New Jersey Employment Law Blog

"No good deed goes unpunished."   "Sometimes you just can't win."

Those sentiments (and perhaps a few others) must be floating around the hallways at Northwest Airlines, where the company and its pilots' union, the Airline Pilots Association, have joined forces to  save a new retirement plan from an age discrimination challenge by a group of senior pilots.  Yahoo Finance has the AP story.

Northwest and the ALPA have asked a federal judge "to declare that it's not age discrimination to tilt retirement contributions to less-experienced pilots to make up for freezing their pensions."  Unlike some other airlines, a bankrupt Northwest chose not to reduce retirement benefits by terminating  its pension plan and turning its obligation over to a federal guarantor.  Instead, Northwest kept the retirement plan but froze its pensions, so that pilots received what they earned, but their pensions stopped growing.  To make up the difference, Northwest supplemented the pension plan with a 401(k) plan, which included a company match.  Ironically, however, under this arrangement the larger 401(k) matching contributions went to the higher paid, more senior pilots.

Because of that, Northwest argued that the new plan had the perverse effect of giving older pilots who lost nothing on their pension more than they would have received before their pension was frozen. Meanwhile less-experience pilots made far less.

On December 1, with the agreement of the ALPA, Northwest terminated its matching payments.  They will resume on January 1, this time with the larger matches going to less-senior pilots in order "to equalize the difference between experienced pilots who will get their full pension, and younger pilots who no longer have the opportunity to see their pension grow."  The goal is to produce similar retirement income levels for both senior and junior pilots.  And that sounds only fair.

The plan is being opposed by some senior pilots as discriminatory based upon age.  The junior pilots, without the change, would be getting the worst of both worlds.

The case serves to illustrate how difficult it can be to reconcile the demands of groups of employees with competing economic interests.  And it moves us to raise another question that employment lawyers often ponder: "Who woulda thunk it?"

Posted In Age Discrimination , ERISA & Benefits , Employment Law News | Comments (1) | Permalink |

Here's Bloomberg's followup story on yesterday's argument in LaRue v. DeWolff Boberg.  Also some thoughts from the Pension Protection Act Blog.

Many who are following this story have weighed in with their predictions on how the Supremes will rule.  So I'll pick up the challenge and go where angels fear to tread.

The prevailing view seems to be that LaRue will win a split decision, with a condition.  The condition is that the Court does not avoid the merits issue by holding that the complaint was technically deficient.  I think that's unlikely.  The court will reach the merits and will rule, 8-1, that LaRue's claim can go forward.  Why?  First principles.  In the first year of law school we were taught that there should be no wrong without a remedy.  There seems to be no dispute that LaRue was wronged, and there's no disagreement that if he loses he will have no remedy.  In the upside-down, inside-out Wonderland of ERISA law there's no guarantee that common sense and simple justice will prevail.  But this one seems too clear-cut for the Court to deprive LaRue of a remedy through a technical reading of one of the few simple and clear provisions of what is, in general, a bizarrely complex statute.

The lone holdout?  Chief Justice Roberts.

One more thought.  The defendant made the all-too-predictable argument that a finding in LaRue's favor would open the "floodgates of litigation," swamping the federal courts with 401(k) investment decision cases.  Enough already.  It won't happen, but even if it does, the system can handle it.  

Posted In ERISA & Benefits , Employment Law News | Comments (0) | Permalink |

Today the Supreme Court heard oral argument in LaRue v. DeWolff Boberg.  Here's a link to a report from Bloomberg.com to give you the background.  If you're really interested, links to the briefs of the parties can be found here.  And the transcript of the argument is also available.

The LaRue case is a big deal in the world of employment law. It will affect the rights of every participant in a 401(k) plan.  There are millions of them (and you know who you are).  It presents the question whether a participant can sue a plan fiduciary for losses sustained in individual accounts due to mismanagement by the fiduciary.  Consider the facts, which are simple.  Mr. LaRue participated in his company's 401(k) plan.  DeWolff Boberg was the fiduciary.  Fearing a market decline, LaRue twice asked DeWolff to sell his riskier investments and reinvest the money in safer bond investments.  DeWolff failed to sell as requested, and LaRue sustained a loss of around $150,000.  LaRue sued, but the lower courts dismissed his complaint on the theory that he could not sue the plan fiduciary for losses to his individual account.   

The Supreme Court will now decide whether individuals who sustain losses at the hands of fiduciaries can sue to recover their money.

My fellow bloggers are weighing in on this one in force.  Here are the preliminary views of Scotusblog, Boston ERISA Law Blog, and Ross Runkel.

