BREYER, J., DISSENTING
CONKRIGHT V. FROMMERT
559 U. S. ____ (2010)
SUPREME COURT OF THE UNITED STATES
NO. 08-810
SALLY L. CONKRIGHT, et al., PETITIONERS
v. PAUL J. FROMMERT et al.
on writ of certiorari to the united states court of
appeals for the second circuit
[April 21, 2010]
Justice Breyer, with whom Justice
Stevens and Justice Ginsburg join, dissenting.
I agree with the Court that
“[p]eople make mistakes,”
ante, at 1, but I do not share
its view of the law applicable to those mistakes. To explain my
view, I shall describe the three significant mistakes involved in
this case.
I
A
The first mistake is that of
Xerox Corporation’s pension plan (Plan) and its administrators
(collectively, Plan Administrator), petitioners here. The Plan, as
I understand it, pays employees the highest of three benefits upon
retirement. App. 29a–31a. These benefits are calculated as follows
(I simplify and use my own words, not those of the Plan):
(1) “The Pension”: Take your average salary for
your five highest salary years at Xerox; multiply by 1.4 percent;
and multiply again by the number of years you worked at Xerox (up
to 30).
Id., at 7a–11a, 29a–30a. Thus, if the average
salary of your five highest paid years was $50,000 and you worked
at Xerox for 30 years, you would be entitled to receive $21,000 per
year ($50,000 1.4 percent 30).
(2) “The Cash Account”: Every year, Xerox credits 5 percent of
your salary to a cash account.
Id., at 40a. This account
accrues interest at a yearly fixed rate 1 percent above the 1-year
Treasury bill rate.
Id., at 41a. To determine your
benefits under this approach, take the balance of your cash account
and convert the final amount to an annuity.
Id., at 31a.
Thus, if you have accrued, say, $200,000 in your account and the
relevant annuity rate at the time of your retirement is 7 percent,
you would be entitled to receive approximately $14,000 per year
upon your retirement (approximately $200,000 7
percent).
(3) “The Investment Account”: Before 1990, Xerox contributed to
an employee profit sharing plan.
Id., at 33a–34a. Thus,
all employees who were hired by the end of 1989 have an investment
account that consists of all of the contributions Xerox made to
this profit sharing plan (prior to its discontinuation) and the
investment returns on those contributions.
Id., at
33a–36a. To determine your benefits under this approach, take the
balance of your investment account and convert the final amount to
an annuity.
Id., at 31a. Thus, just like the cash account,
if you have accrued $400,000 in your account and the relevant
annuity rate at the time of your retirement is 7 percent, you would
be entitled to receive approximately $28,000 per year upon your
retirement (approximately $400,000 7 percent).
Given these three examples, the retiring employee’s
pension would come from the investment account, and the employee
would receive $28,000 per year.
This case concerns one aspect of Xerox’s
retirement plan, namely, the way in which the Plan treats employees
who leave Xerox and later return, working for additional years
before their ultimate retirement. The Plan has long treated such
leaving-and-returning employees as follows (again, I simplify and
use my own words):
First, when an employee initially leaves, she
is paid a lump-sum distribution equivalent to the benefits she has
accrued up to that point (
i.e., the highest of her
pension, her cash account, or, if she was hired before the end of
1989, her investment account). See
ante, at
2
.
Second, when the employee returns, she again
begins to accrue amounts in her cash account, App. 40a–41a,
starting from scratch. (She accrues nothing in her investment
account, because Xerox no longer makes profit sharing
contributions.
Id., at 34a.) Thus, by the time of her
retirement the employee may not have accrued much money in this
account.
Third, a rehired employee’s pension is
calculated in the way I have set forth above, with her entire
tenure at Xerox (both before her departure and after her return)
taken into account. See Brief for Petitioners 9–10.
Fourth, the employee’s benefits calculation is
adjusted to take account of the fact that the employee has already
received a lump-sum distribution from the Plan. See App. 32a; Brief
for Petitioners 10–11.
This case is about the adjustment that takes
place during step four. It concerns the way in which the Plan
Administrator calculates that adjustment so as to reflect the fact
that a retiring leaving-and-returning employee has already received
a distribution when she initially left Xerox. Before 1989, the Plan
Administrator calculated the adjusted amount by taking the benefits
distribution previously received (say, $100,000) and adjusting it
to equal the amount that would have existed in the investment
account had no distribution been made.
