Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.
The U.S. Supreme Court declined to review the Second Circuit’s decision in Laurent v. PricewaterhouseCoopers LLP, which held that retirees could receive money damages in the form of recalculated benefits in a class action over how the company’s cash balance pension plan calculated lump-sum benefits.
The now 14-year-old suit challenged the Plan’s method of calculating retirement benefits for retirees who collected benefits as a lump sum, arguing that the Plan eliminated the possibility of those retirees receiving a “whipsaw payment” — the difference between benefits’ present value and their value at retirement age. The retirees argued that ERISA requires whipsaw payments to guarantee that Plan participants who take distributions in the form of a lump sum when they terminate employment receive the actuarial equivalent of the value of their accounts at retirement. According to the retirees, the interest rates used by the Plan artificially deflated the present value of certain lump sum benefits paid to participants. For damages, the retirees sought reformation of the plan and the recalculation of benefits in accordance with the reformed plan.
The Plan and the other defendants originally moved for judgment on the pleadings, arguing that ERISA did not authorize the plan reformation or recalculation of benefits sought as relief. The district court agreed and held that ERISA did not authorize the recalculation of benefits. The retirees appealed, contending that the district court erred because ERISA does in fact authorize the relief they sought. The Second Circuit agreed with the retirees, finding that “in the absence of controlling authority otherwise, we are inclined to follow the Supreme Court’s express preference that violations of ERISA should be remedied.” The Second Circuit reasoned that the district court could use the equitable authority of ERISA § 502(a)(3) to reform plan terms as a “preparatory step” to enforcing the reformed plan under ERISA § 502(a)(1)(B).
The Plan and the other defendants petitioned the Supreme Court to reverse the Second Circuit’s decision, arguing that the Second Circuit’s decision permits a windfall payment to plan participants that is not available under ERISA. The Plan argued that this proposed remedy combined parts of two distinct remedial provisions within ERISA, thus improperly fashioning a remedy that is not permitted by either provision individually. The Plan also highlighted that the Second Circuit’s decision conflicted with the opposite decisions from at least the Third, Fourth, and Eighth Circuits. On Monday, the Supreme Court rejected the petition, thus permitting the Second Circuit’s decision to stand.
As a result of the Supreme Court’s decision not to take up the issue at this time, at least in the Second Circuit, plaintiffs who claim under ERISA § 502(a)(3) that the terms of a plan should be reformed may also seek monetary damages under ERISA § 502(a)(1)(B). Plan sponsors and fiduciaries should be aware of this as they administer their plans and consider potential resolutions of disputes.