Opinion ID: 215106
Heading Depth: 2
Heading Rank: 3

Heading: Boston Mutual's Construction of the Plan

Text: Although these standards are instructive, we do not adopt them or any specific guiding factors. With all due deference to Boston Mutual's role as a fiduciary, it is clear that its construction of the ERISA plan at issue stretches beyond the bounds of reasonableness. This is so for a number of reasons, which are specific to the particular case at hand. As an initial matter, Boston Mutual's construction of the term earnings cannot be applied consistently within its own account of the plan's meaning. It has been Boston Mutual's position that the term earnings refers to W-2 income when it is used in conjunction with the terms pre-disability or basic annual. It has also been Boston Mutual's position that the term earnings refers to all income deriving from employment when it is used alone or with the term current. Yet the plan's express definitions of pre-disability earnings and basic annual earnings cannot support both of these positions at once. The plan expressly defines pre-disability earnings as well as Basic annual Earnings with reference to the unaccompanied term earnings. The plan defines pre-disability earnings as your monthly rate of earnings from the employer in effect just prior to the date disability begins. (Emphasis added.) It defines Basic annual Earnings, in turn, as the Insured Person's earnings for the prior calendar year as reported by the Group Policyholder on form W-2, excluding commissions. If the person has earnings for less than a calendar year, Basic Annual Earnings shall be determined by averaging the monthly earnings for each month worked and annualizing the result. (Emphasis added.) If Boston Mutual's definition of the unaccompanied term earnings were applied to that unaccompanied term as used within the plan's stated definitions of pre-disability earnings and basic annual earnings, the term earnings would have to refer to both W-2 income and non-salary income when used in conjunction with the terms pre-disability and basic annual. If, on the other hand, one accepts Boston Mutual's definition of earnings as used in conjunction with pre-disability and basic annual, then the definition of the unaccompanied term earnings as used within the plan's definitions of pre-disability earnings and basic annual earnings would have to refer only to salary income. Boston Mutual attempts to counter this contradiction by invoking the broader structure of the plan. It argues that the clear import of the plan is to reduce and potentially eliminate benefit payments once the claimant earns enough money from other sources of income. In support of this claim, Boston Mutual points in particular to the plan's provision that benefits may be limited by a participant's receipt of other income amounts, a term the plan defines, inter alia, as [a]ny income you earn or receive from any form of employment. Boston Mutual argues that its various constructions of the term earnings, notwithstanding the definitions at the beginning of the plan, are consistent with the plan's effort to take account of income from employment. Specifically, Boston Mutual relies on language concerning benefit termination. The plan states that if an employee covered by the plan is disabled and working, earning more than 80% of [his or her] pre-disability earnings, no payment will be made, and payments will stop the date [the covered employee's] current earnings exceed 80% of [his or her] pre-disability earnings. (Emphasis added.) Boston Mutual argues that these provisions only allow payment of benefits when the sum of a covered employee's W-2 income and non-salary income from employment is at least 20% less than that individual's pre-disability W-2 income. The benefit formula, which sets payment amounts for those earning at least 20% less than their pre-disability earnings, mirrors this requirement under Boston Mutual's construction. This argument elides clear divisions within the plan's structure that distinguish between questions of benefit calculation and questions of benefit eligibility. The plan employs the term earnings, in combination with various other terms, in its provisions governing whether a payment can be made. In addition to the provisions upon which Boston Mutual relies, the plan limits eligibility for benefits in its definition of disability to individuals who have at least a 20% loss in [their] pre-disability earnings. The plan employs the term income, by contrast, in its provisions governing the size of payments due to qualified individuals. These provisions might plausibly reduce the size of a benefit payment to zero, [7] but they are distinct from provisions concerning who is qualified to receive a payment. Not only do earnings and income occupy different domains of the plan; Boston Mutual has also construed these terms quite differently. Depending on the context, Boston Mutual construes earnings to mean either W-2 income or both W-2 income and non-salary income deriving from employment. [8] As expressly defined within the plan, other income amounts extend beyond both of these definitions of earnings. In its definition of other income amounts, the plan includes any income you earn or receive from any form of employment. It also includes a variety of benefits and awards received under employment plans and government programs. For example, the plan lists Social Security benefits due to disability or retirement, benefits received under workers' compensation, and sick leave benefits. Boston Mutual's interpretation also renders meaningless the only provision in the plan that appears to define earnings in a substantive way. The plan defines Basic annual Earnings with reference to W-2 earnings; elsewhere, the plan is silent as to what counts as earnings. The plan's express definition of pre-disability earnings does not mention W-2 earnings, and Boston Mutual has not explicitly explained why it has construed the term earnings to mean W-2 income when it is used with the term pre-disability. [9] Under Boston Mutual's construction of the plan, the definition of Basic annual Earnings is only relevant to that particular phrase. Yet the phrase does not appear once in the plan outside the provisions that define it. Boston Mutual makes a further structural argument that its construction avoids a difficulty that would arise if the plan were construed to define earnings as W-2 income. It argues that if earnings were construed in that manner, principals like Dolan could inflate their benefit payments by reclassifying their W-2 income as non-salary income. The plan expressly avoids this purported difficulty, however. It provides that an individual will no longer receive benefits if he or she is able to increase [his or her] current earnings by increasing the number of hours [he or she] work[s] or the number of duties [he or she] perform[s] in [his or her] regular occupation but . . . does not do so. This provision would allow Boston Mutual to terminate the benefits of individuals who attempted to increase their benefits in this fashion. It is also instructive that Boston Mutual, though indisputably in possession of all of Dolan's tax forms at all times relevant to this suit, did not advance its present construction of the plan until more than four years after it began paying Dolan benefits. Boston Mutual does not dispute that Dolan's tax forms made clear that she was a principal of D & H and Associated Professional Management, Inc., and received income in these capacities. When Dolan filed her initial claim for benefits, Boston Mutual apparently did not consider this other income stream to preclude eligibility. [10] If Boston Mutual wanted to offer a plan that determined benefit eligibility by comparing pre-disability W-2 income with post-disability income deriving from employment, it could have drafted a plan that made this clear. Boston Mutual may not transform an existing plan to achieve this end by construing it in a fashion contrary to its terms. In light of the foregoing, we hold that Boston Mutual's construction of the plan was unreasonable and, therefore, that its determination that Dolan has never been eligible for benefits constituted an abuse of discretion. [11]