The United States District Court for the Western District of New York ruled recently that Xerox Corp.'s pension plan administrator reasonably determined that Xerox can offset the accrued benefit of employees rehired by the company prior to 1998 by the actuarial equivalent of their earlier lump-sum distributions. (Frommert v. Conkright, W.D.N.Y., No. 00-CV-6311L, 11/17/11). In so ruling the District Court afforded deference to the administrator's plan interpretation, following the United States Supreme Court's remand of the case.
The case arose from a dispute over Xerox's use of a “phantom account offset” to calculate the benefits of employees who were rehired after they had previously received lump-sum distributions of their pension benefits. A group of employees argued that the use of this offset violated ERISA. In 2004, the District Court ruled that Xerox did not illegally reduce benefits by applying the offset . On appeal, the U.S. Court of Appeals for the Second Circuit ruled that Xerox had violated ERISA's anti-cutback provision, and remanded the case to the district court, instructing it to craft a remedy. The administrator proposed taking prior distributions into account by expressing those distributions as an annuity starting at normal retirement age. According to the administrator, this approach would offset each employee's accrued benefit by the actuarial equivalent of the prior lump-sum distribution. The District Court did not give any deference to this proposed interpretation and instead ruled that Xerox had to pay anyone rehired prior to 1998 who had received a distribution of benefits the difference between the lump-sum pension benefits they received when they first left Xerox and the benefit they earned after they were rehired. The Second Circuit affirmed. In April of 2010, the Supreme Court ruled that the lower courts had to give deference to the administrator's interpretation of the plan with respect to the treatment of prior distributions to employees who were rehired prior to 1998 and remanded the case to the Second Circuit, which in turn remanded the case to the district court.
The case arose from a dispute over Xerox's use of a “phantom account offset” to calculate the benefits of employees who were rehired after they had previously received lump-sum distributions of their pension benefits. A group of employees argued that the use of this offset violated ERISA. In 2004, the District Court ruled that Xerox did not illegally reduce benefits by applying the offset . On appeal, the U.S. Court of Appeals for the Second Circuit ruled that Xerox had violated ERISA's anti-cutback provision, and remanded the case to the district court, instructing it to craft a remedy. The administrator proposed taking prior distributions into account by expressing those distributions as an annuity starting at normal retirement age. According to the administrator, this approach would offset each employee's accrued benefit by the actuarial equivalent of the prior lump-sum distribution. The District Court did not give any deference to this proposed interpretation and instead ruled that Xerox had to pay anyone rehired prior to 1998 who had received a distribution of benefits the difference between the lump-sum pension benefits they received when they first left Xerox and the benefit they earned after they were rehired. The Second Circuit affirmed. In April of 2010, the Supreme Court ruled that the lower courts had to give deference to the administrator's interpretation of the plan with respect to the treatment of prior distributions to employees who were rehired prior to 1998 and remanded the case to the Second Circuit, which in turn remanded the case to the district court.
In the current decision, the District Court, guided by the Supreme Court's “admonitions,” ruled the administrator's proposed interpretation was reasonable and accepted that interpretation. The District Court said the administrator's interpretation reasonably and equitably took into account the time value of money. According to the District Court, the administrator's proposal was a reasonable attempt to apply the plan in a way that took into account prior distributions, consistent with what was disclosed to the employees in plan summaries and other communications. The District Court rejected the employees' argument that the administrator's interpretation could not stand because they were not provided with adequate notice of any “appreciated” offset to their benefits. The District Court noted the administrator's proposal was equitable because the employees were on notice that some offset would be applied to their prior distributions.
