Last week, the federal Sixth Circuit Court of Appeals in Cincinnati issued a decision recognizing for the first time that a plaintiff can assert an estoppel claim against a pension plan under ERISA when the plaintiff relied to his detriment upon a written and certified estimate of his monthly retirement benefit in making his decision to retire and then was then told two years later that his actual benefits were substantially lower than the prior estimate, that his future benefits would be reduced accordingly and that he was requested to repay approximately $11,000 to the retirement plan. Bloemker v. Laborers Local 265 Pension Fund, No. 09-3536 (6th Cir. 5/19/10). However, the Court affirmed the dismissal of the plaintiff's statutory and breach of contract claims.
According to the Court's opinion, the plaintiff's 2005 annual statement of status estimated that he "would be entitled to to a monthly benefit pension of
$2,666.99." Interested, he contacted the third-party administrator of his pension plan "to discuss the possibility of early retirement. He received a letter from her
stating that if he were to retire on April 1, 2005, he would be eligible for "approximately $2,564.00 per month, single life annuity, payable for your lifetime only."
Based on this, the plaintiff applied for early retirement benefits on February 10, 2005" and on March 1, 2005, he received a Benefit Election Form which was stamped by the TPA, stated that he would receive $2,339.47 per month for his life, and contained a certification stating:
Based on our records of your hours worked under the Plan and the contributions which have been made on your behalf, we hereby certify that you are entitled to receive the retirement benefit specified above, and that the amount shown for any optional forms of payment are equivalent to your basic benefit.
The plaintiff retired and in 2006 received a letter from the TPA indicating that a computer error caused it to miscalculate his early retirement benefits, that he was entitled to $500/month less than previously indicated and that he needed to repay the approximately $11,000 he had been overpaid to date. The plaintiff filed suit after exhausting his administrative remedies under the plan. In his suit, he alleged that the Plan and the TPA should be equitably estopped from denying him the larger retirement benefit on account of their material misstatements on which he relied to his detriment. He also alleged that the Plan and TPA breached a written contract to him in the application for benefits and that the TPA breached its statutory fiduciary duties to him. The trial court dismissed his claims
In the past, the Sixth Circuit has – unlike other circuit courts -- been reluctant to recognize estoppels claims against pension plans because estoppel "cannot be applied to vary
the terms of the unambiguous plan documents." In addition,
pension benefits are typically paid out of funds to which both employers and employees contribute. Contributions and pay-outs are determined by actuarial assumptions reflected in the terms of the plan. If the effective terms of the plan may be altered by transactions between officers of the plan and individual plan participants or discrete groups of them, the rights and legitimate expectations of third parties to retirement income may be prejudiced.
The Court remains unwilling to accept estoppels claims based on oral or verbal statements by low level employees which modify the written terms of the plan. "This policy concern is
greatly lessened when the representations at issue are made in writing, and, particularly here, where the representations constituted formal certifications."
Under Sixth Circuit 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 Court found these elements to be satisfied by the plaintiff's allegations in this case. It found the defendants' alleged gross negligence sufficient to constitute constructive fraud. Moreover, while it generally has found that a plaintiff can not prove justifiable reliance on a misrepresentation if the misstatement contradicted unambiguous plan documents, in this case, the plaintiff alleged that "it would have been impossible for him to determine his correct pension benefit given the complexity of the actuarial calculations and his lack of knowledge about the relevant actuarial assumptions."
We hold that a plaintiff can invoke equitable estoppel in the case of unambiguous pension plan provisions where the plaintiff can demonstrate the traditional elements of estoppel, including that the defendant engaged in 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 affirmed the dismissal of his fiduciary duty claims and breach of contract claims.
Section 1132(a)(1)(B) of ERISA provides that a plan beneficiary may bring suit "to recover benefits due to him under the terms of his plan." 29 U.S.C. § 1132(a)(1)(B). As discussed above, the written ERISA plan documents govern the rights and benefits of ERISA plan beneficiaries. . . . . Where a retirement plan creates benefits in excess of those established by ERISA, however, those rights may be enforceable in contract under federal common law. . . . Furthermore, when additional documents operate to modify or amend the plan, a beneficiary can rely on those modifications to determine his benefits. . . . .
However, the Benefit Election form submitted by the plaintiff "did not purport to be an amendment or a modification to the Plan. Nor did it purport to create a separate contract for benefits in addition to those provided by the Plan. Instead, it simply claimed to provide the actuarially certified benefit [the plaintiff] was entitled to, based on the Plan." Thus, there was no basis for asserting a claim for breach of contract.
NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.
