Plaintiff-Appellant Nancy J. Soto, a former employee of The Walt Disney Company (“Disney”), alleges that Disney improperly denied her severance benefits upon her termination for physical illness that rendered her unable to work. She brings claims against Defendants-Appellees Disney, the Disney Severance Pay Plan, and the Plan Administrator, under Section 502(a)(1)(B) & (a)(3) of the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §1132(a)(1)(B) & (a)(3), alleging that the Plan Administrator improperly determined that she did not experience a qualifying “Layoff” as required for severance benefits. We conclude that, because the operative Amended Complaint does not plausibly allege that the interpretation of “Layoff” and resulting denial of severance benefits to Soto were arbitrary and capricious, the District Court (Nathan, J.) did not err in dismissing Soto’s claims. AFFIRMED. Judge Sullivan dissents in a separate opinion. SUSAN CARNEY, C.J. Plaintiff-Appellant Nancy J. Soto is a former employee of The Walt Disney Company (“Disney”). After a stroke and other serious medical issues left her unable to work, Disney terminated her employment. Although Disney paid Soto disability benefits, it did not pay her severance benefits under the Disney Severance Pay Plan (the “Plan”). The Plan Administrator — the Investment and Administrative Committee of The Walt Disney Company Sponsored Qualified Benefit Plans and Key Employees Deferred Compensation and Retirement Plan (the “Committee”) — determined that Soto was ineligible for severance because she had not experienced a qualifying “Layoff” as defined in the Plan. Soto subsequently brought claims against Defendants-Appellees Disney, the Plan, and the Plan Administrator under Section 502(a)(1)(B) & (a)(3) of the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §1132(a)(1)(B) & (a)(3). She alleges that the Plan Administrator improperly denied her severance by deciding that, as defined by the Plan, a “Layoff” excluded a termination based on disability. We conclude that the Amended Complaint does not plausibly plead that this interpretation of “Layoff” and the resulting denial of severance benefits to Soto were arbitrary and capricious. The District Court therefore did not err in dismissing the claims. We accordingly affirm its judgment. BACKGROUND I. ERISA §502(a)(1)(B) & (a)(3) Section 502 of ERISA authorizes “participant[s]” in an employee benefit plan to bring a civil action (i) “ to recover benefits due to [them] under the terms of [their] plan,” see ERISA §502(a)(1)(B), 29 U.S.C. §1132(a)(1)(B), and (ii) “to obtain other appropriate equitable relief…to redress…violations or…enforce any provisions of” ERISA or “the terms of the plan,” see ERISA §502(a)(3), 29 U.S.C. §1132(a)(3). A qualifying “plan” subject to ERISA is any “employee welfare benefit plan or an employee pension benefit plan.” 29 U.S.C §1002(3). There is no dispute that ERISA governs the Plan. II. Soto’s Complaint1 In 2019, Soto brought suit against Disney, the Plan, and the Plan Administrator after her claim for severance benefits was denied.2 The operative Amended Complaint (the “Complaint”) asserted two sets of claims relevant on appeal: first, that Soto was due a severance payment of $44,277 under the Plan, see ERISA §502(a)(1)(B), 29 U.S.C. §1132(a)(1)(B) (Counts I and II); and second, that the Plan language should be reformed to conform with certain requirements of ERISA, see ERISA §502(a)(3), 29 U.S.C. §1132(a)(3) (Count V). On appeal, Soto does not challenge the dismissal of the other counts of the Complaint. The Complaint alleges that Soto was a longtime employee of Disney. In 2016 and 2017, she experienced a severe stroke and other medical problems, which left her disabled and unable to work. In January 2018, Disney formally terminated Soto’s employment. Although Disney paid Soto sick pay, short-term illness benefits, and long-term disability benefits, it did not pay her severance benefits under the Plan. In June 2018, Soto applied for Plan benefits. Soto’s application was denied because she was deemed not to have experienced a qualifying “Layoff” as required for Plan eligibility. A. The Plan Terms The Plan is incorporated by reference into the Complaint. It “provides severance benefits” to “Eligible Employees” of the Plan “Sponsor,” Disney. App’x at 26, 38. To qualify for these benefits, individuals must satisfy three conditions: they must (1) be an “Eligible Employee,” (2) be notified in writing that they are a Plan “Participant,” and (3) have experienced a “Layoff.” Id. at 29. The Plan defines “Layoff” as: The involuntary termination of employment of an Eligible Employee from the Company, except for reasons of poor performance or misconduct as determined by the Company [Disney] in its sole and absolute discretion. Notwithstanding the foregoing, in no event will an involuntary termination of employment be considered a Layoff if such involuntary termination does not qualify as a “separation of service” within the meaning of Section 409A of the Code and Treasury Regulation 1.409A-1(h). Id. at 28. The Plan confers discretion on the Plan Administrator to interpret and apply Plan terms. Section 8(b) of the Plan (“Plan Interpretation and Benefit Determination”) explains: The Plan is administered and operated by the Plan Administrator, who has complete authority, in its sole and absolute discretion, to construe the terms of the Plan (and any related underlying documents