April 21, 2010

Supreme Court Decides Conkright v. Frommer

On April 21, the Supreme Court decided Conkright v. Frommer, No. 08-810, holding that the plan administrator's interpretation of a retirement plan governed by ERISA is entitled to deference when challenged in court, even if the administrator's original interpretation of the same provision was previously found to be erroneous in the same proceeding.

Several employees of Xerox Corporation left the company in the 1980s, received lump-sum distributions of retirement benefits at that time, and later were rehired. A dispute arose over how to account for the past distributions when calculating these employees' current benefits under the company's retirement plan—how to avoid paying the same benefits twice. The plan administrator applied a method that reduced the employees' current benefits by both the principal amount of their previous distributions and an amount that those distributions could have earned during the intervening years.

The district court denied the employees' challenge to that method, applying the deferential standard of review required by Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989), to the administrator's interpretation. The court of appeals, however, held that the administrator's interpretation was erroneous and remanded for further proceedings. The administrator then proposed another approach that, like the first, accounted for the time value of the money the employees had previously received. The district court held that, because of the administrator's previous error on the subject, the new interpretation was not entitled to Firestone deference. It rejected the administrator's interpretation and adopted the interpretation proposed by the employees, which reduced their current benefits only by the principal amount of their previous distributions and not the time value of those distributions. The Second Circuit affirmed, holding that the district court had correctly refused to defer to the administrator's second interpretation and that the court's own interpretation was not an abuse of discretion.

The Supreme Court reversed, holding that the district court was not permitted to reject the administrator's reasonable interpretation solely because a previous interpretation had been overturned. Firestone's standard of deference to a plan administrator's reasonable interpretations does not permit ad hoc exceptions such as the Second Circuit's "one-strike-and-you're-out" approach. ERISA represents a "careful balancing" between fairly and promptly enforcing rights under a retirement plan and encouraging the creation of such plans in the first place. Firestone deference protects that balance by giving primary interpretive authority over a plan to its administrator, promoting efficient, predictable, and uniform resolution of benefits disputes. Those interests do not disappear simply because the administrator makes a single honest mistake.

The Court suggested that deference may not be required if an administrator makes multiple erroneous interpretations of the same plan provision, which could support a finding that the administrator was too incompetent to exercise its discretion fairly. And it stressed that applying a deferential standard of review does not mean that the administrator will always prevail on the merits, but insures only that the administrator's interpretation "will not be disturbed if reasonable." The Court remanded the case to the district court to review the administrator's second interpretation under the proper deferential standard.

Chief Justice Roberts delivered the opinion of the Court, in which Justices Scalia, Kennedy, Thomas, and Alito joined. Justice Breyer filed a dissenting opinion, in which Justices Stevens and Ginsburg joined. Justice Sotomayor took no part in consideration or decision of the case.

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