So half the parties interpreting a possibly ambiguous plan term that is subject to discretionary review come out one way in reading the term, and the other two the other way. Who wins? Well, this is a trick question to some extent, because it doesn’t matter the numbers – all that matters is who gets the last say. This means, of course, that the side who wins that split is whichever one the appeals court agrees with.
And that is a roundabout lead in to this story here – from Michael Rigney’s excellent blog on Seventh Circuit appeals – that crossed my desk, about a Seventh Circuit opinion in September concerning the interpretation of the offset provisions in a pension plan where the plan terms invested the administrator with discretionary authority; in that case, the appellate bench concluded that the administrator’s interpretation was reasonable enough to pass muster and thus controlled the question.
More than the outcome, though, what I liked about the case was the panel’s explanation of the law of plan interpretation under ERISA, which was described as:
As a general rule, “federal common law principles of contract interpretation govern” the interpretation of ERISA plans. Swaback v. Am. Info. Techs. Corp., 103 F.3d 535, 540 (7th Cir. 1996). In this context, we have said that the fiduciary, in interpreting the plan, is not free, by virtue of its discretion, “to disregard unambiguous language in the plan.” Marrs v. Motorola, Inc., 577 F.3d 783, 786 (7th Cir. 2009); Swaback, 103 F.3d at 540. On the other hand, the fiduciary’s “use of interpretive tools to disambiguate ambiguous language is . . . entitled to deferential consideration by a reviewing court.” Marrs, 577 F.3d at 786 (emphasis omitted). In using such tools, the fiduciary may not, of course, rewrite or modify the plan. See Ross v. Indiana State Teacher’s Ass’n Ins. Trust, 159 F.3d 1001,12 No. 10-1900 1011 (7th Cir. 1998). “Interpretation and modification are different; the power to do the first does not imply the power to do the second.” Cozzie v. Metro. Life Ins. Co., 140 F.3d 1104, 1108 (7th Cir. 1998). Rather, the fiduciary must reach an interpretation compatible with the language and the structure of the plan document. Of course, “it is not our function to decide whether we would reach the same conclusion as the administrator.” Sisto v. Ameritech Sickness & Accident Disability Benefit Plan, 429 F.3d 698, 701 (7th Cir. 2005) (internal quotation marks omitted)
A handy synopsis of the issue, ready at a moment’s notice to be inserted in the beginning of a brief on the issue.
The case, by the way, is Frye v. Thompson Steel Company.