Power of ERISA Administrator Versus Judge Debated in Supreme Court Retirement Case

WASHINGTON (CN) - The U.S. Supreme Court heard arguments Wednesday on who should decide a disputed retirement fund agreement after the courts reject a fund administrator's proposal. Here, employees who had retired and collected benefits were rehired, but how much they should earn in benefits the second time around is up in the air.

"So all a court can do is to say, 'You've got it wrong, Sam. Go back and do it again?'" Justice Antonin Scalia of a company's argument that its retirement fund manager, not the court, come up with a solution to the dispute. "I can't believe that that's what the law is."

Justice Samuel Alito seemed equally skeptical. "How many shots does the plan administrator, who I don't think is named Sam, get to try to answer this question?" he asked to laughter.

The case comes after Xerox employees quit and received a lump sum in retirement benefits - one getting $145,000 more than 10 years ago - but they returned to work at Xerox before retiring a second time. When their second benefits were reduced on account of their first lump sum, 104 employees sued, claiming that Xerox had reduced their second-time benefits by too much. They also claimed that the method of calculating their benefits was never clear.

The retirement plan, established in 1989, gave no explanation of how reductions would be calculated if employees had already drawn from their benefits, just that they should be reduced.

The fund administrator decided to subtract from the final benefit payout the first benefits and any interest employees would have collected had the money been kept in the fund. His proposal was rejected by the court.

Robert Long of Covington & Burling represented former Xerox executive Sally Conkright. He argued that the plan administrator should have final say on how to properly compensate the employees because the plan assigned him discretion in making decisions for the fund. He added that the administrator's plan appropriately took into account the time-value of money.

"The flaw here was not that the method was no good if you had adequate notice, Justice Ruth Bader Ginsburg said.  The flaw was the people affected were not told in plain, simple language, what their entitlement was."

Long said the notice was sufficient, and that not all details of adjustments need to be described in the plans.

On the question of jurisdiction over resolving the benefits dispute, Justice Stephen Breyer agreed that the administrator should have a say, but placed limits on that influence. "It sounds like common sense would be - listen to the administrator, but you don't have to do it," he said.

In an apparent scorn of the company, Alito probed the consequences for not disclosing the benefits calculations. "This was an incentive that lured them into accepting employment again with Xerox," he said, noting employee understanding that the interest of the money might not be deducted from their final compensation.

Peter Stris of Stris & Maher represented the employees. He argued that the courts should decide the dispute because Xerox has abused its discretion when its first proposal was rejected by the courts. He added that calculating in the time-value of money is not standard, especially here, where the employees took their money from a separate pre-1989 plan.

Breyer implied that the employees weren't being reasonable. "Why didn't you at least listen to that, instead of coming to the fact which is very, very unusual, it didn't grow at all," he said.

The 2nd Circuit decided that the employees had not been properly notified of the methods in calculating their benefits, and that it violated the Employee Retirement Income Security Act. It remanded the case back to district court.

The Obama administration also argued in support of the employees.

Justice Sonia Sotomayor was not present during the arguments.

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