Claim for Increased Benefits Based on Mistaken Service Data Denied

Posted on March 9, 2015

A recent case suggests that even when a participant appears to have been misled by the employer about the amount of his pension benefit, no relief will be granted when the claimed benefit is contrary to the terms of the plan.

When the plan sponsor–a bank– recruited the participant in 1996, he was told that he would be entitled to pension credit for the 17 years during which he had worked for other banks. His annual benefit statements reflected that credit. In 1999, he received a letter from the company confirming his increased years of service. In 2005, in connection with the freezing of the plan, he was placed in the “over ten years of service category” because plan records gave him credit for his service with the prior banks, giving him over 20 years of service. In 2008, when he began to contemplate early retirement, he specifically asked for confirmation of the amount of his pension and received an estimate of $2,372 per month, based on 24 years of credited service. He was contemplating retirement in February 2009. In January 2009, he was for the first time informed by the bank’s benefit department that his prior pension benefit was inflated because the plan did not grant credit for his prior work with other employers, and that his true entitlement was only $571 a month. He proceeded to retire anyway but sued for his additional benefit.

The participant argued that the prior service credit was provided for under the terms of the plan, that the bank had breached its employment agreement, and that the plan was equitably estopped from denying him the benefit that he had been repeatedly promised. The first argument didn’t succeed because the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) requires that plan amendments be in writing and neither the letter or benefit statements rose to the level of a plan amendment. His state law claim for breach of his employment agreement also must fail because state law is pre-empted by ERISA so his claim must be determined under Federal law.

That left equitable estoppel. To succeed in a claim for equitable estoppel, the participant must show that: (1) the employer must make a misrepresentation and have reason to believe that the participant will rely on it, and (2) the latter must then, as a result of the misrepresentation, reasonably change his position to his detriment.  The Supreme Court recently recognized that equitable estoppel is among the forms of “appropriate equitable relief” available under ERISA, but the circumstances in which participants may be able to invoke it remain unsettled.

As indicated above, ERISA requires that Plan amendments be in writing. This requirement precludes both unwritten plan amendments and written amendments that are not adopted in accordance with the prescribed procedure. Based on that, the appeals court in this case held it is “inherently unreasonable” for a participant to rely on statements, written or unwritten, that contradict a plan’s unambiguous terms. If those terms are to be changed, it must be through a properly adopted plan amendment. Only where the terms are unclear might a participant be able to “reasonably rely on an informal statement interpreting an ambiguous plan provision.” Those facts did not exist in this case.

While other appellate courts have allowed equitable estoppel in extraordinary circumstances, even where the terms of the plan were unambiguous, those cases did not involve situations such as in this case where the participant could have determined the proper years of service simply by reading the plan documents.

Although this case was a victory for the employer, other plan sponsor should not take too much comfort from its result. While the facts may appear to favor the participant, the issue was one that was readily determinable from the plan documents. In a case where the participant cannot be reasonably expected to understand the benefit calculations, or where the plan terms are ambiguous, a different result may be obtained. The take-away from this case is that the employees administering a retirement plan must be extremely careful not to make representations not supported by the plan documents.

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