Ibid. Thus, if an
employee had not left Xerox, and if the $100,000 had been left in
her investment account for, say, 20 years, that amount would likely
have increased dramatically—perhaps doubling, tripling, or
quadrupling in amount, depending upon how well the Plan’s
investments performed.
It is this
hypothetical sum—termed
the “phantom account,”
ante, at 2—that is at issue in this
case. Xerox’s pre-1989 Plan assumed that a rehired employee had
this hypothetical sum on hand at the time of her final retirement
from the company, and in effect subtracted the amount from the
employee’s benefits upon her departure. Brief for Petitioners
10–11; cf.
ante, at 2. Depending on how the Plan’s
investments did over time, the Administrator’s use of this “phantom
account” could have a substantial impact on a rehired employee’s
benefits. (See Appendix,
infra, for an example of how this
“phantom account” works.)
When the Plan Administrator amended Xerox’s
Employee Retirement Income Security Act of 1974 (ERISA) Plan in
1989, however, it made what it tells us was an “inadverten[t]”
omission. Brief for Petitioners 11, n. 3. In a section of the
1989 Plan applicable to the roughly 100 leaving-and-returning
employees who are plaintiffs here, the Plan said that it would
“offset” the retiring employees’ “accrued benefit” (as ordinarily
calculated) “by the accrued benefit attributable” to the prior
lump-sum “distribution” those employees received when they
initially left Xerox. App. 32a.
But the Plan said nothing about
how it would calculate this “offset.” In other words, the Plan
said nothing about the Administrator’s use of the “phantom
account.”
This led to the first mistake in this case.
Despite the Plan’s failure to include language explaining how the
Administrator would take into account an employee’s prior
distribution, the Plan Administrator continued to employ the
“phantom account” methodology. In essence, the Administrator read
the 1989 Plan to include the language that had been omitted—an
interpretation that, as described below, see Part I–B,
infra, the Court of Appeals found to be arbitrary and
capricious and in violation of ERISA.
B
The District Court committed the
second mistake in this case. In 1999, the respondents, nearly 100
employees who left and were later rehired by Xerox, brought this
lawsuit.
Ante, at 2; Brief for Petitioners ii–iii, 12.
They pointed out that the 1989 Plan said that it would decrease
their retirement benefits to reflect the fact that they had already
received a lump-sum benefits distribution when they initially left
Xerox. But, they added, neither the 1989 Plan, nor the 1989 Plan’s
Summary Plan Description, said anything about whether (or how) the
Administrator would adjust their previous benefits distribution to
take into account that they had received the distribution well
before their retirement. They thus claimed that the Plan
Administrator could not use the “phantom account” methodology to
adjust their previous distributions. See Brief for United States as
Amicus Curiae 4–5.
The District Court, however,
rejected respondents’ claims. 328 F. Supp. 2d 420 (WDNY
2004). The court accepted the Administrator’s argument that the
1989 Plan implicitly incorporated the “phantom account” approach
that had previously been part of Xerox’s retirement plan.
Id., at 433–434. And the court thus held in favor of
petitioners—thereby committing the second mistake in this case.
Id., at 439.
On appeal, the Second Circuit disagreed with
the District Court and vacated the District Court’s decision in
relevant part. 433 F. 3d 254 (2006). The Court of Appeals
concluded that, because the 1989 Plan said nothing about how the
Administrator would adjust the previous benefits distributions, it
was “arbitrary and capricious” for the Administrator to interpret
the 1989 Plan as if it still incorporated the “phantom account.”
Id., at 265–266, and n. 11. And the Court of Appeals
thus held that the language of the Plan and the Summary Plan
Description, at the least, violated ERISA by failing to provide
respondents with fair notice that the Administrator was going to
use the “phantom account” approach. See
id., at 265
(discussing 29 U. S. C. §1022); see also 433 F. 3d, at
263, 267–268 (holding that the Administrator’s attempt to apply the
“phantom account” to respondents violated two other ERISA
provisions: 29 U. S. C. §1054(h)’s notice requirement and
§1054(g)’s prohibition on retroactive benefit cutbacks). Rather,
the court noted, respondents “likely believed”—based on the
language of the Plan—“that their past distributions would only be
factored into their [current] benefits calculations by taking into
account the amounts they had actually received.” 433 F. 3d, at
267.
In light of these conclusions, the Court of
Appeals recognized the need to devise a remedy for the
Administrator’s abuse of discretion and ERISA violations—a remedy
that took into account the previous benefits distributions
respondents had received in a manner consistent with the 1989 Plan.
