When the SPD and the Plan Conflict, the Conflict Should Be Resolved in the Participant’s Favor

Employee Retirement Income Security Act Section 102(a) requires sponsors of employee benefit plans to distribute to participants a summary plan description (“SPD”) which “shall be written in a manner calculated to be understood by the average plan participant and shall be sufficiently accurate and comprehensive to reasonably apprise such participants and beneficiaries of their rights and obligations under the plan.” ¹

29 U.S.C. §1022(a).

Section 102(b) requires that an SPD provide “the plan’s requirements respecting eligibility for participation and benefits; a description of the provisions providing for nonforfeitable pension benefits; [and] circumstances which may result in disqualification, ineligibility, or denial or loss of benefits.” ERISA Section 104(b)
²

29 U.S.C. §1024(b).

requires in detail that a plan administrator must publish and furnish SPDs to plan participants or beneficiaries. The SPD “must not have the effect [of] misleading, misinforming or failing to inform participants and beneficiaries.” ³

29 C.F.R. §2520.102-2(b).

Despite the clear directives of the statute and regulations, sometimes, whether due to sloppy draftsmanship or otherwise, there are conflicts between the provisions of the SPD and the written plan adopted by the employer or sponsor. ⁴Where the SPD is merely silent, e.g., regarding whether the plan administrator has discretionary authority to determine eligibility for benefits and interpret the plan, but does not have actually conflicting language, most courts hold that there is no conflict. See Nally v. Life Ins. Co. of N. Am., 299 Fed. Appx. 125, 128, 45 EBC 2117 (3d Cir. 2008) (218 PBD, 11/12/08; 35 BPR 2610, 11/18/08) (collecting cases). In the U.S. Court of Appeals for the Seventh Circuit, if an SPD does not satisfy the disclosure requirements of ERISA Section 102, 29 U.S.C. §1022(a), a court may estop a plan administrator from denying coverage for terms not included in the SPD but found in the underlying plan. Mers v. Marriott Int’l Group Accidental Death & Dismemberment Plan, 144 F.3d 1014, 1022, 22 EBC 1172 (7th Cir. 1998), cert. denied, 525 U.S. 947, 22 EBC 2712 (1998). See also Baker v. Kingsley, 387 F.3d 649, 662, 33 EBC 2486 (7th Cir. 2004) (where an SPD reasonably apprises plan participants of circumstances which will result in a loss of benefits, there is no conflict.); Bowerman v. Wal-Mart Stores Inc., 226 F.3d 574, 587-588, 25 EBC 1517 (7th Cir. 2000) (166 PBD, 8/25/00; 27 BPR 2029, 8/29/00) (where the SPD “lacked the clarity and completeness required by §1022,” the plan could not rely on its interpretation of the plan documents to deny coverage to the participant.). Cf. River v. Edward D. Jones Co., 2010 U.S. Dist. LEXIS 58272 (E.D. Mo. June 14, 2010) (“Even if an SPD is faulty for failing to satisfy section 1022, plaintiff must show ‘some significant reliance on, or possible prejudice flowing from the summary.’”). This article will summarize the law on the two types of conflict: (1) when the SPD is more favorable to the participants than the plan language, and (2) when the SPD is less favorable to the participants than the plan language.

With some variations, all circuits resolve such conflicts in favor of the participant.

When the SPD Is More Favorable to Participants Than the Plan

Where a provision in the SPD conflicts with and is more favorable to the participant than that in the plan, the courts of appeals uniformly agree that the SPD controls over conflicting plan terms. The rationale for this rule is explained in one of the earlier cases to consider this question:

It is of no effect to publish and distribute a plan summary booklet designed to simplify and explain a voluminous and complicated document, and then proclaim that any inconsistencies will be governed by the plan. Unfairness will flow to the employee for reasonably relying on the summary booklet. ⁵McKnight v. S. Life and Health Ins. Co., 758 F.2d 1566, 1570, 6 EBC 1707 (11th Cir. 1985).

