A federal appeals court recently ruled that Verizon Communications should be allowed to reform its cash balance pension plan to fix a scrivener’s error that could have cost Verizon $1.67 billion – yes, $1.67 billion. The appeals court held Verizon’s claim for equitable relief could succeed only if Verizon presented “clear and convincing evidence” that the plan contains a scrivener’s error that does not reflect the participants’ reasonable expectation of benefits. That evidence must be objective and not dependent on an interested party.

The case involved a conversion of the value of employees’ benefits under an old pension plan to cash balances under a new pension plan. The plan used multipliers to complete the conversion. The plan language unintentionally called for the relevant multiplier to be utilized twice, which would have provided the participants a much greater plan balance than the plan intended. The plaintiff claimed that ERISA requires strict adherence to the plan documents and that the participants were therefore entitled a benefit based on the double multiplier, as provided by the plan terms.

The federal trial court previously concluded the plan’s committee abused its discretion by unilaterally disregarding the application of the second multiplier as a drafting mistake. The trial court, however, also granted Verizon’s counterclaim for equitable reformation of the plan to remove the second multiplier as a scrivener's error. The appeals court held that Verizon met its burden of proof and affirmed the decision of the federal trial court. (Young v. Verizon's Bell Atlantic Cash Balance Plan, 7th Cir. 2010)