(CN) – The 7th Circuit allowed Verizon to fix a mistake in its pension plan that could have cost the phone company $1.67 billion in increased benefits for 14,000 pensioners. “It is baffling that a major corporation would not invest greater resources to ensure accuracy in drafting such an important document,” Judge John Tinder wrote.
Former Verizon employee Cynthia Young filed a class action after determining that her opening balance of $240,127 should be increased to $638,498 under a literal interpretation of the plan.
Verizon’s predecessor, Bell Atlantic, operated the plan under the Employee Retirement Income Security Act (ERISA) until 1996, when it was changed to a cash balance plan.
The new plan showed employees’ benefits as a balance based on their age and years of service. To transition to the new plan, old benefits were multiplied by age-dependent “transition factors.”
The error occurred when one of Verizon’s in-house attorneys, Barry Peters, revised the formula used to calculate transition benefits in the plan’s third draft. The error went unnoticed in the final draft until it was corrected in 1998.
Young claimed that allowing Verizon to reform its plan will “undermine the efficient, easily enforceable plan documents rule and encourage protracted, discovery-intensive litigation over the intended meaning of the plan.”
Magistrate Judge Morton Denlow approved an equitable reformation of the plan, and the federal appeals court in Chicago affirmed.
Judge Tinder held that ERISA’s goal of protecting employees’ expectations of benefits would be thwarted if the court enforced “erroneous plan terms contrary to those expectations, even if doing so would increase employees’ benefits.”
Judges’ ability to correct ambiguous language in ERISA plans extends to language misstating employee benefits, the court ruled.
“People make mistakes,” Tinder wrote. “Even administrators of ERISA plans.”