Court Upholds GM Executives' Pension Reduction

In the case of William Tate, et al v. General Motors LLC, the 6th U.S. Circuit Court of Appeals noted that in 2008, as part of its purchase by the U.S. Treasury, GM was required to cut certain retirement benefits for executives. According to the court’s opinion, the key provision of the amended Executive Retirement Plan (ERP) in question, Article IV Section II (g), reads: “[F]or executive retirees who have a combined tax-qualified SRP plus non-qualified benefit under this Plan in excess of $100,000 per annum on a life annuity basis, the amount of benefits under this Plan over the combined $100,000 per annum threshold shall be reduced by 2/3rds.”  

GM argues that the key provision at issue is unambiguous because it is only open to one reasonable interpretation–that ERP benefits under the plan are subject to a two-thirds reduction when a combination of SRP benefits and ERP benefits together exceed a $100,000 threshold. Retirees counter that the provision should be read as comprising two distinct parts, separated by the comma approximately midway through the paragraph. They contend that the first part is the condition precedent which renders the provision applicable to only employees who have (1) an SRP and (2) an annual ERP benefit in excess of $100,000. Thus, the $100,000 threshold applies only to ERP benefits, not SRP benefits.  

The court noted that the provision’s first clause referring to “executive retirees who have a combined tax-qualified SRP plus non-qualified benefit under this Plan in excess of $100,000 per annum on a life annuity basis,” must indicate the union or sum of more than one part. The parties agree that these two parts are the “tax-qualified SRP” and “non-qualified benefit under this Plan.”   

The court said if this were the only challenged portion of the provision, retirees’ interpretation might be plausible. However, the provision goes on to state in the second clause that for retirees to meet this requirement, “the amount of benefits under this Plan over the combined $100,000 per annum threshold shall be reduced by 2/3rds.” According to the court, the word “combined,” as it appears in the second clause must, again, in keeping with its ordinary meaning, refer to a union or combination of multiple parts. Thus, the threshold, as determined by the provision’s first clause, must comprise two items which, in sum, exceed $100,000.   

The court agreed with GM’s interpretation, noting that the retirees’ interpretation renders the second appearance of “combined” meaningless because it eliminates the necessity of having two parts which, when added together, exceed $100,000.  

The retirees also argue that the provision is ambiguous because the term “SRP” is not defined within the plan; however, the court found this does not create a material ambiguity within the provision, and the retirees do not explain how a failure to define “SRP” affects their claimed benefits.

The plaintiffs, executive retirees of GM, filed the suit to challenge “an adverse determination of their entitlement to benefits under GM’s Executive Retirement Plan (ERP).” They sought a redetermination of their benefits received under the ERP. When GM did not respond within 60 days, the plaintiffs filed an appeal with the Executive Compensation Committee for the Board of Directors in 2011. GM then responded, denying the plaintiffs' claims.

Following GM's denials, the plaintiffs filed suit (see “Former GM Execs Suing over Retirement Benefits”). They argued that GM had incorrectly interpreted a provision of the ERP, which led to “an erroneous calculation of their ERP benefits.” They also argued that GM, as the plan administrator, had “failed to provide them with the required plan information within 30 days of their request, as required under ERISA Section 501(c)(1).”

GM then moved to have the case dismissed on the grounds that the plan provision in question was “unambiguous and that GM’s interpretation is the only plausible and reasonable interpretation.” The U.S. District Court for the Eastern District of Michigan agreed with GM and granted the dismissal. The 6th Circuit affirmed the dismissal.

The full text of the appellate court’s ruling can be found here.