D.C. Circuit Holds That a Participant Who Signed a Release Could Not Assert ERISA Fiduciary Breach Claims on Behalf of Her Retirement Plan

By Nancy G. Ross, Richard E. Nowak, Brian Netter & Elaine Liu on April 3, 2020

Posted in Employee Benefits, ERISA Fiduciary, ERISA Litigation

When an employee separates from employment with a severance payment, the employee will frequently agree to a broad release of claims against the employer. Special concerns arise when applying a general release to potential claims that arise under the Employee Retirement Income Security Act of 1974 (ERISA). Although participants cannot be forced to forfeit their vested pension benefits or the assets in their individual retirement plan accounts, there have been a spate of class action lawsuits in recent years alleging that retirement plan fiduciaries breached their duties under ERISA § 502(a)(2). When faced with a prior release agreement, ERISA plaintiffs often argue that participants cannot individually waive fiduciary breach claims because they are bringing them on behalf of the plan. The Seventh Circuit rejected that argument in Howell v. Motorola, Inc., 633 F.3d 552 (7th Cir. 2011), dismissing the plaintiff’s fiduciary breach claim in a stock drop action because he had knowingly and voluntarily executed a general release. Other courts, however, have held that individual releases do not bar ERISA fiduciary breach claims brought on behalf of the plan. See, e.g., In re Schering Plough Corp. ERISA Litig., 589 F.3d 585, 594 (3d Cir. 2009). While neither the D.C. Circuit nor the district court had to directly address this issue—the argument was not properly raised by the plaintiff—they both concluded in a victory for plan sponsors that the plaintiff’s prior release agreement barred her fiduciary duty claims under ERISA § 502(a)(2).

D.C. Circuit’s Decision

On March 24, 2020, the D.C. Circuit addressed the enforceability of a release agreement on an ERISA plaintiff’s fiduciary breach claim. In Stanley v. George Washington University, No. 19-7079, the D.C. Circuit affirmed the district court’s decision that the plaintiff’s prior release barred her fiduciary breach claims even though the release excluded “claims for vested benefits under employee benefit plans.” In April 2018, Melissa Stanley, on behalf of the plan and a putative class of plan participants, filed her lawsuit alleging that George Washington University and the plan’s fiduciaries (collectively, GW) breached their fiduciary duties by mismanaging the plan. GW moved to dismiss, arguing that Stanley lacked standing because she had previously entered into a settlement agreement with the university that broadly released any “[c]laims for violation of any federal . . . statute . . . .” Although the release excluded “claims for vested benefits under employee benefits plans,” GW argued that Stanley’s fiduciary breach claims were not covered by the exclusionary language. The district court agreed and dismissed Stanley’s lawsuit.

In a per curiam order, the D.C. Circuit adopted the district court’s reasoning and affirmed the dismissal of Stanley’s claims because she had “released her ERISA claims as part of a prior settlement.” The district court held that the release “unambiguously” encompassed Stanley’s fiduciary claims because the release language explicitly covered claims for violation of any federal statute. The court also rejected Stanley’s argument that her fiduciary duty claims fell within the release’s carve-out for “claims for vested benefits under employee benefit plans.” The court explained that, “claims . . . under employee benefit plans” plainly refer to contractual, or “plan-based,” claims that are brought under ERISA § 502(a)(1)(B), as opposed to fiduciary breach claims under ERISA § 502(a)(2). Accordingly, because Stanley’s claims arose under rights conferred by ERISA, as opposed to “under” her plan, they fell outside the exclusionary language in the release.

Although the D.C. Circuit’s decision is a clear victory for plan sponsors and fiduciaries, it is important to note that neither the district court nor the D.C. Circuit addressed the parties’ arguments over whether Stanley’s fiduciary breach claims were “claims for vested benefits.” Stanley argued that her claims were for “vested benefits” because the plan’s participants would have had additional non-forfeitable assets in their accounts but for GW’s alleged fiduciary breaches. GW argued that Stanley’s claims were not for “vested benefits” because benefits are not “vested” unless and until the participant is indisputably entitled to them under the plan’s terms. Because courts have reached differing conclusions over the meaning of the term “vested benefits,”[1] it is unclear whether a release agreement that simply excluded “claims for vested benefits” would bar a participant from asserting a fiduciary breach claim on behalf of the plan. However, because the carve-out in Stanley’s release covered only “claims for vested benefits under employee benefit plans,” the court did not need to address the vested benefits issue.

Guidance for Plan Sponsors Drafting Releases

Employers that sponsor benefit plans routinely enter into settlement and other release agreements with employees under circumstances that are unrelated to the benefit plans. While many employers incorporate “one-size-fits-all” release language into their agreements, when dealing with prospective ERISA claims, it is important to carefully review any applicable release language to ensure that it is both enforceable and sufficiently broad to cover ERISA fiduciary breach claims and other statutory claims. Given the inevitability of future legal challenges to the validity and scope of releases covering ERISA claims, employers should consider the following when evaluating their release agreements:

The release language should make clear that it is intended as a general release of claims and be written in a manner that is easy to understand.
To the extent the release includes a list of federal statutes covered by the release, ERISA should be included.
The release should state that it is intended to cover ERISA claims brought individually and on behalf of any employee benefit plan and specifically define the released parties to include trustees, fiduciaries and others affiliated of those plans.
If the release includes a carve-out for “vested benefits,” the release should define “vested benefits” and explain that it is referring only to benefits that cannot be forfeited or denied under ERISA.
As an alternative to using the term “vested benefits,” consider including exclusionary language that simply states that the release does not cover claims that cannot be released as a matter of law.
Even if the Older Workers Benefit Protection Act (OWBPA) does not apply to the employee signing the release, the release should incorporate the knowing and voluntary requirements of the OWBPA by:
- Giving the employee 21 days to consider the release;
- Advising the employee to consult a lawyer before signing; and
- Giving the employee seven days to revoke the release agreement after signing.

[1] Halldorson v. Wilmington Tr. Ret. & Institutional Servs. Co., 182 F. Supp. 3d 531 (E.D. Va. 2016); Boeckman v. A.G. Edwards, Inc., 461 F. Supp. 2d 801, 809 (S.D. Ill. 2006).