Prior to distribution, ESOP lacked “actual knowledge” of participant’s developmental disability

An ESOP plan administrator did not violate plan terms when it distributed about $80,000 to a developmentally disabled former employee who had been adjudged in state court to be legally incompetent, the U.S. Court of Appeals in Atlanta (CA-11) has ruled. Delivery of conservatorship papers regarding the employee’s incompetency to the grocery store where he worked was insufficient to provide the plan administrator with the “actual knowledge” of the worker’s legal incompetency required by the plan.
The Georgia state court appointed a conservator for the disabled employee, who continued to work at the grocery store for another three years. After his employment ended, the employee requested and received from the employer’s ESOP plan administrator a check for $78,509, the value of his stock benefits. Shortly thereafter the former employee lost the full amount in an internet scam.
The ESOP plan document provided that no distribution could be made if the plan administrator has “actual knowledge” that the participant is legally incompetent.
The conservator sued the ESOP and the employer, arguing that any distributions should have been made to him. He asserted that he had notified the store where the employee worked of the conservatorship. Since the grocery store chain is the plan administrator, this was sufficient notice, he argued.

No actual knowledge

In a per curiam decision the Eleventh Circuit affirmed the trial court’s grant of summary judgment to the plan and the employer. Delivery of conservatorship documents to the local store was insufficient to provide the plan administrator with actual knowledge, the court explained. Imputing to the plan administrator knowledge of everything that occurs in over 1,100 grocery stores “would be a tremendous burden.” Thus the court determined the plan administrator’s decision to deny the request for benefit reinstatement was correct.
Even if the decision had been incorrect, the court explained, it was not arbitrary and capricious. Prior to making the benefits determination, the administrator reviewed records in the Retirement Department and the Payroll Department and found no record of the conservatorship.

Source: Bauman v. Publix Super Markets, Inc. Employee Stock Ownership Plan (CA-11).
Visit our News Library to read more news stories.