NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 12a0746n.06
FILED
No. 11-3405
Jul 11, 2012
UNITED STATES COURT OF APPEALS LEONARD GREEN, Clerk
FOR THE SIXTH CIRCUIT
DENNIS SHAPPIE, )
) ON APPEAL FROM THE UNITED
Plaintiff-Appellant, ) STATES DISTRICT COURT FOR
) THE NORTHERN DISTRICT OF
v. ) OHIO
)
MINSTER MACHINE COMPANY RESTATED ) OPINION
NON-BARGAINING EMPLOYEES’ RETIREMENT )
PLAN, )
)
Defendant-Appellee. )
BEFORE: COLE and CLAY, Circuit Judges; and MATTICE, District Judge.*
MATTICE, District Judge. Plaintiff-Appellant Dennis Shappie appeals the district court’s
determination on cross-motions for judgment on the administrative record that the Retirement
Committee (“the Committee”), the administrator of Defendant-Appellee Minster Machine Company
Restated Non-Bargaining Employees’ Retirement Plan (“the Plan”), was not arbitrary and capricious
in interpreting the phrase “regular monthly rate of earnings as reported for Form W-2 purposes
divided by the applicable number of months in the calendar year” in the Plan to exclude the housing
allowance provided by Minster Machine Company (“Minster”) to Shappie while working for it
overseas.
*
The Honorable Harry S. Mattice, Jr., United States District Judge for the Eastern District of Tennessee, sitting
by designation.
No. 11-3405
Shappie v. Minster Mach. Co. Restated Non-Bargaining Emps.’ Ret. Plan
Shappie argues that the language of the Plan unambiguously provides that the housing
allowance should be included when calculating his monthly earnings in determining his retirement
income, making the Committee’s decision not to do so arbitrary and capricious. Shappie also argues
that, even if the Court finds the language to be ambiguous, the Committee’s decision was still
arbitrary and capricious given the Committee’s substantial conflict of interest; its use of financial
calculations – of the cost of the competing definitions to the self-funding employer – instead of the
language and intent of the Plan in making its decision; and the indistinguishability of certain
included items – such as the commodities and services allowance – from the excluded housing
allowance. The Plan responds that the Committee’s decision was “rational, well-reasoned and
consistent with Plan language and prior practices,” not arbitrary and capricious, and thus this Court
is “require[d]” to uphold that decision and affirm the district court.
For the following reasons, we AFFIRM the judgment of the district court.
I.
The relevant facts are not in dispute. Shappie was hired by Minster on February 19, 1973,
and continued in its employ until he retired on May 31, 2009, at the age of 57. From October 1995
through November 2004, he worked on foreign assignment for Minster in Hong Kong.
In July 1995, Minster enacted the “Expatriate Policy,” a policy applicable to all employees
working outside their home country for at least twelve months. The policy is divided into six
sections: 1.0 Scope, 2.0 Employment Conditions, 3.0 Compensation, 4.0 Benefits, 5.0 Taxes, and
6.0 Termination.
Section 1.0 (“Scope”) specifies that:
-2-
No. 11-3405
Shappie v. Minster Mach. Co. Restated Non-Bargaining Emps.’ Ret. Plan
In consideration of the impact such assignment may have on employees and their
families, it is the Company’s intent, through this policy, to:
A. Provide adequate incentives for employees and their families to move and to
adjust to different living patterns and cultural and social environments.
B. Provide reasonable assurance that no undue personal or financial hardships
accrue to the employee as a result of a foreign assignment.
It further specifies that “[t]his policy covers only those items of overall·company practice which are
different from those which routinely apply to all Minster employees.”
The items included – and explained in detail – under the “Compensation” heading are: 3.1
Base Salary, 3.2 Salary Increase, 3.3 Housing and Utilities Allowance, 3.4 Commodities and
Services Allowance, 3.5 Education Allowance, and 3.6 Method of Payment. The items included
under “Benefits” are: 4.1 Coverage (relating to benefit program coverage), 4.2 Holidays, 4.3
Vacations, 4.4 Home Leave (providing for air fare to home country), 4.5 Emergency Leave, 4.6
Travel To and From Overseas Assignment, 4.7 Household and Personal Effects Transportation, 4.8
Automobile, and 4.9 Relocation Allowance. Section 5.0 “Taxes” has two provisions, one related to
tax equalization payments and one related to tax preparation.