The court therefore remanded the case to the District Court, with
the following instructions:
“On remand, the remedy crafted by the district
court for those employees [in the respondents’ situation] should
utilize an appropriate [pre-1989 Plan] calculation to determine
their benefits. We recognize the difficulty that this task poses .
. . . As guidance for the district court, we suggest that it may
wish to employ equitable principles when determining the
appropriate calculation and fashioning the appropriate remedy.”
Id., at 268.
On remand, the District Court
invited the parties to submit remedial recommendations. Brief for
Petitioners 14. The Plan Administrator proposed an approach that
would adjust respondents’ previous benefits distributions by adding
interest, and, as a fallback, the Administrator suggested that the
Plan should treat respondents as new hires.
Ante, at 3;
Brief for United States as
Amicus Curiae 6–7. The District
Court rejected these suggestions and concluded that the
“appropriate” remedy was the one suggested by the Second Circuit:
no adjustment to the prior distributions received by respondents.
472 F. Supp. 2d 452, 458 (WDNY 2007). The court stated
that this remedy was “straightforward; it adequately prevent[ed]
employees from receiving a windfall[;] and . . . it most clearly
reflect[ed] what a reasonable employee would have anticipated based
on the not-very-clear language in the Plan.”
Ibid. And the
Court of Appeals, finding that the District Court did not abuse its
discretion in crafting a remedy, affirmed. 535 F. 3d 111 (CA2
2008).
II
The third mistake, I believe, is
the Court’s. As the majority recognizes,
ante, at 4,
“principles of trust law” guide this Court in “determining the
appropriate standard” by which to review the actions of an ERISA
plan administrator.
Firestone Tire & Rubber Co. v.
Bruch,
489
U. S. 101, 111–113 (1989); see also
Metropolitan Life Ins.
Co. v.
Glenn, 554 U. S. ___, ___ (2008) (slip op., at
4);
Aetna Health Inc. v.
Davila,
542 U. S. 200, 218–219
(2004);
Central States, Southeast & Southwest Areas Pension
Fund v.
Central Transport, Inc.,
472 U. S. 559, 570 (1985). And, as the
majority also recognizes,
ante, at 4, where an ERISA plan
grants an administrator the discretionary authority to interpret
plan terms, trust law
requires a court to defer to the
plan administrator’s interpretation of plan terms. See,
e.g., Glenn,
supra, at ____ (slip op.,
at 4). But the majority further concludes that trust law “does not
resolve the specific issue before” the Court in this
case—
i.e., whether a court is
required to defer
to an administrator’s
second attempt at interpreting plan
documents
, even after the court has already determined
that the administrator’s first attempt amounted to an abuse of
discretion.
Ante, at 9. In my view, this final conclusion
is erroneous, as trust law imposes no such rigid and inflexible
requirement.
The Second Circuit found the
Administrator’s interpretation of the Plan to be arbitrary and
capricious and in violation of ERISA, and it made clear that the
District Court’s task on remand was to “craf[t]” a “remedy.” See
433 F. 3d, at 268. Trust law treatise writers say that in
these circumstances a court
may (but need not) exercise
its own discretion rather than defer to a trustee’s interpretation
of trust language. See G. Bogert & G. Bogert, Law of Trusts and
Trustees §560, pp. 222–223 (2d rev. ed. 1980) (hereinafter Bogert
& Bogert) (after finding an abuse of discretion, a court may
“decid[e] for the trustee how he should act,” possibly by “stating
the exact result” the court “desires to achieve”); see also 2
Restatement (Third) of Trusts §50, p. 258 (2001) (hereinafter Third
Restatement) (“A discretionary power conferred upon the trustee …
is subject to judicial control only to prevent misinterpretation or
abuse of the discretion by the trustee”); 1 Restatement (Second) of
Trusts §187, p. 402 (1957) (hereinafter Second Restatement)
(“Where discretion is conferred upon the trustee … , its
exercise is not subject to control by the court, except to prevent
an abuse by the trustee of his discretion”); see also
Firestone,
supra, at 111. Judges deciding trust
law cases have said the same. See,
e.g., Colton v.
Colton,
127
U. S. 300, 322 (1888) (stating that it was the “duty of the
court” to determine the trust payments due after rejecting the
trustee’s interpretation);
State v.
