Court Approves Benefit Refund Request

A plan sponsor’s request that a retiree return nearly $730,000 in overpaid pension benefits has won court approval.

In granting summary judgment to defendant Kaiser Foundation Health Plan, the U.S. District Court for the Northern District of New York agreed with the plan’s benefit appeals sub-committee that the mere fact of payment was not a documentary basis for John Baackes’ entitlement to the amount of payment. The court also found Baackes’ breach of contract claim was preempted by the Employee Retirement Income Security Act (ERISA) since his employment contract with Kaiser simply promised benefits under the plan and did not constitute a legal duty concerning the benefit outside of ERISA.

Senior United States District Court Judge Frederick J. Scullin, Jr. found the appeals sub-committee reviewed all relevant provisions of the plan and interpreted them reasonably. He noted in his opinion, section A-4 of the plan provides that participants only receive credited service for their “Hours of Employment,” which is defined in Article H as each hour an employee is entitled to payment by “an Employer or an organization listed in the Medical Care Organization Appendix.” Although the Medical Care Organization Appendix lists CHP—where Baackes was employed prior to its merger with Kaiser—it was effective as of December 31, 1997—nearly a year after Baackes began working for Kaiser, on January 1, 1997.

According to Scullin’s opinion, the sub-committee explained, “because Plaintiff did not work for a covered employer (i.e., an organization listed in the Medical Care Organization Appendix) prior to beginning his employment with Kaiser on January 1, 1997, …he did not have any Hours of Employment prior to that date.”

The sub-committee also addressed Baackes’ assertion that he was never told his previous work for CHP would count only as vesting credit for eligibility purposes, rather than benefit credit, by noting that on January 31, 1997, Kaiser had sent a letter to Baackes’ financial representative, projecting his benefits. That letter did not include his previous work in the calculus to project future benefits. In addition, Baackes’ concern that the letter informing him of the benefits overpayment cited the 2010 version of the current plan document and not the version in effect when he worked for Kaiser in 1997 was address with an explanation that there was no difference in calculation of retirement benefits from the 1997 to the 2010 version.

Scullin also found there is nothing in the record to indicate Kaiser breached its fiduciary duty of care to Baackes, saying the language in the plan highlights Kaiser's lack of financial incentive to deny benefits, since the money is paid out from an independent entity.

According to the court opinion, Baackes worked for CHP 20 years prior to its merger with Kaiser in August 1996. On January 1, 1997, he began work for Kaiser as president of the Kaiser Permanente Northeast Division and joined Kaiser’s retirement plan. Baackes retired on February 1, 2011, shortly after his sixty-fifth birthday.

Third-party administrator Aon Hewitt sent Baackes a Pension Calculation Statement, in which it calculated a retirement benefit in the amount of $782,733.65. In February 2011, he received a lump sum distribution in that amount. However, on March 1, 2011, he received a notice explaining the over payment of his benefit. According to that notice, Baackes was entitled to $54,264.62. The sub-committee explained that he was not eligible to receive credited service for his 20-year employment at CHP.

The district court’s opinion is here.