To arrange for the payment of his housing when he lived in Hong Kong, at first, Shappie
would write letters to Bob Sudhoff, a Minster executive, specifying the amount of rent and to whom
it should be paid, including bank account information. In 2002, Minster started paying the money
for rent directly to Shappie.
The record also includes copies of documents entitled “The Minster Machine Company
International Compensation Package” that are described as either “Prepared by Ernst Young, LLP”
-3-
No. 11-3405
Shappie v. Minster Mach. Co. Restated Non-Bargaining Emps.’ Ret. Plan
or “Ernst and Young LLP,” depending on the year, with effective dates of July 1, 1996, January 1,
1997, and January 1 and February 20, 1998. These appear to be summaries of compensation relating
to Dennis Shappie, all of which list amounts – given in both “annual” and “weekly” amounts – for:
(1) “Base Salary”; (2) “Hypothetical Tax Withholding Federal and State of Ohio”; (3) “Relocation
Allowance”; (4) “Housing and Utilities Allowance”; (5) “Hypothetical Shelter Retention” (with a
notation below “Reflects your home country rent or mortgage interest, utilities, property and
household goods, insurance, maintenance and repair, and property tax”); (6) “Commodities and
Services Allowance”; and (7) “NET PAY IN HOME CURRENCY.” The 1997 summary adds“Qtrly.
Adj. - Weekend & Holidays (27% x Base)” and “401K Contribution (13% x Base).” The 1998
summary keeps those two additions – although moving the “Qtrly Adj.” to after the net pay line and
excluding it from that value – and omits the “Relocation Allowance” amount. For each of these three
summaries, the “Housing and Utilities Allowance” is listed as “Paid in Kind” with no fixed monetary
value given (or included in the “net pay” values). There are no more of these summaries for any of
the other years Shappie was in Hong Kong.
On August 7, 1997, Dave Stucke sent Shappie a memorandum with the subject line “Tax
Issues” that addressed tax issues surrounding Shappie’s living costs while he was “an Expatriate.”
It said that the “living costs” of his for which Minster was paying “are a taxable fringe benefit to you,
and you must pay payroll taxes on this amount,” while continuing to say “[t]he only taxes you must
pay on this benefit are social security and medicare taxes.” The memorandum said that the amount
Minster paid for Shappie’s housing (approximately $2900 a month) would be “added to” his weekly
pay so that his “taxes [would be] calculated on [his] gross plus the benefit,” with “the amount of the
-4-
No. 11-3405
Shappie v. Minster Mach. Co. Restated Non-Bargaining Emps.’ Ret. Plan
adjustment [then being] deducted back out of [his] net pay.” Stucke said “I know this is confusing
. . . You just need to remember that you receive no additional cash compensation as a result of
receiving the benefit; however, your net pay will be reduced by the amount of the taxes on the
benefit.” It concluded by saying that because the living expenses had not been recorded by payroll,
his paychecks would reflect “catch up” payments through October 1997, after which he would be
“current” and would see only the once-monthly adjustment. While not addressed by this
memorandum, both the Plan and the district court identified another tax issue as significant: that
while Shappie was living in Hong Kong, it appears as though he claimed not only the Housing
Exclusion and/or Deduction, but also the Foreign Earned Income Exclusion on his federal tax
returns.
Shappie became a participant in the Plan on June 20, 1977, the current version of which was
last amended October 1, 1997. The Plan specifies that Shappie’s “Monthly Retirement Income . . .
shall be equal to . . . [o]ne and two tenths percent (1.2%) of [his] Average Monthly Earnings
multiplied by [his] Credited Service,” but “in no event less than . . . [s]ixteen dollars and fifty cents
($16.50) multiplied by the [his] Credited Service.” “Average Monthly Earnings” is defined (in
relevant part) in Section 1.07 as “the highest average of Monthly Earnings (as defined in this Article
I) as determined for any sixty (60) consecutive months prior to the Participant’s Disability Date,
Early Retirement Date, Normal Retirement Date, termination 1 date under Section 4.01, or date of
death.” “Monthly Earnings” – the phrase subject to so much dispute in this action – is defined (in
relevant part) in Section 1.31 as “the Participant’s regular monthly rate of earnings as reported for
-5-
No. 11-3405
Shappie v. Minster Mach. Co. Restated Non-Bargaining Emps.’ Ret. Plan
Form W-2 purposes divided by the applicable number of months in the calendar year.” The provision
goes on to specify “[s]uch rate shall be determined as of the first day of each month.”
