ERISA did not bar enforcement of terminated employee’s release of claim for additional benefits

An employee’s general release of claims in exchange for severance benefits was valid and enforceable, according to the U.S. Court of Appeals in Chicago (CA-7). ERISA’s anti-alienation provision did not apply to the employee’s claim for additional benefits and he had constructive notice of his claim before signing the release.

Plan amendments restrict eligibility
A company amended its defined benefit plan in 2006, restricting participation to specified categories of employees. Employees hired prior to the date of the amendment remained eligible to participate in the plan as long as they were not transferred or promoted to a new, ineligible service line (i.e., department).

The company e-mailed notice of the change in retirement eligibility to department heads, who forwarded the notice to employees. The notice clearly stated that, upon transfer to a non-eligible group, an employee would remain a plan member, but on inactive status. In addition, the notice advised pension-eligible employees who were hired prior the amendment that they would continue accruing credit unless and until they transferred to a noneligible position.

An employee who was hired by the company in 1993 was promoted in 1999 to a noneligible service line. Accordingly, the employee ceased accruing additional benefits under the plan in December 1999.

In June 2000, the employee received a Statement of Individual Benefits package via mail that fully disclosed his compensation and benefits. The package explicitly informed the employee that he was ineligible to participate in the plan, but that he was entitled to a monthly benefit based on his prior service as an eligible employee.

In May 2003, the employee was terminated, incident to workforce reduction. The employee was offered a Separation of Benefits package, which required him to “forever release, waive, and discharge” the company from “any and all claims of any nature whatsoever, known, or unknown which you now have, or at any time may have had” against the company up to and including the date the agreement was signed. The general release of claims, however, did not apply to any claim arising after the agreement was signed.

The employee did not consult an attorney (as advised in the release) but signed the release. Subsequently, in July 2003, the employee received a final statement of benefits, indicating that he stopped accruing pension benefits in December 1999.

After unsuccessfully pursuing administrative remedies, the employee filed suit in federal court for additional benefits, alleging that the company violated ERISA §204(h) by not providing him with adequate notice of the 1996 plan amendments, which resulted in a significant reduction in the rate of his future benefit accrual. The trial court, relying on Howell v. Motorola, dismissed the employee’s claim, ruling that, because ERISA’s anti-alienation rule was not applicable, the employee’s claim had been waived by the release. The release was valid, the court explained, because the employee had constructive notice of his claim at the time the release was signed.

Application of anti-alienation rule
On appeal, the employee maintained that ERISA’s anti-alienation provision prohibited the release of ERISA claims through a general release. The anti-alienation rule prohibits “benefits provided under the plan” from being assigned or eliminated. In interpreting this provision, the appeals court drew a distinction between: (1) pension entitlements which cannot be alienated, and (2) contested pension claims, which do not fall within the rule.

The court determined that the employee’s suit was a contested benefits claim. The claim did not require interpretation of the plan, but was based on the alleged failure of the company to provide adequate notice of the plan amendment, which resulted in reduced benefits.

Having concluded that the employee’s claim was for contested benefits, the court next found that the employee had constructive knowledge of his claim at the time the release was executed. The Statement of Individual Benefits furnished to the employee in 2000 clearly informed him that he was no longer eligible to participate in the plan following his promotion to a new position.

Validity of general release
The court then ruled that the release was valid because the totality of circumstances surrounding the release (e.g., employee’s education; clarity of agreement; time for deliberation; and consideration given in exchange for waiver) indicated that it was signed knowingly and voluntarily.

Source: Hakim v. Accenture United States Pension Plan (CA-7).

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer’s Benefits Reports.

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