Bandak, a retired employee of Eli Lilly, sued the company’s retirement plan under ERISA and received a judgment for $100,222.86 in damages and an injunction against the plan’s offsetting any of his future benefits by amounts paid to him under a plan in which he was enrolled when he worked in the United Kingdom. The district court also awarded him attorneys’ fees and costs, amounting to $89,612, on the ground that Lilly’s position in the litigation had not been substantially justified.
Bandak, who is English, began work for the Lilly group of companies in 1978 in England, and was enrolled in the pension plan of the English member of the group. In 1995, he was shifted to the United States. Lilly informed him in writing that he was now enrolled in the U.S. affiliate’s retirement plan and that his benefits under the plan would be based on his years of service retroactive to his initial employment by the Lilly group, which is to say back to 1978. Thus he would be treated as if he had worked for U.S. Lilly from 1978 to 1995 rather than for the English affiliate. He retired in 2004.
*800 The plan in effect in 1995 said that an employee’s retirement benefits “shall be reduced by the Actuarial Equivalent of any benefit payable to such a person under a qualified defined benefit plan maintained by” a Lilly employer (emphasis added). On the basis of this provision, the plan administrator decided that Bandak was not entitled to benefits under the English affiliate’s retirement plan because it was a “qualified defined benefit plan” and thus within the exclusion. If this is correct, Bandak’s pension entitlement would fall from $18,000 a month to $14,000.
The term “qualified defined benefit plan” is an American legal term that means a plan approved by the Internal Revenue Service for favorable federal tax treatment. See, e.g., 26 U.S.C. §§ 401(a)(5)(D)(i), 1060(e)(2)(A)(ii) (“a defined benefit plan ... which qualifies”); 26 C.F.R. § 1.401—4(c)(T)(ii);
Powell v. Commissioner,
Lilly argues that it would be “unfair” for Bandak to get greater benefits than if he had begun work for Lilly’s U.S. affiliate rather than its English affiliate in 1978. Whether and in what sense it is “unfair” would require a deeper investigation than attempted by the plan administrator — would require for example investigating whether it really is “unfair” to give an employee relocated to a foreign country (remember that Bandak is English, not American) a 30 percent increase in retirement benefits ($4,000/$14,000). Lilly is a sophisticated enterprise, the plan document was undoubtedly drafted by lawyers specializing in ERISA, and those lawyers would, unless it were otherwise stated in the document, use technical legal terms in their technical legal senses.
While conceding that “qualified defined benefit plan” is not an English legal term, Lilly says that the plan in which Bandak was enrolled when he worked in England was a “broad-based retirement plan” entitled to favorable tax treatment under English law. The district judge rejected the argument on the grounds that the administrative record contains no English plan document and that Lilly cites no English law. Lilly thus laid no foundation for comparing the English plan to a U.S. “qualified defined benefit plan.”
The U.S. plan does state that “in no event shall an Employee receive credit more than once for the same period of Service.” But the plan restricts “Employees” to citizens or residents of the U.S., and Bandak was neither when he was working for the English affiliate.
*801 Two years after he was relocated to the United States the retirement plan of the U.S. affiliate was amended to provide that the plan benefits “of an individual who becomes an Employee on or after April 1, 1997” would be reduced by the amount of benefits to which he was entitled “by a plan or program maintained by a non-United States [Lilly company] ... that provides retirement-type benefits,” or by the retirement plan of a foreign government. The amendment did not apply to Bandak, whose employment by the domestic affiliate had begun before 1997; its only significance in the litigation is in undermining Lilly’s position.
Rather than trying to define a “qualified” retirement plan, the amendment eliminated double counting for anyone who had received “retirement-type benefits” under a plan maintained by a foreign Lilly affiliate for whom the employee had worked. Lilly argues that the amendment does not apply to foreign retirement plans that are “like” a U.S. qualified defined benefit plan; those plans, it argues, had always been usable to reduce benefits. On this interpretation the plan administrator when dealing with a benefits claim by someone like Bandak who is not subject to the amendment has to decide how much “like” a “qualified defined benefit plan” in its U.S. sense the foreign affiliate’s plan had been. The administrator would have to familiarize himself with the retirement laws of the 52 other countries in which one or more of Lilly’s 142 affiliates operate. He would have to decide whether the Chinese affiliate, for example, has a retirement plan that is sufficiently “like” a qualified defined benefit plan under U.S. law to satisfy the plan administrator’s understanding of “qualified defined benefit plan.”
Notice the strangeness of an interpretation that allows an employee to get double service credit (as Lilly’s lawyer acknowledged at argument) if the foreign affiliate’s retirement plan is not given favorable tax treatment by the foreign government.
It seems the amendment was intended to close what Lilly belatedly had decided was a loophole through which Bandak has sailed. This interpretation is supported by the minutes of the Lilly board meeting at which the amendment was adopted. The chairman of the board explained that the “amendment is necessary to prevent the Company from paying benefits for years of service that are already being paid or credited by another affiliate or foreign country.” That describes Bandak’s case to aT.
The contention in Lilly’s brief that the reference in the minutes to years of service “credited by another affiliate” is a reference to defined contribution plans, not defined benefit plans, makes no sense. Though Lilly does offer a defined contribution plan, benefits generated by such plans are based on the contributions to the employee’s retirement account rather than on his years of service. E.g.,
Evans v. Akers,
The implication that the 1997 amendment was based on a belief that without it persons in Bandak’s situation would have a double dip is further strengthened by Lilly’s inability to name even one person whose benefits under a foreign retirement plan had been reduced before the amendment (which remember is not applicable to Bandak) went into effect, even though Lilly is a global enterprise and many of its high-level scientific employees, like Bandak, must at times during their career with Lilly reside in different countries, working for different affiliates each with its own defined benefit plan.
A document in Bandak’s employee file states that “until 1997 [the reference is to the 1997 amendment], the offset [for foreign plans] was not specifically written into the plan, but was followed as a common practice.” Provisions of an ERISA plan must be in writing. 29 U.S.C. § 1102(a)(1);
Curtiss-Wright Corp. v. Schoonejongen,
Lilly reminds us that a plan administrator’s judgment is entitled to deference when as in this case (as in almost every case) the plan document vests the administrator with discretion in interpreting and applying the plan. But the entitlement is diminished by indications that the conflict of interest inherent when benefits determinations are made by a plan funded by the employer has infected the administrator’s consideration of the application for benefits. As we explained in Marrs
v. Motorola, Inc.,
We know that the chairman of Lilly’s board of directors was concerned about the cost of its retirement plan. And the disingenuousness of Lilly’s arguments suggests that the conflict of interest was indeed gnawing at the administrator. Consider the administrator’s failure to identify anyone in Bandak’s position hired before the 1997 amendment who had been denied service credit for his time with a foreign affiliate, and consider the implausible suggestion that the reference to private plans in the 1997 amendment is just to defined contribution plans. Consider also the barrenness of the record concerning the English plan and English tax law, which makes one wonder how the plan administrator even knew that the English plan was a “qualified defined benefit plan,” and which suggests the administrator was covertly applying the 1997 amendment, while conceding its inapplicability to Bandak.
So not only was the district court’s decision correct; Lilly’s rejection of
*803
Bandak’s claim was not substantially justified, and therefore the district judge committed no error in awarding Bandak his reasonable attorneys’ fees and costs.
Sullivan v. William A. Randolph, Inc.,
Affirmed.