A federal appeals court on Tuesday allowed Verizon Communications Inc to correct an in-house lawyer's drafting error in a pension plan that could have cost the second-largest U.S. phone company $1.67 billion.

The U.S. Seventh Circuit Court of Appeals in Chicago upheld a district court judge's decision last November in the class-action case to fix the mistake, which dated from a 1996 pension plan from Verizon predecessor Bell Atlantic that affected about 13,800 participants.

When Bell Atlantic was migrating workers from one pension plan to another, it inadvertently included a multiplier tied to workers' ages and years of service twice. This increased the starting balances for thousands of workers under the new plan, in many cases nearly tripling them, court records show.

Cynthia Young, who worked for Bell Atlantic from 1965 to 1997 and is the lead plaintiff, claimed in her 2005 lawsuit that Verizon should be bound by the language it used.

The Seventh Circuit disagreed. Judge John Daniel Tinder wrote that ERISA, the U.S. law governing employee benefit plans, should let courts correct a scrivener's error when there is clear and convincing evidence that a plan does not reflect participants' reasonable expectations of benefits.

People make mistakes. Even administrators of ERISA plans, Tinder wrote for a three-judge panel.

Matthew Hurst, a partner at Susman Heffner & Hurst LLP who represents the workers, said federal courts are divided on the issue, and that he agrees with those that would fix the errors. This split should be resolved so that both participants and sponsors know what relief is available, he said.

Rich Young, a Verizon spokesman, said: We believe the court reached a fair and sensible decision. The New York-based company took its current name in 2000 after several mergers.

The case is Young v. Verizon's Bell Atlantic Cash Balance Plan et al, U.S. Seventh Circuit Court of Appeals, Nos. 09-3872 and 09-3965.

(Reporting by Jonathan Stempel in New York; Editing by Bernard Orr)