Applying equitable estoppel to ERISA pension benefit claims.

Author:McGonigle, Adam S.

TABLE OF CONTENTS INTRODUCTION I. BACKGROUND A. Pension Benefit Disputes Under American Common Law B. Pension Benefit Disputes After the Taft-Hartley Act II. EMPLOYEE RETIREMENT INCOME SECURITY ACT (ERISA) OF 1974 A. Build Up to ERISA B. Overview of ERISA 1. ERISA's Employee Pension Protections 2. Employee Remedies Under ERISA III. CRITIQUE OF PRE-CIGNA CIRCUIT COURT ERISA ESTOPPEL FORMULAS A. "Ambiguous" Provision Limitation B. "Extraordinary Circumstances" Limitation 1. "Extraordinary Circumstances" Limitation Not Consistent with Traditional Notions of Equitable Estoppel 2. "Extraordinary Circumstances" Limitation Not Consistent with Congress 's Purpose in Enacting ERISA IV. CRITIQUE OF THE SIXTH CIRCUIT'S PRE-CIGNA ERISA EQUITABLE ESTOPPEL FORMULA A. Sixth Circuit's "Reasonableness" Definition Is Not Reasonable B. Sixth Circuit's Formula Leaves "Gross Negligence" Undefined V. PROPOSED ERISA EQUITABLE ESTOPPEL FORMULA CONCLUSION "[H]e who by his language or conduct leads another to do what he would not otherwise have done, shall not subject such person to loss or injury by disappointing the expectations upon which he acted." (1)


Consider the following situation: A longtime employee at a nearby manufacturing plant receives a written pension benefit statement from his longtime employer. (2) The statement clearly provides that after his many years of loyal service to the company, the employee is eligible for early retirement when he turns sixty and, upon his early retirement, will receive a monthly pension benefit of $3,000.

The employee, unable to verify the $3,000 figure on his own due to the complexity of the benefits calculation, (3) contacts his employer to confirm the figure. On multiple occasions over the course of several months, the employer confirms the $3,000 figure to the employee in both written statements and in telephone conversations.

On his sixtieth birthday, the employee, tired after decades of work, anxious to enter a new phase of life, and confident that his pension will be sufficient to care for him and his wife in their remaining years, finally accepts early retirement. This scenario is common in the United States, where the pension has long been considered the final reward of the American Dream. (4) But what happens next is a nightmare.

Just a few short months after the employee and his wife retire, the employee receives a letter in the mail from his former employer. The letter states that the employer miscalculated the employee's monthly pension benefit. Although the employee would have been eligible to receive a $3,000 monthly benefit if he had retired at age sixty-five, because he retired at age sixty, his actual monthly benefit is a mere $900 per month. The letter then informs the employee that he will no longer receive the $3,000 check every month and demands that the employee repay the employer for the previous months' overpayments. (5)

The letter closes with a brief apology from the employer for "any inconvenience this may have caused" the employee, but the apology offers little consolation. The employee and his wife are out of work, and the $900 monthly pension benefit is not nearly enough to cover the car payment, groceries, and utilities, let alone their medications. Even worse, neither can find a new job because no employer wants to hire a sixty-year-old disgruntled worker. Because the pension is not enough to live on, however, they have no choice but to look for new work.

One might think that the employee and his wife a beneficiary to the pension--could bring suit in state court under any number of contract or tort causes of action, but the employee's remedies are actually much more limited. The employee's claims are governed by the Employee Retirement Income Security Act (ERISA), (6) which preempts all state law causes of action, including all tort and contract claims, (7) and severely limits the legal remedies available to the employee. (8) The only way the employee can recover the $3,000 monthly benefit is if he brings an estoppel claim against his employer to prevent the employer from asserting that the $3,000 monthly benefit conflicts with the actual pension plan. Unfortunately, however, most federal courts permit ERISA estoppel claims only under the most narrow of circumstances and would not permit this employee's claim. (9) Unless these narrow ERISA estoppel formulations change, the employee has no recourse. (10)

The specific facts of this scenario are loosely based on several cases in which the courts denied the plaintiff-employees' ERISA estoppel claims, (11) so it should be disconcerting that such a result could occur to the 114 million Americans covered by ERISA plans. (12) Because pension benefit calculation errors are relatively common, (13) a legal mechanism is necessary to provide relief to employees who reasonably and justifiably rely on their employers' pension benefit statements when those statements later turn out to be inaccurate.