Rubion, 158
Tex. 43, 55, 308 S. W. 2d 4, 11 (1957) (“Considering that we
have held that there has already been an abuse of discretion by the
trustee … , we have concluded that a remand of the case to the
trial court for the definite establishment of amounts to be paid
will better promote a speedy administration of justice and a final
termination of this litigation”);
Glenn,
supra,
at ____ (Scalia, J., dissenting) (slip op., at 5) (court may
exercise discretion under trust law when a “trustee had discretion
but abused it”). In short, the controlling trust law principle
appears to be that, “[w]here the court finds that there has been an
abuse of a discretionary power, the decree to be rendered is in its
discretion.” Bogert & Bogert §560, at 222.
Of course, the fact that trust law grants
courts discretion does not mean that they will exercise that
discretion in all instances. The majority refers to the 2007
edition of Scott on Trusts,
ante, at 6, which says that,
if there is “no reason” to doubt that a trustee “will … fairly
exercise” his “discretion,” then courts “
ordinarily will
not fix the amount” of a payment “but will instead direct the
trustee to make reasonable provision for the beneficiary’s
support,” 3 A. Scott, W. Fratcher, & M. Ascher, Scott and
Ascher on Trusts §18.2.1, pp. 1348–1349 (5th ed. 2007) (emphasis
added). As this passage demonstrates, there are situations in which
a court will typically defer to a trustee’s remedial suggestion.
The word “ordinarily” confirms, however, that the Scott treatise
writers recognize that there are instances in which courts will
not defer. And other treatises indicate that black letter
trust law gives the district courts authority to decide which
instances are which. See Bogert & Bogert §560, at 222–223 (when
there is an abuse of discretion, a court “may set aside the
transaction,” “award damages to the beneficiary,” or “order a new
decision to be made in the light of rules expounded by the court”);
2 Third Restatement §50, and Comment
b, at 261 (discussing
similar remedial options); 1 Second Restatement §187, and Comment
b, at 402 (same); see also 3 Third Restatement §87, and
Comment
c, at 244–245 (noting that “judicial intervention
on the ground of abuse” is allowed when a “good-faith,” yet
“unreasonable,” decision is made by a trustee);
Rubion,
supra, at 54–55, 308 S. W. 2d, at 11 (discussing a
court’s remedial options).
Nevertheless, the majority reads the Scott
treatise as establishing an absolute requirement that courts defer
to a trustee’s fallback position absent “reason to believe that
[the trustee] will not exercise [his] discretion fairly—for
example, upon a showing that the trustee has already acted in bad
faith.”
Ante, at 6. And based on this reading, the
majority further concludes that the existence of the Scott treatise
creates uncertainty as to whether, under basic trust law
principles, a court has the power to craft a remedy for a trustee’s
abuse of discretion.
Ante, at 6–9.
It is unclear to me, however, why the majority
reads the passage from Scott as creating a war among treatise
writers, compare
ante, at 6 (discussing Scott) with
ante, at 8 (discussing Bogert), when the relevant passages
can so easily be read as consistent with one another. I simply read
the Scott treatise language as identifying circumstances in which
courts typically
choose to defer to an administrator’s
fallback position. The treatise does not suggest that the law
forbids a court from acting on its own in the exercise of its broad
remedial authority—authority that trust law plainly grants to
supervising courts. See
supra, at 8–9.
A closer look at the Scott treatise confirms
this understanding. The treatise cites seven cases in support of
the passage upon which the majority relies. See 3 Scott §18.2.1, at
1349, n. 4. Three of these cases explicitly state that a court
may exercise its discretion to craft a remedy if a trustee
has previously abused its discretion. See
Old Colony Trust
Co. v.
Rodd, 356 Mass. 584, 589, 254 N. E. 2d
886, 889 (1970) (“A court of equity may control a trustee in the
exercise of a fiduciary discretion if it fails to observe standards
of judgment apparent from the applicable instrument”);
In re Marre’s Estate, 18 Cal. 2d 184, 190, 114
P. 2d 586, 590–591 (1941) (“It is well settled that the courts
will not attempt to exercise discretion which has been confided to
a trustee
unless it is clear that the trustee has abused
his discretion
in some manner” (emphasis added));
In re Ferrall’s Estate, 92 Cal. App. 2d 712, 716–717,
207 P. 2d 1077, 1079–1080 (1949) (following
In re
Marre’s Estate). Three other cases are inapposite because
their circumstances do not involve
any allegation of abuse
of discretion by the trustee. See
In re Ziegler’s
Trusts, 157 So. 2d 549, 550 (Fla. Dist. Ct. App. 1963)
(per curiam) (“There is no contention here that the court
. . . would not retain its rights, upon appropriate petition or
other pleadings by an interested party, to review an alleged abuse,
if any, of the discretion exercised by the trustees”);
In re Grubel’s Will, 37 Misc. 2d 910, 911, 235
N. Y. S. 2d 21, 23 (Surr. Ct. 1962) (stating that “in the
first instance” it is the “proper function of the
trustees” to set an amount to be paid (emphasis added));
Orr v.
