The U.S. Supreme Court has refused to carve out an exception to its position that ERISA administrators are to be given deference in interpretation of a plan?even when a court has determined that the administrator’s prior interpretation of the same plan provision was erroneous under the deferential review standard.
The Supreme Court upheld its position on deference in its April 21, 2010, ruling in Conkright v. Frommert, U.S. No. 08-180. It noted that deference to plan administrators promotes a series of benefits, including efficiency, predictability, and uniformity.
Conkright involved employees of Xerox Corporation who left the company in the 1980s, obtaining a lump-sum distribution of benefits, and then were later rehired. In determining the employees' benefit levels upon rehire by Xerox, the administrator initially interpreted the pension plan to require a "phantom account" method.
The employees challenged the "phantom method" in court, which declared that the method represented an invalid interpretation of the plan under the deferential review standard. Thereafter, the plan administrator proposed a new approach, asserting that it also should be given deference. Applying a "one-strike-and-you're-out" approach, the District Court and U.S. Court of Appeals for the Second Circuit did not apply a deferential standard of review to the administrator’s new interpretation. Instead, the court adopted an approach proposed by the employees. Xerox’s plan administrator appealed.
The Supreme Court held, 5-3, that the plan administrator's new interpretation was owed deference, notwithstanding the "single honest mistake" made in originally applying the "phantom method" to determine the employees' benefits. Chief Justice John G. Roberts, Jr., wrote for the majority, beginning his opinion with, "People make mistakes. Even administrators of ERISA plans." In so stating, the Supreme Court rejected the notion that deference should not be given solely because an administrator’s previous interpretation had been overturned.
The Supreme Court stated that deference to plan administrators promotes:
- Efficiency by encouraging resolution of benefits disputes through internal administrative proceedings rather than costly litigation
- Predictability because an employer is able to rely on the expertise of the plan administrator, rather than worry about inaccurate or unexpected interpretations that can result from court involvement
- Uniformity in preventing varying court interpretations of ERISA plans throughout the country
For the majority of the Supreme Court, the advantages of deference outweighed the dissenting Justices' concern that deference would encourage plan administrators to adopt unreasonable interpretations of plans, assuming they would be given a second chance to revise interpretations if their original interpretations were rejected.
Although the Supreme Court's decision is surely a victory for employers and plan administrators, ERISA remains a minefield for employers and plan administrators.