Idaho Court: SPD Not Controlling Document in Church Plan

June 30, 2005 (PLANSPONSOR.com) - Because the pension plan offered by an Idaho hospital was exempt from the Employee Retirement Income Security Act (ERISA) as a church plan, the plan itself and not the summary plan description (SPD) is legally controlling.

>The state’s high court threw out a previous decision by District Judge Michael McLaughlin that the hospital’s SPD would control a participant’s pension benefit rights, asserting instead that the SPD was merely a voluntary document created for the participants. The high court reversed the trial court’s ruling for Sorensen on her state-law claims of breach of contract, breach of fiduciary duty, and negligence.

Writing for the court, Chief Justice Gerald Shroeder also pointed out that the plan was the controlling contract because the plan and the SPD both stated that the participant’s rights were governed only by the plan. The justices split over the ruling, with Shroeder and two other members of the five-judge court in the majority in the Sorensen decision.

According to the court,   Sorensen participated in a pension plan that offered early retirement benefits through Saint Alphonsus Regional Medical Center’s parent corporation, Holy Cross Health Systems. In 1999, Holy Cross’s benefits specialist, relying on the plan’s SPD, told Sorensen she would be eligible to receive early retirement benefits if she reduced her hours. In May 2000, Sorensen did so and began to receive early retirement benefits until March 2002.

>At that point, according to the court, Sorensen met with the benefits specialist who gave her a letter from the hospital providing her with different work options, saying that Sorensen could not continue to work part time and receive early retirement benefits for the next four months because her arrangement and other similar arrangements threatened the tax-exempt status of the retirement plan. Sorensen left the company at that point and filed her lawsuit.

In the lower court, McLaughlin ruled for Sorensen on the grounds that the hospital breached the contract by failing to ensure that Sorensen received the proper benefits under the SPD, that the hospital acted in error when the benefits specialist failed to provide complete and accurate information to Sorensen, and that the hospital failed in its fiduciary duty to provide Sorensen with accurate information. A jury trial on damages returned an award of $84,000 for Sorensen.

>In reversing McLaughlin , the high court ruled that the hospital did not breach its   contract, the plan, or the obligation to act in good faith by trying to correct a discrepancy between the plan and the SPD when it denied Sorensen early retirement benefits that the plan did not actually provide.

>The majority said the company was not negligent when the benefits specialist gave mistaken information to Sorensen, since there was no damage because Sorensen received more benefits than she was entitled to receive. Finally, the state high court denied Sorensen the jury award for emotional distress, saying the act of taking away the benefits caused the distress, not the giving of the benefits.

>The opinion in Sorensen v. Saint Alphorns Regional Medical Center Inc., Idaho, No. 30476, 6/24/05 is  here .  

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