Watch What You Say

August 25th, 2011 by JBWK

A federal court in Pennsylvania this week allowed part of an employee’s ERISA lawsuit to continue based on a resolution adopted by the employer’s board of directors twelve years ago despite the fact that the employer never amended the plan itself to reflect the resolution.

The employer, back in 1999, passed a resolution that recommended freezing the company’s pension plan accruals at the end of 2009 and changing the plan’s early retirement at age 55 from a Rule of 90 to a Rule of 74. In 2002, it passed a resolution actually freezing the plan at the end of 2009. In 2004, the plan administrator emailed, in response to an employee’s question about when the Rule of 74 would take effect, that

[T]he Board formalized its intention in the 1999 resolution, and I really can’t see them going back on it. It wouldn’t be honorable—and probably would be actionable. Bottom line, I truly believe that the rule of 74 will be put in place some time between now and 2009 and the necessary money put into the plan.

The plan was never formally amended and the plan administrator denied an employee’s early retirement using a Rule of 74.

The court dismissed the employee’s claim that the plan itself entitled her to benefits under the Rule of 74 calculation. But it held that the employee’s claim to reform the terms of the plan to conform with the Rule of 74 could continue, citing the recent U.S. Supreme Court case of CIGNA v. Amara, which affirmed that employees could sue to change plan terms inconsistent with legally required disclosures provided to employees.

While it’s too early to tell what will eventually happen, the case sends a clear warning: if you’re going to change your plan, do it; if not, don’t tell participants you are.


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