Labor & Employment Law

ERISA Plan administrator's interpretation is entitled to deference even after reversal for violating ERISA (5-3)

Conkright v. Frommert (US Supreme Ct 04/21/2010):

Xerox employees sued their ERISA retirement Plan and administrator challenging the method used by the Plan to calculate how their current benefits are offset to reflect prior distributions. The employees claimed that the Plan violated ERISA's provisions relating to summary plan description, notice, and anti-cutback rules.

There were two appeals to the 2nd Circuit. In the first appeal, the court held that the Plan had violated ERISA in several respects, and remanded for fashioning a remedy. On remand, the Plan administrator proposed a new interpretation of the Plan. The district court declined to apply a deferential standard to this new interpretation, and adopted instead an approach proposed by the employees.

In the second appeal, the 2nd Circuit held that the district court was correct not to apply a deferential standard on remand, and that the district court?s decision on the merits was not an abuse of discretion.

The US Supreme Court reversed (5-3), holding that the district court should have applied a deferential standard of review to the Plan administrator?s new interpretation of the Plan on remand. (The Court did not reach the question of whether the 2nd Circuit erred by applying a deferential standard of review to the district court's decision.)

This case is governed by Firestone Tire & Rubber Co v. Bruch, 489 U S 101 (1989), which held that that an ERISA plan administrator with discretionary authority to interpret a plan is entitled to deference in exercising that discretion. The Court said that "a single honest mistake" should not change that basic rule of trust law. The lower courts made no finding that the Plan administrator had acted in bad faith or would not fairly exercise his discretion to interpret the terms of the Plan, so the Court rejected a "one-strike-and-you're-out" approach.

The DISSENT argued that "trust law ... leaves to the supervising court the decision as to how much weight to give to a plan administrator?s remedial opinion."

Full post as published by Ross' Employment Law Blog on April 21, 2010 (boomark / email).