Moses, 94 N. H. 309, 312, 52
A. 2d 128, 130 (1947) (declining to construe will because none
“of the parties now assert claims adverse to any position taken by
the trustee”). In the final case, the court decided that, on the
facts before it, it did not need to control the trustees’
discretion. See
Estate of Stillman, 107 Misc. 2d 102, 111,
433 N. Y. S. 2d 701 (Surr. Ct. 1980) (“The fine record of
the trustees in enhancing the equity of these trusts while earning
substantial income, also persuades the court of the wisdom of
retaining their services as fiduciaries”). Which of these cases
says that, after the trustee has abused its discretion, a district
court
must still defer to the trustee?
None of them
do. I repeat: Not a single case cited by the Scott treatise
writers supports the majority’s reading of the treatise.
The majority seeks to justify its reading of
the Scott treatise by referring to four cases that Scott does not
cite. See
ante, at 7, n. 1. I am not surprised that
the treatise does not refer to these cases. In the first three, a
court thought it best, when a trustee had not yet exercised
judgment about a particular matter, to direct the trustee to do so.
See
In re Sullivan’s Will, 144 Neb. 36, 40–41, 12
N. W. 2d 148, 150–151 (1943) (finding that the trustees’
“failure to act” was erroneous, and directing the trustees to
exercise their discretion in setting a payment amount);
Eaton v.
Eaton, 82 N. H. 216, 218, 132 A.
10, 11 (1926) (same);
Finch v.
Wachovia Bank &
Trust Co., 156 N. C. App. 343, 347–348, 577 S. E. 2d
306, 309–310 (2003) (holding trustee erred by “[f]ail[ing] to
exercise judgment,” and directing it to do so). The fourth case
concerns circumstances so distant from those before us that it is
difficult to know what to say. (The question was whether the
beneficiary of a small trust had title in certain trust assets or
whether the trustee had discretionary power to allocate them in her
best interest; the court held the latter, adding that, if the
trustee acted unreasonably, the lower court in that particular case
should seek to have the trustee removed rather than trying to
administer the trust funds itself.) See
Hanford v.
Clancy, 87 N. H. 458, 460–461, 183 A. 271, 272–273
(1936).
I cannot read these four cases, or any other
case to which the majority refers, as holding that a court, as a
general matter, is
required to defer to a trust
administrator’s
second attempt at exercising discretion.
And I am aware of no such case. In contrast, the Restatement and
Bogert and Scott treatises identify numerous cases in which courts
have remedied a trustee’s abuse of discretion by ordering the
trustee to pay a specific amount. See 2 Third Restatement §50,
Reporter’s Note, at 283 (citing cases such as
Coker v.
Coker, 208 Ala. 354, 94 So. 566 (1922)); Bogert &
Bogert §560, at 223, n. 19 (citing cases such as
Rubion); 3 Scott §18.2.1, at 1348–1349, nn. 3–4
(citing cases such as
Emmert v.
Old Nat. Bank of
Martinsburg, 162 W. Va. 48, 246 S. E. 2d 236
(1978)); see also Brief for United States as
Amicus Curiae
18 (listing cases). I thus do not find trust law “unclear” on this
matter.
Ante, at 6. When a trustee abuses its discretion,
trust law grants courts the authority either to defer anew to the
trustee’s discretion or to craft a remedy. See,
e.g., 3 A.
Scott & W. Fratcher, Scott on Trusts §187, pp. 14–15 (4th
ed. 1988) (“This ordinarily means that so long as [the trustee]
acts not only in good faith and from proper motives, but also
within the bounds of reasonable judgment, the court will not
interfere; but the court will inter- fere when he acts outside the
bounds of a reasonable judgment”).
