Supreme Challenge to Pension Payouts

During most of the 39 years Paul Frommert worked as a technician at Xerox, he thought he was well prepared for retirement. The company had a pension plan, and Frommert also contributed to a 401(k) account. But one day in 1996 Frommert noticed “a little slip of paper” tucked inside the annual statement from his employer that summarized his salary and benefits. It cautioned that for people like Frommert, who had been laid off for a few years in the late 1980s and then rehired by Xerox, the listed sums might not be accurate.

Indeed they weren’t. After months of pleading for more information, Frommert learned that the $2,482 a month he had been expecting dwindled to $5.31 under a formula the administrator of Xerox’s pension plan was using.

“My whole life was there, and this is the kick you get,” says Frommert.

Frommert was laid off from Xerox again in 2002. Since then, he has received no pension money at all while he fights a long legal battle for the benefits he believes he earned. Over the years, he has seen much of the life he built near Rochester, N.Y., slip away.

“We re-mortgaged the house to get some money, but that’s gone, and over time, we spent down the 401(k),” says Frommert, now 71. “We’re in the final throes of filing bankruptcy, and I’m going to have to sell the house.”

He picks up odd jobs when he can, but he and his wife, who recently had a double mastectomy, just can’t make ends meet. “We’re devastated,” Frommert says. “Absolutely devastated.”

Deference to plan administrators

Frommert and some 100 others who face a similar problem with their Xerox pensions found no relief at the U.S. Supreme Court. In an April 21 ruling, the high court rejected a lower court’s decision to throw out the plan administrator’s calculation and boost the pension payments.

Instead, in a 5-3 opinion written by Chief Justice John Roberts Jr. and backed by the court’s conservatives, the Supreme Court said judges should defer to the decisions made by plan administrators—even if an administrator has made a mistake in interpreting the plan. While the ruling doesn’t finally settle exactly how much Xerox will pay the retirees, the plaintiffs’ lawyers aren’t optimistic.

The decision’s impact reaches far beyond Frommert’s situation, to millions of U.S. workers who might someday face a dispute concerning health, pension or disability benefits. Advocates for workers and retirees say this area of law already favors companies and their plans, and the decision in Conkright v. Frommert case makes it even more difficult for employees to prevail.

“It certainly slants the playing field heavily in the employer’s direction,” says John Strain, a California attorney who represents several former Xerox employees in a similar lawsuit.

Mary Ellen Signorille, senior attorney with AARP, which filed a friend-of-the-court brief on Frommert’s behalf, says the decision fits with other rulings in which the conservatives on the Roberts court prevailed. Those decisions have generally found that disputes about benefits claims should be decided not by the courts but by a plan administrator—a person who may work for the company that sponsors the plan, but who is charged with a responsibility to the plan’s financial health and its participants.

For courts, that approach could help keep benefits cases off busy court dockets. For companies, it could help lower costs and allow them to continue to offer such plans. But for participants in the plans, “there’s this sense of ‘heads you win, tails I lose,’” Signorille says.