The Plan also specifies how it is to be administered in Article V (“The Retirement
Committee”). Section 5.01 sets forth how the Committee is to be established: “The Board of
Directors shall appoint three (3) or more persons to be known as the ‘Retirement Committee’ to
administer the Plan and to keep records of individual Participant benefits.” Those members “shall
serve until their resignation or dismissal by the Board of Directors,” and “[t]he Board of Directors
may dismiss any member of the Retirement Committee at any time with or without cause.” Claims
Procedures are set forth in Section 5.03, which includes the provision “[t]he Retirement Committee
shall interpret the Plan and shall determine all questions arising in the administration, interpretation
and application of the Plan.” It also directs the Committee to “rely on the records of the Employer,
as certified to it, with respect to any and all factual matters dealing with the employment of an
Employee or Participant,” and specifies that if there is a factual dispute, the Committee “shall resolve
such dispute giving due weight to all evidence available to it.” During the dispute over Shappie’s
retirement benefits, the Committee had three members – Stephen Kill, Robert Sudhoff, and John
Winch – who were, respectively, Minster’s Vice-President for Human Resources, Chief Financial
Officer, and President.
Shappie began considering retirement in 2008 and asked Kill to calculate his potential
retirement benefits. Kill provided Shappie with a “Retirement Calculation Detail” on July 15, 2008,
which (among other things) showed that the five years of compensation to be used for the average
were 2000-2004 and had compensation in the amounts of $105,855.60, $103,570.72, $141,426.98,
-6-
No. 11-3405
Shappie v. Minster Mach. Co. Restated Non-Bargaining Emps.’ Ret. Plan
$135,206.99, and $122,162.70 respectively. After briefly reviewing these figures, Shappie decided
to delay making a decision until 2009. In February 2009, he looked at the figures again and noticed
that the housing allowance was included in his compensation only for the years 2002-2004. He asked
Kill to revise the calculations such that the housing allowance was included for all the years he
worked in Hong Kong; Kill responded that the housing allowance should not have been included at
all. Kill provided a revised Retirement Calculation Detail on February 20, 2009, which showed the
highest five years to be 1998-2002, with compensation in the This updated calculation excluded not
only the housing allowance, but also the Commodities and Services Allowance (“C&S allowance”)
and the foreign service bonus.
In a letter to Kill dated April 4, 2009, Shappie wrote that he “disagree[d] with [his]
calculation,” going on to explain:
My reason for the appeal is that, in computing my monthly retirement benefit, you
did not take into account the full amount of my reported W-2 income in determining
the highest consecutive 60 months of Monthly Earnings under section 1.31 of the
Plan and Average Monthly Earnings under section 1.07 of the Plan.
Since 1995 and the beginning of my ex-pat contract I have understood that the W-2
statements would be used to determine my retirement benefits the same that is stated
in the Summary Plan Description. I have been provided with periodic statements
since 2004 with calculations of retirement benefits that were based on the W-2
statements. I was told by Jim Maish that the retirement benefits were based on the
W-2 statements and that the housing allowance was included in the calculation.
As you recall in February 2009 I approached you for a review of the calculation since
I saw that the years used in the calculation were not my best years and some did not
show the correct W-2 earnings. At that time you reviewed my calculations and
reduced the benefit by removing the housing allowance from the W-2 reported
income. The reason offered was that it was the interpretation of the plan
administrators that the housing allowance was to be excluded. I cannot find any
-7-
No. 11-3405
Shappie v. Minster Mach. Co. Restated Non-Bargaining Emps.’ Ret. Plan
language in the Plan or Summary Plan Description to support this decision so I feel
it necessary to request a review by the retirement Committee.
