Illinois ERISA Lawyer Blog

Employees and Retirees in Chicago alike frequently wonder what happens when a plan administrator misrepresents the pension benefits that employee or retiree would receive, such as what the annuity payment amount would be. There have been plenty of cases involving a misrepresentation by the plan sponsor or employer (e.g., Enron). But no case yet arising in Chicago has yet to extend the estoppel principle against a retirement plan itself. A recent case appeared to be the example where the Seventh Circuit Court of Appeals would answer the question: can an estoppel claim proceed against the plan. See Pearson v. Voith Paper Rolls, Inc., No. 08 C 114 (7th Cir. Aug. 25, 2011). However, the court found a way to dispose of the case without answering the question that needed answering.

In Pearson, Kenneth Pearson was nearing retirement from Voith Paper Rolls. Prior to his retirement, Pearson met with a Human Resources representative regarding retirement, and Pearson asked the representative to calculate his retirement benefits under the plan. The plan provided that a retiree could elect between either a lump sum distribution, or one of several different variations of annuities. Pearson had met the age and service for early retirement, but not for full retirement benefits. When the Human Resources representative calculated Pearson's options, he entered the early retirement information into the lump sum distribution calculation, but not into the annuity calculations, thereby representing to Pearson artificially inflated annuity payments. Pearson elected one of the annuities, and after he retired, was informed his annuity payment would decrease.

Pearson raised claims of estoppel against the Plan. Faced with having to decide for the first time whether a claim of estoppel can proceed against a plan by a participant in the Seventh Circuit, the Court of Appeals declined to answer the question. The court held that even if it recognized such a claim against the plan, Pearson did not offer evidence of all the required elements, namely that the Plan intentionally misrepresented the benefit amount, or that Pearson relied on the misrepresentation to his detriment. The court thus affirmed the district court's grant of summary judgment to the Plan.

If you have questions about a misrepresentation made to you about your pension benefits, speak with an experienced ERISA lawyer today.

Employees and executives in Chicago frequently want to know what benefits their employer-sponsored pension or retirement plan has to provide. Generally, both ERISA and the Internal Revenue Code require qualified plans provide a minimum level of participation, vesting, accrual of benefits, non-discrimination, and responsibilities on plan fiduciaries. But ERISA and the Code also provide that once a plan has provided a benefit pursuant to a retirement plan, it may not subsequently take away a protected benefit. This is called the anti-cutback rule. ERISA § 204(g). Employees of a Chicago-based employer recently challenged a plan amendment, arguing it violated the anti-cutback rule. See Carter v. Pension Plan of A. Finkl & Sons Co. for Eligible Office Employees, No. 10-3287, 2011 U.S. App. LEXIS 16824 (7th Cir. Aug. 15, 2011).

In Carter, the employer decided to terminate the pension plan (something an employer has a right to do, provided it meets certain requirements). After notifying all the participants of the proposed plan termination, and initiating the process with the Pension Benefit Guaranty Corporation, the employer amended the plan to provide that a participant who has not yet begun receiving distributions from the plan when the plan would distribute benefits on account of its termination, the participant could elect to start receiving an annuity, even if he still worked for the employer. Subsequently, due to the costs associated with plan termination, the employer abandoned the proposed termination, and enacted another amendment effectively voiding the first amendment allowing the annuity while working.

The participants claimed they had a protected right to receive in-service annuity distributions that could not be taken away pursuant to ERISA's anti-cutback rule. Both the District Court and Court of Appeals rejected the plaintiffs' argument, because the right to receive an in-service annuity under the first amendment was conditioned on the plan terminating. Because the plan did not terminate, the first amendment never created a protected benefit.

If you are a participant in an employer-sponsored pension or retirement plan and would like to know if your employer has eliminated a protected benefit, contact an experienced ERISA lawyer.

Employees and Executives in Chicago that participate in an ERISA employee benefit plan often wonder whether once an employer gives a benefit, the employer can later take it away. Recently, CUNA Mutual did just that, and in an opinion with which this author disagrees (in both result and reasoning), the Court of Appeals for the Seventh Circuit ruled 2-1 that CUNA's action was not improper. Sullivan v. CUNA Mut. Ins. Society, No. 10-1558, 2011 U.S. App. LEXIS 16413 (7th Cir. Aug. 10, 2011)

Years ago, CUNA adopted a policy in order to incentivize employees not to use their sick days, whereby unused sick days could be saved for retirement and a monetary value allocated to those sick days could be used to credit premiums the retirees would have to pay for post-retirement health insurance coverage. In 2008, CUNA had accumulated a recognized liability for all these unused sick days on its books totaling over $120 million. With one swift stroke of a pen, CUNA eliminated the liability, and recorded a gain for the same amount on its books, telling all its retirees they could no longer use the sick day balance to pay for post-retirement health care.

The retirees sued, alleging CUNA engaged in a prohibited transaction by diverting plan assets to itself. Writing for the split-panel majority, Judge Easterbrook reasoned that (1) unlike pension plans, welfare benefit plans do not need to be funded under ERISA § 301, and (2) welfare plan benefits do not vest. Judge Easterbook also reasoned that the sick-leave balances were not plan assets, because they were mere bookkeeping liabilities.

The Court, however, seemed to have overlooked clear statutory and regulatory language that counters this reasoning. True, funding rules only apply to pension plans, not welfare benefit plans. But ERISA clearly requires that all plan assets, whether pension plan or welfare plan, be held in trust. ERISA §§ 401, 403. Next, ERISA provides little for a definition of plan assets, and directs the Department of Labor to define the term in regulations. ERISA § 3(42). The regulations provide that any amount that an employee pays to an employer towards an employee benefit plan becomes a plan asset shortly after the funds can reasonably be segregated from the employer's general assets. 29 C.F.R. § 2510.3-102(a)(1). It would appear that when the workers elected not to use their sick days, they paid these sick days (which under the plan had a corresponding monetary value) to the plan, and upon the end of the calendar year, the employer had an obligation to place the value of the sick days in a trust pursuant to ERISA § 403.

Continue reading "CUNA's Elimination of Accrued Account Balance for Post-Retirement Health Care Upheld by Seventh Circuit" »