Benefits Case
By Andrea Davis
January 25, 2010
The U.S. Supreme Court heard arguments last week in a case that could have far-reaching implications for pension plan administrators and the way in which they interpret the terms of their plans.
“The justices were asking a lot of questions based on the particular facts of the case as opposed to the broader policy implications that this issue presents for all employers,” says Amy Covert, a partner in the labor and employment law department of Proskauer, who attended the session.
At the heart of the case (Conkright v. Frommer) is what level of deference do the lower courts owe to the decisions of an ERISA plan administrator?
The litigation began over a decade ago when Paul Frommert, a Xerox employee, alleged that the administrator of the company’s retirement plan had violated ERISA in the calculation of his retirement benefits.
Frommert had left the company, at which point he received benefits. He was subsequently rehired several years later and when he retired, the plan administrator calculated his benefits by subtracting both the sum previously distributed and the interest those funds would have accrued had they remained invested – the so-called “phantom account” method.
The district court granted summary judgment for the plan administrator. On appeal, however, the 2nd U.S. Circuit Court of Appeals reversed the ruling, asserting that although the plan had been amended to permit the administrator to use the phantom method, applying it to employees hired before the amendment violated ERISA’s notice provisions.
The appeals court remanded the case to the district court to craft a remedy under the plan’s pre-amendment terms. On remand, the district court rejected the administrator’s interpretation of the plan’s original provisions.
“You have plan administrators and fiduciaries who’ve been interpreting the terms of their plans for decades. And now district courts have the ability to second-guess all these decisions and interpretations of the plan administrators,” says Covert, who filed a brief in this case on behalf of the ERISA Industry Committee and the American Benefits Council. “It could create havoc for the employers sponsoring these plans,” she notes. “If each district court can fashion their own interpretation of the plan terms and not defer to the plan administrator, you’re not going to have plan uniformity.”
There’s nothing plan sponsors can do while they await the Supreme Court’s decision, says Covert, noting that “some of the justices, through their questions, did seem to appreciate the Pandora’s box that would be opened by substituting the judgment of individual district court judges for that of the plan administrators, who’ve been interpreting the plan and administering it for years. But it’s very hard to predict whether a decision would be limited to the facts in this case or whether it would be a broader pronouncement,” she adds.