The record also includes an undated document prepared by an unidentified author labeled
“Dennis Shappie Pension Eligible Earnings Worksheet” (“the Worksheet”). Given Shappie’s letter,
the language used in that document and its general content, and the course of the relevant events, it
appears that the Worksheet was prepared around the time Shappie wrote his April 4, 2009 letter and
before the Committee’s May 4, 2009 decision. The worksheet gives dollar amounts for the following
line items for the years 1996 through 2004, with what appear to be the author’s added comments and
descriptions, identified in the original with italics or parentheses: (1) “Base and 10% Foreign
Assignemnt [sic] Amt”; (2) “Commodities & Services Allow”; (3) “Hypo Tax deduction”; (4)
“Vacation Adjustment”; (5) “Hong Kong Housing” with a note below “Housing was paid to his
landlord with a non-cash tfb1 adjustment done in payroll”; and (6) “Family Travel” with the
parenthetical “(non-cash TFB).”
Three other line items are also included, but have values for only one or two years: (1)
“Travel Bonus Adjustment”; (2) “Insurance Bonus Adjustment” with the parenthetical “(Mercer
didn’t include, we did on the latest calcs and will this time too)”; and (3) “Tax Equalization 95 - 98"
with both the parenthetical “(not going to include for calc, but was included on the latest calcs given
to DS)” and a note below “compares taxes would have been liable for if in Ohio against his tax
liability per his returns.”
1
Given the context provided by the Stucke letter, “tfb” can be read to stand for “taxable fringe benefit.”
-8-
No. 11-3405
Shappie v. Minster Mach. Co. Restated Non-Bargaining Emps.’ Ret. Plan
Following these values is a table – headed by the italicized comment “1998 max comp was
$160k - he hits the limit if we include housing” – that appears to give estimates under four different
scenarios, identified as: “Grand Total with 401k def included”; “Pension Eligible excluding C&S”;
“Pension Eligible Cash Compensation including C&S” (which appears to be highlighted or selected);
and “Pension Eligible if have to include Housing too.” Below the table is a note saying “note If we
have to do this - these are even higher than what originally tipped him off to the problem, because
those numbers backed out the hypo tax.” There is also a summary table – prefaced with the note
“These are very rough estimates!!” – showing the value for “Mthly Ave Used for calc given to
Dennis” as 8669.29 and then showing results for “Increase to Mthly Average,” “Approx effect to
mthly pension amount,” and “Over 20 years” under two different scenarios – “with C&S” and “with
housing & C&S.” As Shappie notes, the “Over 20 years” column shows a difference of almost
$300,000 between “with C&S” ($98,580) and “with housing & C&S” ($395,146).
In keeping with the claims procedures outlined in Section 5.03 of the Plan, the Committee
responded to Shappie’s letter and provided a written notice related to the partial denial of Shappie’s
claim by its own letter dated May 4, 2009, noting (in relevant part):
The Plan definition of Monthly Earnings provides that the earnings to be considered
are the Participant’s "regular monthly rate of earnings as reported for Form W-2
purposes." Thus, not only must the earnings be reported for W -2 purposes, but the
payments at issue must be a regular rate of monthly earnings. On this basis, the
following are included in your "Monthly Earnings" for purposes of calculating your
benefits:
• Base and 10% Foreign Assignment Bonus
• Commodities and Services Allowances
• Weekend and Holiday Pay
• Vacation Adjustments
-9-
No. 11-3405
Shappie v. Minster Mach. Co. Restated Non-Bargaining Emps.’ Ret. Plan
• Travel Bonus Adjustments
• Health Insurance Premium Adjustments
Excluded from your "Monthly Earnings" for purposes of calculating your benefits are the following:
• Airline tickets purchased for your family
• Lump sum tax equalization payments
• Housing allowance
The items excluded were not part of your regular rate of monthly earnings. You
specifically questioned the exclusion of your housing allowance. As you know, the
housing allowance was paid to your Hong Kong landlord, and the amount of the
payment was based on the actual rent incurred. Although we were required to include
these on your W-2 statement for tax purposes, these payments were not a part of your
"regular rate of monthly earnings" and are properly excludable from your pension
calculation.
Nowhere does the Committee give what it believes the definition of “regular rate of monthly
earnings” to be, nor does it say why certain items were included or excluded, save the housing
payment, although its statement “[y]ou specifically questioned the exclusion of your housing
allowance” may reflect its belief that Shappie’s letter questioned only the exclusion of the housing
allowance, despite his letter’s reference to the W-2 reported amount of income generally.2 The letter
concludes “[t]his is intended to serve as a partial denial of your claim for additional benefits” and
sets forth the process for appealing from the Committee’s determination.
