ERISA Plan Required to Distribute $1.5 million Judgment to Employee

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An error made by the fiduciary to a defined contribution pension plan had to abide by a judgment requiring it to reimburse the plan participant whose funds were incorrectly distributed. In the recent Second Circuit case of Milgram v. The Orthopedic Assoc. Defined Contribution Pension Plan, even if the plan could not recoup the money it had wrongfully paid out, it must still honor its legal obligation to pay the pension participant.

The pension at issue was a Defined Contribution Plan. The plaintiff divorced his wife, and based on a property settlement agreement, the plan administrator erroneously transferred half of the plan funds to her, resulting in an overpayment to her of $763,847.93. The husband sued the plan under ERISA to recoup this money.

The plan argued, it could not distribute the money without first being repaid by the ex-wife, since doing otherwise would reduce the plan assets, which they refer to as alienating the benefits of other plan members.

The Court cited the concurring opinion in LaRue v. DeWolff, Boberg & Assoc., Inc., and explained that “all of the Plan’s undistributed assets are legally owned by the trustee and managed for the benefit of all plan participants, with gains and losses shared by them on a pro rata basis. A single participant’s ‘account’ is merely a bookkeeping entry that is used at the time of his retirement to determine what benefits he is entitled to receive.” The Court thus distinguished Guidry v. Sheet Metal Workers National Pension Fund, and Kickham Hanley P.C. v. Kodak Retirement Income Plan, 558 F.3d 204 (2d Cir. 2009), as those cases enforced the anti-alienation provision in the face of benefits that members were entitled to.

The plan’s final key argument rested on the distinction between defined contribution pension plans and defined benefit plans. A defined contribution plan guarantees that an employer makes a fixed contribution, while a defined benefit plan guarantees the beneficiary a fixed amount of benefits upon retirement. Since the plan at issue was a defined contribution plan which did not guarantee members a fixed payment on retirement, the defendants argued that it would be inequitable to allow those funds to be used to satisfy liabilities. However, the Court rejected this argument, stating that ERISA’s anti-alienation provision “does not protect [beneficiaries] against the risk that poor management decisions will expose the plan’s assets to liability.”

You have specific rights as a member of an employee benefit plan. We at Bonny G. Rafel handle disability matters which often coincide with other benefits. Contact us to provide legal assistance on your claim.

– By Sara E. Kaplan, Esq.

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