Nor does anything in the present case suggest
that the District Court abused its remedial authority. The Second
Circuit stated that the interpretive problem on remand was in
essence a remedial problem. See 433 F. 3d, at 268. It added
that the remedial problem was “difficul[t]” and that “the district
court … may wish to employ equitable principles when determining
the appropriate calculation and fashioning the appropriate remedy.”
Ibid. The Administrator had previously abused his
discretionary power.
Id., at 265–268. And the District
Court found that the Administrator’s primary remedial suggestion on
remand—adjusting respondents’ previous benefits distributions by
adding interest—probably would have violated ERISA’s notice
provisions. 472 F. Supp. 2d, at 457. Under these
circumstances, the District Court reasonably could have found a
need to use its own remedial judgment, rather than rely on the
Administrator’s—which is just what the Second Circuit said. 535
F. 3d, at 119.
Moreover, even if the “narrow” trust law
“question before us” were difficult,
ante, at 6—which it
is not—this difficulty would not excuse the Court from trying to do
its best to work out a legal solution that nonetheless respects
basic principles of trust law. “Congress invoked the common law of
trusts” in enacting ERISA, and this Court has thus repeatedly
looked to trust law in order to determine “the particular duties
and powers” of ERISA plan administrators.
Central States,
Southeast & Southwest Areas Pension Fund v.
Central
Transport, Inc.,
472 U. S. 559, 570–572 (1985); see
also,
e.g., Glenn, 554 U. S., at ___ (slip op.,
at 4);
Davila, 542 U. S., at 218–219;
Firestone,
489 U. S., at 111–113. While, as the majority recognizes,
ante, at 8, trust law may “not tell the entire story,”
Varity Corp. v.
Howe,
516 U. S. 489, 497
(1996), I am aware of no other case in which this Court has simply
ignored trust law (on the basis that it was unclear) and crafted a
legal rule based on nothing but “the guiding principles we have
identified underlying ERISA,”
ante, at 9. See
Varity,
supra, at 497 (“In some instances,
trust law will offer only a starting point, after which
courts must go on to ask whether, or to what extent, the language
of the statute, its structure, or its purposes require departing
from common-law trust requirements” (emphasis added)).
In any event, it is far from clear that the
Court’s legal rule reflects an appropriate analysis of ERISA-based
policy. To the contrary, the majority’s absolute “one free honest
mistake” rule is impractical, for it requires courts to determine
what is “honest,” encourages appeals on the point, and threatens to
delay further proceedings that already take too long. (Respondents
initially filed this retirement benefits case in 1999.) See
Glenn,
supra, at ___ (slip op., at 10). It also
ignores what we previously have pointed out—namely, that abuses of
discretion “arise in too many contexts” and “concern too many
circumstances” for this Court “to come up with a one-size-fits-all
procedural [approach] that is likely to promote fair and accurate”
benefits determinations.
Ibid. And, finally, the
majority’s approach creates incentives for administrators to take
“one free shot” at employer-favorable plan interpretations and to
draft ambiguous retirement plans in the first instance with the
expectation that they will have repeated opportunities to interpret
(and possibly reinterpret) the ambiguous terms. I thus fail to see
how the majority’s “one free honest mistake” approach furthers
ERISA’s core purpose of “promot[ing] the interests of employees and
their beneficiaries in employee benefit plans.”
Shaw v.
Delta Air Lines, Inc.,
463 U. S. 85, 90 (1983);
see also,
e.g., 29 U. S. C. §1001(b) (noting that
ERISA was enacted “to protect … employee benefit plans and their
beneficiaries”);
Curtiss-Wright Corp. v.
Schoonejongen,
514 U. S. 73, 83 (1995)
(discussing ERISA’s central “goa[l]” of “enab[ing] plan
beneficiaries to learn their rights and obligations at any time”);
Massachusetts Mut. Life Ins. Co. v.
Russell,
473 U. S. 134,
148 (1985) (ERISA was enacted “to protect contractually defined
benefits”).
The majority does identify ERISA-related
factors—
e.g., promoting predictability and uniformity,
encouraging employers to adopt strong plans—that it believes favor
giving more power to plan administrators. See
ante, at
9–13. But, in my view, these factors are, at the least, offset by
the factors discussed above—
e.g., discouraging
administrators from writing opaque plans and interpreting them
aggressively—that argue to the contrary. At best, the policies at
issue—some arguing in one direction, some the other—are far less
able than trust law to provide a “guiding principle.” Thus, I
conclude that here, as elsewhere, trust law ultimately provides the
best way for courts to approach the administration and
interpretation of ERISA. See,
e.g., Firestone,
supra, at 111–113. And trust law here, as I have said,
leaves to the supervising court the decision as to how much weight
to give to a plan administrator’s remedial opinion.