ERISA requires that the SPD, not the plan itself, be distributed to the employees. Thus, the SPD is “the employee’s primary source of information regarding employment benefits, and employees are entitled to rely on the descriptions contained in the summary. To allow the Plan to contain different terms that supersede the terms of the [SPD] Booklet would defeat the purpose of providing the employees with summaries.” ⁶Heidgerd v. Olin Corp., 906 F.2d 903, 907-08, 12 EBC 2015 (2d Cir. 1990) (citing 29 U.S.C. §1022; 29 C.F.R. §2520.102-2(a) (1989)).

Therefore, consistent with Congress’s purpose to provide each participant with an accurate and comprehensive summary of the plan, every circuit has adopted some form of the view that if the SPD language differs from or conflicts with the plan language, it is the SPD language that will control. ⁷See, e.g., Burstein v. Ret. Account Plan for Emps. of Allegheny Health Educ. & Research Found., 334 F.3d 365, 378-379, 30 EBC 2121 (3d Cir. 2003) (128 PBD, 7/7/03; 30 BPR 1481, 7/8/03); Pierce v. Security Trust Life Ins. Co., 979 F.2d 23, 27, 15 EBC 1873 (4th Cir. 1992) (per curiam); Hansen v. Continental Ins. Co., 940 F.2d 971, 982, 14 EBC 1909 (5th Cir. 1991); Mers, 144 F.3d at 1014, cert. denied, 525 U.S. 947, 22 EBC 2712 (1998); Senkier v. Hartford Life & Accident Ins. Co., 948 F.2d 1050, 1051, 14 EBC 2317 (7th Cir. 1991); Barker v. Ceridian Corp., 122 F.3d 628, 633, 21 EBC 2456 (8th Cir. 1997), appeal after remand, 193 F.3d 976, 23 EBC 1996 (8th Cir. 1999) (26 BPR 2618, 11/8/99), cert. denied sub nom. Ceridian Corp. v. Barker, 529 U.S. 1109, 24 EBC 1960 (2000) (27 BPR 1309, 5/23/00); Atwood v. Newmont Gold Co., 45 F.3d 1317, 1321, 28 EBC 1328 (9th Cir. 1995).

ERISA requires, in no uncertain terms, that the summary plan description be ‘accurate’ and ‘sufficiently comprehensive to reasonably apprise’ plan participants of their rights and obligations under the plan, and the SPD is the document to which an employee is likely to refer in obtaining information about the plan and in making decisions affected by the terms of the plan. ⁸Burstein, 334 F.3d at 379 (quoting Hansen, 940 F.2d at 981 (quoting 29 U.S.C. §1022)).

Because the SPD best reflects the expectations of the parties to the plan, the terms of the SPD control the terms of the plan itself. ⁹Chiles v. Ceridian Corp., 95 F.3d 1505, 1515, 22 EBC 1403 (10th Cir. 1996).

While there is unanimity among the circuits on the rule that the SPD controls over conflicting plan terms, there are differing views regarding the circumstances under which that rule applies.

Reliance Not Needed to Enforce a More Favorable SPD.

The U.S. Court of Appeals for the Third Circuit aligned with the U.S. Court of Appeals for the Sixth Circuit in concluding that “a plan participant who seeks to claim plan benefits on the basis of a conflict between an SPD and a plan document need not plead reliance on the SPD.” ¹⁰Burstein, 334 F.3d at 380. The Third Circuit reasons that ERISA plan benefits under ERISA Section 502(a)(1)(B) are contractual in nature, and the SPD serves as a summary of the contract’s (i.e., the plan document’s) key terms.

Just as a court’s enforcement of a contract generally does not require proof that the parties to the contract actually read, and therefore rely upon, the particular terms of the contract, enforcement of an SPD’s terms under a claim for plan benefits does not require a showing of reliance. Thus, in the context of a contractual claim for plan benefits under ERISA Section 502(a)(1)(B), a participant need not plead reliance or prejudice in enforcing the terms of an SPD. ¹¹Id. at 380-82. See also Edwards v. State Farm Mut. Auto. Ins. Co., 851 F.2d 134, 137 (6th Cir. 1988) (“[E]xisting precedent does not dictate that a claimant who has been misled by summary descriptions must prove detrimental reliance. Congress has promulgated clear directives prohibiting misleading summary descriptions. This court elects not to undermine the legislative command by imposing technical requirements upon the employee.”).

