ERISA cases often turn on whether a plan administrator’s interpretation of ambiguous plan language is reasonable (i.e., not an “abuse of discretion”). But in this non-precedential decision, a Fourth Circuit panel (2-1) tosses out a judgment in favor of the plan in the anti-cutback case – on the ground that only one interpretation of the plan is reasonable and favors the participants. It all started when the plan administrator demanded repayment of nearly 18 months’ worth of benefits by a participant who (supposedly) was not eligible.
Savani v. Washington Safety Mgt. Solutions, No. 11-1206 (4th Cir. Mar. 20, 2012): The ERISA anti-cutback statute provides that “[t]he accrued [retirement] benefit of a participant under a plan may not be decreased by an amendment of the plan . . . .” 29 U.S.C. § 1054(g)(1) (2010). In other words, once a retirement benefit is earned, it cannot be reduced. To determine whether a benefit is “accrued,” a court must look to the plan terms to decide whether the benefit is “expressed in the form of an annual benefit commencing at normal retirement age . . . .” 26 U.S.C. § 411(a)(7)(A)(i).
The benefit in this case was a $700 per month supplemental benefit paid to retirees who met four conditions under the plan:
“4.12 Supplemental Benefits
“(a) If a Member who:
“(i) otherwise satisfies the requirements for a Pension under this Plan; and
“(ii) has at least one year of service with WSMS; and
“(iii) transferred to the Plan from an Affiliated Employer on or before January 1, 1998 or transfers to the Plan from WSRC; and
“(iv) retires before his Normal Retirement Age from active service on or after October 1, 1998,
“he shall be entitled to a monthly supplement (which shall commence with the first Pension payment made under the Plan on account of such retirement and the last payment shall be in the month preceding the Member’s attainment of Normal Retirement Age) equal to the following: [omitted]”
The plan benefits committee removed this option by way of an amendment at the end of 2004. Nevertheless, Savani applied for and obtained these benefit payments for nearly a year and a half before (in June 2006) the plan committee wrote Savani to notify him of the error – and to demand “reimbursement of $9,100 within twenty-two days.” The district court granted judgment to the plan, holding that plan committee reasonably interpreted the benefit plan not to affect an accrued benefit.
The Fourth Circuit, 2-1, reverses. It holds that in spite of the broad deference typically conferred upon plan administrator decisions, here the administrator interpreted the supplemental retirement plan against its plain terms.
“In denying Savani’s request for benefits, the committee found that the anti-cutback statute was not violated because the $700 benefit was not an ‘accrued benefit’ within the meaning of ERISA. Our decision turns on whether the $700 benefit was included in the ‘accrued benefit’ as defined by the Plan, ERISA, and applicable regulations. Because the plain, unambiguous language of the WSMS Plan contemplates inclusion of both § 4.12 supplements in its definition of ‘accrued benefit,’ the committee abused its discretion in denying Savani’s request for benefits.”
The panel majority held that the plan expressly defines “accrued benefit” as including the supplement:
“The Plan explicitly defines ‘accrued benefit’ as including ‘applicable supplements.’ The plurality of that term, when considered in light of the fact that only two supplements were included in § 4.12, mandates that each of the supplements was capable of being ‘applicable’ under some circumstance. Any interpretation to the contrary, including that of the benefits committee, is inconsistent with the plain language of the plan. Because there is no reasonable alternative interpretation of the term ‘applicable,’ it is not ambiguous. The committee did not have discretion to read out this unambiguous provision of the Plan, and therefore abused its discretion in finding that the $700 supplement could never be applicable and in denying Savani’s claim.”
Hence, plan participants and their counsel should train themselves never to presume that “the house always wins” in ERISA cases, where the language points in only one plausible direction, i.e., in favor of the retiree.