A recent Sixth Circuit case–Ramsey v. Formica Corp.–illustrates how painful it can be to unravel errors made by plan administrators in making payments to retirees. The saga in this case apparently began with an audit of the pension plan in question which revealed that certain retirees had, for a period of between eight and seventeen years, been receiving monthly amounts which exceeded what they were entitled to under the plan. The audit found that 440 of the 624 retirees in its defined pension plan dating from 1985 were receiving incorrect benefits. In January of 2004, the company, which was emerging from Chapter 11 bankruptcy reorganization, found that 295 retirees received overpayments totaling about $1 million and another 145 retirees had been underpaid a total of about $500,000. The Company entered into a Voluntary Compliance Program with the Internal Revenue Service and began correcting the benefit payment mistakes.
While the plan made up the underpaid amounts, it also reduced the payments of those who were overpaid, and indicated that it might have to recover certain additional overpayment amounts from retirees. Here’s what happened next:
To maintain their monthly payments notwithstanding the audit findings, plaintiffs filed an action in state court alleging claims of negligent misrepresentation and promissory estoppel. Contemporaneously, plaintiffs filed a motion for a temporary restraining order to enjoin Formica from reducing its monthly benefit payments. The same day, Formica filed a notice of removal, arguing that plaintiffs’ complaint stated claims under the Employee Retirement Income Security Act for breach of fiduciary duty. The district court accepted jurisdiction pursuant to 29 U.S.C. §1132(a)(3), and held a conference that afternoon to establish a briefing schedule and a hearing date for oral argument with regard to plaintiffs’ motion for a temporary restraining order. The next day, Formica amended its notice of removal to argue that plaintiffs seek “to recover pension benefits” and, therefore, that plaintiffs’ state law claims are entirely preempted by the Act. Plaintiffs then amended their complaint to add claims for breach of fiduciary duty and equitable relief under the Act and to name as additional defendants the fiduciaries of Formica’s Employee Retirement Plan.
The district court denied the motion for a temporary restraining order and the Sixth Circuit affirmed, holding that the form of relief was not authorized under ERISA. The Court, relying on Mertens and Great-West held that here, where the plaintiffs were asking for the Court to direct the plan to pay monies which were not owed for an uncertain duration, that the relief sought did not fall under the “categories of relief that were typically available in equity” and, therefore, were not authorized by ERISA.
One of the alternatives suggested by the plaintiffs was that the company (rather than the plan) should continue paying the unreduced amounts to the retirees, but the Court affirmed the district court’s ruling that such state law claims were tied to the incorrect processing of the pension payments and thus were entirely preempted by ERISA.
Also, an interesting aspect of the case was a statement by the Court that at various times the company had allegedly “solicited substantial groups of employees to take early retirement” and had “presented each employee with proposed early retirement kits” which had included “pre-prepared documents describing the incentive for early retirement as well as individualized estimates detailing what the specific retiree could expect in benefits each month.” According to the Court, the plaintiffs had chosen to retire early and had received the amounts that were represented to them by the “early retirement solicitation.”