Participants who roll their pension benefits into IRAs do not ‘receive’ them

Metropolitan Life lost a case in the 5th Circuit on July 18, 2017, that probably surprised MetLife and may surprise you. The case is Thomason v. Metro. Life Ins. Co., 2017 WL 3049528 (5th Cir. July 18, 2017), and you may want to amend your summary plan descriptions after reading this decision.

Thomason, an employee of Verizon, began receiving disability benefits. He then rolled his Verizon pension benefits into an IRA.

The Verizon SPD warned that certain benefits offset long-term disability benefits, including “pension plan benefits from a Verizon pension plan if you elect to receive them.” The case turned on the phrase “elect to receive.” Because I am sending this email, you may be guessing (correctly) that the 5th Circuit held that because the pension benefits were rolled over into an IRA, Thomason did not “receive” them. Thus, MetLife could not offset those pension benefits.

The 5th Circuit noted that SPDs are to be "written in a manner calculated to be understood by the average plan participant, and sufficiently accurate and comprehensive to reasonably apprise such participants and beneficiaries of their rights and obligations under the plan.” 

The Court went on to explain that an SPD is ambiguous “when a reasonable plan participant could not read the summary plan description and know with any degree of certainty which conflicting inference should control and would have to refer to the actual policy for clarification.” The appellate court held that this phrase in the SPD was ambiguous and should be interpreted against the plan. 

You might ask, “But if the plan granted the administrator discretion, should not the court defer to the administrator’s interpretation of the phrase and apply the arbitrary and capricious standard of review?” The court explained that it was not basing its decision upon the interpretation of the plan (which had the same language as the SPD). Rather, it based its decision upon the ambiguity of the SPD. Relying upon Koehler v. Aetna Health Inc., 683 F.3d 182 (5th Cir. 2012), the 5th Circuit held:

Under our precedent, the question is not whether the claims administrator or a court selected an appropriate definition of “elect to receive” that the beneficiary failed to correctly guess. The inquiry is whether the Summary Plan Description was “written in a manner calculated to be understood by the average plan participant,” and “sufficiently accurate and comprehensive to reasonably apprise such participants and beneficiaries of their rights and obligations under the plan.”

I have read many SPDs. Many of them use the same or similar language, explaining that pension benefits the participant “receives” will be offset. In light of Thomason, you may wish to change the language of your plans and your SPDs.

Rick Pautler is a partner in Thompson Coburn's Employee Benefits practice.