Viewed deferentially, administrator’s second attempt to interpret floor-offset plan still unreasonable

Applying the deferential standard of review as required by the Supreme Court’s prior ruling to the Xerox pension plan administrator’s second attempt to calculate the benefits of rehired employees who had received a lump-sum distribution, the U.S. Court of Appeals in New York City (CA-2) found the administrator’s new interpretation to be without support in the terms of the plan and therefore unreasonable. In addition, even assuming the administrator’s new offset method was reasonable, the offset violated ERISA’s notice requirements and therefore could not be applied to the rehired employees’ benefits.


The dispute centered on how to interpret Xerox’s floor-offset retirement plan, which combined elements of a defined benefit plan with elements of a defined contribution plan. At issue was the correct calculation of current benefits under the plan with respect to employees who left Xerox and received a lump-sum distribution of plan benefits, but were later rehired.
The Second Circuit in 2006 found the plan administrator’s first attempt to apply plan terms to the rehired employees to be unreasonable. Subsequently, in 2008, the appellate court affirmed the district court’s refusal to defer to the plan administrator’s second attempt to create an acceptable offset for the rehired employees. The Supreme Court reversed this decision, holding that the Second Circuit erred when it ruled the district court could refuse to defer to the plan administrator’s interpretation of the plan on remand, just because the appellate court had found the prior interpretation by the administrator to be invalid (Conkright v. Frommert, 559 U.S. 506 (2010).

On remand, the district court applied deferential review and held the new proposed offset to be a reasonable interpretation of the plan. It also concluded the plan gave participants adequate notice of the offset.

New offset unreasonable

On appeal of the most recent district court ruling, the Second Circuit once again reversed and remanded the decision in favor of the rehired employees. Even applying a deferential standard of review as required by the Supreme Court, the appellate court explained, the new offset was inconsistent with the plan’s plain terms and was therefore an unreasonable interpretation of the plan.

According to the Second Circuit, application of the new offset would make the rehired employees worse off than newly-hired employees in terms of actual benefits received. While an ERISA plan may in theory be constructed so that rehired employees are treated differently than newly hired employees, no terms existed in the plan at issue to support such a construction.

Notice provisions

Even assuming for the sake of argument that the new offset method was a reasonable interpretation of the plan, it still could not be applied to the rehired employees’ benefits because the references to the offset in the plan SPD violate ERISA’s notice provisions. The court noted that under ERISA Reg. Sec. 2520.102-3(1). SPDs must include statements “clearly identifying circumstances which may result in…offset…of any benefits that a participant or beneficiary might otherwise reasonably expect the plan to provide….”

The Xerox SPD stated that amounts received by beneficiaries “”may also be reduced if [the beneficiary] had previously left the Company and received a distribution at that time.” However, under the new offset, a prior distribution would reduce the new benefit. The SPD was thus insufficiently accurate and comprehensive.

Source: Frommert v. Conkright (CA-2).

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