ERISA-Seventh Circuit Reverses Decision Pertaining To Benefit Calculation For Imprecision

In Reilly v. Continental Casualty Co., No. 14-2888 (7th Cir. 2015), Michael Reilly (“Reilly”) had participated in a pension plan offered by Continental Casualty Co. (“Continental”). Continental administers its own defined-benefit plan, which provides that the pension depends on the highest average compensation in any 60-month period of employment. “Compensation” is a defined term: regular salary, incentive compensation, and deferred compensation deposited in §401(k) plans are in (as are some other items), while educational bonuses, referral bonuses, overseas allowances, and some other items are out.

In this case, when Reilly left Continental’s employ in 1999, he received a statement of his qualifying compensation that implied a monthly benefit of about $5,400 starting in 2012, when he would turn 65 and become eligible. Come 2012, however, Continental sent Reilly a different calculation, showing lower compensation and entitlement to roughly $4,200 a month. When internal appeals did not avail him, Reilly filed this suit under §502(a)(1)(B) of ERISA. The district judge concluded that Continental’s decision was arbitrary and capricious (which the parties agree is the governing standard), and the court ordered it to pay monthly benefits at the $5,400 level. Continental appeals, contending in this court that its calculation should have been sustained, and if not that the district court should have remanded for a new calculation rather than ordering payment at the rate projected in 1999.

In analyzing the case, the Seventh Circuit Court of Appeals (the “Court”) said that the district court’s decision cannot stand, because Reilly has not tried to show that $5,400 is the only possible outcome of a proper calculation process. All that has been established to date is that Continental’s 2012 decision is unreliable. By working through the original compensation numbers, the parties may be able to agree what the right pension is under the Plan’s terms. If agreement is elusive, the district court must remand this matter to Continental so that the administrator can make a fresh calculation, which then could be subjected to another round of judicial review. Accordingly, the Court reversed the district court’s decision, and remanded the case for further proceedings consistent with its opinion.

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