Additionally, the court ruled that the administrator should not have denied benefits. The summary plan description (SPD) itself was inadequate, and the SPD (not the plan document) is the primary document on which a participant is entitled to rely. The SPD did not adequately describe the requirements for benefits - in this case, survivor benefits for domestic partners - because the appropriate section on domestic partner survivor benefits did not specify the requirement of a domestic partner affidavit, even though this affidavit requirement appeared in other self-contained sections of the SPD.
Another jurisdiction - the 3rd US Circuit Court of Appeals - joined the 2nd Circuit and several other jurisdictions in affirming that the SPD overrides a conflicting plan document. However, the 3rd Circuit stressed that it does not matter whether the participant actually relied on the SPD in the first place. The case is Burstein v. Retirement Account Plan for Employees of Allegheny Health Education and Research Foundation, No. 02-2666 (3d Cir. 2003). The court analogized to breach of contract cases in which reliance is not an issue.
The Facts
Burke concerned claims by the widow of Kenneth Burke, who was a Kodak employee for 27 years. Burke and his wife lived together for eight years as domestic partners before their marriage on May 17, 1999; less than six months later, Burke died of lung cancer. He had participated in Kodak´s pre-retirement Survivor Income Benefits (SIB) plan, which provided payments to spouses, domestic partners, dependent children or dependent parents upon an employee´s death.
Kodak distributed an SPD contained in an employee handbook which summarized its employee benefits, including SIB. The plan and 16 sections of the SPD explicitly require domestic partners to file a joint affidavit on a form provided by the plan administrator if they wish to be eligible for various types of benefits.
Kodak circulated a 1996 Employee Benefits Newsletter and a 1997 Benefits Update, both of which discussed the affidavit requirement. After that Kodak issued a revised SPD; in it, the SIB section omitted the affidavit requirement.
The week after Burke´s death, Kodak sent Mrs. Burke a letter describing the benefits available to a surviving spouse of more than one year. In response, Mrs. Burke explained that she had been married for less than a year. Kodak then sent another letter telling Mrs. Burke that, because she was married for less than a year, she was ineligible for pre-retirement SIB. This letter referred to page 98 of an enclosed handbook for spousal eligibility requirements.
The handbook also contained a paragraph stating that aggrieved beneficiaries should file an appeal of Kodak´s initial denial within 90 days. In this case, 90 days from Kodak´s initial denial was Feb. 21, 2000. Almost five months later, Mrs. Burke appealed and included an affidavit describing her domestic partnership status. The plan administrators denied her appeal as untimely and added that, even had her appeal been timely, she was ineligible for SIB as a domestic partner because the Burkes never filed the required joint affidavit.
In Burstein, William H. Burstein and the four other plaintiffs were employees of the Allegheny Health Education and Research Foundation (AHERF). AHERF operated a defined benefit pension plan. AHERF began to experience significant financial losses by the late 1990s and in July 1998 filed for bankruptcy.
AHERF sent a letter to one of the five employees that was addressed to former AHERF employees. The letter said a partial plan termination had occurred, but that anyone who had not completed five years of service with AHERF would not be entitled to any benefits.
Plan Documents vs. SPDs
Both cases hinge on the employers´ efforts to provide information to employees concerning their benefits plans: Both plans allowed inconsistencies to exist between their SPDs and plan documents that created confusion and made it unclear what employees would receive. And both had a common reliance on the primacy of plan documents over an SPD.
In the end, that reliance (or lack thereof) proved to be pivotal.
SPD Appeal
The 2nd Circuit U.S. Court of Appeals, to which Mrs. Burke appealed, noted that Kodak agreed that the Burkes would have satisfied the domestic partnership requirements if they had filed an affidavit. After that, however, it no longer saw eye to eye with Kodak: The court agreed with Mrs. Burke that Kodak should not have applied the affidavit requirement in her case because it was not mentioned in the SIB section of the SPD.
The court noted that the SIB section of the SPD does not contain a cross reference to the affidavit requirement mentioned elsewhere in the SPD. The SPD and the portion of the employee handbook which discussed the SIB conflicted, and the court said that under such circumstances an SPD controls. Since Kodak failed to update the SIB section of the SPD to include the affidavit requirement, the SPD violated ERISA; further, the Burkes suffered prejudice as a result of the omission of the affidavit requirement. The court said, "Due to Kodak´s omission, the Burkes were more likely to believe that there was no affidavit prerequisite for SIB."
The 2nd Circuit remanded Burke to the U.S. District Court for the Western District of New York. Just to be sure, it instructed the district court to enter judgment for Mrs. Burke.
The U.S. Court of Appeals for the 3rd Circuit took up Burstein. It said that the SPD´s language was central to the case.
The 3rd Circuit noted that AHERF´s SPD said that a plan participant will become vested upon the termination of the plan, while the plan document said a plan participant´s vesting in his or her account was nonforfeitable to the extent it was funded by the date on which the termination takes place. The court ruled that a participant who claims plan benefits based on such a conflict need not plead nor prove reliance on an SPD, since the SPD controls.
The 3rd Circuit took the U.S. District Court for the Eastern District of Pennsylvania to task for its application of Gridley v. Cleveland Pneumatic Co. (924 F.2d 1310 (3d Cir.), cert. denied, 501 U.S. 1232 (1991)), a case in which the 3rd Circuit held that a court must only look to the plan document and that the SPD language could not create a right to plan benefits.
Gridley did not let the employee plaintiff recover benefits because there was no SPD on which to base a claim, since the overview brochure on which the employee in that case relied was not an SPD. The appeals court said that its Gridley ruling that there was no SPD should not be interpreted as stating that the terms of a plan document override those of an SPD when the two conflict. Therefore, Gridley did not mean that a plan document is superior to or trumps the SPD and cannot be considered precedent.
The court noted that the 2nd, 4th, 5th, 6th, 7th, 8th, 9th, 10th and 11th Circuit Courts of Appeals adopted views similar to those enunciated by the 2nd Circuit in its Heidgard v. Olin Corp. (906 F.2d 903, 907-08 (2d Cir. 1990)) ruling. In that ruling, the 2nd Circuit said that under ERISA, an SPD is to be considered an employee´s primary source of information on employee benefits and employees are entitled to rely in its descriptions. The 2nd Circuit also said that to allow a plan to contain different terms that supersede the SPD would defeat the purpose of providing the SPD to employees.
In Burstein, the 3rd Circuit joined the other courts of appeals and held that when an SPD conflicts with plan language, the SPD controls. "[We] join several other circuits in ruling that when a summary plan description under ERISA conflicts with the complete, detailed ERISA plan document, a plan participant may nevertheless state a claim for plan benefits based upon terms contained in the summary plan description."
Inadequate Notification
The Burke decision serves as a stark warning to employers that they should explicitly notify their employees regarding deadlines.
The U.S. District Court for the Western District of New York, no friend to Mrs. Burke in other ways, said Kodak´s notice to her of the 90-day period was inadequate. The 2nd Circuit agreed, and said that since Kodak had not said in its initial letter that Mrs. Burke had 90 days to appeal, it should have focused on the handbook´s discussion of eligibility, not appeals.
Words matter, the appeals court reminds us. It said Kodak´s use of the word "should" with regard to appealing within 90 days was "opaque" and "grossly uninformative."
This article appeared in the Employer''s Handbook: Complying with IRS Employee Benefits Rules by Thompson Publishing Group. For more information about the Handbook, see www.thompson.com/libraries/benefits/disc/index.html