Conveniently, the Sixth Circuit has issued another opinion illustrating this urge of the lower courts to find plaintiff remedies by creative applications of the law. The case, Bloemaker v. Laborers' Local 265 Pension Fund, No. 09-3536 (6th Circuit 2010), held that participants in defined benefit pension plans can assert benefit rights not created by the plan but reflected in written estimates of benefits based on an equitable estoppel theory.
The participant had asked for an estimate of benefits under a plan’s early retirement provisions. The estimate provided was incorrect, and obviously so to anyone who has experience with calculations of early retirement benefits. The participant then retired, in reliance on the estimate and received benefits for almost two years. At this point, the TPA noticed the error, and contacted the participant stating that (1) future benefits would be reduced, and (2) the participant had to repay the excess benefits actually received. The error was based on “a computer programming error.”
The opinion is poorly written, so much so that the operational test is stated in two similar but hardly identical formulations. In the first version, the Sixth Circuit said: “Under our precedent, the elements of an equitable estoppel claim are: 1) conduct or language amounting to a representation of material fact; 2) awareness of the true facts by the party to be estopped; 3) an intention on the part of the party to be estopped that the representation be acted on, or conduct toward the party asserting the estoppel such that the latter has a right to believe that the former’s conduct is so intended; 4) unawareness of the true facts by the party asserting the estoppel; and 5) detrimental and justifiable reliance by the party asserting estoppel on the representation.” The second version required “intended deception or such gross negligence as to amount to constructive fraud, plus (1) a written representation; (2) plan provisions which, although unambiguous, did not allow for individual calculation of benefits; and (3) extraordinary circumstances in which the balance of equities strongly favors the application of estoppel.” The Court treated these two formulations as being the same, and to maintain some semblance of order here the balance of this post will focus on the first because it is more detailed and less vague.
Under the first standard, the first and the last three items were pretty easily met by the participant’s complaint. The second, however, seems problematic. In fact, the complaint appears to have had only general allegations that the plan and the TPA knew the true facts. But what facts? Did the TPA know the benefit calculation was wrong? That is unlikely. Will the courts ultimately say that knowledge of the facts underlying the benefit determination is awareness of the true facts?
Also, the calculated early retirement benefit involved an actuarial reduction of the annual benefit of only 12.3%, a reduction that is pretty obviously too small. This raises a very real question as to whether there was actual reliance by the participant, whether any reliance was justifiable or whether the participant just decided to take advantage of the error. This fact question can be raised under either the fourth or fifth elements set out by the Sixth Circuit.
And, of course, it is still an open question whether the Supreme Court will, ultimately, allow an equitable estoppel claim. The Sixth Circuit makes all the right protestations to the effect that plans have to be in writing and that a determination that a participant has rights exceeding the terms of the plan may adversely affect other participants, but gives these considerations no effect.
Various Circuit Courts, but not all, allow some version of the equitable estoppel theory. Given that, the Supreme Court needs to step in again and shoot down this latest attempt to find remedies not provided in ERISA.
So how does this apply in a defined contribution context? Presumably, the theory could be applied based on (1) representations as to contribution rates, (2) representations as to the availability of various kinds of investments, (3) participant statements, and (4) whatever else is contained in a written communication.
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In deciding such cases how much weight should be given to the duration of time the retiree has received the overage?
ReplyDeleteI know of someone who was notified after being retired 11 years.
In theory, none. In fact, I would think it depends on the circumstances. For example, in a DB plan, any recoupment or reduction in future benefits enhances the security of benefits for other participants. In a DC plan, this is less true.
ReplyDeleteIn reality, at some point courts should let sleeping dogs.
In a DB plan, the court could seek a middle ground. For example, the court could allow a reduction in future benefits to the calculated amount without reduction for overpayment.
There's a decent argument for doing so with respect to benefits paid longer ago than the statute of limitations period.