or polices), to interpret applicable law, to make findings of fact and to determine the eligibility for, and amount of, benefits due under the Plan to Participants[.] Id. at 36. Other sections of the Plan set out standards for how the Plan Administrator should exercise its discretion in construing Plan terms. For instance, Section 4(g) (“Integration With Other Payments”) states that: benefits under this Plan are not intended to duplicate such benefits as workers’ compensation[,] wage replacement benefits, disability benefits, pay-in-lieu-of-notice, severance pay, or similar benefits under other benefit plans…. Should such other benefits…be payable, benefits payable to a Participant under this Plan will be offset…. [T]he Plan Administrator, in its sole discretion, will determine how to apply this provision and may override other provisions of this Plan in doing so. Id. at 32. Section 7(h)(iv) (“General 409A Compliance”) explains that severance benefits paid under the Plan are not intended to be taxable deferred compensation to the employee pursuant to Section 409A of the Internal Revenue Code. See 26 U.S.C §409A(a)(1) (treating as taxable certain “deferred” compensation under employer benefit plans). To that end, the Plan Administrator is directed to interpret Plan terms in conformance with Section 409A and its exemptions from taxation: [I]t is intended that the Plan comply with the provisions of section 409A of the Code, and the Plan shall be construed and applied by the Plan Administrator in a manner consistent with this intent. Any provision that would cause any amount payable under the Plan to be includible in the gross income of a[n] Employee under section 409A(a)(1) of the Code shall have no force or effect. App’x at 35; see, e.g., 26 C.F.R. §1.409A-1(b)(9)(iii) (Section 409A regulation providing that, where a “separation pay [i.e., severance] plan…provides for separation pay only upon an involuntary separation from service,” payments under that plan are not taxable “defer[red] compensation” under Section 409A (emphasis added)). Reflecting the principle that the Plan should conform with Section 409A, the definition of “Layoff” expressly incorporates a Section 409A regulation defining “separation from service”: “[I]n no event will an involuntary termination of employment be considered a Layoff if such involuntary termination does not qualify as a ‘separation of service’” under 26 C.F.R §1.409A-1(h). App’x at 28. “Separation from service” in turn is defined under that regulation as a “termination of employment” in which “the employer and employee reasonably anticipate[] that no further services would be performed.” 26 C.F.R. §1.409A-1(h)(1)(i)-(ii). A related Section 409A regulation, 26 C.F.R. §1.409A-1(n)(1), defines an “involuntary separation from service” as a “separation from service [i.e., a termination of employment] due to the independent exercise of the unilateral authority of the” employer “where the [employee] was willing and able to continue performing services.” Id. (emphasis added). B. Denial of Soto’s Claim for Severance Soto’s claim for severance benefits was denied in two letters incorporated by reference into the Complaint. In the first letter, dated August 13, 2018, the Plan Administrator determined that Soto had not met two of the three eligibility requirements under the Plan: she had neither experienced a qualifying “Layoff” nor received notice that she was a Plan “Participant” because she did not satisfy the “Layoff” requirement. See App’x at 79. The Plan Administrator explained that Soto’s termination based on an “inability to return to work on account of her disabling illness” fell outside the Plan definition of “Layoff.” Id. It further explained that, while these circumstances qualified Soto to receive sick pay, short-term illness benefits, and long-term disability benefits, they did not qualify her to receive severance benefits under the Plan terms. In the second letter, dated November 21, 2018, a Subcommittee of the Plan Administrator upheld the denial of severance benefits. The Subcommittee agreed with the Plan Administrator’s reasoning in the prior letter that Soto had not experienced a qualifying “Layoff” or received notice that she was a Plan “Participant.” As the second letter explained, because “Ms. Soto’s employment with the Company ended on account of her inability to return to work following a disabling illness,” such “circumstances did not constitute a ‘Layoff’ for purposes of Plan eligibility.” Id. at 41. Nor did Soto “meet the separate requirement for Plan eligibility in that she was never informed in writing by the Company that the circumstances of her separation of employment qualified her for Plan benefits.” Id. C. Soto’s Theory of the Case The Complaint pleads both claims for damages and equitable relief. Soto first alleges that she is entitled to severance benefits of approximately $44,277, arguing that the Plan Administrator erred in concluding that she did not meet the “Layoff” or notice eligibility requirements (Counts I and II). App’x at 48, 50; see also id. at 54 (Am. Compl. 45). With respect to the “Layoff” requirement, the Complaint alleges that “Plaintiff’s Termination was a ‘Layoff’ within the Plan’s unambiguous definition of that term. Alternatively, if the term Layoff is found to be ambiguous, Defendants’ interpretation of the term Layoff is arbitrary and capricious.” Id. at 50 (Am. Compl. 23); see also id. at 51, 53 (Am. Compl.