Posted In ERISA & Benefits , Employment Law News | Comments (0) | Permalink |

Here's a report of a very interesting severance benefits case from federal court in Chicago.  Right now we just have a story from Business Insurance, but will provide more extensive coverage when we get a copy of the court's opinion.   Ninety ex-employees of CNA Financial will be allowed to go to trial to try to prove that CNA unlawfully and fraudulently denied them severance benefits. 

As with many things legal, timing and a lack of candor by CNA seem to be the critical considerations in the court's decision. 

Here's the story:

The plaintiffs were working as sales representatives when CNA sold its life business operations to Swiss Reinsurance Co. in 2004. Their positions were eliminated, and they were terminated on April 5, 2004. CNA later denied their claims to severance benefits.

According to the decision, CNA updated its severance pay plan on its intranet site in August 2003, but “did not highlight, underline, or draw attention to the newly added language” that denied severance benefits to the employees. 

CNA sold the plaintiffs' business until in 2004.  Their positions were eliminated their employment  terminated  on April 5, 2005.  Just four days before they were fired they received notice by intranet and mail that the severance plan had been discontinued.

The plaintiffs sued, and while the article is unclear, it appears that the company defended on the basis that state law remedies were preempted by ERISA.  The court held that the plaintiffs could sue in fraud, though not in contract.

“By any objective understanding of CNA's promise to timely notify its employees of material changes to their benefit plans, it was unreasonable for CNA to knowingly wait to tell plaintiffs of the amendment disqualifying them from severance benefits until almost seven months after the amendment took effect, and four days before each was terminated from employment,” said Judge James F. Holderman in his decision.

It sounds like the court made the right decision, but we'll try to find out more.

Posted In ERISA & Benefits | Comments (0) | Permalink |

You could build a good sized library from the decisions of the courts --- from the US Supreme Court on down --- that have wrestled with the often inscrutable provisions of ERISA, the Employee Retirement & Income Security Act.  A big percentage of the decisions in your library would deal with the question of whether particular state law claims brought by plaintiffs are preempted by the provisions of federal law.  I can tell already that this sounds like a lot of circular lawyer-talk, but bear with me.  It's almost impossible to write about ERISA without sounding this way.  And besides, the case we're going to talk about has real-world implications for executives who are considering a new job.

Here are the basics of Dr. Dale Thurman v. Pfizer, Inc.  Dr. Thurman had a job in Ohio. His benefits  included high compensation, stock options, and other perquisites.  He was induced to go to work for Pfizer, Inc. in Michigan.  Although offering lower compensation, Pfizer promised him, according to the complaint, the ability to retire at age 62 with a pension of $3,100 per month.  In short, the pension was the thing that convinced him to change jobs.  After he had been working for Pfizer for a month he was notified that the first calculation of his pension was incorrect and that his actual pension would be $816 per month. 

This, as you can imagine, did not sit well with Dr. Thurman.  He filed suit in state court for fraudulent misrepresentation and innocent misrepresentation.  He requested compensation in the alternative: (1) for the value of what he lost (higher salary, stock options, and so forth) from leaving his old job, called reliance damages; and (2) for the benefit of the deal that he thought he had made with Pfizer (the higher pension), called expectation damages.

The case was removed to federal court and Pfizer moved to dismiss on the theory that Dr. Thurman's state law claims were preempted by ERISA, and the case eventually wound up in the US Court of Appeals for the 6th Circuit. 

Sparing you the details, the court held that Thurman's claim for expectation damages was preempted by ERISA.  However, he was allowed to proceed with his claim for reliance damages --- what he left behind when he was lured away from his old job by the false promise of a particular pension benefit. In these circumstances, the court held, ERISA preemption does not apply.

The moral of the story?  For those of you who are thinking of changing jobs to get benefits under an ERISA plan, get the details in writing, and in advance.  And if you find yourself in litigation with your employer when they don't deliver, think about pleading your reliance damages claim specifically.  It may save you from the litigation catastrophe of ERISA preemption. 

Posted In ERISA & Benefits | Comments (0) | Permalink |

Law.com reports that the IRS has made sweeping changes to its deferred compensation rules that affects common business compensation practices, including stock options, bonuses, and severance policies. The new rules impose tougher standards and penalties for violations.  Compliance is due by December 31, 2007. 

Employers should review the changes with counsel to ensure that their policies meet the new standards. Don't assume that they don't apply to you.  And the penalties for non-compliance have teeth.

As one employment attorney put it:

"A lot of clients are sort of in denial of [the rules]," said Harrelson of Nashville, Tenn.'s Waller Lansden Dortch & Davis. He believes the rules will catch many employers by surprise. "They are so broad and so invasive that you can have people you never dreamed of falling under these rules."

