Frommert v. Conkright, the Xerox “actuarial heresy” floor-offset plan case is back. This time, the Second Circuit has ruled that the new interpretation of the plan is unreasonable, and that ERISA’s “notice provisions” were violated.
Stating, “SPDs are central to ERISA,” the Court concluded that the SPD (summary plan description) did not satisfy 29 C.F.R. § 2520.102-3(l) because the SPD did not describe the offset provision in question in more detail. The Court held, “the Plan and its related SPDs violate ERISA’s notice provisions” and “Plaintiffs’ notice claims fall under Section 502(a)(3).” Frommert has been remanded to the district court, for consideration of what equitable relief might be available under Section 502(a)(3). If it finds no equitable remedy, it is to determine what interpretation of the plan is reasonable.
This two-step approach suggests that “notice provisions” refers not only to Section 102 SPD content requirements, but also to Section 204(h) notices to applicable individuals prior to an amendment to reduce their future benefit accruals. In this opinion, the Second Circuit referenced its 2006 ruling that an amendment takes place at the moment when employees are properly informed of a change through provision of an SPD that complies with other ERISA requirements. Subsequently, in CIGNA Corp. v. Amara, the U.S. Supreme Court reiterated the distinction between plan amendments made by plan sponsors, and summary plan descriptions prepared by plan administrators, even when the same entity fills both roles, and held that an SPD does not amend a plan. As the U.S. Supreme Court reminded us in Heimeshoff v. Hartford, the plan is the center of ERISA, and the focus on the written terms of the plan is the linchpin of the system.
Whether the plan administrator provided an SPD that satisfied the content requirements of Section 102, and whether the plan administrator provided a Section 204(h) notice in accordance with the plan sponsor’s plan amendment, are two different questions. Yet the 2006 and 2013 Frommert decisions do not discuss the Section 204(h) notice content requirements, just the SPD requirements.
We note that in Skinner v. Northrop Grumman Retirement Plan B, the Ninth Circuit considered whether equitable remedies were available in the context of SPD deficiencies. The Court rejected reformation on the basis that this is proper only in the context of fraud and mistake, distinguishing the settlor from the drafter of the SPD. The Court also rejected surcharge, finding that the administrator was required to enforce the terms of the plan, not the SPD, and that the plan administrator was not unjustly enriched by providing an inaccurate SPD.
- We occasionally come across a defined benefit plan document or SPD provision that seems ambiguous and in need of clarification, but this case makes us uncomfortable about making such clarifications. When in doubt about whether a clarifying amendment might be interpreted as a reduction in future benefit accruals, we generally suggest that the plan administrator issue a communication that could constitute a 204(h) notice, if required.
- ERISA requires that SPDs detail “circumstances which may result in disqualification, ineligibility, or denial or loss of benefits,” and that they “shall be sufficiently accurate and comprehensive to reasonably apprise such participants and beneficiaries of their rights and obligations under the plan.” ERISA also requires that SPDs “be written in a manner calculated to be understood by the average plan participant.” Satisfying all these requirements at the same time can be daunting, particularly in the context of complicated plan design or a workforce with limited education. If the plan administrator can comply with the DOL requirements for electronic distribution of documents, distributing the entire plan document along with the SPD and other communications might help prevent these types of disputes.