Shappie timely appealed this decision, by letter from his counsel dated June 11, 2009. It set
forth a number of grounds for his appeal, including: (1) that statements made by Ms. Barbara Smith
– an Ernst & Young employee engaged by Minster to help develop the Expatriate Policy – induced
2
The value of the tickets and the equalization payments are negligible as compared to the effect of the housing
payment, which may explain the apparent confusion.
-10-
No. 11-3405
Shappie v. Minster Mach. Co. Restated Non-Bargaining Emps.’ Ret. Plan
him to accept the foreign assignment based, in part, on the expectation of higher earnings in
retirement; (2) the multiple, conflicting calculations of his retirement benefits he had received from
Kill and the Committee; (3) the plain language of the Plan, with his argument emphasizing the
phrase “as reported for Form W-2 purposes”; and (4) his arguments that the fact that the housing
allowance was briefly paid to a third party not only should not have had any effect on the treatment
of that money, but also that there was no language in the Plan justifying such differential treatment.
On August 7, 2009, the Committee issued its final decision upholding its May 4
determination. The Committee recounted the history of Shappie’s employment and the instant
dispute, before stating that:
In reaching its conclusions, the Retirement Committee has reviewed Attorney
Keister’s letter, as well as historic actuarial calculations, the language and intent of
the Plan, the intent of the expatriate arrangement with Mr. Shappie, the history
surrounding Mr. Shappie’s foreign assignment and the nature of the items which have
been included and excluded from the definition of Monthly Earnings for purposes of
the Plan.
The Committee then outlined the “Basis for Determination,” addressing the points in
Shappie’s appeal in turn. As to Ms. Smith, it said that it could not find any evidence she made the
statements Shappie alleged, but that even if she had, she was not a Minster employee, a member of
the Retirement Committee, nor a fiduciary of the Plan, and thus could not make representations on
the Plan’s behalf.
As to Shappie’s arguments regarding the language of the Plan, the Committee reframed his
attorney’s arguments somewhat, in a manner not entirely in keeping with the arguments actually
made by Shappie’s counsel, construing Attorney Keister to be arguing that it “should ignore the
-11-
No. 11-3405
Shappie v. Minster Mach. Co. Restated Non-Bargaining Emps.’ Ret. Plan
portion of the definition of Monthly Earnings which references ‘regular rate of monthly earnings’
because that phrase is not defined in the Plan” and that “in order to exclude the housing allowance,
the Plan must specifically provide for such an exclusion,” which the Committee then took to mean
Keister was arguing that “the only relevant language in the definition of Annual Earnings is the
reference to the Form W-2.” The Committee rejected these arguments in turn, citing its full
discretion to interpret the Plan and noting that adopting such a construction of the language would
ignore the phrase “regular monthly rate of earnings.” The Committee went on to say that “[b]ased
on the language of the Plan, the nature of the payments at issue and historic Plan administration, the
Retirement Committee has determined that the Housing Allowance was not part of Mr. Shappie’s
regular monthly rate of earnings,” which conclusion was unchanged by “[t]he fact that the Plan does
not contain a specific exclusion for the Housing Allowance . . . .”
Third, the Committee addressed the inconsistencies in the various calculations given by
discussing a change in actuarial consulting firms and the technical source of compensation figures
they used.
Finally, the Committee discussed the Housing Allowance specifically, noting that “Shappie
was aware that the Housing Allowance was not part of regular earnings,” because he “was provided
with a summary of his compensation package, dated July 1, 1996,” which “showed the Housing
Allowance as ‘Paid in Kind’ and not part of Mr. Shappie’s pay.” Next, it noted that “[t]he Housing
Allowance payments were not made as part of Minster’s regular payroll,” and referenced the August
1997 Stucke Memorandum regarding tax issues. Third, it discussed the manner of payment of the
housing allowance – first to United Asia, then to Shappie directly after United Asia closed – saying
-12-
No. 11-3405
Shappie v. Minster Mach. Co. Restated Non-Bargaining Emps.’ Ret. Plan
only that “[a]lthough the payments were reported for W-2 purposes, they were not part of Mr.
