On May 7, 2025, the U.S. District Court for the District of Colorado ruled in favor of the plaintiff in Watson v. EMC Corp., awarding equitable relief in the form of a $633,000 surcharge. The court found that EMC Corp., acting as an ERISA fiduciary, failed to meet its duty of care by not adequately informing a former employee about the need to convert their group life insurance coverage after employment ended. The Court found that although EMC Corp. had provided standard plan documents to the former employee, its response to the employee’s direct inquiry lacked the clarity and completeness required under ERISA, ultimately leading to a loss of coverage and benefits.
Case Background
Prior to separation from employment, the former employee emailed EMC Corp. asking how to continue “benefits at the employee rate” after leaving the company. EMC Corp. responded with information about continuing coverage for the health benefits but failed to mention that the group life insurance plan benefits would end and that they would need to be converted to an individual policy to remain in effect. The company stated that benefits would continue during the transition, if premiums were paid, but did not clarify that this did not apply to the life insurance benefit. At the time of the inquiry, the life insurance policy was still within the conversion window. As such, had the employee received clear and complete instructions, they could have taken action to convert the policy.
Following the death of the former employee, the surviving spouse submitted a claim under the life insurance policy, which was denied due to the lapse in coverage. The surviving spouse subsequently filed suit under ERISA, alleging that EMC Corp. breached its fiduciary duty by failing to inform the employee about the need to convert the life insurance policy after employment ended.
EMC Corp. argued that it had satisfied its obligations by previously distributing standard documents, including a separation agreement, certificate of coverage, and a Notice of Group Life Conversion Privilege. It also contended that the former employee’s email inquiry did not specifically reference life insurance and therefore did not trigger a duty to clarify or provide additional information.
Court Findings
The court rejected EMC Corp.’s argument that it had no duty to provide individualized guidance under the circumstances, finding that the employee’s general inquiry about continuing benefits should have triggered a comprehensive response addressing all applicable coverage, including life insurance. It reaffirmed that ERISA fiduciaries are obligated to respond accurately and timely to participant inquiries, especially when the participant is relying on their expertise and guidance. This underscores the fundamental duties of fiduciaries under ERISA, which require employers as plan administrators to act with a high standard of care, loyalty, and diligence. Fiduciaries must possess and apply the necessary expertise to guide participants effectively, ensuring that communications are not only accurate but also complete and responsive to the participant’s needs.
The Court concluded that EMC Corp. breached its fiduciary duty under ERISA by failing to inform the employee about the need to convert their life insurance coverage. It found EMC Corp.’s response misleading by omission and emphasized that fiduciaries must go beyond simply distributing plan documents and should ensure participants understand their rights and options.
The Court found that the plaintiff in the case established that the loss of life insurance benefits was directly attributable to EMC’s fiduciary breach. As a remedy, the Court awarded a surcharge equal to the value of the life insurance policy, $633,000, minus any premiums that would have been required to maintain coverage.
This decision aligns with a growing body of case law across multiple jurisdictions reinforcing that ERISA fiduciaries have a duty to provide complete and accurate information in response to participant inquiries, even when the participant does not explicitly ask about a specific benefit. Courts have emphasized that fiduciaries must proactively disclose material information relevant to a participant’s circumstances. This includes situations where the participant may not fully understand what to ask but is clearly seeking guidance.
Employer Implications
This case highlights the importance of clear, complete, and proactive communication with employees regarding all benefit options, particularly during employment transitions. Life insurance, often bundled with other ancillary benefits and treated as a secondary offering, is frequently overlooked in employee offboarding discussions. As this case demonstrates, failing to inform employees about conversion rights or coverage termination can have significant consequences.
The Court made clear that fiduciary duties under ERISA extend beyond simply distributing plan documents. Employers must ensure that employees not only receive required notices but also understand their rights and options, especially when they make direct inquiries.
This ruling also reinforces that courts are willing to impose equitable remedies, such as surcharges, when fiduciary breaches cause actual harm. Employers should view this as a cautionary example of how gaps in benefit communication, particularly around life insurance, can expose the organization to liability, even when procedural requirements appear to have been met.
Recommended Employer Actions
To reduce the risk of fiduciary breaches and ensure compliance with ERISA, employers should consider the following steps:
- Respond Thoroughly to Benefit Inquiries. When employees ask about continuing benefits, especially during transitions such as offboarding, provide clear and complete information covering all applicable benefits.
- Go Beyond Standard Notices. Distributing plan documents alone is not enough. Employers should provide actionable, personalized guidance to help employees understand their rights and options.
- Prioritize Life Insurance at Offboarding. Life insurance is often treated as a secondary benefit but carries significant financial implications. Employers will want to make life insurance a standard part of all exit communications and benefit continuation discussions.
- Review and Strengthen Internal Processes. Regularly audit and update offboarding procedures, employee communications, and HR training materials to ensure alignment with ERISA fiduciary obligations and to reflect best practices.
Connect with a Sequoia consultant to learn how Sequoia’s compliance services are integrated in our benefits services and tailored solutions. And if you’re already a Sequoia client, stay on top of your employer obligations with your Compliance Checklist that highlights important compliance dates, action items, and resources.
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