Employer Can Reduce Monthly Pension to Fix Error

March 8, 2010 (PLANSPONSOR.com) – A federal court has ruled that an employer did not breach its fiduciary duties by decreasing a retiree's monthly pension check to recover overpayments made to him due to a miscalculation of his benefit amount.

In fact, the U.S. District Court for the Eastern District of Tennessee found, citing a 6th U.S. Circuit Court of Appeals case, that “[the Employee Retirement Income Security Act] clearly assumes that trustees will act to ensure that a plan receives all funds to which it is entitled, so that those funds can be used on behalf of participants and beneficiaries.” The court also said fiduciary duties under ERISA also include those imposed under the common law of trusts, and under the law of trusts, a fiduciary is required “to perform the duties imposed, or exercise the powers conferred, by the trust documents.”

According to the court opinion, the Bethel Jacobs Company plan document provides the company with the responsibility to “correct errors.” U.S. District Judge Thomas W. Phillips said that issuing nearly $125,000 in overpayments to Clarence W. Sheward was a serious error that Bethel Jacobs was required to correct, and that failure to correct the error and recover the overpayments would have been a violation of Belthel Jacobs fiduciary duty to act on behalf of the trust and in the interests of the remaining participants and beneficiaries.

In addition, the court agreed with Bethel Jacobs that the employee who calculated Sheward’s pension amount and communicated it to him was not acting as a fiduciary of the plan, but was performing a ministerial function, and it said the mere fact that an error occurred in the calculation of Sheward’s benefits is not, in itself, a sufficient basis to support a claim for breach of fiduciary duty.

Sheward alleged that Bethel Jacobs breached its fiduciary duty by “erroneously and negligently miscalculating his pension benefits,” and claimed he relied on the company’s misrepresentation of his retirement benefit when making his retirement plans. The company, a federal contractor, did not offset Sheward’s monthly pension payment by his benefit from Lockheed Martin, the United States Enrichment Corporation (USEC), another federal contractor for which he worked, as required by law.

In granting summary judgment to Bethel Jacobs, the court also decided Sheward could not show that he relied on the alleged misrepresentation to his detriment, because he used the funds he received in the manner in which he had planned and had received a double payment of benefits during the time before Bethel Jacobs found its error.

The case is Sheward v. Bechtel Jacobs Co. Pension Plan for Grandfathered Employees, E.D. Tenn., No. 3:08-CV-428, 3/4/10.