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Teufel v. The Northern Trust Co.

United States Court of Appeals, Seventh Circuit

April 11, 2018

James P. Teufel, Plaintiff-Appellant,
v.
The Northern Trust Company, et al., Defendants-Appellees.

          Argued 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.

          Before Wood, Chief Judge, and Bauer and Easterbrook, Circuit Judges.

          Easterbrook, Circuit Judge.

         In 2012 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.

         James 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.

         The 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 title.

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.

         To 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.

         This 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.

         Teufel 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.

         Suppose 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.

         Teufel 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 ...


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