Case Study:
Varity Corp. v. Howe 516 U.S. 489 (1996)
At the time employer Varity Corporation transferred its money-losing divisions in its subsidiary MasseyFerguson, Inc., to Massey Combines, a separate firm (it called the transfer “Project Sunshine”), it held a meeting to persuade its employees of these failing divisions to change benefit plans. Varity conveyed the impression that the employees’ benefits would remain secure when they transferred. In fact, Massey Combines was insolvent from the day it was created and, by the end of its receivership, the employees who had transferred lost all of their nonpension benefits. The employees sued under ERISA, claiming that Varity breached its fiduciary duty in leading them to withdraw from their old plan and to forfeit their benefits. The district court held for the employees, and the court of appeals affirmed.
Breyer, J.
. . . The second question—whether Varity’s deception violated ERISA-imposed fiduciary obligations—calls for a brief, affirmative answer. ERISA requires a “fiduciary” to “discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries.” To participate knowingly and significantly in deceiving a plan’s beneficiaries in order to save the employer money at the beneficiaries’ expense, is not to act “solely in the interest of the participants and beneficiaries.” As other courts have held, “[l]ying is inconsistent with the duty of loyalty owed by all fiduciaries and codified in section 404(a)(1) of ERISA.” Because the breach of this duty is sufficient to uphold the decision below, we need not reach the question of whether ERISA fiduciaries have any fiduciary duty to disclose truthful information on their own initiative, or in response to employee inquiries. We recognize, as mentioned above, that we are to apply common-law trust standards “bearing in mind the special nature and purpose of employee benefit plans.” But we can find no adequate basis here, in the statute or otherwise, for any special interpretation that might insulate Varity, acting as a fiduciary, from the legal consequences of the kind of conduct (intentional misrepresentation) that often creates liability even among strangers. We are aware, as Varity suggests, of one possible reason for a departure from ordinary trust law principles. In arguing about ERISA’s remedies for breaches of fiduciary obligation, Varity says that Congress intended ERISA’s fiduciary standards to protect only the financial integrity of the plan, not the individual beneficiaries. This intent, says Varity, is shown by the fact that Congress did not provide remedies for individuals harmed by such breaches; rather, Congress limited relief to remedies that would benefit only the plan itself. This argument fails, however, because, in our view, Congress did provide remedies for individual beneficiaries harmed by breaches of fiduciary duty.
Q1. What should Varity have done in order to avoid liability under ERISA?
Q2. How can an employee ensure that she or he knows all of the facts relevant to a question such as the one present in this case?
Q3. Why do you think Varity handled this in the way that it did?
Your answer must be typed, double-spaced, Times New Roman font (size 12), one-inch margins on all sides, APA format and also include references.