Shappie’s regular earnings.” Fourth, the Committee analyzed Shappie’s W-2 statements, noting that
“[t]he 1996 W-2 clearly shows that Housing Allowance and reimbursement for family travel were
not considered regular earnings,” because “[t]hese items were reported on a ‘Supplemental W-2’ and
shown as ‘Benefits’ in Box 12,” and because “[s]imilarly, the 1997, 1998, 1999 and 2000 W-2s also
showed the housing allowance as a ‘Benefit’ in Box 12,” until 2001, when “the government changed
the Form W-2, and there was no longer a clear place to break out Benefits included in the wages
box.” Fifth, it stated that it believed that the purpose of the housing allowance was not “irrelevant,”
as it believed Keister had argued, because “[t]he payments were based on the actual rent incurred”
and because “[u]nder no circumstances were the payments intended to be used by Mr. Shappie for
any other purpose.” Finally, it stated that “Shappie himself did not treat the housing allowance as
part of his regular earnings,” because he “reduced his taxable income on his U.S. income tax return
each year by the maximum amount permitted which was attributable to his housing allowance. This
amount was treated separately from his foreign earned income.” The letter advised Shappie that if
he did “not agree with this decision, he ha[d] a right to bring a civil action under Section 502(a) of
[ERISA].”
Shappie did so, filing the instant suit in state court on November 3, 2009. The Plan removed
the case to the Northern District of Ohio on November 30, 2009. After cross-motions for judgment
on the administrative record, the district court ruled in the Plan’s favor on March 22, 2011.
The district court found the phrase “regular monthly rate of earnings as reported for Form
W-2 purposes” to be ambiguous. It rejected Shappie’s argument – that “because the housing
-13-
No. 11-3405
Shappie v. Minster Mach. Co. Restated Non-Bargaining Emps.’ Ret. Plan
allowance was ‘paid at a regular monthly rate’ by Minster, it was part of his ‘regular monthly
earnings.’” – on the grounds that (1) “the phrase ‘regular’ would be redundant with ‘monthly’ if it
were interpreted to refer only to the intervals at which Plaintiff received compensation”; and (2)
“while the housing allowance was ‘regular’ in the sense that it was paid on a regular monthly basis,
it was not ‘regular’ in the sense that it was, by Plaintiff’s own admission, a variable amount
dependent entirely on the actual housing costs incurred by Plaintiff.” The district court also
emphasized that “it was the only item listed on Plaintiff’s compensation package as ‘Paid in Kind’”
and reiterated the Committee’s arguments about the W-2 breakout of housing costs. It then found
that the Committee’s August 2007 decision was a “‘reasoned explanation’ adequately supported by
the record,” repeating the five bases laid out in that decision (in-kind designation, based on actual
rent, August 1997 memorandum, broken out on W-2, and Shappie’s deducting it).
The district court then addressed Shappie’s conflict of interest argument – premised upon
the Committee’s being comprised of three of the highest-level executives within the company that
was also responsible for paying claims – although it seemed to focus almost exclusively on precedent
emphasizing a history of biased claims administration. It said that Shappie “attempts to bolster his
‘conflict-of-interest’ argument with evidence that the Committee’s interpretation creates unjustifiable
inconsistencies between the treatment of his housing allowance and ‘other employment revenue’ he
derived, such as his Commodities and Services Allowance,” but rejected these arguments, finding
that there was a reasonable basis for treating the C&S allowance differently from the housing
allowance. Among these bases were that the C&S allowance “was analogous to a cost of living
adjustment, which most employees receive annually as an increase in salary” and that it “did not vary
-14-
No. 11-3405
Shappie v. Minster Mach. Co. Restated Non-Bargaining Emps.’ Ret. Plan
on a monthly basis; was not demarcated ‘Paid in Kind’ on the itemization of Plaintiff’s
compensation but instead given a specific dollar amount; was not tied to actual expenses incurred;
and was not listed in Box 12 on Plaintiff’s Form W-2.”
Finally, Shappie appealed to this Court on April 22, 2011.
II.
Because the Plan gives the “administrator or fiduciary discretionary authority to determine
eligibility for benefits or to construe the terms of the plan,” this Court reviews the district court’s
decision de novo but reviews the Committee’s decision under the arbitrary and capricious standard
of review. Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989). As we have previously
noted “[u]nder this deferential standard, when it is possible to offer a reasoned explanation, based
on the evidence for a particular outcome, that outcome is not arbitrary or capricious.” Cox v.
