No “appropriate equitable relief” available to non-vested participant who mistakenly received benefits

A non-vested pension plan participant who mistakenly received monthly benefits for three years before the plan discovered its error failed to demonstrate he was entitled to “appropriate equitable relief” under ERISA for the fund’s alleged breach of fiduciary duty, the U.S. Court of Appeals in San Francisco (CA-9) has ruled.

A pension fund that covered unionized electrical workers employed by participating employers provided that workers who completed 10 years of service became vested in the fund and were eligible to receive benefits after reaching a specified age. An electrical worker was employed by participating employers for about eight years. Then he became sole proprietor of an electrical company that made contributions to the fund on behalf of the worker as well as other employees.
Four years later, in 1979, the fund determined the worker was a company owner, rather than an employee, and was therefore not eligible to contribute to the fund. Further, because he had only eight years of credited service with the fund, he had not vested. The fund informed the worker of this determination in writing and refunded contributions he had made. Nevertheless, in 1996 the worker asked the fund to determine the amount of benefits he would receive if he retired. A pension representative for the fund informed him in 1997 he would receive $1,236 per month in benefits. The worker subsequently retired and began receiving benefits.

Then, as a result of an unrelated dispute the worker had with the fund, the fund “rediscovered” its 1979 determination that the worker had failed to meet the plan’s vesting requirements. The fund terminated the worker’s monthly benefits.

The worker filed suit in district court asking for reinstatement of his benefits under ERISA Sec. 502(a)(1)(B) and alleging fiduciary duty violations for which he was entitled to equitable relief under ERISA Sec. 502(a)(3). The district court ultimately granted summary judgment to the fund.

Equitable relief

The Ninth Circuit upheld the lower court’s judgment for the plan. With respect to his fiduciary duty claims, the court explained that even if a participant can demonstrate that a breach has occurred, a claim may fail if the participant cannot establish that the relief sought is “appropriate equitable relief.” Here, the worker failed to show he was entitled to “equitable relief” under the Supreme Court’s interpretation of ERISA Sec. 502(a)(3). In CIGNA Corp. v. Amara, the High Court identified three forms of traditional equitable relief that may be awarded under ERISA Sec. 502(a)(3): (1) reformation; (2) equitable estoppel; and (3) surcharges.

The worker is not entitled to relief under any of these theories, the court explained. Equitable estoppel does not apply because the 1997 letter telling the worker he was entitled to a pension was a mere mistake and not an interpretation of ambiguous plan terms upon which the worker was entitled to rely. In addition, while reformation requires demonstrating that a mistake of fact or law affected the terms of the plan, in this case the plan does not contain an error.

The court also rejected the worker’s contention that under the remedy of surcharge he was entitled to receive an amount equal to the benefits he would have received if he had been a participant with the hours of services erroneously reflected in the Fund’s records when he applied for benefits. Surcharge is available only when a trustee or beneficiary has been “unjustly enriched” by a breach of fiduciary duty. Further, the benefit the worker seeks under surcharge would wrongfully deplete the Fund by paying him benefits to which he is not entitled under the plan.

Benefits denial

Finally, the court rejected the worker’s contention that benefits were wrongfully denied under ERISA Sec. 502(a)(1)(B) because the Fund waited years to raise his non-vested status as its rationale for denying benefits. (The worker had conceded that he was not vested under the terms of the plan.)

Source: Gabriel v. Alaska Electrical Pension Fund (CA-9).
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