A recent decision by the United States District Court for the District of Maryland did not end well for the plaintiff/employee in the case. However, the court’s decision does hold valuable insights for future claimants.
In Ritter v. IBM Corporate Pension Plan Adm’r, 2016 U.S. Dist. LEXIS 4988 (D. Md. 2016), a former IBM employee, Ritter, participated in the company pension plan. The plan provided that participants who worked for ten years were fully vested, meaning they were entitled to receive all benefits under the plan. When Ritter left IBM initially, she only had nine years of vesting, so she was not entitled to benefits under the plan. However, the plan was later amended to provide that a participant was vested if she/he had five years of service, and that a participant’s prior service would count for this purpose if the participant returned to work for one year or reached age 65 while working. Ritter returned to work for only three months after the plan was amended, so the provisions crediting prior service did not apply. Ritter argued that as an incentive for her returning, the company promised to vest her immediately and fully in the plan by treating her as if her original hire date was after the plan was amended (such that only five years of service would be required for full vesting). However, when Plaintiff applied for benefits under the plan, IBM claimed Ritter was not vested at all and refused to vest her prior nine years of service, leaving her with only the new three months of service to count toward the necessary five years.
Ritter brought suit under the Employee Retirement Income Security Act (“ERISA”), which governs retirement benefits provided through an employer. The court held that IBM’s decision to deny benefits was not an abuse of discretion and affirmed the company’s decision, finding the decision was based on an explicit provision in the written plan document. Regarding the employee’s claim that IBM made an oral promise to vest the employee fully and immediately, the court held that the alleged oral agreement was not sufficient to overcome the explicit plan language regarding vesting.
While the result was unfortunate for Ritter, there are several take-aways and important reminders that can be gleaned from the court’s decision:
- ERISA applies to retirement benefits, such as a 401(k) or pension plan, that are sponsored by an employer or employee representative (a union). However, it is important to keep in mind that ERISA also applies to other benefits received through an employer, such as health insurance, disability insurance (long-term and oftentimes short-term as well), severance benefits, and life insurance benefits.
- It is important to know if a plan is subject to ERISA or, alternatively, state law, as different standards and different methods of attempting recovery may apply. For example, some executive compensation benefits—such as supplemental executive retirement plans, or ”SERPs”—are likely subject to ERISA. On the other hand, other types of executive compensation, such as stock options, are likely not subject to ERISA but to state law instead.
- There are exceptions under ERISA where an employee can attempt to enforce an oral promise regarding benefits. This has to be accomplished in a certain way, however. Based on the court’s decision, it is unclear whether Ritter plead one of the recognized exceptions correctly. Also, the facts of the case, from the court’s summary, make it unlikely that one of the exceptions would apply here. However, in other circumstances, oral promises can be enforced even if they are contrary to written plan terms.
- Plan rights and responsibilities are usually determined according to plan terms, so participants need to review those carefully to determine the likelihood of success in a particular situation.
- When assessing your rights to employee benefits, make sure you review all requirements, including vesting schedules. In Ritter v. IBM, had the employee stayed only nine months more, she would have been eligible for her pension.
- Many ERISA plans contain an “abuse of discretion” standard, which provides that the decision of the plan administrator denying benefits will not be overturned by a court unless the plan administrator abused his discretion. This would typically be considered a higher standard to overcome than the usual proof burden a plaintiff faces in court. Not every plan contains an abuse of discretion standard. It is important to find out if one applies early in the process so a participant can make a decision about what type of evidence to use in the case, as well as the likelihood of an ultimate recovery.
- If there is an exception to general plan terms that you intend to rely up, getting it in writing, with the help of an attorney, may give you a better chance of enforcing it later. In this case, the court noted no written evidence supported Ritter’s claim of an oral promise; in fact, all written evidence pointed to the contrary. So even if an exception could be applicable, convincing the court that the exception existed in this case may be difficult.
If you have questions about an employee benefit matter, please feel free to visit our website at www.yourncattorney.com, or give us a call at 704.937.2726.
Our blog posts are intended as general information on legal topics for our clients and friends. They are not legal advice nor may they be construed as such. If you have specific questions regarding a legal matter, we recommend that you consult an attorney.