Foster Swift Employment, Labor & Benefits Quarterly
The Sixth Circuit recently broke precedent and joined a number of other U.S. circuit courts by preventing an ERISA plan administrator from correcting an inaccurate benefit calculation. In a recent pension benefit case, the Sixth Circuit recognized equitable estoppel, and prevented a plan administrator from correcting a previously calculated benefit amount when that benefit was represented by a writing and extraordinary circumstances existed which in equity greatly favored the plan participant. This is an especially important development for Michigan plan administrators since Michigan sits within the purview of the Sixth Circuit.
In Bloemker, the plan participant had, by January 2005, participated in his employer’s pension plan for almost thirty years. The participant, with plans to retire, contacted the plan administrator to get a calculation of his benefits under the plan. He received an election form from the plan administration stating that if he elected benefits in the form of a joint and survivor annuity with his spouse, he would receive $2,339.47 per month, and his spouse would receive $1,169.75 per month after his death.
The participant elected the joint and survivor annuity benefit and received benefit payments in the amount promised until September 2006. At that time, the plan administrator notified the participant that his benefit calculation was incorrect, and that he was only entitled to $1,829.71 per month, a difference of $509.78. The plan requested that the participant form a plan to repay the amount he was overpaid, and after exhausting all administrative remedies, the participant filed suit based on an equitable estoppel theory.
The Sixth Circuit ruled in favor of the participant, remanding the case back to the district court for further findings consistent with its decision. Traditionally, the Sixth Circuit Court of Appeals voiced concern with recognizing equitable estoppel in pension benefit cases because to allow such claims and dealings between plan officials and participants would enable the alteration of plan terms. However, the Sixth Circuit broke from this concern, opining that these reasons were not enough to defeat claims of equitable estoppel where benefit representations were made to the plan participant in writing and extraordinary circumstances existed under which the equities significantly favored the participant. The Sixth Circuit also reasoned that in addition to a writing and extraordinary circumstances, the plan formula cannot allow for participants to calculate benefits themselves and that traditional requirements, such as proof of gross negligence, must also be satisfied.