THIRD CIRCUIT RULES THAT EMPLOYER VIOLATES ERISA BY IMPLEMENTING AMENDMENT TO PENSION PLAN THAT HAD NOT BEEN FORMALLY ADOPTED
Depenbrock v. CIGNA, U.S. Court of Appeals, 3rd Circuit, 11/10/04
http://caselaw.lp.findlaw.com/data2/circs/3rd/033575p.pdf
CIGNA proposed an amendment to its pension plan that was to become effective in January of 1998. The new plan, with a new formula for calculation of benefits, was to apply to short-term, more recently hired employees, while the longer term employees would still be under the old plan and would receive higher benefits. The amendment provided that any long-term employee who left CIGNA and then was rehired after December 31, 1997 would be subject to the new formula for the calculation of benefits. The amendment was announced internally in November, 1997 and put into effect in January, 1998, although it was not formally executed by the CEO until December 21, 1998.
Plaintiff left the employ of CIGNA in January of 1998 and was rehired by CIGNA in November, 1998. He argued that the “rehire rule” did not apply to him because it was not formally adopted until 21 days after he returned to work at CIGNA, and application of the new formula to his benefits would result in an impermissible retroactive reduction of his rights.
Noting that the Employee Retirement Income Security Act (“ERISA”) requires that an amendment to a pension plan be in writing and made in the manner specified in the plan document, the Court of Appeals found December 21, 1998 to be the effective date of the amendment. The Court reversed the decision of the District Court, which had held that the CEO’s execution of the amendment constituted a ratification of the amendment put into effect in January, 1998. The Court of Appeals held that the amendment could not be applied retroactively to the plaintiff because of the rule of law disallowing ratification of a policy which would retroactively reduce the rights of third parties, such as the plaintiff. The Court of Appeals directed the District Court to enter summary judgment in favor of the plaintiff.
Words to the Wise: Employers should not ignore or delay in following the specific procedures outlined in their pension plan before implementing any changes that may affect the rights of employees.