Effect of Drafting Errors in ERISA Plans
In Young, an ERISA plan participant claimed that Verizon had miscalculated pension benefits owed to her as well benefits owed to a class of similarly situated plan participants. Under the Plan, benefits were to be calculated by using a "transition factor." Due to a drafting error, however, the Plan contained two references to the transition factor such that, if applied literally, some plan participants would receive much larger benefits. Plaintiff sought the more generous interpretation, while Verizon urged that the Plan be reformed to eliminate the error. The Seventh Circuit agreed with Verizon.
In analyzing whether an ERISA plan can be reformed to correct a drafting error, the court first noted that ERISA writings are strictly enforced. After considering previous decisions, the court concluded that the plan could be corrected if it "is shown, by clear and convincing evidence, to contain a scrivener's error that does not reflect the participants' reasonable expectations of benefits." In this particular case, the plan's drafting history left "little doubt" that the insertion of the second transition factor was a drafting error. Further, communications between Verizon and plan participants, including plan brochures and individual benefit estimates, showed that the parties intended for the transition factor to apply only once.
The court relieved Verizon of the effects of a very expensive drafting error. But it took Verizon over five years of costly litigation to secure this relief, and the outcome was not a foregone conclusion. Moreover, the court noted that Verizon had been negligent in failing to prevent the error and commented that it was "baffling that a major corporation would not invest greater resources to ensure accuracy" in the plan. Note also that other courts have reached different conclusions. E.g., Blackshear v. Reliance Standard Life Ins. Co., 509 F.3d 634 (4th Cir. 2007) (refusing to correct clerical error as it would deprive plan participants of already vested rights and undercut ERISA's aim of ensuring notice of benefits). Thus, while it is possible to reform plan documents to correct for some errors, drafters should continue to apply their craft with care.
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