:: Equitable Reformation Of Plan Permitted As § 502(a)(3) Relief

We have never considered whether § 502(a)(3) authorizes equitable reformation of an ERISA plan due to a scrivener’s error, but our case law addressing the related problem of ambiguous plan language suggests that such relief may be appropriate.

Young v. Verizon’s Bell Atl. Cash Balance Plan, 2010 U.S. App. LEXIS 16483 (7th Cir. Ill. Aug. 10, 2010)

In the typical ERISA case, the scope of relief under § 502(a)(3) poses a challenge for plan claimants.  In Young v. Verizon, however, the plan sought relief under (a)(3) to avoid paying benefits according to a benefit formula that it contended contained an error.

The formula itself was rather complicated, but the facts concerning its function do not really add much to appreciation of the key point of the opinion.

The following excerpt captures the essential issue:

“People make mistakes.  Even administrators of ERISA plans.” Conkright v. Frommert, 130 S. Ct. 1640, 1644, 176 L. Ed. 2d 469 (2010).  This introduction was fitting in Conkright, which dealt with a single honest mistake in the interpretation of an ERISA plan.  It is perhaps an understatement in this case, which involves a devastating drafting error in the multi-billion-dollar plan administered by Verizon Communications, Inc. (”Verizon”).

Verizon’s pension plan contains erroneous language  that, if enforced literally, would give Verizon pensioners like plaintiff Cynthia Young greater benefits than they expected. Young nonetheless seeks these additional benefits based on ERISA’s strict rules for enforcing plan terms as written.

The interesting twist here is that the plan defended by asserting by counterclaim the right to equitable reformation of the plan.   This strategy, apparently intimated as a possibility by the district court, required some foundation from the introduction of extrinsic evidence.

Taking the district court’s cue, Verizon counterclaimed for equitable reformation of the Plan to remove the second transition factor in § 16.5.1(a)(2) as a “scrivener’s error.”   The court took up Verizon’s counterclaim in the second phase of the trial, in which the court conducted a de novo review of the Plan and allowed the parties to introduce extrinsic evidence on the intended meaning of § 16.5.1(a)(2).   And that evidence overwhelmingly showed that the inclusion of the second transition factor was indeed a scrivener’s error.

After a survey of authorities, the court concludes that equitable relief is appropriate in this case, stating:

Although Young raises some forceful arguments, we conclude that ERISA’s rules are not so strict as to deny an employer equitable relief from the type of “scrivener’s error” that occurred here. We will accordingly affirm the district court’s judgment granting Verizon equitable reformation of its plan to correct the scrivener’s error.

Note: The surveyed authorities include the following cases:

  • Mathews v. Sears Pension Plan, 144 F.3d 461 (7th Cir. 1998) (”Although the plain language of the plan suggested a benefits formula more favorable to employees, the employer offered objective, extrinsic evidence showing an “extrinsic ambiguity” in this language.”)
  • Grun v. Pneumo Abex Corp., 163 F.3d 411, 420-21 (7th Cir. 1998) (”Reformation was inappropriate in Grun because the employee relied on the literal plan language to predict his right to severance compensation.”)
  • Int’l Union v. Murata Erie N. Am., Inc., 980 F.2d 889, 907 (3d Cir. 1992) (”Third Circuit . . . found equitable reformation appropriate because holding the employer to the scrivener’s error would produce “what is admittedly a ‘windfall’”)
  • Wilson v. Moog Auto., Inc. Pension Plan, 193 F.3d 1004, 1008-10 (8th Cir. 1999) (”Reformation was possible because extrinsic evidence showed that none of the plaintiffs actually relied on the erroneous plan language or believed that they would be eligible for early retirement.”)
  • Cinelli v. Sec. Pac. Corp., 61 F.3d 1437, 1444-45 (9th Cir. 1995) (rejecting an employee’s claim that the absence of a plan provision entitling him to vested life insurance benefits was a mistake)
  • Blackshear v. Reliance Standard Life Ins. Co., 509 F.3d 634, 643-44 (4th Cir. 2007), abrogated on other grounds as stated in Williams v. Metro. Life Ins. Co., Nos. 09-1025 & 09-1568, 2010 U.S. App. LEXIS 13328, 2010 WL 2599676, at *5 (4th Cir. June 30, 2010) (court declines to equitably reform an ERISA plan where the plan language was clear and neither the summary plan description nor other plan documents supported the employer’s claim of a scrivener’s error.)

Recurring factors noted in the cases are the potential for windfall, reliance by the parties (with some attention to administrative practice) and the parties’ expectations.