Benefits Byte

October 13, 2020

Council Asks Ninth Circuit to Uphold Pension Fiduciary Ruling Favoring Plan Sponsor

The American Benefits Council weighed in on an important court case on October 9, urging a federal appeals court to uphold a lower court order in which a plan sponsor was held not liable for erroneous pension benefit estimates that were incorrectly calculated by the plan’s recordkeeper.

The Council’s amicus (“friend of the court”) brief in Bafford v. Northrop Grumman was filed in the U.S. Court of Appeals for the Ninth Circuit, on appeal from the District Court for the Central District of California. In this case, the plan sponsor’s recordkeeper erred by calculating the plaintiffs’ pension benefit using final average earnings from after the participants returned to employment at the company rather than their previous employment with the company. This resulted in erroneous benefit statements and subsequent overpayment of benefits. When the error was discovered, the company did not recoup the overpayments but did reduce benefits to reflect the correct amount.

The district court dismissed the case in January, finding that the complaint does not sufficiently allege a breach of ERISA’s “duty to monitor” requirement, that the miscalculations are not fiduciary acts and that the state law claims of “professional negligence” and “negligent misrepresentation” are preempted by ERISA.

The plaintiffs have since appealed the case to the Ninth Circuit, where their complaint was supported by the Pension Rights Center and the National Employment Lawyers Association.

The Council’s amicus brief strongly supports the district court ruling, explaining that:

  • ERISA’s assurance of predictable liabilities and costs – by limiting unpredictable “administrative costs [and] litigation expenses – is critically important for defined benefit retirement plans.
  • A mistake in overestimating pension benefits cannot by itself sustain an ERISA “breach of fiduciary duty” claim.
  • Dismissal of the derivative claims – such as violation of the “duty to monitor” – was also correct and consistent with ERISA statutory objectives.

A three-judge panel of the Ninth Circuit will likely hear the case in early 2021. For more information, contact Jan Jacobson, senior counsel, retirement policy.