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Proofread Pension Plan Documents — Again!

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Although the Employee Retirement Income Security Act (ERISA) has strict rules for enforcing plan terms as written, they are not so strict as to require an employer to pay for an innocent "scrivener’s error." Despite this flexibility, the following case may send employers running to review their pension plans to ensure that they don’t contain any billion-dollar typos.


A company’s pension plan was originally drafted by an outside consulting firm. For the fourth revision, one of the company’s in-house attorneys took over drafting responsibility. He restructured a formula for determining benefits, but failed to delete a clause he had moved, which meant it appeared twice. Impact: Under a strict interpretation of this provision, benefits would have had to be calculated twice. This error appeared in the seventh and final version.


In meetings with employees, in brochures, and, in fact, over many years, the company calculated benefits using the proper formula. Years later, a retiree who read the plan documents closely wanted her benefits recalculated. If the company had done so, her $200,000+ pension would have been worth more than $600,000. Other pensioners joined her in a class action lawsuit. In total, this error could have cost the company $1.67 billion.


The company asked the court to allow it to fix this so-called scrivener’s error. The trial court ruled for the company, and a federal appeals court affirmed. Appeals court: Plans may reform their documents if they can show, by clear and convincing evidence, that a scrivener’s error has occurred that doesn’t affect employees’ reasonably justified expectations. (Young v. Verizon’s Bell Atlantic Case Balance Plan, 7th Cir., Nos. 09-3872 & 09-3965, 2010)


Mind Your Pension Plan Ps And Qs

The appeals court found it baffling that the company charged a single in-house attorney "with revising a critical provision of a multi-billion-dollar pension plan, apparently without critical review by another ERISA expert," instead of investing "greater resources to ensure accuracy in the drafting of such an important document." Lesson: Don’t be penny wise and pound foolish when it comes to important benefit plan documents.


This mistake did not amount to a lack of good faith, said the court, as the company never misrepresented its intent or attempted to deceive plan participants. Helping the company: Its plan brochure and personalized opening balance statements sent to participants used the correct formula. It was evident to the court that the duplication was a drafting mistake, as there was no evidence contemporaneous to the fourth draft suggesting that the company was reworking the plan to increase benefits.

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