So… what happens when a typo, or an erroneous sentence in an ERISA plan, creates a billion dollar liability for the plan?

Think about getting out of the bind arguing “scrivener’s error” or equitable reformation under Section 502(a)(3). Conkright v. Frommert, 130 S.Ct. 1640, 1644 (2010)(“People make mistakes. Even administrators of ERISA plans.”).

Attached is the newest case from the 7th Cir. applying it. Young v. Verizon’s Bell Atlantic Cash Balance Plan, __ F.3d __ (7th Cir. August 10, 2010)(The case of the $1.6 billion dollar typo–equitable reformation allowed under ERISA 502(a)(3)).

FACTS: A class of Bell Atlantic pension plan participants sued Verizon claiming Verizon miscalculated lump sum cash payments. This was a $1.67 billion error. There was a sentence in the plan that implied a calculation of the benefit should be multiplied twice. An in-house lawyer inadvertently forgot to delete a phrase from the end of a sentence, which caused the issue.

TRIAL COURT Ruling for BELL/VERIZON: “The phrase calling for a second multiplication was a drafting error….To enforce the erroneous plan provision now would result in an enormous windfall to the class participants.”

7th CIRCUIT: AFFIRMS, with the following rationale.

  1. “ERISA 502(a)(3) authorizes equitable reformation of a plan that is shown by clear and convincing evidence to contain a scrivener’s error that does not reflect participants’ reasonable expectations of benefits.” Op. at 18.
  2. “The drafting history left little doubt that the [language] was a mistake.” Op. at 21.
  3. The Court rejects the plan participants equitable defenses of “good faith and fair dealing,” “unclean hands,” and laches. Op. at 24-25.
  4. KEY CASES FROM OTHER JURISIDICTIONS–3rd and 9th Circuits:
    1. Int’l Union v. Mirata Erie N. Am., Inc., 980 F.2d 889, 907 (3rd Cir. 1992)(plan’s request for equitable reformation granted).
    2. Cinelli v. Sec. Pac Corp., 61 F.3d 1437, 1444-45 (9th Cir. 1995)(employee’s claim for equitable reformation denied).