Employers who sponsor welfare benefit plans subject to ERISA know that plan fiduciaries are subject to certain duties. But, does an employer know when or whether they have become a fiduciary? A recent case in the Sixth Circuit sheds some light on this matter.

In the case in question, Chelf v. Prudential Insurance Company of America, No. 20-6097 (6th Cir. Apr. 12, 2022), the plaintiff, Ms. Ruth Mae Chelf, is the widow of Mr. Elmer Chelf, a former full time, hourly employee of Wal-Mart, whose employer-sponsored benefits included short-term disability insurance, long-term disability insurance, basic life insurance, and an additional optional life insurance.

Mr. Chelf took a medical leave of absence, used his short-term disability benefits, and after maxing those out, switched to long-term disability. During his leave, Mr. Chelf continued to pay the premiums for his disability benefits, as well as the premiums for his basic life insurance and optional life insurance plans.

Upon Mr. Chelf’s death, Ms. Chelf’s claim for the optional life insurance benefits was denied, on the basis that the plan had terminated prior to Mr. Chelf’s death. Unaware that the policy had been terminated, Mrs. Chelf sued, alleging that Wal-Mart (1) failed to make several disclosures, including that the policy was being terminated, and (2) failed to remit the premium payments for the optional life insurance to Prudential, causing a loss of benefits. Mrs. Chelf contends that Wal-Mart is a fiduciary under ERISA, and that Wal-Mart breached its fiduciary duty on multiple grounds.

The Court first analyzed whether Wal-Mart was a fiduciary. Generally, an entity is not a fiduciary if its involvement in the plan or program is limited solely to ministerial functions, such as the collection and application of contributions. However, when an entity exercises discretionary authority, control, or responsibility over the plan management or disposition of plan assets, the entity (or individual) becomes a fiduciary to the extent of its performance of those functions.

An entity determined to be a fiduciary must conduct its function solely in the interest of participants and beneficiaries, and must do so with care, skill, prudence, and diligence.

In Chelf, the Court found that Wal-Mart was a fiduciary, because Wal-Mart did not only collect contributions, it also exercised control over plan assets – Mr. Chelf’s premium payments. Wal-Mart also had discretionary authority over the disposition of the assets, and the company exercised this authority when it denied Mrs. Chelf’s appeal for payout under the plan.

This case serves as an important reminder to plan fiduciaries that handling participant contributions must be done with the utmost care and prudence.

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