Now you know.  Don't be one of those caught by surprise. 

Posted In ERISA & Benefits , Employment Law News | Comments (0) | Permalink |

Cash balance plans are in the air.  Yesterday we reported on a decision by Judge Chesler of the District of New Jersey that upheld Dun & Bradstreet's cash balance plan against an age discrimination attack.  Today the Third Circuit has weighed in on the issue, holding that PNC's cash balance plan does not unlawfully discriminate against older workers.  The opinion is here and a related news article here.

The opinion is long and complicated, but it amounts to the idea that younger workers may benefit disproportionately from cash balance plans not because the employer affirmatively discriminates, but because of the time value of money.  This, the court found, is not unlawful.

The Third Circuit is the second court of appeals to weigh in on this issue, in concert with the Seventh Circuit in the IBM case.  There is still district court precedent from the Second Circuit that goes the other way and finds cash balance plans discriminatory.

Posted In ERISA & Benefits , Employment Law News | Comments (0) | Permalink |

Earlier this month we reported on a big win the the US Supreme Court for IBM, whose cash balance retirement plan was challenged by older workers as age discriminatory.  The defect, the plaintiffs argued, was that the plan treated younger workers more favorably.  The Supreme Court ruling does not settle the issue on a national level because it merely refused to hear an appeal of a lower court decision of the case.

Now the same issue has come to New Jersey.  US District Judge Stanley Chesler has ruled that Dun & Bradstreet's cash balance plan does not unlawfully discriminate against older workers.  Judge Chesler ruled that "the principle of compound interest and the passage of time produce the age differences that plaintiff complains of, but these are things that are correlated with age; they are not the effects of age discrimination."

There are cases from other jurisdictions that take an opposite view, so this is an issue that the Supreme Court will probably end up reviewing. 

Posted In ERISA & Benefits , Employment Law News | Comments (0) | Permalink |

Reuters and Inc.com report that only 14% of small businesses offer 401(k)'s to their employees, and 63% do not offer any retirement benefit of any kind.

"The survey found that owners who do not provide retirement benefits fail to do so for a variety of reasons. Fifty-four percent said they didn't have enough employees to make it worthwhile, 28 percent cited a financial inability to match contributions, and 26 percent blamed unstable business circumstances."

This also raises the important question of what small business owners are doing to fund their own retirements.

It's not all that surprising that 401(k)'s are not used more widely by small business.  They're relatively expensive and complicated to administer.  And they usually lock you into matching contributions that you don't control: the amount that the employer must pay in matching contributions depends on how much the employees contribute.  That can strain the finances of a smaller company with limited cash flow.

On the other hand, there are other options, such as SEP-IRA's, that give the employer more control. The employer makes 100% of the contributions, but only when and in amounts that it chooses.  If the money is not available, there's no obligation to contribute at all.

Good information on retirement plan alternatives for small employers is available from brokerage firms and mutual fund companies, such as Schwab and Vanguard.

Posted In ERISA & Benefits , Just Interesting | Comments (0) | Permalink |

President Bush is expected to sign major pension reform legislation today.

While much of the bill aims at giving some airlines time to catch up on their pension funding obligations, there are benefits for other companies. There will be enhanced contribution limits for IRA's and 401(k)'s, and employers will be able to automaticlly enroll employees in 401(k)'s to encourage retirement savings.

We'll give you more on this over time as the practical ramifications of the pension bill develop.

Posted In ERISA & Benefits , Employment Law News | Comments (0) | Permalink |

An article out today reports on the final settlement of litigation between former Enron employees and Northern Trust, a well-known money management firm. A federal judge approved a $37.5 million settlement, "which brings to $264.3 million the total amount collected on behalf of former Enron employees who had 401(k) plans with company stock." The court also approved the payment of about $24 million in legal fees and related expenses.

The employees had charged that Northern Trust failed to adequately diversify their 401(k) investment portfolios, which were hit hard when Enron stock crashed.

The old chestnut that investments should be diversified is advice that should be heeded by investors who put their money into 401(k)'s, employers who sponsor them, and money managers who manage them.

Posted In ERISA & Benefits | Comments (0) | Permalink |

Yesterday the Employee Benefits Security Administration, an arm of the United States Department of Labor, published advice entitled "Can the Retiree Health Benefits Provided By Your Employer Be Cut?" The link will take you to the website.

Presented in question and answer format, it addresses common questions about health insurance benefits from the perspective of the beneficiary.

The information is useful, clearly presented, and well worth the investment of a few minutes of your time.

Posted In ERISA & Benefits | Comments (0) | Permalink |