Employer Not Blocked from Correcting Benefits Level

December 2, 2005 (PLANSPONSOR.com) - A federal appeals court has tossed out a lower court ruling that an employer was blocked from correcting a miscalculated pension benefit level.

The US 5 th Circuit Court of Appeals ruled that while the Employee Retirement Income Security Act (ERISA) might block certain plan administration actions, that plaintiff  Frank Mello had not sufficiently proven the legal theory of estoppel – the mechanism that would be involved. The appellate court threw out the ruling for Mello by a judge in the US District Court for the Northern District of Mississippi and sent Mello’s case back for further proceedings.

In order to make the case that a particular plan administration action should be barred under estoppel by ERISA, wrote Circuit Judge Edith Brown Clement for the appellate judges, plaintiffs have to establish:

  • a material misrepresentation,
  • reasonable and detrimental reliance upon the misrepresentation,
  • extraordinary circumstances.

In Mello’s case, Clement asserted that the employer, Sara Lee, had made a material misrepresentation when it fouled up the calculation of Mello’s benefit on his benefit statements but concluded that Mello’s reliance on the informal benefit statements (and other oral representations) was not reasonable in the face of unambiguous plan terms.

The legal case was kicked off when Mello sued Sara Lee for underpayment of pension benefits, claiming that the company was barred from denying the benefits it had repeatedly and mistakenly estimated in his annual benefit statements. Sara Lee argued that it did not have to pay the higher amounts because the errors were not material misrepresentations.

The 5 th  Circuit decision in Mello v. Sara Lee Corp., is  here