WASHINGTON – The U.S. Supreme Court refused to revive a suit that claimed Verizon Communications Inc. owed as much as $1.7 billion in additional retirement benefits because of an error made by a lawyer in drafting the pension plan.
The justices Monday rejected an appeal by a retired worker who sought to hold the company to the literal wording of its plan, including an unintended provision that would have required extra payments to 10,000 employees. More than 130 workers would have received an additional $500,000.
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A federal appeals court ruling absolved the telecommunications company from having to pay extra — even while faulting Verizon for “profound negligence.”
New York-based Verizon, in papers urging the Supreme Court not to get involved, called the error “a billion-dollar mistake that was inconsistent with everyone’s expectations.” The suit was pressed by a retired worker of Verizon’s corporate predecessor, Bell Atlantic Corp.
The mistake stemmed from Bell Atlantic’s 1996 conversion of its pension plan into a so-called cash balance plan. Cash balance plans are hybrids that combine elements of traditional employer-funded defined-benefit plans with the transferable personal accounts that are common to 401(k)-style defined-contribution plans.
To make the switch, the company converted each participant’s accrued benefits into a lump-sum value. For some workers — those nearing the age and service thresholds for early retirement — the company then multiplied that figure by what it called a “transition factor.” That step was designed to account for the increased benefits the workers were poised to receive under the original formula once they qualified for early retirement.
Worker Windfall
The error occurred when a company lawyer changed the phrasing in a draft of the plan documents, inadvertently saying that the lump-sum value should be multiplied by the transition factor twice, rather than once. For the suing worker, Cynthia Young, that potentially increased her account balance from $240,126 to $638,497.
The 7th U.S. Circuit Court of Appeals in Chicago ruled that a federal employee-benefits law let a judge correct a “scrivener’s error” in the plan documents. The three-judge panel said that applying the error would mean giving workers greater benefits than they had reason to expect.
In her appeal to the nation’s highest court, Young faulted the 7th Circuit for “holding that even the most crystal-clear, vested benefits may be eliminated from a plan document.”
A federal magistrate judge said in 2009 that the error might have cost Verizon $1.67 billion in higher benefits.
The case is Young v. Verizon’s Bell Atlantic Cash Balance Plan, 10-765.
