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5500 Preparer's Manual for 2012 Plan Years

5500 Preparer's Manual for 2012 Plan Years
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CCH® PENSION — 06/14/10

Court applies equitable estoppel rules to pension cases with unambiguous terms

Equitable estoppel relief can be used to vary ERISA pension plan provisions that are unambiguous, the U.S. Court of Appeals in Cincinnati (CA-6) has ruled in Bloemker v. Laborers' Local 265 Pension Fund. Previously, in the Sixth Circuit, the court recognized equitable estoppel as a viable claim only in the welfare benefit context. Thus, the Sixth Circuit has joined several other circuits, including the Second, Third, Fifth, Seventh, and Ninth Circuits, in applying its equitable estoppel rules to pension cases involving extraordinary circumstances.


A laborer, who was a participant in his union's defined benefit pension plan, chose an early retirement option after he received a benefits election form certifying the amount of his monthly benefits. After he received pension benefits under the plan for almost two years, the pension plan administrator notified the retiree/beneficiary that the certified benefit calculation he had been receiving was incorrect due to a "computer programming error" and that his monthly benefit amount would need to be reduced by more than $500 per month. The administrator also informed the beneficiary that he was required to repay the more than $11,000 that he had been overpaid during that period.

After exhausting his administrative remedies under the plan, the retiree filed suit in district court, claiming that he had a contract under the plan, executed through the third-party plan administrator, for the larger amount of early retirement benefits. He argued that the plan and the TPA made material misrepresentations to him, which he relied on to his detriment, and that the plan and the TPA breached their fiduciary duties to him under ERISA. The district court construed the complaint as asserting a claim of equitable estoppel but noted that estoppel claims were limited to welfare benefit plans. Further, the district court concluded that the retiree could not make out a contract claim or a claim to recover benefits under ERISA, noting that the TPA was not a fiduciary and that the retiree had failed to plead that the plan or its trustees breached a fiduciary duty. The retiree appealed.

Invoking equitable estoppel

The Sixth Circuit first acknowledged that it has not previously recognized equitable estoppel as a viable claim in the pension benefit, as opposed to the welfare benefit, context, though it cited a number of other circuits that have allowed equitable estoppel actions to proceed in pension cases involving "extraordinary circumstances." The Sixth Circuit nonetheless ruled that a beneficiary could invoke equitable estoppel in situations involving unambiguous pension plan provisions where a plaintiff could demonstrate traditional estoppel elements. One required element, according to the court, includes the fact that the defendant engaged in intended deception or such gross negligence that it amounted to constructive fraud. Also required, the court indicated, are: (1) a written representation; (2) plan provisions which, though unambiguous, do not allow for individual calculation of benefits; and (3) extraordinary circumstances in which the balance of equities strongly favors the application of estoppel. In this instance, the court believed, all of these elements could be fulfilled by facts alleged by the beneficiary. Thus, the Sixth Circuit remanded the case to the federal district court.

However, the court rejected the beneficiary's claim under ERISA 502(a)(1)(B), ruling that the beneficiary could not recover benefits based on the benefit election form. According to the court, the benefit election form could not be viewed as a plan amendment or modification or a separate supplemental contract providing benefits in addition to those provided by the plan. Instead, the benefit election form merely provided an actuarially certified benefit that the beneficiary was entitled to, based on the plan. The court also rejected the beneficiary's breach of fiduciary duty claims against the pension plan and its plan administrator.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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