United States: Write Your ERISA Summary Plan Description To Inform – And To Win

Last Updated: September 10 2015
Article by Gary Lawson and Gus Fields

In June, 2015, the United States Court of Appeals for the Sixth Circuit, in Pearce v. Chrysler Group, L.L.C. Pension Plan, No.13-2374, again told an employer that it may have failed to adequately describe an employee benefit plan limitation and sent the case back to the lower court for further proceedings.

On the cusp of its bankruptcy filing, Chrysler offered certain employees a new incentive—$50,000 in cash plus a $25,000 voucher towards a new car—to elect early retirement. Chrysler's pension plan already included a "30-and-Out" benefit to help early retirees make ends meet until they became eligible for Social Security benefits. Chrysler provided Pension Statements to Mr. Pearce and others, and advised them to consult the Summary Plan Description (SPD) for more details.

When Chrysler offered the new incentive, Mr. Pearce was already eligible for the 30-and-Out benefit. However, after reading the SPD and talking with others, Pearce declined to take the offer. That same day, Chrysler terminated Pearce for allegedly improperly using a company car. The next day, Pearce applied for his pension benefits, including the 30-and-Out benefit. Chrysler denied his claim.

After an administrative appeal, the case was tried in the United States District Court for the Eastern District of Michigan. The district court ruled that conflicts between the terms of an SPD and a Pension Plan must be resolved in favor of the Pension Plan, denying Mr. Pearce's ERISA §502(a)(1)(B) claim 1.

On appeal, the Sixth Circuit recognized a point noted by the district court, i.e., that a conflict between the SPD and the Pension Plan can be addressed by a claim under ERISA § 502(a)(3), which allows a plan "participant, beneficiary, or fiduciary to obtain appropriate equitable relief to redress violations of...ERISA".

The Sixth Circuit quoted language often found in SPDs, which, of course, was included in Chrysler's Pension Plan's SPD, "If there is a conflict between this summary and the Plan document and trust agreement, the Plan document and trust agreement will govern."

The Chrysler SPD described the 30-and-Out benefit and then went on to state:

You do not need to be actively employed at retirement to be eligible for a supplement. However, you must retire and begin receiving pension benefits within five years of your last day of work for the Company in order to receive any supplements for which you are eligible. 

However, Chrysler pointed out that the Plan itself had a provision after the description of the eligibility rules for 30-and-Out that read:

Notwithstanding the foregoing, a Vested Terminated Participant who met the eligibility requirements for early retirement at the date his employment terminated shall not be eligible to receive an Early Retirement Supplement....

The Plan itself contained this definition:

"Vested Terminated Participant" is defined as "an individual whose employment with the Corporation ceased prior to the date he retired and who possessed a vested right to a Deferred Pension at the date of termination of his employment."

Chrysler logically argued that the Plan controlled and, since Pearce was a Vested Terminated Participant on the day he applied, he was ineligible for the 30-and-Out benefit supplement.

The Sixth Circuit agreed with Chrysler's position that Pearce's ERISA §502(a)(1)(B) claim was defeated, but disagreed with and overturned the trial court's holding that Pearce's motion to amend to add an ERISA §502(a)(3) claim was futile.

Citing 29 U.S.C. § 1022(b), the Sixth Circuit stated:

The SPD must include, inter alia, "the plan's requirements respecting eligibility for participation and benefits; a description of the provisions providing for nonforfeitable pension benefits; [and] circumstances which may result in disqualification, ineligibility, or denial or loss of benefits."

(emphasis added). In its opinion, the Sixth Circuit noted:

[T]he SPD offered no indication to Pearce that his eligibility was further contingent on his employment status at the time of retirement, and omitted the material limitation that appears in the Pension Plan regarding "Vested Terminated Participants." Thus, a "conflict" between the SPD and the Pension Plan exists because "the [SPD] misleads or fails to state additional requirements contained in the plan document.

(emphasis added). The court added:

Thus, the omission of the 'Vested Terminated Employee' sentence was anything but 'innocuous,' and, as a result, the SPD affirmatively 'misle[d] or fail[ed] to state additional requirements' for obtaining 30-and-Out benefits. See id. at 931; see also Edwards, 851 F.2d at 136 ('It is grossly unfair to hold an employee accountable for acts which disqualify him from benefits if he had no knowledge of these acts or if these conditions were stated in a misleading or incomprehensible manner in the plan booklets'). Thus, the district court abused its discretion when it denied Pearce's motion to add equitable claims under ERISA §502(a)(3) on the basis of futility.

It is inherently difficult to summarize a long and complex employee benefit pension or health and welfare plan in a way that the courts will conclude is well done such that every employee should be able to readily understand what the available benefits are and what must be done to earn those benefits.

The old adage "An ounce of prevention..." applies to SPDs. In Pearce v. Chrysler, an appellate case, both sides paid for a trial as well as an appeal to the Sixth Circuit. The Sixth Circuit then sent the case back to the district court for a second trial. All of this expensive litigation arose from an SPD that was just a bit – maybe just one sentence – too short. In fact, the court said, "It is notable that inclusion of a single sentence, the exclusion clause... would have easily prevented this misunderstanding from arising." (emphasis added).

Human resource and benefit managers and consultants have a great deal of knowledge about a company's employees and benefit plans. However, do they know how to meet established legal requirements to keep a company out of court (or at least on the winning side if sued)? Consider having a knowledgeable and experienced employee benefits attorney, who has perhaps seen the inside of a courthouse also, review your ERISA benefit plans' SPDs. You may save yourself the proverbial "pound of cure."


1. Cigna Corp. v Amara, 131 S. Ct. 1866 (2011).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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