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Skinner v. Northrop Grumman

Workers/Retirees Should Be Compensated for "Egregious Ambiguities" in Pension Plan

AARP is supporting the workers and retirees of Northrop Grumman who argue that a summary plan description they were given violates federal law by failing to describe benefit reductions and thus they should receive the benefits without the reductions.

Background

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 distributed to employees/retirees failed to mention the offset (though the plaintiffs agree that the master plan stated it correctly). They sued, arguing that the plan materials violated the Employee Retirement Income Security Act (ERISA), the main federal law governing employment-related benefits.

A trial court dismissed the case, holding that the explanation was sufficient. A federal appeals court reversed, ruling that the "egregious ambiguity" between the summary plan and master plan meant that the court must consider the version of the plan most favorable to the employees, and therefore the summary plan controlled and the notice there was inadequate. The appeals court sent the case back to trial to determine remedies.

On remand, the trial court again 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 again appealed.

Attorneys with AARP Foundation Litigation filed AARP's "friend of the court" brief arguing that under recent 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. .

The 2011 Supreme Court case of CIGNA v. Amara changed the state of the law because it held that summary plan descriptions do not constitute a plan's terms and therefore cannot be sued upon. However, the Court went on to state that equitable relief could be granted for violations of those protections traditionally guaranteed under trust laws. Fiduciary duty is a bedrock duty that would, AARP argues, be covered by that decision.

What's at Stake

In an uncertain economy, it is all the more important that workers and retirees be vigilant about protecting the assets they have in many cases invested in over a lifetime of work. This case will be one of the first cases applying and interpreting the decision in Amara, which while disappointing on its merits nonetheless left open many issues regarding ERISA provision.

Case Status

Skinner v. Northrop Grumman is before the U.S. Court of Appeals for the Ninth Circuit.


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