Benefits committee’s rejection of participant’s attempt to disavow election of calculation method upheld

A pension benefits committee did not act arbitrarily and capriciously when it rejected a participant’s attempt to disavow a prior election of a certain method for calculating his pension benefit, the U.S. Court of Appeals in Cincinnati (CA-6) has ruled.

One-time election

In 1999, participants in an employer’s pension plan were given a one-time opportunity to elect to change the method used to calculate their pension benefits from a method utilizing their final average pay to a method (the “AB I” method) under which pension benefits would accrue according to a number of variables, with the current balance reflected in an account. At a meeting, employer personnel explained to employees that in order to switch to the AB 1 method, employees were required to place a telephone call to the plan’s third-party recordkeeper and affirmatively elect the AB 1 method. The pension benefit calculation for employees who did not make the call would default to the final average pay method.

In 2010, one participant who had attended the meeting began to plan for retirement. When he contacted the plan’s recordkeeper, he was told he had enrolled in the AB 1 program in 2000. He rejected that assertion and asked the employer’s benefits committee to have his benefit calculated using the final average pay method. The benefits committee denied this request. Having exhausted his administrative remedies, the participant filed suit under ERISA §502(a)(1)(B). The district court, utilizing the arbitrary and capricious standard of review, granted summary judgment to the plan.

Standard of review

The appellate court upheld the judgment in favor of the plan. Use of the arbitrary and capricious standard of review is appropriate where, as in this case, plan language gives the plan administrator discretionary authority to determine eligibility for benefits. The court determined the plan administrator used a principled reasoning process to arrive at its decision, which was supported by substantial evidence.

Evidence reviewed by the committee to make its decision included: (1) the recordkeeper’s phone logs indicating that the participant made the AB 1 election; (2) copies of a confirmation letter sent to the participant soon after the election was made; and (3) nearly ten years of annual statements sent to the participant referencing the “account balance benefit option.”

Source: Durbin v. Columbia Energy Group Pension Plan (CA-6).

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer’s Benefits Reports.

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