regarding the Financial Condition of the Plan Sponsor Become Actionable Under ERISA provides additional analysis and discusses when intentionally connecting statements is actionable under ERISA:
Previous case law established upon similar facts warns companies against "intentionally" connecting statements regarding the financial health of the company to statements about the future of benefits. Doing so may result in "[the company's] intended communication about the security of benefits [being] rendered 'materially misleading' and 'an act of plan administration'." In light of this prior case law, the Delta Star court found that "when the allegations are viewed in a light most favorable to Plaintiff, as required at this stage of the proceedings, they suggest that [Plaintiff] was encouraged to accept the lump-sum distribution based on the December 31, 2006 stock valuation in part because Delta Star had a questionable financial future that might or would preclude a future lump-sum offer." So the allegations made by the plaintiff "reflect an intentional connection between the lump-sum offer to [the plaintiff] and the financial outlook of [the Company] and are therefore actionable under ERISA."
In addition, the court determined that the alleged misrepresentation that the ESOP would not offer a lump-sum option in the future is also actionable since the terms of the ESOP allow the trustees to determine each year whether to allow lump-sum distributions.
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