The U.S. Supreme Court ruled 5-3 Wednesday that a lower court should give deference to a pension fund administrator’s interpretation of plan terms when dealing with a dispute.
The suit — Sally L. Conkright et al. vs. Paul J. Frommert et al. — was brought by a group of employees who left Xerox Corp. in the 1980s and received lump-sum distributions of retirement benefits earned up to that point, and later were rehired.
“The dispute giving rise to this case concerns how to account for respondents’ past distributions when calculating their current benefits — that is, how to avoid paying respondents the same benefits twice,” Chief Justice John Roberts noted in the majority opinion.
After the administrator dismissed the claimants’ administrative challenges to the method used to determine their benefits, they sued in federal court, which granted summary judgment for the plan and applied a deferential standard of review to the plan’s administrator.
But in its initial review of the case, a three-judge panel of the 2nd U.S. Circuit Court of Appeals held that the administrator’s interpretation was “unreasonable” and remanded the case to the lower court, which did not apply a deferential standard of review in its second consideration of the case and held that the plan was “ambiguous.”
The case went back to the appeals court, which held in 2008 that a district court has no obligation to defer to a plan administrator’s reasonable interpretation of the plan’s terms if the administrator arrived at the conclusion outside the context of an administrative claim for benefits. It also held that a district court has “allowable discretion” to adopt any “reasonable” interpretation of the retirement plan terms under certain circumstances.
“We held in Firestone Tire & Rubber Co. vs. Bruch … that an ERISA plan administrator with discretionary authority to interpret a plan is entitled to deference in exercising that discretion,” Mr. Roberts wrote. “The question here is whether a single honest mistake in plan interpretation justifies stripping the administrator of that deference for subsequent related interpretations of the plan. We hold that it does not.”
Associate Justice Sonia Sotomayor did not take part in the Wednesday decision.
The case was remanded for further consideration.
Mark A. Hofmann is senior reporter at Business Insurance, a sister publication of Pensions & Investments.