Summary Plan Description Was Not Clear Enough To Trigger Limitations Period For Benefits Claim
THOMPSON v. RETIREMENT PLAN FOR EMPLOYEES OF S.C. JOHNSON & SON, INC. (June 22, 2011)
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S. C. Johnson & Son changed its ERISA plan from a defined benefit plan to a cash balance plan in 1988. In the amended plan, each participant's account received interest credit at the greater of 4% or 75% of the Plan's rate of return. The Plan also allowed participants to take a lump-sum early withdrawal. But the plan penalized early withdrawers by including a provision that equated the future interest rate credits with the discount rate reduction. Thus, those that opted for the lump-sum received only their then-current account balance. A number of former participants in the Plan who received lump-sum distributions filed suit against the Plan in November of 2007. Although the Plan conceded the provision violated ERISA, it moved for summary judgment on the grounds that the claims were time-barred. Judge Stadtmueller (E.D. Wis.) concluded that Wisconsin's six-year contract statute of limitations applied and that each plaintiff's claim accrued when he received his distribution. Any plaintiff who took his distribution prior to November of 2001, therefore, was time-barred. With respect to the calculation of future interest credit, the court concluded that the Plan was entitled to some deference in choosing an appropriate calculation and adopted a modified version of the Plan’s proposed calculation. Plaintiffs appealed. The Plan cross-appealed.
In their opinion, Judges Cudahy, Kanne, and Tinder affirmed in part, reversed in part, and remanded. With respect to the statute of limitations, the Court noted the general rule that an ERISA claim for benefits accrues "upon a clear and equivocal repudiation of rights" known to the beneficiary. Although it considered it a very close question, the Court rejected the Plan's argument that the claims accrued when the Summary Plan Description and other materials were circulated in 1988 and 1989. Although those documents did disclose the illegal provision at issue, the Court concluded that they did not amount to an unequivocal repudiation. The ERISA right itself is fairly obscure, the information appeared in numerous publications received by Plan participants over the course of months, most of the information about the provision itself was not clear, and the clearest statements were found in the informal documents rather than the more formal Summary Plan Description. The Court did agree with the district court that the receipt of the distributions themselves did equal an unequivocal repudiation. The district court was correct. The Court turned to the method of calculation. It disagreed with the district court’s deference to the Plan. Plan administrators are normally given deference, particularly if the Plan itself gives them discretion. But that deference is given in situations where the Plan administrator is interpreting the Plan. Here, the Plan administrator is not interpreting the plan -- the Plan is illegal. Instead, the Court instructed the district court to exercise its usual role in calculating plaintiffs' recovery. The Court remanded for that purpose.
Michael Rigney practices in the law offices of GVC Ltd. in Chicago. In this blog, he reports on select