Second Circuit Holds Plan Fiduciary Breached Duty of Care by Failing to Provide Adequate Notice of Lump-Sum Election During Plan Termination

In Hammell v. Pilot Products, Inc. Defined Benefit Pension Plan, No. 24-3283-CV, 2026 WL 586699 (2d Cir. Mar. 3, 2026), the Second Circuit affirmed a district court judgment finding that a plan fiduciary breached her ERISA duty of care by failing to provide adequate notice regarding a participant’s option to elect a lump-sum distribution during plan termination. The court upheld an award of approximately $1.78 million representing the difference between the lump-sum benefit the participant would likely have elected and the much smaller amount ultimately paid to her estate.

The dispute arose from a family-owned manufacturing company and its defined benefit pension plan. After a settlement of earlier family litigation, one family member became the sole officer of the company and sole trustee of the plan. Years later, she initiated the process to terminate the plan. During that process, the trustee sent a letter to another participant and her daughter stating that the plan was significantly underfunded and suggesting they might need to contribute approximately $1.5 million to address the shortfall. The letter attached forms allowing the participant to elect a lump-sum distribution of benefits. However, the letter did not explain the consequences of failing to make the election before the participant’s death.

The participant died before making the election. As a result, her estate received payments under the default annuity structure rather than the far larger lump-sum payout. Her daughter, acting as executrix, sued under ERISA alleging that the trustee breached fiduciary duties by failing to provide adequate notice and by engaging in other allegedly self-interested conduct. Following a bench trial, the district court concluded that the trustee breached her duty of care by failing to provide clear and meaningful notice of the lump-sum option and its consequences. The court awarded damages equal to the difference between the amount the estate received and the lump-sum amount that would likely have been elected.

On appeal, the Second Circuit rejected the fiduciary’s argument that the plaintiff lacked Article III standing. Unlike the plaintiffs in Thole v. U.S. Bank, who could not show any impact on their benefits, the plaintiff here alleged a concrete financial loss of nearly $1.8 million caused by deficient notice. That alleged loss was sufficient to establish standing.

The court also rejected the fiduciary’s argument that the district court applied an improper “heightened” fiduciary standard based on family relationships. The appellate court concluded that the district court had applied the ordinary ERISA fiduciary duty framework, which requires plan fiduciaries to provide participants with information that is sufficiently accurate and comprehensive to allow them to understand their rights and options.

Applying that standard, the Second Circuit agreed that the notice was inadequate. Although the election forms were attached, the accompanying letter focused primarily on threatening potential liability for plan underfunding and did not explain the advantages or consequences of electing—or failing to elect—the lump-sum option. The court held that ERISA fiduciaries must ensure communications are written in a manner that an average plan participant can understand and that accurately convey the implications of available choices. The court further held that the plaintiff established prejudice because, had the consequences been properly explained, the participant would likely have elected the lump-sum distribution.

The court also affirmed the district court’s damages calculation. The proper remedy for a fiduciary breach is to place the participant in the position she would have occupied but for the breach. The district court therefore acted within its discretion in awarding the difference between the lump-sum amount that would likely have been elected and the benefits actually paid.

Finally, the Second Circuit affirmed the district court’s rejection of the plaintiff’s separate duty-of-loyalty claim. Although the plaintiff argued that the fiduciary acted disloyally by delaying payment of a benefit and later distributing newly discovered plan assets to herself, the court agreed that the plaintiff failed to prove those actions violated the plan documents or ERISA.

The decision reinforces that ERISA fiduciaries must do more than simply provide election forms or technical notice. When participants must choose among benefit options—particularly during plan termination—fiduciaries must ensure communications clearly explain the consequences of those choices so that participants can make informed decisions.