Court: SPD Trumps Employer 'Summaries'

May 15, 2003 ( - Caps on annual pension plan payments that maintain a plan's tax-qualified status take precedence over information to the contrary in an employer's plan "summaries."

>The case centered on whether the documents handed out by the employer were a summary plan description (SPD) or not.   In this case the three “summaries” in question consisted of a single-page handout, a two-page brochure that covered the employer’s fringe benefits, and a section of the employee handbook. The 7th US Circuit Court of Appeal found these documents to not be an SPD, according to Washington-based legal publisher BNA.

>Therefore, the “documents prepared by an employer do not supersede those documents that establish the terms of a pension plan,” said Circuit Judge Frank Easterbrook, writing for the court. Conversely, conflicts between the compulsory SPD and the plan itself are resolved in favor of the SPD, the court said.

Promised Larger Pension

>Two doctors employed by Carle Clinic Association, Richard Helfrich and Daniel Nelson, alleged they were promised a pension that could be as large as 50% of average earnings. This contention came from the plan “summaries” the two had received.

>However, the total annual pension under the clinic’s ERISA-governed defined benefit plan could not exceed $160,000, since paying more would cost the plan its tax qualified status.  When the plan refused to exceed this ceiling, the doctors filed a lawsuit under ERISA Section 502(a) in the US District Court for the Central District of Illinois.

In the initial trial, the district court judge granted summary judgment to Carle Clinic, finding that the plan’s terms explicitly restricted payments to a level consistent with retaining tax advantages.   Affirming this decision was the appellate court.

>On appeal, the doctors claimed that the “summaries” handed out overrode the terms of the plan, none of which mentioned the cap.   However, the handouts were not SPDs, the court found, saying, “employer-prepared summaries . . . have no footing in ERISA and could not be enforced against the plan without disregarding the boundary between two distinct entities: the plan and the employer.”

>Noted instead by the court was the full description in the SPD of the $160,000 cap.   Even though the other “summaries” were prepared by the employer, the SPD takes precedence since “plans cannot control what miscellaneous recruiters and personnel managers say, nor does even a large employer’s human-resources staff draft descriptions with the precision that the plan itself will do,” the court ruled.

The case is Helfrich v. Carle Clinic Association, 7th Cir., No. 02-2765, 5/12/03.