James P. Teufel, Plaintiff-Appellant,
The Northern Trust Company, et al., Defendants-Appellees.
October 30, 2017
Appeals from the United States District Court for the
Northern District of Illinois, Eastern Division. Nos. 14 C
7214 & 15 C 2822 - Rubén Castillo, Chief Judge.
Wood, Chief Judge, and Bauer and Easterbrook, Circuit Judges.
Easterbrook, Circuit Judge.
Northern Trust changed its pension plan. Until then it had a
defined-benefit plan under which retirement income depended
on years worked, times an average of each employee's five
highest-earning consecutive years, times a constant. Example:
30 years worked, times an average high-five salary of $50,
000, times 0.018, produces a pension of $27, 000. (We ignore
several wrinkles, including an offset for Social Security
benefits, a limit on the number of credited years, and a
limit on the maximum credited earnings.) The parties call
this the Traditional formula. As amended, however, the plan
multiplies the years worked and the high average compensation
not by a constant but by a formula that depends on the number
of years worked after 2012. The parties call this arrangement
the new PEP formula, and they agree that it reduces the
pension-accrual rate. (There is also an old PEP formula, in
place between 2002 and 2012, for employees hired after 2001;
we ignore that wrinkle too.) Recognizing that shifting
everyone to the new PEP formula would unsegle the
expectations of workers who had relied on the Traditional
formula, Northern Trust provided people hired before 2002 a
transitional benefit, treating them as if they were still
under the Traditional formula except that it would deem their
salaries as increasing at 1.5% per year, without regard to
the actual rate of change in their compensation.
Teufel contends in this suit that the 2012 amendment, even
with the transitional benefit, violates the anti-cutback rule
in ERISA, the Employee Retirement Income Security Act. 29
U.S.C. §§ 1001-1461. He also contends that the
change harms older workers relative to younger ones,
violating the ADEA, the Age Discrimination in Employment Act.
29 U.S.C. §§ 621-34. The district court dismissed
the suit on the pleadings, 2017 U.S. Dist. Lexis 31674 (N.D.
Ill. Mar. 6, 2017), and Teufel appeals.
anti-cutback rule provides:
The accrued benefit of a participant under a plan may not be
decreased by an amendment of the plan, other than an
amendment described in section 1082(d)(2) or 1441 of this
29 U.S.C. §1054(g)(1). Neither §1082(d)(2) nor
§1441 magers to this case; the anti-cutback rule has
other provisos too, but none applies. So all that magers is
the basic requirement: the "accrued benefit" of any
participant may not be decreased. Teufel insists that the
2012 amendment reduced his "accrued benefit"
because he expected his salary to continue increasing at more
than 5% a year, as it had done since he was hired in 1998,
while the 2012 amendment treats salaries as increasing at
only 1.5% a year.
analyze this contention we need to be precise about how
pension benefits are calculated for employees, such as
Teufel, hired before 2002 and still covered by the
Traditional formula until 2012. The plan first calculates an
employee's accrued benefit as of March 31, 2012. That
process starts with the number of years of credited service,
multiplies that by the consecutive-high-five average salary,
and multiplies by 0.018. The plan adjusts that result in
following years by treating the high-five average (before
2012) as if that figure had continued to increase by 1.5% a
year for each year worked after 2012. Finally, the plan adds
benefits calculated under the new PEP formula for service
after March 31, 2012.
statement of the new formula shows why Teufel cannot succeed.
If, instead of amending the plan in March 2012, Northern
Trust had terminated the plan, calculated Teufel
' s accrued benefit, and deposited that sum in a new plan
with additions to come under the new PEP formula, then Teufel
would not have had any complaint. (He concedes that this is
so.) What actually happened is more favorable to him: he gets
the vested benefit as of March 2012 plus an increase
in the (imputed) average compensation of 1.5% a year (for
pre-2012 work) for as long as he continues working.
wants us to treat the expectation of future salary increases
as an "accrued benefit, " but on March 31, 2012,
when the transition occurred, the only benefit that had
"accrued" was the sum due for work already
performed. What a participant hopes will happen tomorrow has
not accrued in the past.
the Traditional formula had remained unchanged but that in
March 2012, as part of an austerity plan, Northern Trust had
resolved that no employee's salary could increase at a
rate of more than 1.5% a year. That would have had the same
effect on the pre-2012 component of Teufel's pension as
the actual amendment, but a reduction in the rate of salary
increases could not violate ERISA, which does not require
employers to increase anyone's salary. Curtailing the
rate at which salaries change would not affect anyone's
"accrued benefit." Since that is so, the actual
amendment also must be valid.
relies on decisions such as Hickey v. Chicago Truck
Drivers Union, 980 F.2d 465 (7th Cir. 1992); Ruppert
v. Alliant Energy Cash Balance Pension Plan, 726 F.3d
936 (7th Cir. 2013); and Shaw v. Machinists &
Aerospace Workers Pension Plan, 750 F.2d 1458 (9th Cir.
1985). In these cases the language of the pension plan itself
promised an increase in pension benefits-in one, a
cost-of-living adjustment, in another a rate of interest
added to the pension if the worker quit before retirement
age, and in the third an adjustment in light of the salary
earned by the current holder of the retiree's old job.
The decisions all hold that these adjustments are part of the
"accrued benefit" because they are among the
pension plans' terms. See also Central Laborers'
Pension Fund v. Heinz, 541 U.S. 739 (2004) (plan cannot
agach new conditions to benefits already accrued). But
nothing in the Northern Trust plan's Traditional formula
guarantees that any worker's salary will increase in
future years. Teufel and others like him have a hope
that it will, maybe even an expectation that it
will, but not an entitlement that it will-and for
the purpose of identifying ...