ERIC Urges Appeals Court to Uphold District Court Ruling on Judicial Deference Under ERISA Plan

July 31, 2012

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ERIC News Release

For Immediate Release:  July 31, 2012

Washington, D.C. – The ERISA Industry Committee (ERIC) on July 26 filed with the U.S. Court of Appeals for the Second Circuit an amicus curiae (“friend of the court”) brief urging the Court to uphold a district court ruling providing  judicial deference to a plan administrator in interpreting the plan under the Employee Retirement Income Security Act (ERISA) (Frommert v. Conkright).  The Business Roundtable, the U.S. Chamber of Commerce, and the American Benefits Council joined ERIC on the brief.  Jeffrey Lamken of MoloLamken LLP drafted the brief.

The case before the Second Circuit involves an offset under the Xerox pension plan for former employees who return to work at Xerox and who previously received a lump-sum distribution of their benefit under the pension plan.  The offset reflects the time value of the prior distribution.  The U.S. Supreme Court overturned a prior Second Circuit decision in 2010 in favor of plaintiffs and remanded the case for further proceedings consistent with the Court’s opinion.  On remand, the U.S. District Court for the Western District of New York ruled in favor of the defendants, holding that the plan administrator’s interpretation of the offset provision was reasonable and that there was no failure to properly notify the plaintiffs of such.  The plaintiffs have appealed to the Second Circuit. 

The brief argues that the plan administrator is entitled to deference in its determination regarding the calculation of an offset under the Xerox pension plan (so long as the interpretation is reasonable and there has been no abuse of discretion by the administrator).  In addition, the fact that Xerox sponsors the plan and some of its employees administer it does not create a conflict, on its own, that should defeat deference, otherwise, most plan administrators would not be entitled to deference in most situations, the brief contends.

Several key points made in the brief include:

  • Contrary to the principle of deference that has long prevailed in this area, plaintiffs and their amicus (including the Department of Labor) seek to replace the construction of the Plan given by the Plan Administrator with the views of individual participants based upon their purported reasonable expectations;
  • Plaintiffs claim insubstantial “conflicts” that could be asserted with respect to virtually any ERISA plan;
  • Plaintiffs attempt to ignore the Plan’s provisions based on allegedly incomplete disclosure documents; and
  • They claim entitlement to a remedy with no basis in the governing statutory and equitable standards. 

Moreover, the brief adds that, “If a plan administrator’s construction can be denied deference based on the considerations plaintiffs and their amicus raise, it is hard to imagine a case where deference would apply.  Their positions, moreover, would subject ERISA plans to potentially competing, de novo constructions in myriad district courts, destroying the uniformity on which ERISA plans depend.”

Requiring courts to evaluate the views of plan participants is at odds with predictability and uniform administration, the brief further contends.  If the plan’s meaning might turn on what beneficiaries subjectively believe, the plan’s meaning could vary from participant to participant.  And referencing the views of an “objectively reasonable beneficiary” would force courts to speculate about the beliefs beneficiaries should have had.  Supreme Court precedent, trust law principles, and the Plan at issue here relieve courts of that burden by requiring deference to the Plan Administrator’s reasonable construction, the brief asserts.   

ERIC President and CEO Scott Macey said that, “if the district court ruling is not allowed to stand, you will see an influx of litigation from participants merely second guessing their plan administrator’s discretionary authority and reasonable decision making.” 

The brief further argues that efforts to avoid deference by positing a “conflict of interest” and its reliance on alleged omissions from the Summary Plan Description (SPD) are similarly problematic.  Neither the fact that an issue must be resolved in the context of litigation, nor the fact that the Plan Administrators are employees of the Plan Sponsor, are the sorts of potential conflicts that should diminish the deference owed to the Administrator.  The brief argues that there is no such evidence of a conflict that affected the Plan Administrator’s decision, and contends that arguments citing a conflict represent a “thinly disguised effort to overturn the Supreme Court’s ruling that deference is required even after an initial construction is rejected by the courts.” 

As to the claim of a notice violation in the SPD, the brief points out that the plaintiffs are ignoring that it is a summary plan description, that it did apprise participants of the offset, and that requiring it to provide all the details regarding the consequences of every contingency for each participant, would render it so lengthy as to be unusable. 

Finally, the brief sums up that ERISA reflects a “careful balancing between ensuring fair and prompt enforcement of rights under a plan and encouragement of the creation of such plans,” and contends that the arguments put forward by the plaintiffs “would upset that balance, undermine key features of ERISA plans – predictability, administrability, uniformity of application – and unnecessarily deter employers from creating plans in the first instance.” 

The brief can be accessed by clicking on the link below:

Amicus Brief in Frommert v. Conkright

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For more information:

Ted Godbout
Director, Communications
The ERISA Industry Committee
1400 L Street, NW, Suite 350
Washington, DC 20005
Phone: (202) 789-1400
tgodbout@eric.org
www.eric.org

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The ERISA Industry Committee (ERIC) is a non-profit association committed to representing the advancement of the employee retirement, health, and compensation plans of America's largest employers.  ERIC's members provide benchmark retirement, health care coverage, compensation, and other economic security benefits directly to tens of millions of active and retired workers and their families.  ERIC has a strong interest in proposals affecting its members' ability to deliver those benefits, their cost and their effectiveness, as well as the role of those benefits in the American economy.