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Sixth Circuit Rejects Claim for Reinstatement of Erroneous Benefit Payments to Ineligible Retiree




by:
Justin Stanley Alex
Proskauer Rose LLP - Washington Office

 
November 28, 2013

Previously published on November 26, 2013

In Adams v. General Motors Company (Case No. 12-2084), the Sixth Circuit rejected an ineligible retiree’s claim for reinstatement of erroneous benefit payments under her former employer’s pension plan. The retiree received benefit payments for twenty-one months before the plan administrator realized that she was ineligible for benefits under the plan and ceased further benefit payments. The retiree was employed by the employer for a few years in the 1970s before she was discharged on disability. The plan covered employees, but specifically excluded temporary employees. Under the terms of the applicable collective bargaining agreement, employees were regarded as temporary employees until their names were placed on the union seniority list. Her name was never added to the union seniority list, yet she received benefit payment until the error was discovered.

The plan granted the plan administrator discretion to determine eligibility. As a result, the court reviewed the plan administrator’s determination under the “arbitrary and capricious” standard. The plaintiff raised various arguments to assert that she was an eligible employee under the plan, but failed to convince the court that the plan administrator’s interpretations of the plan and the applicable collective bargaining agreement were arbitrary and capricious. Among other things, the court rejected the plaintiff’s collateral estoppel and res judicata claims that she was an employee for purposes of the plan based on a previous state administrative agency’s determination that she was an employee in the 1970s and her employer’s failure to deny that she was an employee before a state worker’s compensation appeal board. The court rejected both arguments noting that “employee” carries a different meaning under the state worker’s compensation statute and that ERISA-covered pension plans are governed by their own terms. The case is also an excellent reminder that plans can overcome estoppel claims and are not under an unconditional obligation to continue to pay erroneous benefits to individuals who are not eligible for benefits in the first instance.

Of course, proper correction for pension overpayments may also involve qualification issues for which the IRS EPCRS correction program may be appropriate. Additionally, there are fiduciary issues to consider as to whether it is necessary or appropriate for the plan to seek recoupment. Plan administrators seeking to correct overpayments should carefully consider their options.



 

The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.
 

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