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Compliance July 31, 2012
Groups Urge Court to Give Judicial Deference to Plan Administrator
July 31, 2012 (PLANSPONSOR.com) - Industry groups are urging a federal appellate court to uphold a ruling for judicial deference to a plan administrator in interpreting a plan under ERISA.
Reported by Rebecca Moore
The case before the 2nd U.S. Circuit Court of Appeals 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 2nd Circuit decision in 2010 in favor of plaintiffs and remanded the case for further proceedings (see “U.S. Supreme Court Orders More Respect Shown for Plan Admins”). “We held in Firestone Tire & Rubber Co. v. Bruch … that an ERISA [Employee Retirement Income Security Act] plan administrator with discretionary authority to interpret a plan is entitled to deference in exercising that discretion,” Chief Justice John Roberts wrote for the majority in that 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 brief by the ERISA Industry Committee (ERIC), the U.S. Chamber of Commerce and the American Benefits Council 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, “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 decisionmaking.”
The brief is here.