The U.S. Court of Appeals for the Fifth Circuit agrees with the Third Circuit that an ERISA claimant need not show reliance on the conflicting terms of the SPD or prejudice in order to prevail on a claim for benefits. In Washington v. Murphy Oil USA Inc., ¹²497 F.3d 453, 457-459, 42 EBC 1462 (5th Cir. 2007) (160 PBD, 8/20/07; 34 BPR 1969, 8/21/07). the court concluded that this approach was “most consistent with ERISA, which is designed to protect employees; and most consistent with [an earlier opinion], which refused to place the burden of conflicting SPDs on plan beneficiaries.” ¹³Id. at 459. Washington suggested that it might qualify its holding, for example in situations where the conflicting terms of the SPD were equivocal and might create a windfall for employees, such as when the terms of the SPD are ambiguous or where the conflict is de minimis. ¹⁴Id. at n.2.

The view that a participant does not need to show reliance to enforce the terms of a more favorable SPD promotes the purposes of ERISA, protects the legitimate expectations of plan participants, and places the burden of accurate draftsmanship on the party responsible for the SPD. This view is also more straightforward to apply, promoting more consistent plan interpretations.

Reliance or Prejudice to Enforce a More Favorable SPD.

Some circuit courts have established a requirement that the participant rely on the conflicting language in the SPD before such provisions can be enforced. The U.S. Court of Appeals for the Eleventh Circuit, for example, has held that “to prevent an employer from enforcing the terms of a plan that are inconsistent with those of the plan summary, a beneficiary must prove reliance on the summary.” ¹⁵Branch v. G. Bernd Co., 955 F.2d 1574, 1579, 14 EBC 2817 (11th Cir. 1992). Expressing concern that permitting a more favorable SPD to trump the plan would jeopardize the favorable tax treatment of pension benefits, the Seventh Circuit similarly has required reliance. ¹⁶Nelson v. Carle Clinic Ass’n P.C., 328 F.3d 915, 918, 30 EBC 1587 (7th Cir. 2003) (93 PBD, 5/15/03; 30 BPR 1127, 5/20/03), cert. denied sub nom. Helfrich v. Carle Clinic Ass’n P.C., 540 U.S. 1073, 31 EBC 2759 (2003) (234 PBD, 12/9/03; 30 BPR 2753, 12/16/03) (the SPD trumps the plan only if the participant relies on the SPD.). See also Health Cost Controls of Illinois Inc. v. Washington, 187 F.3d 703, 23 EBC 1744 (7th Cir. 1999) (26 BPR 2077, 8/16/99) (“When . . . the plan and the summary plan description conflict, the former governs … unless the plan participant or beneficiary has reasonably relied on the summary plan description to his detriment.”), cert. denied, 528 U.S. 1136, 23 EBC 3016 (2000) (27 BPR 332, 2/1/00).

The U.S. Courts of Appeals for the Fourth and Tenth Circuits require a showing of reliance or prejudice. ¹⁷Aiken v. Policy Mgmt. Sys. Corp., 13 F.3d 138, 141, 17 EBC 2079 (4th Cir. 1993); Chiles, 95 F.3d at 1519. Chiles considered the U.S. Court of Appeals for the First Circuit in Govoni v. Bricklayers, Masons and Plasterers Int’l Union, 732 F.2d 250, 5 EBC 1389 (1st Cir. 1984), to require reliance or prejudice. The rationale for this view is explained in Chiles v. Ceridian Corp.:

This requirement makes sense because the purpose of the SPD is to give employees an understanding of the plan upon which they are entitled to rely; the master plan document, however, is also relevant to determine what the terms of the plan actually are. Only where employees rely on an ambiguous or faulty SPD, or otherwise show prejudice from the inconsistency between the SPD and the master plan document, is relief appropriate. Any other rule would allow a windfall for some employees and unfairly increase costs for employers and their insurers, who rely on the terms of the plan in providing benefits and coverage. This in turn could jeopardize the solvency of the plan with respect to the remaining employees. ¹⁸Chiles, 95 F.3d at 1519.