III
Since the District Court was not
required to defer to the Administrator’s fallback position, I
should consider the second question presented, namely, whether the
Court of Appeals properly reviewed the District Court’s decision
under an “abuse of discretion” standard.
Ante, at 4
(acknowledging, but not reaching, this issue). The answer to this
question depends upon how one characterizes the Court of Appeals’
decision. If the court deferred to the District Court’s
interpretation of Plan terms, then the Court of Appeals most likely
should have reviewed the decision
de novo. See
Firestone, supra, at 112; cf.
Davila,
supra, at 210 (“Any dispute over the precise terms of the
plan is resolved by a court under a
de novo review
standard”). If instead the Court of Appeals deferred to the
District Court’s creation of a remedy, in significant part on the
basis of “equitable principles,” then it properly reviewed the
District Court decision for “abuse of discretion.” See,
e.g.,
Cook v.
Liberty Life Assurance Co., 320 F. 3d
11, 24 (CA1 2003);
Zervos v.
Verizon N. Y.,
Inc., 277 F. 3d 635, 648 (CA2 2002);
Grosz-Salomon v.
Paul Revere Life Ins. Co., 237
F. 3d 1154, 1163 (CA9 2001);
Halpin v.
W. W.
Grainger, Inc., 962 F. 2d 685, 697 (CA7 1992).
The District Court opinion
contains language that supports either characterization. On the one
hand, the court wrote that its task was to “interpret the Plan as
written.” 472 F. Supp. 2d, at 457. On the other hand, the
court said that “virtually nothing is set forth in either the Plan
or the [Summary Plan Description]” about how to treat prior
distributions; and, in describing its task, it said that the Court
of Appeals had directed it to use “equitable principles” in
fashioning a remedy.
Ibid. Ultimately, the District Court
appears to have used both the Plan language and equitable
principles to arrive at its conclusion. See
id., at
457–459.
The Court of Appeals, too, used language that
supports both characterizations. Compare 535 F. 3d, at 117
(noting that the District Court “applied [Plan] terms” in crafting
its remedy), with
id., at 117–119 (describing the District
Court’s decision as the “craft[ing]” of a “remedy” and
acknowledging that it had directed the District Court to use
“equitable principles” in doing so). But the Court of Appeals
ultimately treated the District Court’s opinion as if it primarily
created a fair remedy.
Ibid. Given the prior Court of
Appeals opinion’s language,
supra, at 6 (quoting 433
F. 3d, at 268), I believe that view is a fair, indeed a
correct, view. And I consequently believe the Court of Appeals
properly reviewed the result for an “abuse of discretion.”
Petitioners argue that, because respondents
were seeking relief under 29 U. S. C. §1132(a)(1)(B), the
Court of Appeals was, in effect, prohibited from treating the
remedy as anything other than an application of a plan’s terms.
Brief for Petitioners 55–56; Reply Brief for Petitioners 3, and
n. 8, 16–17. While this provision allows plaintiffs only to
“enforce” or “clarify” rights or to “recover benefits” “
under
the terms of the plan,
” §1132(a)(1)(B) (emphasis
added), it does not so limit a court’s remedial authority,
Great-West Life & Annuity Ins. Co. v.
Knudson,
534 U. S. 204, 221
(2002) (In §1132(a)(1)(B), “Congress authorized ‘a participant or
beneficiary’ to bring a civil action … without referenc[ing]
whether the relief sought is legal or equitable”). The provision
thus does not prohibit a court from shaping relief through the
application of equitable principles, as trust law plainly permits.
See,
e.g., 2 Third Restatement §50, and Comment
b, at 261 (discussing remedial options); Bogert &
Bogert §870, at 123–126 (2d rev. ed. 1995). Indeed, a court that
finds, for example, that an administrator provided employees with
inadequate notice of a plan’s terms (as was true here) may have no
alternative but to rely significantly upon those principles. Cf. 29
U. S. C. §1104(a)(1)(D) (plan fiduciary must “discharge his
dut[y] … in accordance with the documents and instruments governing
the plan insofar as such documents and instruments are consistent”
with ERISA).
