Employer Need Not Continue Mistaken Pension Payments

December 4, 2013 (PLANSPONSOR.com) – A federal appellate court has confirmed that General Motors need not continue pension payments made in error to a former employee.

The 6th U.S. Circuit Court of Appeals found that the plain language of the plan and the collective bargaining agreement (CBA) in place at the time Helen Adams was an employee says temporary employees do not get benefits. They further state that an employee ceases to be a temporary employee when his or her name is put on a seniority list. Adams’ name was never put on that list.

While the court says it was unfortunate that GM mistakenly paid Adams and has asked her to return the more than $46,000 in benefits she received, it points out the company was obliged to do so as a fiduciary for the plan participants under the Employee Retirement Income Security Act (ERISA).

Adams, who left GM on disability, argued that CBA language stating that those on sick leave are entitled to continuing service credits toward the pension created ambiguity. However, the court says the sections of the CBA she uses to make her argument add weight to GM’s interpretation rather than calling it into question. One section discusses the accumulation of seniority and credit “toward acquiring seniority”—implying that some other event triggers seniority.

Adams also contended that since an administrative law judge deemed her to be an employee for purposes of disability, GM must treat her as an employee for purposes of pension eligibility. The court says Adams never made this argument in the district court, so she forfeited it. But, even if it were to consider her argument, it would not succeed because Michigan’s worker’s compensation statute defines “employee” broadly, and does not contain a distinction between full and temporary employees like the plan language does.

Adams worked for GM intermittently during the 1970s until she suffered an injury on the job that made her unable to work. GM voluntarily paid Adams worker’s compensation benefits until January 1977. Since then, it has paid disability benefits as the result of an administrative proceeding.

GM paid Adams pension benefits for 21 months beginning in October 2007 that totaled $46,087.23. The company caught its mistake and shut off the payments to Adams. She petitioned to have them reinstated, but GM denied the requests, finding Adams was ineligible for pension benefits because she “never acquired seniority” and was “never on an approved leave of absence.”

After exhausting her administrative remedies, Adams filed suit in district court, which found GM’s decision to shut off payments was not arbitrary or capricious.

The opinion in Adams v. General Motors Company is here.