4th Circuit Primer on ERISA Interpretation

Taking a relatively simple question of interpretation of an ERISA severance plan, the 4th Circuit covers a lot of ground in a straight forward manner. The facts were not disputed. Employee starts work in 1983 and leaves company voluntarily on May 12, 2000 to take another position. Unhappy with that job, he returned to the employer on August 7, 2000. When he was laid off in 2002, he argued he should have received severance based on 19 years of service, the company on 2. The determination was based on the Employment Commencement Date, a defined term.

Plaintiff's argue was simple. The definition was clear, plain and unambiguous:

Employment Commencement Date. "Employment Commencement Date" means the first day on which an Employee is employed by an Employer.

Since it was unambiguous, his employment must be construed to begin in 1983, not August of 2000.

The plan's position was equally straight forward. The administrator of the plan had power to interpret the plan. When viewed in context of the entire plan, it is clear that Employment Commencement Date could reasonably be interpreted to begin at the time of the re-hire, and so the committee's determination that he was only entitled to two years should be affirmed.

The courts were split, one found the definition unambiguous (plaintiff wins) the other "at least ambiguous" (plan wins). Unfortunately for the plaintiff, it was the latter position that was taken by the appellate court, Coluci v. Afga Corporation Severance Pay Plan (4th Cir. 11/28/05) [pdf].

On its way to that finding, the Court distilled several nuggets of ERISA interpretation. On the basics of interpretation:

-- the well established Firestone principle that when a plan by its terms confers discretion on the plan’s administrator to interpret its provisions and the administrator acts reasonably within the scope of that discretion, courts defer to the administrator’s interpretation;

-- notwithstanding Firestone an administrator is not free to alter the terms of the plan or to construe unambiguous terms other than as written; and

-- reasonableness must be determined within the context of the whole plan, not just one isolated definition.

And in response to challenges that the finding of the plan administrator should be viewed under a higher standard than abuse of discretion because of conflicts of interest, the Court offered more helpful guidance:

- "the simple and commonplace fact that a plan’s administrator is also its funder is not enough to support a finding of a conflict of interest that would cause an adjustment to our deference;

-- although Afga did not hire independent employees to administer the Plan, "this fact alone does not support the presumption of a conflict of interest, or even bias."; and finally,

-- the role of the Plan's counsel at the Committee meeting did not create a conflict that would alter the Court's standard of review:

This suggestion, [that the attorney's presence created a conflict] however, misunderstands the pertinent inquiry. Whether we heighten our scrutiny depends on an administrator’s purported conflicts, not conflicts of the administrator’s counsel. Moreover, Colucci fundamentally misconstrues [the attorney's] participation in the Administrative Committee’s consideration of his appeal. An attorney who advises his clients of their fiduciary obligations does not constructively become the beneficiary’s representative.

One could find worse starting places for an overview of ERISA interpretation cases.

And the 4th Circuit wasn't the only one considering severance pay yesterday, as the Strategic HR Lawyer was noting that Severance Pay Trends = Less based on a study by the out placement firm of Lee Hecht Harrison. A trend with which, after today's decision, Mr. Coluci is all too familiar.