Standard Ins. Co., 585 F.3d 295, 299 (6th Cir. 2009). Further, “we grant plan administrators who
are vested with discretion in determining eligibility for benefits great leeway in interpreting
ambiguous terms.” Moos v. Square D Co., 72 F.3d 39, 42 (6th Cir. 1995) (citing Cook v. Pension
Plan for Salaried Emps. of Cyclops Corp., 801 F.2d 865 (6th Cir. 1986)). Yet the arbitrary and
capricious standard “is not a rubber stamp of the administrator’s decision,” but rather “requires us
to review the quality and quantity of the evidence and the opinions on both sides of the issues.”
Kovach v. Zurich Am. Ins. Co., 587 F.3d 323, 328 (6th Cir. 2009) (internal citations, quotation
marks, and alterations omitted).
The parties disagree, though, on how this standard of review is affected by any conflict of
interest. In Cox, we explained the effect of any conflict of interest:
-15-
No. 11-3405
Shappie v. Minster Mach. Co. Restated Non-Bargaining Emps.’ Ret. Plan
Deferential review is tempered, however, when an important conflict of interest
consideration requires that benefits decisions be closely scrutinized. When the same
entity determines eligibility for benefits and also pays those benefits out of its own
pocket, an inherent conflict of interest arises. In close cases, courts must consider that
conflict as one factor among several in determining whether the plan administrator
abused its discretion in denying benefits.
Cox, 585 F.3d at 299 (citing Metro. Life Ins. Co. v. Glenn, 554 U.S. 105 (2008)). While “such a
conflict is a red flag that may trigger a somewhat more searching review of a plan administrator’s
decision, [ ] the arbitrary and capricious standard remains in place.” Schwalm v. Guardian Life Ins.
Co. of Am., 626 F.3d 299, 311-12 (6th Cir. 2010) (citing Glenn, 554 U.S. at 115).
We reject Shappie’s contention that the language of the Plan is unambiguous. In doing so,
it is important to note that, first and foremost, all relevant parties, including the district court, have
been analyzing only part of the key phrase; the full sentence containing the disputed language reads:
“regular monthly rate of earnings as reported for Form W-2 purposes divided by the applicable
number of months in the calendar year.” The term “rate” is nonsensical if the emphasized language
is excluded, as the earnings reported on the W-2 are yearly sums, not a monthly rate. To achieve a
monthly rate, it is necessary to divide that yearly sum by the number of months worked (usually –
as in this case – twelve). From the full context, it appears to the Court that the only way to read that
sentence is as the Plan setting forth an objective measure to determine the “monthly rate of
earnings,” that is as the W-2 wages, compensation, tips, etc. divided by the number of applicable
months. The addition of “regular,” though, introduces significant confusion and ambiguity, as –
despite the Committee’s contentions – the W-2 Form does not break income down into “regular” and
other. Further, the Plan uses the word “regular” or one of its related form in other contexts, and the
-16-
No. 11-3405
Shappie v. Minster Mach. Co. Restated Non-Bargaining Emps.’ Ret. Plan
meaning therein tends to support Shappie’s “routinely recurring” construction. Regardless, because
this Court agrees that “regular” introduces significant ambiguity into the phrase "regular monthly rate
of earnings as reported for Form W-2 purposes divided by the applicable number of months in the
calendar year,” we thus must defer significantly to the Committee in interpreting the phrase.
The Court agrees with Shappie, however, that the Committee here evidenced significant bias
in this case. Even factoring in this bias, this Court cannot say that the Committee’s decision was
arbitrary and capricious. While – despite the Plan’s contentions – the W-2 Form does not break
income down into “regular” and other, it did for some time allow certain amounts to be broken out
as “benefits.” Further, the employer is the individual who chooses how to characterize such income,
and thus it could argue by using the definition “as reported for Form W-2 purposes” it incorporated
the distinction embedded in the W-2 until 2001. This argument is somewhat bolstered by the August
1997 Tax Issues Memorandum that outlined the tax issues and emphasized that the housing
allowance entailed “no additional cash compensation.”
Therefore, because the relevant language is ambiguous and because this Court cannot say that
the Committee’s decision was arbitrary and capricious, the judgment of the district court is hereby
AFFIRMED.
-17-