A federal judge in the Eastern District of Michigan ruled in favor of a retiree from Detroit Edison Co. whose pension benefit was miscalculated before his decision to retire.
During his 25-year career with the utility company, John Paul, the plaintiff in the case, worked as a temporary employee, a union employee, and a non-union employee, before moving back to a union position—and back into its retirement plan—in 1992, where he served the balance of his career until 2009, when he retired.
Before he did, Paul requested and reviewed Pension Calculation Statements, provided by the company's plan administrator, Aon, four different times.
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During his retirement interview, a Detroit Edison representative met with Paul, who made specific inquiries as to the accuracy of the company's pension calculation, given his involvement in both union and non-union retirement plans.
Paul was assured his retirement benefit—a lump-sum payment of $93,169 and a monthly benefit of $772—accurately accounted for his years of service, and his participation in the different plans. Based on the guaranteed pension, Paul retired in 2009, two years before he would have been eligible for early retirement. His decision to do so was based on what he felt was the adequacy of his benefits.
In 2011, after an Aon audit, Paul received an "Overpayment Notice," explaining his pension benefits had been miscalculated, as his time as a temporary employee, when he was not enrolled in a pension plan, was inaccurately counted as years of service.
Consequently, Paul would have to pay back nearly $18,000 in benefits. After unsuccessfully appealing to Detroit Edison's benefits committee, Paul sued.
In finding for him, Judge Sean Cox found the company "grossly negligent" in its failures to accurately calculate Paul's pension benefits.
Detroit Edison pressed the "honest mistake" argument, which had been successfully argued in Stark vs. Mars.
But what transpired in Paul's situation with Detroit Edison was "more complicated than the honest mistake in Stark," Judge Cox wrote.
Detroit Edison's failure to investigate Paul's years of service, after he raised the question to a company representative, was not an honest mistake, "but was precisely the sort of malfeasance that may give rise to constructive fraud," Cox wrote.
"The company representative assured Plaintiff that the calculation of his years of credited service was correct," he reasoned in ruling for Paul's motion for summary judgment.
In doing, Cox assured Paul would receive the original benefits he was promised, even though their estimation included more than three years of company service when Paul was not enrolled in any retirement plan.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
