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Fifth Circuit: SPD Controls over Plan Terms No Reliance on SPD Required

    Client Alerts
  • August 31, 2007

A recent Fifth Circuit Court of Appeals case, Washington v. Murphy Oil USA, Inc., affirmed the District Court's finding that the summary plan description ("SPD") controlled over conflicting plan terms regarding vesting of disability-based retirement benefits, even where the participant never relied on the terms of the SPD, thereby allowing the participant to prevail on his claim for benefits.  SPDs are intended to be a shorter, easy-to-read explanation of the terms of an ERISA benefit plan and must be provided to all participants.  However, inadvertent mistakes can occur in the drafting of an SPD, causing it to conflict with the plan's more detailed provisions.

In this case, a participant sued to receive disability benefits under his employer's retirement plan because the employer asserted that the participant did not have enough years of service to qualify for such benefits.  The SPD required only five years of service while the plan required ten years, but the employer claimed that the participant had to show reliance on the SPD's terms.  The District Court rejected the claim that reliance was required and granted summary judgment for the participant, ruling that the five year requirement of the SPD controlled.

The employer appealed, and the Fifth Circuit affirmed the District Court's decision.  The court acknowledged a five-way federal circuit split on whether an ERISA claimant needs to establish reliance and/or prejudice based on the conflicting terms of an SPD (a majority, including the Fourth Circuit, require one or the other).  Citing existing Fifth Circuit precedent, it held that when the written terms of an SPD and a plan conflict, and the terms of the SPD unequivocally grant the participant a vested right to benefits, the participant does not need to demonstrate reliance or prejudice in order to recover benefits under the plan.

This case is a reminder of the importance of drafting SPDs that accurately reflect plan terms.  Great care should be taken in drafting SPDs and/or reviewing SPDs provided by service providers to ensure that the SPD distributed to participants is consistent with the plan document.