Supreme Court Supports Plan Administrators' Discretionary Authority in its Interpretations of Plan Documents Review

April's Supreme Court decision in Conkright v

April's Supreme Court decision in Conkright v. Frommert supports and confirms the authority of a plan administrator to interpret the terms of an ERISA retirement plan. Reversing the U.S. Court of Appeals for the 2nd Circuit, the Supreme Court's decision supports the view to defer to plan administrator's judgment in interpretation of a plan's terms. The Supreme Court pointed out that ERISA principles require courts to afford ERISA plan administrators a broad flexibility where plan documents grant them discretionary authority.

Conkright v. Frommert involved over 100 former Xerox Corporation employees who terminated their employment in the 1980s and received lump-sum distributions from the company's defined benefit plan. Subsequently, the employees were rehired and given credit for their prior years of service with Xerox. The plan provided that when an earlier distribution had been made to participants, subsequent distributions had to be offset by the accrued benefit attributable to the first distribution. The plan administrator computed the plaintiffs' benefits following the second termination of employment by using an offset formula based on a "phantom account" to reflect the employee's prior benefit payment.

In 1989, the plan went through a redesign and a document restatement. During this process, important details relating to how to account for the prior distribution in the value of future benefits were omitted. Despite this oversight, the plan administrator applied the offset of benefits (as was always done) for previous benefit distributions which significantly reduced the present value of the plaintiff's benefits. The plaintiffs objected and ultimately filed a case against Xerox.

Xerox maintained that it had correctly applied its authority for accounting for prior pension distributions and that it was a necessary process in order to prevent duplicating benefit payments to the rehired employees. The District Court decided in favor of the plan administrator and the plaintiffs appealed. The 2nd Circuit reversed the District Court's decision citing that the offset formula was a "retroactive cut-back" of benefits. The 2nd Circuit stated that the cut-back is contrary to Section 204(g) of ERISA and that early version of the plan's summary plan description did not give notice of the plan's offset formula. Xerox appealed the 2nd Circuit's decision to the Supreme Court.

The Supreme Court reaffirmed that a plan administrator's interpretation of plan documents should be permitted and solidifies the appropriateness of a plan administrator to interpret its plan's provisions when the necessary discretionary language exits. The Court cited that deference to a plan administrator helps protect the "careful balancing between ensuring fair and prompt enforcement of rights under a plan and the encouragement of the creation of such plans." This case serves as an important cue for organizations to review the terms of their plans in order to ensure that they contain adequate discretion in the interpretation of the plan's terms.

Supreme Court Supports Plan Administrators' Discretionary Authority in its Interpretations of Plan Documents Review

By: Brant Griffin

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