ERISA-Second Circuit Rules That A Proposed Offest Is An Unreasonable Interpretation Of A Retirement Plan And Fails To Provide Notification In Accordance With ERISA

In Frommert v. Conkright, Docket No. 12-67-cv (2nd Cir. 2013), the plaintiffs had brought a claim against, among others, Xerox Corporation (“Xerox”) and the Xerox Retirement Income Guarantee Plan (the “Plan”). They were appealing a decision by the district court, which applied a deferential review and held that the plan administrator’s proposed offset-which reduced the plaintiffs’ benefits- was a reasonable interpretation of the Plan, and that the Plan had given the plaintiff’s adequate notice of the offset.

In analyzing the case, the Second Circuit Court of Appeals (the “Court”) ruled that the proposed offset is an unreasonable interpretation of the Plan, and that it violates ERISA’s notice provisions. As such, the Court vacated the district court’s decision, and remanded the case back to the district court for further proceedings.

The plaintiffs are Xerox employees who left the company but were subsequently rehired, having received a lump-sum distribution of their then-accrued pension benefits when they left. At issue in this case is how the prior lump-sum distribution affects the determination of benefits under the Plan. Prior to this litigation, in general, the Plan took the lump-sum distribution into account, offsetting a participant’s ultimate benefit from the Plan by the amount of the distribution . The plaintiffs argued that this offset was contrary to the Plan’s terms. In reviewing the case, the Court concluded that, even affording deference to the plan administrator’s decision, offsetting the benefit by the lump sum is inconsistent with the Plan’s plain terms, and is therefore an unreasonable interpretation of the Plan. Further, since the offset was not adequately explained in the Plan’s summary plan description (the “SPD”), and ERISA requires the SPD to describe any such offset, the plaintiffs were not given adequate notice of it.

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