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EMPLOYEE BENEFITS June 2010 Growing Concerns About Scrivener’s Errors in Benefit Plan Documents “People make mistakes. Even administrators of ERISA plans.” First two sentences of Conkright v. Frommert, __ U.S. __, 129 S. Ct. 1861 (2010). No employee benefit plan is immune from mistakes. Those mistakes can take the form of errors embedded in plan documents. Thus, employers and administrators occasionally encounter difficult and costly problems when a mistake in a plan document promises an unintended benefit to plan participants. Mistaken plan provisions are often referred to as “scrivener’s errors.” Such errors can occur when “extra” plan language is written into a document accidentally, or when necessary plan language is inadvertently omitted from the plan. In either case, the result can be a costly, unintended consequence which can be enforced under ERISA. That law, after all, requires the plan to be administered according to its terms. The Internal Revenue Service (IRS) has a defect correction program that may be an option to bring a retirement plan into compliance with tax law requirements to preserve its “qualified plan” status, or to bring a non-qualified plan of deferred compensation into compliance with special nonqualified plan rules. The Department of Labor also administers a fiduciary correction program which may or may not provide a solution. These agency programs may provide a cure for uncomfortable situations when they arise. But some problems are not necessarily resolved with these agency programs. In fact, recent court rulings have stated that IRS procedures may resolve tax compliance issues, but not the plan’s obligations to participants. Under traditional legal principles, courts have stated, it is necessary to Atlanta Chicago Delaware Indiana Michigan Minneapolis Ohio Washington, D.C. obtain judicial approval in a request for “equitable reformation.” This is an unattractive option. It is potentially costly, and court proceedings are generally a matter of public record. To take an actual example, one employer’s pension plan was changed to include a new benefit formula which called for greater plan benefits. The new formula was in the plan for several years, but lower benefits continued to be calculated under the old formula. When the error came to light, the plan administrator concluded the new formula was a mistake. The participants sued for more benefits under the new formula, and the final result was greater payouts by the plan. Given the potentially costly problems that can arise with documentary mistakes, what steps should an employer or plan administrator consider when a scrivener’s error is encountered? First, examine the problem with a small team of key people, the smallest group reasonably feasible. Second, suspend communications concerning the error with anyone outside of the team until a sound game plan is formulated. Third, confer with an employee benefits attorney to consider the issues and options and help set the game plan. Fourth, implement the game plan with care and with an eye out for the various parties who might take a position adverse to the plan or its fiduciaries. As long as the courts consider themselves to be the exclusive source for equitable reformation and correction of scrivener’s errors, those mistakes will require caution in plan administration, with no guarantees for an easy solution. For more information, please contact the following Barnes & Thornburg LLP Employee Benefits attorneys: Lynn A. Archer, 612-342-0358; Jeffrey M. Bauer, 612-342-0347; Jude Anne Carluccio, 612-342-0336; Brian J. Clark, 574-296-2560; Brian J. Lake, 574-237-1155; Alan A. Levin, 317-231-7259; Michael G. Paton, 317-231-7201; Lee T. Polk, 312-214-8300; John C. Smarrella, 574-237-1133; Nancy A. Sullivan, 612-342-0339. You can also visit us online at www.btlaw.com. © 2010 Barnes & Thornburg LLP. All Rights Reserved. This page, and all information on it, is proprietary and the property of Barnes & Thornburg LLP. It may not be reproduced, in any form, without the express written consent of Barnes & Thornburg. This Barnes & Thornburg LLP publication should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer on any specific legal questions you may have concerning your situation. Please send address changes or requests to opt out of these alerts to [email protected] Atlanta Chicago Delaware Indiana Michigan Minneapolis Ohio Washington, D.C.