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United States District Court, Northern District of Illinois, E.D

November 8, 1984


The opinion of the court was delivered by: 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").*fn1 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").*fn2 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.*fn3 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.*fn4


  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

   . 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.*fn5 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 other notice in a newspaper that is mailed does not, by virtue of the happenstance that the paper is delivered by mail, convert the notice by publication into notice by mailing.

  Thus, the Fund utilized a method other than mailing to
provide notice of the

pre-retirement pension.*fn6 Title
26 C.F.R. § 1.401(a)-11(C)(ii) states:

   . . If a method other than mail or personal
  delivery is used to provide participants
  with . . . information, if [sic] must be a method
  which is reasonably calculated to reach the
  attention of a participant . . . [and must] . . .
  continue to reach the attention of such participant
  during the election period applicable to him for
  which the information is being provide [sic] (as,
  for example, by permanent posting, repeated
  publication, etc.).

Because the Fund did not send individual notices by mail to all participants, then, it was obligated under the regulation it cites to provide continual notice in some form. We do not think the notices in the B & C News satisfied this obligation. Those notices were not likely to reach the participants continuously throughout the election period; two publications in the space of fourteen months does not in our view constitute "repeated publication."

For these reasons, the Fund can find no solace in the Treasury regulation.*fn7

When Congress promulgated the fiduciary duty and other provisions of ERISA, it sought to ensure that plan participants would receive effective notice of any plan changes that might affect their pension rights, so that they would not lose benefits through inadvertance or misunderstanding. See H.Rep. 93-533, reprinted in U.S.Code Cong. & Ad.News (1974), p. 4646. See also S.Rep. 93-127, id. at 4871. The administrative regulation cited by the Fund was promulgated with a view toward advancing this important Congressional intent. We do not believe that the Fund's actions were consonant with either the letter or the spirit of the regulation.*fn8 We find, therefore, that because the Fund did not even comply with the regulation it relies on, it failed to provide adequate notice of the availability of and election procedures for the pre-retirement pension.*fn9

Our finding does not necessarily entitle plaintiff to the pension benefits she seeks. Even though the notice provided by the Fund was inadequate, it may be that Mr. Kaszuk in fact had actual notice of the pre-retirement program and its procedures, and simply chose not to elect coverage. Perhaps, for example, he read and understood the notices in the B & C News, confusing though they may have been, or learned about the program from some other source. If Mr. Kaszuk did have actual notice, but simply chose to sleep on his rights or to not elect coverage, then common sense dictates that plaintiff's claim must fail.*fn10

Moreover, there still remains a question of causality. It is possible that even had Walter Kaszuk received timely and effective notice of his rights under the pre-retirement plan, he would have declined to elect coverage. This may be a genuine possibility, since employees who elected coverage but survived retirement paid a price for the security afforded them by the pre-retirement pension: their post-retirement benefits were reduced. See n. 2, supra. See also Defendant's Opposition Memorandum, at 17; Supplemental Affidavit of John J. Fleming, at ¶ 8.

We are inclined to place the burden of proof regarding the actual notice and causality questions on the Fund rather than on plaintiff. In other words, the Fund would bear the burden of proving that Walter Kaszuk had actual notice of the election procedures, or that he would not have elected coverage even if he had received reasonable notice. Imposition of this burden might be justifiable as a cost of breaching a fiduciary obligation, and in light of the practical realities of this case. Should the Fund fail to meet its burden, plaintiff would be entitled to the benefits she seeks.

We wish to consider the parties' views on the questions of proving causality and allocation of the burden of proof, and we direct each side to file cross-memoranda addressing these issues by November 30, 1984. These briefs should be limited to ten pages.*fn11


With the limitations set forth in the opinion, plaintiff's motion for partial summary judgment is granted, and we hold that as a matter of law the Fund breached its fiduciary obligation to provide adequate notice. Defendant's cross-motion for partial summary judgment is denied to the extent that it concerns the adequacy of notice issue; it is granted in all other respects.*fn12

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