Company Erred in Cutting Off Retiree Supplement Payment

June 15, 2012 ( – An employer’s benefits committee abused its discretion when it eliminated an early retirement supplemental payment from retirees’ benefits.

By Rebecca Moore | June 15, 2012
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The 4th U.S. Circuit Court of Appeals noted that Washington Safety Management Solutions’ (WSMS) pension plan gives broad authority to the committee, granting it “total and complete discretion to interpret the plan.” However, the court said “even as an ERISA [Employee Retirement Income Security Act] plan confers discretion on its administrator to interpret the plan, the administrator is not free to alter the terms of the plan or to construe unambiguous terms other than as written.”  

In denying Noorali Sam Savani’s request for benefits, the committee found that ERISA’s anti-cutback statute was not violated because the $700 monthly benefit Savani had been receiving was not an “accrued benefit” within the meaning of ERISA.  The appellate court found the plain, unambiguous language of the plan contemplates inclusion of the supplement payment in its definition of “accrued benefit.” Because of this, the court said, the committee abused its discretion in denying Savani’s request for benefits.  

According to the court opinion, the plan defines “accrued benefit” as the “normal retirement Pension . . . less the WSRC offset . . . plus any applicable supplements as described in § 4.12 . . . .” So, prior to the plan’s amendment to eliminate the $700 monthly supplement payment, a beneficiary’s accrued benefit was calculated by an equation; the accrued benefit equaled the retiree’s pension, less a defined offset, plus applicable § 4.12 supplements.   

The company argued that the plan’s use of the qualifier “applicable” allowed the benefits committee to delete the $700 supplement without violating ERISA. However, the court said ignoring the plain language of the plan’s terms was not within the committee’s discretion, and the $700 early retirement benefit was applicable before the December 2004 amendment.