This Note will discuss how such pension benefit disputes were handled before ERISA, critique how federal courts have adjudicated these disputes since ERISA, and propose a new, fairer ERISA equitable estoppel formula to provide relief to employees in situations like that discussed above. (14)

Specifically, this Note will propose that federal courts should permit ERISA equitable estoppel claims in which: (1) a representation of fact has been made with fraudulent intent or gross negligence, (2) by a party who was aware or who should have been aware of the true facts, (3) who intended to induce another's reliance, (4) where the other party was unaware of the true facts, and (5) reasonably and justifiably relied on the representations to his detriment. (15)

This Note will also propose a new formula for "gross negligence" in the ERISA estoppel context that would not require the employee to prove the employer's intent to deceive the employee. The above formula would be satisfied when an employer or pension administrator issues a written benefit statement that grossly overstates an employee's benefit and later reaffirms the employee's overstated benefit in written and oral correspondences with the employee. (16)

Finally, this Note argues that, contrary to their current positions, courts should hold that it is not per se unreasonable for an employee to rely on his employer's or pension administrator's representations that--unknown to the employee--contradict the actual pension terms if those representations are made in a written pension benefit statement. (17)


    Employee remedies in pension benefit disputes were not always as limited as they are today. (18) Over the last century, Congress and the courts have steadily eroded employee remedies. Congress has done its part by enacting tough antiworker rights laws. (19) The courts have done their part by interpreting workers' recovery rights under these laws even more narrowly than Congress intended. (20)

    1. Pension Benefit Disputes Under American Common Law

      Before Congress and the courts began to limit employee remedies through legislation and judicial interpretation, courts readily provided relief to employees who detrimentally relied on their employers' pension benefit misrepresentations. (21) The relief often came in the form of either promissory estoppel or equitable estoppel. (22) For example, in Sessions v. Southern California Edison Co., a California state court estopped an employer from denying that it owed a pension to the plaintiff-employee who retired at age fifty-four even though the actual pension plan terms required the employee to work until age sixty to be eligible for a pension. (23) The court applied the doctrine of promissory estoppel after finding that the employer incorrectly told the employee that it would disregard the age requirement. (24) Similarly, in Sanders v. United Distributors, Inc., a Louisiana state court applied equitable estoppel to prevent an employer from claiming that it owed the plaintiff-employee only a $119 monthly benefit under the actual plan terms, instead of the $284 monthly benefit that the employer had told the employee he would receive upon early retirement. (25)

      These two cases illustrate how courts previously used estoppel to provide relief to employees in pension benefit disputes like the one discussed in the introduction to this Note. (26) As one author concluded, "Estoppel remained an important theory of recovery ... until Congress intervened." (27)

    2. Pension Benefit Disputes After the Taft-Hartley Act

      In 1947, Congress slammed the brakes on employee rights in pension benefit disputes. The Labor Management Relations Act, popularly known as the "Taft-Hartley Act," (28) was enacted over President Harry Truman's veto (29) and constituted Congress's most significant attempt to regulate labor unions. (30) The highly controversial Act, (31) which President Truman predicted would "adversely affect our national unity," (32) requires employers and labor unions to participate in collective bargaining to determine employee wages, hours, and retirement benefits. (33) The Act also requires the employer and labor union to put their agreement in writing "if requested by either party." (34) It was this "writing" provision that courts first used to deny an employee's estoppel claim against an employer who misrepresented the employee's pension benefits. (35)

      In Thurber v. Western Conference of Teamsters Pension Plan, for example, the U.S. Court of Appeals for the Ninth Circuit rejected the plaintiff-employee's estoppel claim against his pension administrator. (36) The court found that permitting the estoppel claim, and thereby allowing the employee to recover a pension not due under the provisions of the pension plan, would violate the Taft-Hartley Act's requirement that pension payments be made according to the pension plan's written provisions. (37) Similarly, in Guthart v. White, the Ninth Circuit denied an employee's estoppel claim seeking medical...

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