Plain Language Worth Millions to United Way

June 22, 2001 ( - A federal appeals court cut nearly in half the pension of United Way's former president, who is currently serving a seven-year prison sentence for cheating the charity out of hundreds of thousands of dollars.

After netting out court-imposed salary penalties and fines, William Aramony, 73, will get just $7,781 of what had originally been a $4.4 million pension.

Aramony was convicted in 1995 of defrauding the organization of about $600,000 to support a “lavish lifestyle”, as well as luxury travel for himself and his girlfriends.

What saved the day for this plan sponsor was the “clear, unambiguous language” in the plan document that limited the benefits accrued under the plan.

Case History

The United Way sponsored two executive compensation plans; a supplemental benefit agreement (SBA) and a replacement benefit plan (RBP).

The terms of the RBP plan said it was intended to restore executive benefits capped by 415 and by the exclusion of deferred compensation amounts under the formula used in the defined benefit plan. At issue was the additional coverage for benefits reduced by the application of IRC Section 401(a)(17), which caps considered compensation (at the time set at $200,000).

And while the Executive Committee met to consider — and approved — the expansion, it was never reflected in any plan document or amendment. Despite that fact, Aramony had received benefits statements reflecting a benefit that included the effect of an offset for the reduction from Sec. 401(s)(17).

First Impressions

The district court found that Aramony was not eligible for benefits under one of the programs in question, the Supplemental Benefits Agreement (SBA), and that he owed United Way for a breach of his fiduciary duty to the organization, to the tune of $2.02 million for salary he received from 1989 to 1992 –and fined him $300,000 –leaving him with about $2 million in benefits.

However, that same judge held that he was entitled to the full amount from the RBP, since the plan made no contrary provisions if he was convicted of a crime.

The court found that Aramony had justifiably relied, to his detriment, on the representations of the benefits statement ? and was entitled to the benefits represented under the RBP, including those representing an offset for “losses” incurred from the application of IRC 401(a)(17).

Back Again

However, on appeal the 2nd Circuit did not find sufficient evidence of the “extraordinary circumstances” required to justify promissory estoppel claims in ERISA cases — and sent the case back to the lower court for further consideration.

In that review, the lower court found a conflict between the stated purpose of the RBP –to make up lost benefits – and the effect of 401(a)(17), which is effectively to reduce benefits for higher paid workers. The judge also found evidence in the parties’ conduct that supported a finding that the benefits presented were, in fact, contemplated, and supported a judgment for Aramony.

Second Chance

On its second review of the case, the appellate court held that the language of the RBP was unambiguous, and that a “plain meaning” reading of the terms of the ERISA plan yielded a similarly unambiguous result.

The court held that the clear language of the plan document did not take into account benefits reduced by the application of IRC Section 401(a)(17). The three-judge panel made this determination despite the fact that benefits statements sent to Aramony reflected an assumption that these benefits were also included in his benefits package.

Judge Leval wrote, “It was always within contemplation that, just as Congress had limited qualified pension benefits with the passage of Section 415, it might do so again in unforeseeable