Deference to retirement plan administrators
on Jan 18, 2010 at 9:18 am
Below, Martine Cicconi, a law student at Stanford, previews Conkright v. Frommert (08-810), which will be argued on Wednesday. Â For more background on the case, check the Conkright v. Frommert page on SCOTUSwiki.
On January 20, inÂ Conkright v. Frommert, the Court will consider what level of deference district courts owe to the findings of an Employee Retirement Income Security Act (ERISA) plan administrator. The litigation began eleven years ago when respondent Paul Frommert, a Xerox employee (as well as other similarly situated Xerox employees), alleged that the administrator of the companyâ€™s retirement plan (the â€œPlan Administratorâ€) had violated ERISA in her calculation of retirement benefits. Specifically, in this case Frommert had left the company, at which point he received benefits.Â However, he was subsequently rehired several years later; when he later retired, the Plan Administrator calculated his award by subtracting both the sum previously distributed and the interest those funds would have accrued had they remained invested â€“ the so called â€œphantom accountâ€ method. The district court granted summary judgment for the Plan Administrator (petitioner Sally Conkright and her predecessors, also petitioners in this case).
On appeal, the Second Circuit reversed.Â It held that although the Plan had been amended to permit the administrator to use the phantom method, the application of the phantom method to employees hired before the amendment violated ERISAâ€™s notice provisions. The Second Circuit remanded the case to the district court to craft a remedy under the Planâ€™s pre-amendment terms.Â On remand, the district court rejected the administratorâ€™s interpretation of the Planâ€™s original provisions, holding instead that Frommertâ€™s benefits should be offset by the nominal amount of the initial distribution rather than the actuarial equivalent. On appeal, reviewing the district courtâ€™s decision for an abuse of discretion, the Second Circuit affirmed.
Conkright and the Plan filed a petition for certiorari, arguing that the Second Circuit created a division of authority with its conclusion that an administratorâ€™s interpretation of a plan is not entitled to deference when it occurs outside the context of an administrative claim for benefits.Â They also asked the Court to review the Second Circuitâ€™s holding that a district court has â€œallowable discretionâ€ to adopt any reasonable interpretation of the terms of a plan when the issue arises in the context of calculating additional benefits owed as a result of an ERISA violation.
Opposing certiorari, Frommert and the other respondents challenged the petitionâ€™s characterization of the case.Â They countered that the district court had not â€œinterpret[ed] and appl[ied] the Planâ€ on remand; instead, it had merely crafted an equitable remedy as directed by the court of appeals. Moreover, Conkrightâ€™s claim that the Second Circuit should have reviewed the claim de novo ignored the history of the case. Because the court of appeals had previously rejected the Plan Administratorâ€™s interpretation and directed the district court to adopt an equitable remedy, it had no reason to conduct a complete review of the case and therefore properly reviewed the district courtâ€™s decision for abuse of discretion.Â The Court called for the views of the Solicitor General, which recommended that certiorari be denied on the ground that, as Frommert had contended, the Second Circuitâ€™s decision did not create a circuit split. The Court nonetheless granted certiorari in June 2009.
In their brief on the merits brief, Conkright relied heavily on the Supreme Courtâ€™s 1989 decision in Firestone Tire & Rubber Co. v. Bruch, which held that a plan administratorâ€™s interpretation of a plan is subject to deference if â€œthe benefit plan gives the administrator . . . discretionary authority . . . to construe [its] terms.â€ Because the Xerox Plan gave the administrator such discretion, the court was required to defer to her interpretation. Deference is crucial, Conkright argued, to furthering ERISAâ€™s statutory goals: it promotes the creation of pension programs by ensuring employers that plans will be interpreted by experienced administrators rather than judges, and it â€œreduces the risk that different courts will interpret plan documents in contradictory ways, thereby imposing irreconcilable fiduciary obligations on plan administrators.â€
Turning to the decision below, Conkright claimed that the Second Circuitâ€™s decision carved out an exception to the deference rule by differentiating between â€œdecisionsâ€ made by the Plan Administrator â€“ such as the determination to confer benefits â€“ that are entitled to deference and â€œmere opinions,â€ in which the administrator offers an interpretation of a plan outside the context of an administrative claim, and which are not entitled to deference. In Conkrightâ€™s view, whether an interpretation is entitled to deference depends not the context in which the interpretation arises, but on the discretion afforded the administrator in the Plan itself. Drawing on principles of trust law, Conkright also argued that a â€œgood faith mistakeâ€ regarding the use of the phantom method could not strip the administrator of her authority to interpret the Plan.
Addressing the second question presented, Conkright emphasized that when no deference is warranted, Firestone requires a court of appeals to review the district courtâ€™s decision on an ERISA plan de novo. That rule, she argued, does not give way simply because a district court interprets a plan in the course of creating an equitable remedy.
In his brief on the merits, Frommert countered that Xerox and the Plan Administrator sought precisely the outcome ERISA was designed to prohibit: â€œan undisclosed, unexplained, post-hoc reduction in accrued and vested pension benefits earned over years of work.â€ Because the company sought deference for an interpretation of the very same terms on which its position had been deemed â€œarbitrary and capricious,â€ it was thus seeking â€œre-run deference,â€ which no court is obligated to provide and which would undermine ERISA’s goals. And because the statute aimed to make the pension more transparent, it would contravene Congressâ€™s intent to defer to the second interpretation by an administrator after her initial interpretation had been rejected.
Turning to Conkright’s arguments based on trust law, Frommert asserted that there is no rigid principle requiring deference when there is no evidence of bad faith. In any event, trust law does not resolve the question: Congress imposed limits on ERISA plan construction that do not exist in trust law, making deference inappropriate in some circumstances even when there is no bad faith. Finally, Frommert argued that the Second Circuit reviewed the case under the correct standard:Â because the lower court gave meaning to ambiguous documents, judicial discretion was necessary, and review for abuse of discretion was proper.
In an amicus brief filed on behalf of Frommert et al., the United States argued that the Second Circuit did not carve out a broad exception to deference when an ERISA plan is construed outside the context of a benefits determination. Rather, it held only that the district court was not required to defer to the administratorâ€™s interpretation of plan terms when a previous construction had been deemed an abuse of discretion. The opposite conclusion, the government argued, would provide an incentive for administrators to adopt interpretations that disfavored beneficiaries, knowing that courts would defer to their â€œfallbackâ€ interpretations. Moreover, deference in this case would have violated ERISA in any event, because employees were not given fair notice that their benefits would be offset by the appreciated value of past distributions.