Similarly, the First Circuit requires that a participant show “significant reliance upon, or possible prejudice flowing from, the faulty plan description.” ¹⁹Govoni, 732 F.2d at 252. See also Fenton v. John Hancock Mut. Life Ins. Co., 400 F.3d 83, 88, 34 EBC 1938 (1st Cir. 2005) (48 PBD, 3/14/05; 32 BPR 618, 3/15/05), cert. denied sub nom. Cheever v. John Hancock Mut. Life Ins. Co., 546 U.S. 873, 36 EBC 1192 (2005) (191 PBD, 10/4/05; 32 BPR 2181, 10/11/05). In a variation of this rule the U.S. Court of Appeals for the Eighth Circuit requires a showing of reliance or prejudice, but only if the SPD is “faulty.” ²⁰See Palmisano v. Allina Health Sys., 190 F.3d 881, 887-88 (8th Cir. 1999); Marolt v. Alliant Techsystems Inc., 146 F.3d 617, 621-22 (8th Cir. 1998). The concern is that a court should not give effect to an informal amendment to a plan. ²¹Kalda v. Sioux Valley Physician Inc., 481 F.3d 639, 648, 40 EBC 1573 (8th Cir. 2007) (61 PBD, 3/30/07; 34 BPR 808, 4/3/07); Antolik v. Saks Inc., 463 F.3d 796, 801, 38 EBC 2546 (8th Cir. 2006) (178 PBD, 9/15/06; 33 BPR 2236, 9/19/06).

In this author’s opinion, a requirement of reliance or prejudice places too great a burden on plan participants who are exercising their rights under a plan, because they may be unable to marshal specific evidence after the fact.

Likelihood of Harm to Enforce a More Favorable SPD.

Finding that requiring proof of harm would undermine the obligation under ERISA to provide an accurate plan summary and impose too heavy a burden on participants and beneficiaries of benefit plans, the U.S. Court of Appeals for the Second Circuit has taken a middle road. While requiring that a participant show prejudice as a result of the deficient SPD, actual reliance or prejudice need not be shown. Rather, a showing of prejudice requires “that a plan participant or beneficiary was likely to have been harmed as a result of a deficient SPD.” ²²

Burke v. Kodak Ret. Income Plan, 336 F.3d 103, 113, 30 EBC 2345 (2d Cir. 2003) (138 PBD, 7/21/03; 30 BPR 1597, 7/22/03), cert. denied, 540 U.S. 1105, 31 EBC 2759 (2004) (7 PBD, 1/13/04; 31 BPR 146, 1/20/04).

The “likely harm” standard avoids the imposition of “harsh common law principles to defeat employees’ claims based on a federal law designed for their protection.” ²³Id. “Where a participant makes this initial showing, however, the employer may rebut it through evidence that the deficient SPD was in effect a harmless error.” ²⁴Id. at 111-114.

Last term, the U.S. Supreme Court granted certiorari in a case applying the Second Circuit rule. In Amara v. Cigna Corp., ²⁵534 F. Supp. 2d 288, 43 EBC 1011 (D. Conn. 2008) (33 PBD, 2/20/08; 35 BPR 469, 2/26/08), aff’d, 2009 U.S. App. 21941, 47 EBC 2709 (2d Cir. Oct. 6, 2009) (192 PBD, 10/7/09; 36 BPR 2352, 10/13/09), cert. granted, 130 S. Ct. 3500 (2010) (123 PBD, 6/29/10; 37 BPR 1538, 7/6/10). the employer converted its traditional defined benefit pension plan into a so-called “cash balance” retirement plan. The SPD was misleading for failure to inform participants that due to the problem of “wear away,” there could be times when an employee’s account balance is less than the minimum benefit. ²⁶Amara, 534 F. Supp. 2d at 302-04, 310-11, 176-185.

