Estoppel -- ERISA Joins the List
by Michael Fox
Actually, it is not accurate to imply that estoppel has not previously been applied to ERISA issues, see 5th Circuit Adopts ERISA Estoppel, But Employee Still Loses. But the 3rd Circuit's decision last week in Pell v. DuPont (3rd Cir. 8/8/08) makes the point of how important it is for employers to be accurate in all of their communications to employees, particularly about retirement benefits. Given the number of times estoppel has been applied in other contexts just in the past year, see my prior posts here, here and here, Pell highlights yet another area of exposure for employers that seems to be increasing.
The the issue in Pell arose because of his transfer from a wholly owned subsidiary to the parent company. Most of the communications he received about the effective date of employment to be used in his retirement had the wrong service date, but also contained the usual disclaimers that they were estimates and subject to further review. The error that was contained in the prior communications was discovered before Pell made his final decision to retire, although it was within six months or so of his contemplated retirement.
Under all the circumstances the district court held that DuPont was estopped from using the effective employment date as calculated under the plans, and must use the earlier employment date that it had communicated to him. The court used a date that had been contained in a letter to Pell from DuPont's Director of Employee Compensation and Benefits at Consol, the subsidiary where he was originally employed. That letter referred to his “Retirement Plan Credited Service Date” as being August 1, 1972.
When Pell actually retired, the correct calculation under the plan resulted in a pension service date of November 1, 1975 which is what DuPont used. The district court entered an injunction that the service date to be used was August 1, 1972 and DuPont was estopped to use the "correct date" as determined by following the terms of the plan. However, the district court also held that it was prospective only, holding it did not have the power to award the past underpayments.
The appellate court, went further than the district court, adjusting the date to February 10, 1971 and requiring that restitution be made, not just a change in prospective payments.
Key to its holding was a 1991 email (more than 10 years before Pell's actual retirement) from an employee in the benefits department:
“Consol [the subsidiary] pension will be calculated on their formula and their SS offset. Your adjusted service date is 2/10/71 not 1975 and Du Pont will use this date for your years of service under their formula when calculating your pension. The‘Pension’ booklet in your green Benefits Binder explains the Du Pont formulas; however, nothing written re offsets as each would be different.”
It has to be scary for a benefits worker to think as they answer the frequent requests for clarification and information, that their one response (perhaps one of hundreds written in that week) could be "rewriting" the pension scheme at least for that one employee.
Although as the opinion makes clear, there are a number of hurdles that Pell
had to overcome to establish equitable estoppel
, this was a time where it happened.
No one can or should argue that it is not important to convey accurate information to employees on which they are basing major decisions. But anyone who has ever dealt with the complexity of most pension schemes, know how easily it can be to unwittingly trip up.