Tuesday, February 24, 2015

Say What You Mean in Your Documents

I've long been a proponent of saying what you mean in your plan documents, be they related to benefits, compensation, or anything else. If you know what your intent is, what could possibly be the harm in saying so.

One of my colleagues was good enough to point me in the direction of Gill v Bausch and Lomb, a 2nd Circuit case in which the plan document drafting was a bit sloppy. Without going into all the gory legal details, as I feel certain you can find an article written by an attorney that will do so, the case hinges on whether under the terms of the nonqualified plan, a retired participant is a Retiree or a Participant. It is entirely clear that defendants wanted these individuals to be participants, but it was just as clear to the court that they were Retirees who were eligible for different, more favorable treatment.

All of this could have been avoided. I'm certain that the attorneys who drafted the plan document took all reasonable care in doing so, but attorneys are human and they miss things. In my experience, in benefit and compensation plans, when they do miss something, it is most likely to be administrative or calculational in nature.

You see, very few attorneys who practice in these areas ever actually administer a plan or perform calculations related to a plan. So, when an attorney writes a plan document, it is almost always crystal clear to that particular attorney how he or she would interpret it. Sometimes, others would not agree.

I have seen documents that ask the person performing the calculations to exercise mathematical prowess that does not exist in homo sapiens. I have seen administrative practices written into plans that sounded really good, except that those practices could not actually be followed by any third party administrator.

Before I rant further, let me say that most document work done by most attorneys is very good. I am not trying to disparage the entire legal community here. But, there is always room to make a document say exactly what is intended.

While some would tell me that flexibility, especially when given to the administrator, is a good thing, I beg to differ. If we consider a not entirely hypothetical situation, Plan A is administered by TPA B from 2000 until 2013. TPA B used the discretion in Plan A's document to set certain practices that were convenient within their systems. At the end of 2013, the sponsor of Plan A fired TPA B and hired TPA C to administer the plan. TPA B's notes on its practices and procedures were pretty good, but did not cover every little detail of some of the discretionary practices. Without intending to, TPA C changed some of the administrative practices.

That may or may not be a big deal, but it's a lawsuit just waiting to happen.

I have a few suggestions. I have rarely gotten an attorney to agree with me on all of these (often some, but rarely all), but I am going to say them anyway.

  • Have the document reviewed by someone who could or will be administering it. See what they think it says to do.
  • Have the calculational elements reviewed by someone who understands how the calculations are supposed to work.
  • And for the most controversial of them all, put something in the plan document that looks like "the intent of this section is illustrated by the following example." That's right. If you mean that a result is to be rounded to 4 decimal places, put it in the example. If you mean that rounding takes place after the second step and that 3 more calculations are done after that, put it in the example. If a methodology applies to active and retired participants, put that in the example.
You do want to win those lawsuits or better yet, not be sued at all.

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