Taking a broad view of “likely harm,” the lower court rejected the idea that a participant must show that he changed his position in order for the court to find that the SPD controls. The court concluded that the plan sponsor’s successful efforts to conceal the full effects of the new plan deprived participants of the opportunity to take timely action in response to the amendment, such as protesting at the time it was implemented or leaving for another employer with a more favorable pension plan. ²⁷Id. at 176-185.

In undertaking its review, the Supreme Court should not impose on participants the burden of showing actual reliance or prejudice on an erroneous SPD. Such a burden undermines ERISA’s requirement of providing an accurate summary of the plan. Participants may find it difficult to prove how they were affected by inaccurate disclosures years after the fact, especially beneficiaries of deceased participants who are unlikely to have evidence that the participant actually read the SPD and would have acted differently in response. Further, a requirement of individualized reliance would be contrary to predictable and uniform plan administration.

Thus, in general, the SPD trumps conflicting and less favorable provisions of the plan, in order to serve ERISA’s purpose of requiring an accurate and understandable plan summary. While this rule might be modified to avoid a windfall to the participant, the case law should continue to incentivize plan administrators to furnish accurate SPDs.

When the SPD Is Less Favorable to Participants Than the Plan

As discussed in the first part of this article, when the SPD is more favorable to participants than is the plan, courts have struggled somewhat to resolve the tension between giving effect to the terms of the plan without defeating the legitimate expectations of participants based on the summary that is intended to actually inform them of the benefits provided under the plan. That tension disappears when it is the SPD that contains provisions that are less favorable to participants.

As such, there is surprising consistency among the appellate courts that have considered the question to conclude that in such circumstances, the master plan document controls when it is more favorable to employee than the SPD. Two rationales underlie these cases.

The first rationale, articulated by the U.S. Court of Appeals for the Ninth Circuit, following Fifth Circuit cases, is that when the SPD fails to accurately summarize the relevant portions of the plan, the burden of sloppy draftsmanship should be borne by the draftsman:

Any burden of uncertainty created by careless or inaccurate drafting of the summary must be placed on those who do the drafting, and who are most able to bear that burden, and not on the individual employee, who is powerless to affect the drafting of the summary or the policy and ill equipped to bear the financial hardship that might result from a misleading or confusing document. Accuracy is not a lot to ask. ²⁸Bergt v. Ret. Plan for Pilots Employed by Mark Air Inc., 293 F.3d 1139, 1146, 28 EBC 1398 (9th Cir. 2002) (120 PBD, 6/21/02; 29 BPR 1804, 6/25/02) (quoting Hansen, 940 F.2d at 982).

Employees should be entitled to rely on the unambiguous provisions of the master plan document, and the law should “provide as strong an incentive as possible for employers to write the SPDs so that they are consistent with the ERISA plan master documents, a relatively simple task.” ²⁹Id. See also Skinner v. Northrop Grumman Ret. Plan B, 334 Fed. Appx. 58, 60 (9th Cir. 2009); Banuelos v. Constr. Laborers’ Trust Funds for S. Cal., 382 F.3d 897, 904, 33 EBC 1641 (9th Cir. 2004) (165 PBD, 8/26/04; 31 BPR 1915, 8/31/04), cert. denied sub nom. Constr. Laborers Pension Trust v. Banuelos, 545 U.S. 1127, 36 EBC 1192 (2005) (118 PBD, 6/21/05; 32 BPR 1385, 6/21/05); Watts v. BellSouth Telecomms. Inc., 316 F.3d 1203, 1207-1208, 29 EBC 2195 (11th Cir. 2003) (5 PBD, 1/9/03; 30 BPR 88, 1/14/03); Norton v. Flowserve Corp. Pension Plan, 2008 U.S. Dist. LEXIS 10821, 43 EBC 2000 (N.D. Okla. Feb. 11, 2008) (29 PBD, 2/13/08; 35 BPR 426, 2/19/08) (citing Charter Canyon Treatment Ctr. v. Pool Co., 153 F.3d 1132, 1137, 22 EBC 1582 (10th Cir. 1998)).

