Conkright v. Frommert

2010-04-21

Headline: Pension-plan ruling keeps deference for administrators, holding a single honest mistake won’t strip deferential review and making it harder for courts to rewrite plan benefit calculations.

Holding: The Court held that a single prior honest mistake by an ERISA plan administrator does not eliminate the administrator’s entitlement to deferential review, so lower courts on remand must apply the established deferential standard to reasonable plan interpretations.

Real World Impact:

Keeps deference to ERISA plan administrators after a single honest mistake.
Makes courts more likely to accept administrators’ reasonable plan interpretations on remand.
Reduces risk of conflicting plan interpretations across different States.

Topics: pension plans, ERISA review, administrative deference, retirement benefits

Summary

Background

Xerox’s retirement plan and its administrators interpreted how to account for employees who left, took lump-sum payouts in the 1980s, and were later rehired. The administrators originally used a “phantom account” method that treated past payouts as if they had stayed invested and reduced later benefits accordingly. Employees sued under ERISA; a district court initially accepted the administrator’s view, the Second Circuit rejected that method and remanded, and on remand the administrator proposed a different method that still recognized time value of money while the district court declined to defer and adopted an approach that did not account for time value.

Reasoning

The Supreme Court addressed whether a single earlier mistake by an ERISA plan administrator means courts can stop deferring to later administrator interpretations. Relying on prior decisions and trust-law principles, the Court said no: when a plan gives the administrator authority to interpret its terms, courts should apply a deferential standard unless there is stronger evidence of unfairness or bad faith. The Court emphasized concerns about efficiency, predictability, and uniform treatment of plans across states, and said stripping deference after one honest error would undermine those goals.

Real world impact

The ruling requires lower courts to consider whether an administrator’s new interpretation is reasonable instead of automatically rejecting it because of a prior mistake. That means many ERISA plan administrators will retain their interpretive authority on remand, though courts can still deny unreasonable or unfair constructions and can decide notice or other statutory issues in follow-up proceedings.

Dissents or concurrances

A dissenting opinion argued trust law allows courts to craft remedies and that remand courts may properly decline to defer after an abuse of discretion; that view emphasizes protecting employees from opaque plan terms.