From Which Date You Measure an ERISA Statute of Limitation

Executives, professionals and other employees in Chicago frequently call my office to ask what the statute of limitations is in an ERISA case (i.e., the measure of how long the potential claimant has to file a lawsuit under ERISA). Depending on the type of case, employees can end up more confused after asking that question than before. One recent case discussed when a claim accrues (i.e., the clock on the applicable statute of limitations begins ticking) in the context of a cash balance plan that paid lump sum distributions pursuant to an illegal plan term that set the actuarial value of the distribution.

In Thompson v. Retirement Plan of S.C. Johnson & Son, Inc., No. 10-3917 (7th Cir. June 22, 2011), the United States Court of Appeals for the Seventh Circuit held that the limitations period began running when participants received their lump sum distributions from the employer’s cash balance plan. Under a cash balance plan, participants receive “interest credits”, rather than investment returns on their account balances. The interest credit was 4%, or 75% of the plan’s rate of return on its investments. If a participant stopped participating early, though, the participant could take a lump sum distribution at the present “actuarial equivalent” value of what the participant would have received at age 65. ERISA law dictated how to calculate the “actuarial equivalent” as a value discounted by the 30 year Treasury rate. The plan sought to use the same 30 year Treasury rate to calculate the future accruals, rather than the 4% or 75% of plan rate of return.

The plan defendants claimed the statute of limitations should have begun running when the plan sponsor disclosed this in Summary Plan Descriptions as early as 1998 or 1999. The court disagreed. An “ERISA claim accrues when a plaintiff knows or should know of conduct that interferes with the plaintiff’s ERISA rights.” Young v. Verizon Bell Atlantic Cash Balance Plan, 615 F.3d 808, 817 (7th Cir. 2010). But in this case, the SPDs did not sufficiently put the employees on notice of the illegal way the plan would calculate the future interest credits a participant would not earn by taking an early distribution. The court called the various SPDs “a collection of hints”. Thompson, Slip Op. at 12. Therefore, the statute of limitations began running when the plaintiffs actually took their lump sum distributions.

The actual limitations period in that case was 6 years. ERISA only provides for a statute of limitations for breaches of fiduciary duty–6 years, or 3 years from when the plaintiff has knowledge of the claim (though exactly of what the plaintiff must have knowledge differs across jurisdictions). The limitations period for benefit claims under ERISA § 502(a)(1)(B) will be, in the absence of a shorter period written in the plan, the most analogous limitations period in state law, which is usually the statute of limitations for breach of a written contract. The Thompson case originated in Wisconsin, which provides for a 6-year statute of limitation.

If you feel your retirement plan has miscalculated your benefits, consult an experienced ERISA attorney right away.