Victory for Plan Administrators: Supreme Court Reinforces Plan Administrator Deference with Regard to Plan Determinations and Prior Mistakes

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On April 21, 2010, the U.S. Supreme Court issued a decision in Conkright v. Frommert ("Conkright") with regard to the deference to be given plan administrators' interpretations under a plan. The Supreme Court held (i) that absent a showing of bad faith in making interpretations about the Xerox Corporation Retirement Income Guarantee Plan (the "Plan"), the administrators of such Plan (the "Plan Administrators") were entitled to undiminished deference from the courts, regardless of whether their previous interpretations were found to violate ERISA, and (ii) that "a single honest mistake" would not remove that deference.

The underlying dispute in Conkright is based on the method that the Plan Administrators used to calculate retirement benefits of employees of the Xerox Corporation (the "Company") who left the Company and were subsequently re-hired. All such employees received a lump sum distribution of their accrued retirement benefits under the Plan after first leaving the Company. At the time such employees were re-hired, the Plan provided that no credit was to be given for periods for which lump sum payments were made, but did not provide the Plan Administrators with a method to use to deduct this credit if a Plan participant was re-hired. As a result, the Plan Administrators used their general interpretive authority granted under the Plan to establish a "phantom account" method to offset for the prior distributions (i.e., the prior distribution was placed into a hypothetical account and any investment gains are added to that value, which was then subtracted from the total earned benefits). However, this method drastically reduced the benefit amounts accrued during the employees' second employment period.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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