Vermont Supreme Court addresses retirement benefits, breach of fiduciary duty

The Vermont Supreme Court recently considered whether a surviving spouse could collect her husband’s retirement account allowance under the Vermont State Employees’ Retirement System (VSERS) even though he failed to designate her as a beneficiary. The court dismissed the claims, including breach of fiduciary duty, finding the state had clearly informed the husband that if no beneficiary was designated, the allowance couldn’t be collected. Although specific to Vermont state employers and employees, you should take note of a recent increase in breach of fiduciary duty claims under the Employee Retirement Income Security Act (ERISA). The surge underscores that ERISA fiduciaries should be familiar with the duties owed to employees under the plans.

Background

Under the relevant Vermont statute, a retirement allowance is vested after 10 years of state service by the employee. Upon the employee’s death, the allowance becomes payable to the designated dependent beneficiary (i.e., the person selected as a beneficiary, whom the employee supports). If no dependent beneficiary has been designated, the accumulated contributions to the VSERS, rather than the allowance, are paid to the employee's estate.

Facts

Ronald Baldauf was a long-time Vermont state employee. He had a retirement allowance but hadn’t designated a dependent beneficiary. He had received: