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Participants Provided Inaccurate Summary Descriptions of Pension Plan Reductions Not Entitled to Relief

The U.S. Court of Appeals for the Ninth Circuit rejected the claims of employees/retirees who received inaccurate information about reductions in their pension plans.


Starting July 1, 2003, the Northrop Grumman Pension Plan transitioned various pension plans into one cash balance plan and, in doing so, imposed an offset against some of the transitioned benefits. The summary plan description (SPD) distributed to employees/retirees failed to mention the offset (though the plaintiffs agree that the master plan stated it correctly). Employees/retirees sued, arguing that the plan materials violated the Employee Retirement Income Security Act (ERISA), the main federal law governing employment-related benefits.

The trial court ruled in favor of Northrop Grumman, finding that in order to recover damages the employees/retirees had to show that they relied on the misinformation to their detriment, and that they could not show that. The case was appealed.

Attorneys with AARP Foundation Litigation filed AARP’s friend of the court brief arguing that under recent U.S. Supreme Court precedent, a breach of fiduciary duty (such as the “egregious ambiguity” noted by the court) entitled workers to be compensated for the loss of benefits they did not receive. The brief argued that traditional trust law as well as ERISA itself authorized courts to grant “appropriate equitable relief” including contract reformation, estoppels and surcharge, and that in this case the relief of surcharge was appropriate. In the Supreme Court case of CIGNA v. Amara, the Court held that equitable relief could be granted for violations of those protections traditionally guaranteed under trust laws.

The Ninth Circuit found that although the administrative committee for the pension plan did not ensure that participants received accurate SPDs that explained the circumstances that could result in the benefit offset, the employees were not entitled to either reformation or surcharge as remedies. The court held that unlike Amara there was no finding that Northrop Grumman had materially misled its employees. The court found that under both trust law and contract law, reformation is proper only in cases of fraud or mistake, and there was no evidence of either. Finally, although the court said the committee had a duty to provide participants with accurate SPDs that apprised them of their rights, participants would not receive any remedies because they did not present evidence the plan was not unjustly enriched by the failure to provide accurate SPDs.

What’s at Stake

The case was one of the first federal appeals court cases to look at reformation or surcharge as equitable remedies under the Amara decision. The Ninth Circuit took a very narrow view of the decision.

Case StatusSkinner v. Northrop Grumman Ret. Plan B was decided by the U.S. Court of Appeals for the Ninth Circuit. The court rejected a petition for rehearing.

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