Pension & Benefits News No abuse of discretion in plan’s refusal to change retiree’s lump-sum election
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Tuesday, June 11, 2019

No abuse of discretion in plan’s refusal to change retiree’s lump-sum election

By Pension and Benefits Editorial Staff

A pension plan administrator did not abuse its discretion when it denied a retiree’s request to change her mind for the second time as to whether she would prefer to continue to receive a monthly, single-life annuity payment or make a one-time election to receive a lump-sum payment, a U.S. district court in Illinois has ruled. The window for revoking the retiree’s decision regarding the lump-sum election, set forth in the terms of the plan and communicated in writing to the retiree, had closed.

Retiree Lump-Sum Window. In 2015, an employer amended its defined benefit plan to add a “Retiree Lump-Sum Window” (RLSW). The RLSW provided a one-time opportunity for certain current retirees to convert their monthly annuity under the plan to a lump-sum payment. Under the terms of the plan, eligible participants had to make an election between July 20, 2015 and September 25, 2015. However, a retiree who elected the lump sum but then had second thoughts could revoke his or her lump-sum election at any time before November 1, 2015.

The terms of this new plan provision were communicated in writing to participants in June 2015. The announcement included information on how to make the election and also enclosed a ‘financial and tax education guide.” Participants were also encouraged to consult with their own tax or financial advisers before making a decision.

A retiree who had been receiving a monthly pension since 2001 elected to convert her monthly benefit to a lump-sum payment under the RLSW. Her son, who held her power of attorney, called the employer’s benefit center on September 1, 2015 to make the election. However, on October 27, the son and the retiree called back, this time to revoke the election and revert to the monthly benefit option. The retiree told the representative that her son had permission to speak on her behalf. The plan administrator confirmed the revocation of the election in writing on October 29.

Then, beginning in November 2015, the son and the retiree tried for several months to revoke the revocation and receive the lump-sum payment. The plan denied the request. In her internal appeal of the denial, made on July 7, 2016, the retiree said that her RLSW revocation was void due to her “progressive neurological disorder.” The plan denied this appeal and the retiree died in October 2016. She continued to receive her monthly pension payment until her death.

The son, acting as estate executor, filed suit under ERISA challenging the administrator’s decision denying the request to revoke the revocation.

No abuse of discretion. The court sided with the plan administrator, granting its motion for summary judgment. It first determined that because the plan by its terms granted discretion to its administrator, it was appropriate to review the ERISA benefits denial under the abuse of discretion or arbitrary and capricious standard.

The court held that the decision to deny the claim was not arbitrary and capricious. The son and the retiree revoked the RLSW election on October 27. Because the election period had already closed by that point, the retiree, under the terms of the plan, could not make another election.

The court also rejected the son’s argument that the retiree did not receive a “full and fair review” of her appeal as required by ERISA because the plan administrator failed to consider evidence of the retiree’s alleged mental incapacity to void her revocation. The court noted that the son held power of attorney to act on behalf of the retiree even if she were incompetent. Further, the evidence indicates that the plan administrator did consider the retiree’s medical records when reviewing her appeal.

SOURCE: Mitchell v. Lucent Technologies Pension Plan (DC IL).

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