For these reasons I would affirm the decision
of the Court of Appeals. And I therefore respectfully dissent from
the majority’s contrary determination.
APPENDIX
The “Phantom Account”
This Appendix provides a
simplified and illustrative example of, as I understand it, how the
“phantom account” works. For the purposes of this Appendix, I make
the following assumptions: John worked at Xerox for 10 years from
1970 to 1980. At the time of his departure from Xerox, he was
issued a lump-sum benefits distribution of $140,000. He was then
rehired in January 1989, and he worked for Xerox for 5 more years
before retiring (until December 1993), earning $50,000 each year of
his second term of employment. I also assume that (1) Xerox’s
contribution to John’s investment account was $2,500 in 1989 (the
last year such accounts were offered), (2) Xerox’s contributions to
John’s cash and investment accounts are always made on the final
day of the year, (3) the rate of return in John’s cash and
investment accounts is always 5 percent, and (4) annuity rates are
also always 5 percent. (For the sake of simplicity, I treat all
annuities as perpetuities, meaning that I calculate the present
value of the annuities thusly: Present Value = Annual
Payment/Annuity Rate.)
Given the above assumptions,
John’s pension upon his retirement would be $10,500 per year
($50,000 1.4 percent 15 years), which has a
present value of $210,000 ($10,500/5 percent). John’s cash and
investment accounts at the end of his fifth year would look as
follows (While Xerox’s ERISA Plan did not include cash accounts
until 1990, each employee’s opening cash account balance was
credited with the balance of his investment account at the end of
1989. The figures for John’s cash account in 1989 thus reflect the
performance of his investment account. In addition, all numbers are
rounded to the nearest hundred):
Year
(A) Inv. Account: Xerox Contributions
(B) Inv. Account: Accrued Since Return
(C) Inv. Account: Phantom Account
(D) Inv. Account: Total (Columns B+C)
(E) Cash Account: Xerox Contributions
(F) Cash Account: Accrued Since Return
(G) Cash Account: Phantom Account
(H) Cash Account: Total (Columns F+G)
1989
2,500
2,500
217,200
219,700
2,500
2,500
217,200
219,700
1990
0
2,600
228,000
230,700
2,500
5,100
228,000
233,200
1991
0
2,800
239,400
242,200
2,500
7,900
239,400
247,300
1992
0
2,900
251,400
254,300
2,500
10,800
251,400
262,200
1993
0
3,000
264,000
267,000
2,500
13,800
264,000
277,800
Now, as far as I understand it,
John’s retirement benefits are calculated as follows, see 433
F. 3d, at 260:
First, the Plan
Administrator would choose which of John’s three accounts would
yield him the greatest benefits. In making this comparison, the
Plan Administrator would assume that John had never left Xerox when
calculating John’s pension. The Plan Administrator would also
assume, when calculating the value of John’s cash and investment
accounts, that the lump-sum distribution John had received from
Xerox had remained invested in his accounts. (In other words, the
Plan Administrator would include the “phantom account” in his
calculations. The total value of this phantom account in 1989, when
John rejoined Xerox, is equal to John’s lump-sum distribution of
$140,000 1.05
9, or approximately
$217,200.)
The Plan
Administrator would thus compare John’s pension, column D, and
column H to determine John’s benefit. As you can see above, column
H provides the greatest benefit, so John’s cash account would be
used to calculate the benefits he would receive upon
retirement.
Second,
the Plan Administrator would “offset” John’s prior distribution
against his current benefits to determine the amount of benefits
John would actually receive. Thus, the Plan Administrator would
take the “total” value of John’s cash account, including the
“phantom account” ($277,800), and subtract out the value of the
“phantom account” ($264,000). The total present value of the
benefits John would receive upon his second retirement would thus
be $13,800.
This means that
John would receive approximately $690 annually
($13,800 5 percent) upon retirement under the Plan
Administrator’s “phantom account” approach. In comparison, if John
had simply been treated as a new employee when he was rehired, his
pension would have entitled him to at least $3,500 annually
($50,000 1.4 percent 5 years) upon his
retirement. And the impact of the “phantom account” may have been
even more dramatic with respect to some of the respondents in this
case. See Brief for Respondents 24 (describing how respondent Paul
Frommert erroneously received a report claiming that his retirement
benefits were $2,482.00 per month, before later discovering that,
because of the “phantom account,” his actual monthly pension was
$5.31 per month); see also App. 63a.
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