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Plaintiffs may assert a claim for retirement plan benefits under ERISA when the summary plan description provided by their employer conflicts with a complete plan description, the 3rd U.S. Circuit Court of Appeals has ruled. Reversing the Eastern District Court, the 3rd Circuit in Burstein v. Retirement Account Plan for Employees of Allegheny Health Education and Research Foundation joined the numerous circuit courts that have similarly held that a summary plan description overrules conflicting terms in a plan document. “Today, we join with the other courts of appeals that have considered this issue, and hold that, where a summary plan description conflicts with the plain language, it is the summary plan description that will control,” said the opinion author, Circuit Judge Leonard I. Garth. “We are satisfied that this holding, as we have stated it, is faithful to congressional intent.” The plaintiffs were former employees of the Allegheny Health Education and Research Foundation, which filed for bankruptcy in 1998. Pension Benefit Guaranty Corp. was the plan administrator. The plan, Garth said, was a type of defined benefit pension plan under ERISA, a cash balance plan, meaning that the employer’s contribution is made into “hypothetical” individual employee accounts. A cash balance plan differs from a traditional defined benefit plan, Garth said, in this way: “Traditional defined benefit plans define an employee’s benefits as a series of monthly payments for life to begin at retirement, but cash balance plans define the benefit in terms of a stated account balance. These accounts are often referred to as hypothetical accounts because they do not reflect actual contributions to an account or actual gains and losses allocable to the account.” The plaintiffs claimed that they were “fooled” into thinking that their plan worked like a defined contribution plan, which provides for benefits solely on the basis of the amount contributed to the participant’s account, because the plan “speaks in terms of a participant’s ‘account.’” It is possible under a cash balance plan that the plan will be underfunded to pay participants if the plan terminates, Garth said, and ERISA acknowledges such a scenario. ERISA only requires that a cash balance plan be funded for participants whose benefits vested prior to termination. The plaintiffs argued that they received a letter in November 1998 explaining that the plan had partially terminated and that any person who had not completed five years of service with AHERF would not receive benefits. AHERF terminated the plan in August 1999; that September, PBGC took the plan over. The plaintiffs, led by William H. Burstein, filed a complaint with the Eastern District Court in December 1998. The Western District Bankruptcy Court stayed the cartiase until July 2000. The defendants filed a motion to dismiss, while the plaintiffs opposed the petition and filed a motion to file a second amended complaint. The district court granted the defendants’ motion to dismiss the first complaint with prejudice for failure to state a claim and denied the plaintiffs’ motion to file a second complaint. The Eastern District Court said the plaintiffs could not rely on the terms of a summary plan description to assert a claim for benefits because the stated terms of the plan itself gave them no right to benefits. The plaintiffs appealed. On appeal, the plaintiffs claimed that language in both their plan brochure and in the summary plan description gave rise to their claim for benefits. The brochure, they said, “conveys the impression that each participant has a funded ‘account’ under the plan in which [the plaintiffs] accrue retirement benefits.” They cited language from the brochure that states, for example: “You have your own interest-bearing account that is completely funded by the organization.” However, Garth noted that while Congress had expressed its intent as to summary plan descriptions, it had not done so regarding plan brochures. Therefore, he said, the court’s decision was limited to the summary plan description. The description, the plaintiffs argued, states that “a special account is used to record your annual retirement credits” and that while plan assets were not specifically allocated to employees’ accounts, those assets were “held in a trust for all participants.” That language, the plaintiffs said, could be interpreted to mean sufficient assets to fund the accounts had been put aside and were held in a trust. Even more important, Garth said, the plaintiffs cited language in the description that said that a participant had a “nonforfeitable right” to the assets in his or her account once he or she was vested and that participants would become vested automatically should the plan terminate. “If the plan is terminated you will automatically become vested in your account, regardless of how many years of service you have earned,” the description said. Conversely, the detailed plan document said that once the plan terminated, “the right of all affected participants to benefits accrued to the date of such termination or partial termination shall become nonforfeitable … to the extent funded as of such date.” In finding that the conflicting terms of the description and the plan document did not allow the plaintiffs to pursue a claim that they were due benefits under ERISA, the Eastern District Court had relied on the 3rd Circuit’s 1991 decision in Gridley v. Cleveland Pneumatic Co. The Gridley plaintiff argued that an overview brochure of her plan conflicted with the additional requirements in her plan document. The 3rd Circuit reversed the district court’s decision in favor of the plaintiff on the grounds that the brochure was not a summary plan description. But Garth said the district court in Burstein took an expansive view of Gridley.”Our holding in Gridley that there was no SPD cannot be read as stating that the terms of a plan document override the language of the SPD where they conflict,” Garth said. “This being so, Gridley is not a holding that the plan document is superior to, or trumps, the SPD, and accordingly, it cannot bind us to this principle as precedent.” As the 5th Circuit stated in Hansen v. Continental Insurance Co., Garth said, “ERISA requires, in no uncertain terms, that the summary plan description be ‘accurate’ and ‘sufficiently comprehensive to reasonably apprise’ plan participants of their rights and obligations under the plan.” The defendants argued that by its very definition, a summary plan description is just a summary and therefore cannot contain all of a plan’s terms. Garth said that there was some merit to the argument, but that in the instant case, “the conflict between the SPD and the plan document is unquestionably material.” “The fact that the AHERF retirement account plan would not be fully funded is never expressed in the summary plan description,” Garth said. The court also concluded that a participant who seeks plan benefits on the basis of a conflict between a summary plan description and a plan document does not have to plead reliance on the description, because the claim is contractual. The circuit courts have differed on that issue, Garth said. In addition, the court ruled that the plaintiffs could not pursue a claim against PBGC as guarantor.

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