As noted by the Seventh Circuit:

[T]he implication of §1022 is that the SPD will be an accurate summary, not an unnegotiated enlargement of the administrator’s authority. Were we to say the SPD controlled in this situation, we would be—to use an apropos cliche—allowing the tail to wag the dog. ³⁰Schwartz v. Prudential Ins. Co., 450 F.3d 697, 700, 37 EBC 2753 (7th Cir. 2006) (115 PBD, 6/15/06; 33 BPR 1492, 6/20/06). See also Duperry v. Life Ins. Co. of N. Am., 2009 U.S. Dist. LEXIS 83532 (E.D.N.C. Aug. 10, 2009) (citing Glocker v. W.R. Grace & Co., 974 F.2d 540, 543 (4th Cir. 1992)).

The second rationale is that the SPD cannot be used by plan sponsors to amend the plan in lieu of compliance with amendment procedures in the plan. The Eighth Circuit has elaborated this rationale:

“[A] grant of discretion to the plan administrator, appearing only in a summary plan description, does not vest the administrator with discretion where the policy provides a mechanism for amendment and disclaims the power of the summary plan description to alter the plan.” … “ERISA requires every plan to provide a procedure governing amendment of the plan.” … We indicated a purported grant of discretion appearing only in the SPD could not be viewed as a procedurally proper amendment of the policy: To hold that the summary plan description nonetheless granted the administrator discretion in this case would be to endorse the practice of issuing ERISA policies that are silent on key provisions and later issuing summary plan descriptions filling the gaps with terms favoring the employer… . [T]here would … be little need to follow formal amendment procedures if key terms could be changed by a summary plan description. ³¹Ringwald v. Prudential Ins. Co. of Am., 609 F.3d 946, 948-949, 49 EBC 1626 (8th Cir. 2010) (118 PBD, 6/22/10; 37 BPR 1485, 6/29/10) (quoting Jobe v. Medical Life Ins. Co., 598 F.3d 478, 481-86, 48 EBC 2394 (8th Cir. 2010) (53 PBD, 3/22/10; 37 BPR 631, 3/23/10), and citing Schwartz, 450 F.3d at 699; Shaw v. Conn. Gen. Life Ins. Co., 353 F.3d 1276, 1283-83, 31 EBC 2419 (11th Cir. 2003) (244 PBD, 12/23/03; 30 BPR 2822, 12/30/03); Grosz-Salomon v. Paul Revere Life Ins. Co., 237 F.3d 1154, 1161-62, 25 EBC 1769 (9th Cir. 2001) (21 PBD, 1/31/01; 28 BPR 609, 2/6/01); 29 U.S.C. §1102(b)(3)); See Gillis v. Hoechst Celanese Corp., 4 F.3d 1137, 1142, 17 EBC 1521 (3d Cir. 1993), cert. denied, 511 U.S. 1004, 17 EBC 2520 (1994) (an SPD cannot effectively change the plan in a manner detrimental to participants’ rights.); Cherry v. BioMedical Applications of Pa. Inc., 397 F. Supp. 2d 609, 615, 36 EBC 2430 (E.D. Pa. 2005) (221 PBD, 11/17/05; 32 BPR 2563, 11/22/05); Stern v. Cigna Group Ins., 2007 U.S. Dist. LEXIS 9153, * 11-12 (S.D.N.Y. Jan. 30, 2007); Schultz v. Stoner, 308 F. Supp. 2d 289, 306-307, 32 EBC 2522 (S.D.N.Y. 2004) (47 PBD, 3/11/04; 31 BPR 623, 3/16/04).

Thus, courts will not give effect to less favorable provisions of the SPD. The law should continue to incentivize plan administrators to issue accurate SPDs and should refuse to give effect to improper plan amendments.

Conclusion

In addressing conflicts between the SPD and the language of the plan documents, courts properly have enforced the provisions that are more favorable to the participant. Courts should continue to resolve conflicts in favor of participants to promote ERISA’s purpose of providing participants accurate plan summaries and to fulfill participants’ reasonable expectations concerning the terms of their benefit programs.