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Benefits/ERISA

7th Circuit Allows Fix of In-House Lawyer’s $1.67B Mistake

Posted Aug 11, 2010 7:35 AM CDT
By Debra Cassens Weiss

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A former in-house lawyer who tried to make pension plan language more readable made a costly mistake that could have cost Verizon $1.67 billion.

But thanks to a federal appeals court ruling Tuesday, Verizon is off the hook, Reuters reports. The Chicago-based 7th U.S. Circuit Court of Appeals concluded that ERISA allows the court to correct the “scrivener’s error.”

"People make mistakes. Even administrators of ERISA plans," Judge John Daniel Tinder wrote in the panel opinion. “We conclude that ERISA’s rules are not so strict as to deny an employer equitable relief from the type of ‘scrivener’s error’ that occurred here.”

The mistake by Barry Peters, a lawyer for Bell Atlantic before it was acquired by Verizon, could have been made by anyone, the American Lawyer reported in a story published in November after a district court ruling in the case. When Bell Atlantic switched pension plans, it multiplied the cash-out value of each employee’s stake in the old plan by a “transition factor” based on age and years of experience to boost opening balances in the new plan.

The multiplier was supposed to apply once. When working on the fourth draft of the plan, Peters added a mention of the “transition factor” in the middle of the sentence, but forgot to delete it at the end of the sentence, the American Lawyer explains. As a result, the language appeared to call for multiplying the pension holdings twice by the transition factor, rather than once.

The 7th Circuit opinion said Peters testified he was trying to rewrite the transition formula into a more readable “A times B” format. His error survived unnoticed in the fifth, sixth and final drafts of the plan.

Matthew Hurst, a partner at Susman Heffner & Hurst who represents the workers who sued Verizon, told Reuters that federal courts are divided on the scrivener’s error issue. "This split should be resolved,” he said.

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