Who Fixes Botched Pensions: Companies or Courts?

Last Updated Jan 27, 2010 1:50 PM EST

For more than a decade, a group of Xerox retirees has waited to
resolve a pension dispute that it says has deprived its members of more than
$20 million in benefits.

This wasn't supposed to happen. In 1974, Congress
passed the Employee Retirement Income Security Act (ERISA) to protect retirees
after the Studebaker automobile company closed its plant and left thousands of
employees without their promised pensions. ERISA established a claims review
process so that benefits disputes wouldn't get tied up in protracted
lawsuits. But that's exactly what's gone on in the Xerox

The case in brief:

The 105 retirees in this case worked for Xerox for a number
of years, retired, and then returned to work for the company. The dispute arose
when it came time to recalculate their pension benefits. Xerox looked at the
total years of service and subtracted the amount of retirement income the
employees took the first time they left Xerox. To account for the gap in
tenure, Xerox then estimated how much the pensions might have grown
during that time and subtracted that amount, too. In the end, the calculation
left the retirees with negligible benefits, so they sued.

An appeals court decided that Xerox deprived the retirees of pension benefits
they were owed and that a trial court should step in to recalculate the
benefits. The company objected, arguing that the role of the court isn’t
to do Xerox’s math.

At issue is not how much money Xerox owes its former
employees. When the Court hears the case on Jan. 20, 2010, it will consider who
has the authority to fix the calculations: the company or the court?

Why it matters:

Essentially, this case is about whether a company should
have multiple chances to re-calculate pension benefits once a court decides
that it botched the first attempt, explains Marquette law professor Paul
Secunda, who along with eight other law professors filed a brief supporting the
Xerox employees. “The employees say, ‘Absolutely not. You
had your chance, you messed up, and now it’s completely within the
court’s discretion to decide what a reasonable interpretation of the
pension plan is,’” Secunda says. Otherwise, the
disbursement of funds could take years while the company makes adjustments.

But if companies don’t have the power to interpret the language of
their own private pension plans and review benefits claims — and if employees
know they can resolve disputes faster in court — it could lead to
more ERISA lawsuits, says Howard Shapiro, an employee benefits attorney at
Proskauer Rose. “Depending on how the case is decided, it could allow
plaintiffs to do an end run around the claims-review procedure,” he
says. “There will be fewer claims dealt with in the administrative
review phase, and it could potentially lead to and foment more litigation.”

Other cases to watch:

  • Sarbanes-Oxley: The post-Enron reform law that companies love to hate.
  • Corporate fraud: Is the language that helped take down Conrad Black and Bernard Madoff too broad?

  • Campaign finance: Do corporations have the right to free speech when it comes to politics?

  • Patent law: Is it outdated in this digitally driven, idea-oriented era?