A retirement plan participant questioned his projected retirement benefit and a plan representative assured him it was correct, without further investigating. A federal trial court held that the employer, Detroit Edison, was estopped from correcting the participant’s years of service per the plan and reducing his pension benefit.
The employee, Paul, worked for Detroit Edison from 1984 until July 1 2009. For the first few years he was a temporary employee and was not entitled to participate in any company pension plan. For most of those years he was a union member eligible to participate in the Plan. For a few years, however, he was a non-union employee eligible to participate in the non-union plan and was credited service under that plan.
Paul met with company representatives on several occasions prior to his retirement and received four pension calculation statements over the span of a couple of years. Each calculation gave him credit for all of his years of service. Although Paul questioned the calculation, and specifically the crediting of years of service while he was a non-union employee, he was told on each occasion the calculation was correct
At a retirement exit interview in May 2009, Paul and his wife met with a representative and reviewed a number of documents. They discussed Paul’s hire date and the calculation of his years of credited service. Given the union and non-union positions Paul held during his employment, he questioned the representative about the computation of his years of credited service—specifically the effect the transfers between union and non-union jobs would have on the accrual of his years of credited service.
The representative indicated that the information on his Retirement Interview Statement was correct, as Paul’s pension was calculated using the March 5, 1984, hire date listed among the baseline information. The representative further explained that, from Paul’s original hire date of March 5, 1984, his four pensions would all be bridged together. After the discussion, Paul and his wife signed a pension election authorization form that set forth his retirement benefit numbers. The form contained the following certification:
[I certify] that I understand that [Detroit Edison] reserves the right to correct any errors. If it’s determined at any time that the information provided on this statement conflicts with the benefit defined by the [Plan], the [Plan] will prevail. Under the law, a plan must be operated in accordance with its terms.
Paul retired on July 1, 2009, two years prior to when he would have been eligible to receive an unreduced early retirement benefit under his retirement plan. Sometime during an audit in 2011, the Plan’s actuary discovered that the years of credited service used to calculate Paul’s pension benefit were overstated by some 3 years. Paul received an overpayment notice that stated his monthly annuity would be reduced and that the amount overpaid needed to be returned to the plan.
After Paul’s administrative appeals were denied he filed a lawsuit seeking payment of his original pension. He did not challenge the plan administrator’s interpretation of the retirement plan, but claimed that the plan should be estopped from enforcing the terms of the plan. Estoppel “precludes a party from exercising contractual rights because of his own inequitable conduct toward the party asserting the estoppel,” the court noted in its opinion. “Equitable estoppel operates to place the person entitled to its benefit in the same position he would have been in had the representations been true.”
Detroit Edison argued the erroneous calculations were an honest mistake and estoppel should not be applied. The court found, however, that the company’s failure to properly investigate Paul’s concerns about the benefit calculation amounted to gross negligence that supports a claim for equitable estoppel. Moreover, the statements and assurances that Paul received from company representatives that the calculations were correct constitute extraordinary circumstances justifying the application of estoppel and precluding the company from correcting the benefit calculation.
A few months ago, we discussed a case where a participant was misled as to the amount of his benefit and retired on reliance on those misrepresentations. A claim for estoppel was denied where the plan terms were unambiguous and the participant could have determined that his benefit was incorrect by reading the plan. We indicated that employers should not place too much weight on the opinion because estoppel may still be applied where the facts are deemed to be so egregious as to warrant relief. The Detroit Edison case presented facts that the court concluded warrant that relief.
Therefore, employers should take all reasonable steps to verify that benefit distributions are correct and should investigate any participant claim that on its face may have merit.
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