Court Lets ERISA Claims Proceed Against Pension Plan

Takeaway: This opinion highlights the problems that can arise when a pension plan’s designated administrator delegates authority for administrative services to a third-party contractor without providing adequate oversight of the contractor’s work.

Claims brought under the Employee Retirement Income Security Act (ERISA) alleging that a pension plan administrator failed to provide pension benefit statements automatically or on request and also provided inaccurate pension benefit statements may proceed, the 9th U.S. Circuit Court of Appeals ruled.

The plaintiffs began working for an aerospace and defense technology company and participating in its defined benefit pension plan in the late 1980s. They left after 11 years of employment, subsequently joining another corporation and participating in its pension plan. However, their initial employer acquired their subsequent employer in 2002, at which time its pension plan was incorporated into the initial employer’s pension plan. For employees who worked for the company during more than one period, benefits were calculated using a formula that included an employee’s years of service from both periods and the average of their highest three years of salary earned during the first period of employment.

In 2014, the employer’s designated benefit administrator sent plan participants a summary plan description (SPD) that stated, “You can track the amount of your accrued benefit and project your estimated benefit at retirement online” at the company’s benefit website. The SPD also noted participants’ right to request in writing “a statement telling you … what your estimated benefits would be at normal retirement age if you stop working under the plan now.” In separate funding notices issued annually from 2014 through 2016, the administrator told participants, “You have the right to request and receive, free of charge, a statement of your accrued pension benefits.” Participants were told to log on to the benefits website to request these statements.

The plaintiffs said they repeatedly requested benefit statements from the plan’s administrator to plan their retirements, but each time, the website displayed a message stating that it could not provide pension benefit statements and that the participants would have to call a telephone number instead to obtain a statement. The plaintiffs did so and in response received statements by mail showing their projected monthly pension benefits, titled “Retirement Plan Pension Estimate Calculation Statements.” Aware that other employees could obtain pension statements from the website, the plaintiffs continued to request statements online.

One plaintiff received 12 responses by mail, each of which informed him he could expect to receive between $2,000 and $2,115 per month in retirement. The other plaintiff also requested and received multiple statements, each of which informed her that she could expect to receive approximately $1,630 per month. Upon retirement in 2014 and 2016 respectively, they began receiving monthly payments consistent with these statements.

In late 2016, however, the administrator switched its third-party contractor that provided pension-related documents to employees and had an audit performed. The audit revealed that the benefit calculations had incorrectly incorporated plaintiffs’ salaries from their second periods of employment, which were higher than the salaries earned during their first periods of employment. The employer then cut their benefits by more than half, reducing the first employee’s monthly benefit from $2,114 to $807 and the second employee’s monthly benefit from $1,630 to $768. The second employee was also told she would have to repay over $35,000 in pension benefits already received.

The plaintiffs sued the employer under ERISA in 2018, but the district court granted the administrator’s motion to dismiss. On appeal, the 9th Circuit vacated dismissal of the ERISA disclosure claims, remanding with instructions to allow the plaintiffs to file an amended complaint. Following several rounds of dismissals of amended complaints, the plaintiffs appealed and requested entry of final judgment.

Examining the plaintiffs’ claims under Section 1025(a)(1)(B)(i) of ERISA, the appellate court noted that to state a claim under this provision, plaintiffs must allege that the administrator failed to provide them with pension benefit statements every three years and also failed to provide annual notice that pension benefit statements were available and how to obtain them.

“This record does not establish that plaintiffs received an SPD or annual funding notice at least once each year during the time they were employed … and participating in the plan,” the 9th Circuit found. The record showed only that an SPD was provided in 2014 and annual funding notices in 2014, 2015, and 2016. However, the plaintiffs each worked for the consolidated company for over a decade, so the company failed to prove it met its duty under ERISA, the court reasoned.

Turning to the plaintiffs’ claims under Section 1025(a)(1)(B)(ii) of ERISA, which requires administrators to furnish pension benefit statements notifying participants of their “total benefits accrued” in response to participants’ written requests, the court concluded that the plaintiffs’ claim that the administrator provided substantially inaccurate pension benefit statements was cognizable.

“It is plain that if the benefit amount disclosed in a pension benefit statement is substantially miscalculated according to the planned formula, then that statement of the benefit amount does not reflect the participants ‘total benefits accrued’ as required by Section 1025(a)(2)(A)(i),” the 9th Circuit reasoned. “It follows that a pension benefit statement reporting a substantially inaccurate benefit amount does not comply with Section 1025(a)(1)(B)(ii).”

The plaintiffs adequately alleged that the administrator violated Section 1025(a)(1)(B)(ii) because they were provided with pension benefit statements that did not calculate their retirement benefits according to the plan’s formula and grossly overstated their benefits, the court said.

Further, in response to the employer’s argument that the plaintiffs had not made written requests for pension benefit statements, the court found that the plaintiffs’ online inquiries qualified as written requests for purposes of ERISA.

The employer also argued that it had not sent pension benefit statements in response to the plaintiffs’ requests because the plaintiffs had never requested this type of document. In the employer’s view, the plaintiffs requested “estimates of future benefits” premised on the assumption they would work for an additional period of time, rather than “pension benefit statements” based only on accrued benefits without assuming future accruals. Although the 9th Circuit agreed with the employer that ERISA requires an administrator to provide a statement conveying the benefits a participant has already accrued at the time of their request, rather than benefits they may accrue in the future, it added that more information is needed to make factual findings on the type of documents plaintiffs requested.

“We cannot be certain what type of statements plaintiffs requested because we do not have screenshots showing what plaintiffs saw on the benefits website and we lack details of what plaintiffs communicated by telephone,” the court said. “On this record, we are persuaded that plaintiffs have adequately pleaded that they requested pension benefit statements by following the [administrator’s] directions for accessing the plan’s website.”

Finally, the court refused to find that statutory penalties are not available to the plaintiffs as argued by the employer. In fact, the purpose of ERISA’s statutory daily penalties may apply with even more force for inaccurate, rather than missing, pension benefit statements. “Unlike a participant who does not receive any pension benefit statement and therefore does not know their retirement benefit, a participant who receives a significantly inaccurate statement may be affirmatively misled into believing that their pension will be greater than it is and make inadvisable decisions as a result,” the court noted.

The 9th Circuit reversed the district court’s dismissal of these claims and remanded the case for further proceedings.

Bafford v. Administrative Committee of the Northrop Grumman Pension Plan and Northrop Grumman Corp., 9th Cir., No. 22-55634 (May 9, 2024).

Rosemarie Lally, J.D., is a freelance legal writer based in Washington, D.C.