Trustees’ conflicting interpretations of “retirement” was “paradigmatically” arbitrary and capricious

Trustees for a multiemployer pension plan acted in a “paradigmatically” arbitrary and capricious manner when they interpreted the plan term “retirement” in two different ways so as to justify awarding a participant $300 less per month than he was entitled to under the plan, the U.S. Court of Appeals in Chicago (CA-7) has ruled.

As applicable to the participant, Section 6.05 of the plan defined “retirement” or “retires” to mean “cessation of being employed in Covered Employment [i.e., working for an employer contributing to the plan on the employee’s behalf] or engaging in any of the following” activities, a list that included “employment with any Contributing Employer.” The participant became injured and received workers’ compensation. As a result, consistent with the collective bargaining agreement, the participant’s employer stopped contributing to the plan on his behalf in August 2009. However, the participant did not resign his position with the employer until December 30, 2011. The participant believed that under relevant plan terms he was entitled to $2,900 per month because he had earned “26 pension credits” and was age 50 as of December 2011, when he “retired.”

The plan contended that he actually “retired” in August 2009, when his employer stopped contributing to the plan on his behalf. He was 48 years old in 2009 and thus he was only entitled to $2,600 per month. A special committee of trustees upheld the initial benefits determination. The district court, applying the arbitrary and capricious standard, also upheld the plan’s determination.

On appeal, the Seventh Circuit agreed the “arbitrary and capricious” standard of review applied, requiring it to uphold the trustees’ plan interpretation so long as it has “rational” support in the record. Citing Antonin Scalia and other authors of texts on legal interpretation, the court concluded the plan’s definition of “retirement” to be ambiguous. Was cessation of contributions on a participant’s behalf enough to render him “retired” or did the participant also need to cease Covered Employment?

The record of the trustees’ reasoning indicates they failed to acknowledge the existence of this ambiguity, the court said. Instead they essentially ignored the second half of the definition of “retirement.” This “interpretation” would undercut other plan provisions, including the suspension of benefits in case of new employment in the industry, the court reasoned. Confronted with this suggestion, the trustees argued they could interpret the defined term “retirement” differently for different plan provisions. “To interpret the same defined term in two different ways in this manner is paradigmatically arbitrary and capricious,” the court concluded.
Given the “trustees’ flimsy defense of their own interpretation on appeal,” the court declined to give them the opportunity to clarify their reasoning on remand. Concluding it would be unreasonable for the trustees to deny the award of the additional $300 per month, the court reversed and remanded the lower court’s decision.

Source: Schane v. International Brotherhood of Teamsters Union Local No. 710 Pension Fund Pension Plan (CA-7).

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