James Teufel v. Northern Trust Company
887 F.3d 799
7th Cir.2018Background
- Northern Trust maintained a Traditional defined-benefit pension formula (years × high-5 average salary × constant) for employees hired before 2002.
- In 2012 the plan was amended: service after March 31, 2012, is calculated under a new PEP formula that reduces accrual rates; pre-2002 employees received a transitional rule that treats their pre-2012 high-5 average as if it grows at 1.5% annually after 2012.
- James Teufel (hired 1998) sued, alleging the 2012 amendment violated ERISA’s anti-cutback rule by reducing his “accrued benefit” (he expected >5% salary growth, but the plan now imputes only 1.5%).
- Teufel also asserted an Age Discrimination in Employment Act (ADEA) claim, arguing the change has a disparate impact on older workers who benefit more from the high-5 formula.
- The district court dismissed the complaint; Teufel appealed to the Seventh Circuit.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the 2012 amendment violated ERISA’s anti-cutback rule by reducing Teufel’s accrued benefit | Teufel: The plan’s imputed 1.5% post-2012 salary growth reduced his accrued benefit because he had a reasonable expectation of higher future salary increases | Northern Trust: Accrued benefit is limited to benefits for past service as of March 31, 2012; the amendment leaves vested pre-2012 benefit intact and is no worse than a plan termination and transfer to a new plan | Held for Northern Trust: Future salary expectations are not part of the accrued benefit; amendment did not cut an accrued benefit |
| Whether the plan administrator violated ERISA §1054(h)(2) by failing to describe the amendment clearly | Teufel: Disclosure failed to state the amendment eliminated an accrued benefit and was too complex | Northern Trust: Description adequate and provided participant-specific online modeling showing effects | Held for Northern Trust: Disclosure sufficient; participant-specific tool satisfied the statute |
| Whether the amendment violates the ADEA via disparate impact on older workers | Teufel: Eliminating/reducing the high-5 feature disproportionately harms older workers nearing peak pay | Northern Trust: Plan is age-neutral (benefits depend on service and salary, not age) and complies with the ADEA safe harbor in 29 U.S.C. §623(i) | Held for Northern Trust: No ADEA violation; pension criteria are age-neutral and fall within §623(i) safe harbor |
| Whether court precedent requiring plan terms that promise future adjustments to be protected applies | Teufel: Cases (Hickey, Ruppert, Shaw) protect promised adjustments as part of accrued benefits | Northern Trust: Those cases turned on plan language that actually guaranteed future adjustments; here the plan guarantees no future salary increases | Held for Northern Trust: Precedents do not apply because the plan contains no entitlement to future salary growth or adjustment |
Key Cases Cited
- Hickey v. Chicago Truck Drivers Union, 980 F.2d 465 (7th Cir. 1992) (plan language promising future adjustments can be part of accrued benefit)
- Ruppert v. Alliant Energy Cash Balance Pension Plan, 726 F.3d 936 (7th Cir. 2013) (promised plan terms that create future benefit adjustments may be protected accruals)
- Shaw v. Machinists & Aerospace Workers Pension Plan, 750 F.2d 1458 (9th Cir. 1985) (plan provisions promising future adjustments can constitute accrued benefits)
- Central Laborers’ Pension Fund v. Heinz, 541 U.S. 739 (2004) (plan cannot attach new conditions to already accrued benefits)
- CinoNo v. Delta Air Lines Inc., 674 F.3d 1285 (11th Cir. 2012) (distinguishing hope of future improvement from protected accrued benefits)
- Kentucky Retirement Systems v. EEOC, 554 U.S. 135 (2008) (pension eligibility and accrual rules are distinct from age discrimination analysis)
- Hazen Paper Co. v. Biggins, 507 U.S. 604 (1993) (employment decisions tied to tenure or pension eligibility differ from age-based discrimination)
Outcome: Affirmed (Seventh Circuit).