Chicago area employees participating in a multi-employer pension fund, sponsored by a union, will be pleased to know the United States Court of Appeals for the Seventh Circuit put an end to certain arbitrary and capricious practices by pension funds, the Teamsters Pension Fund in particular. In Schane v. International Brotherhood of Teamsters Local 701 Union Pension Fund Pension Plan, Mr. Schane, represented by Michael Bartolic, successfully persuaded the appeals court that the Teamsters plan underpaid his pension. Due to a provision in his employer’s collective bargaining agreement, his employer stopped making pension contributions on his behalf when Mr. Schane was 48 years old, though he remained employed with the same employer until age 50.
The plan defines “Retirement” as cessation of covered employment (where contributions are made on his behalf) or engaging in a number of other activities, including working for an employer that makes contributions on other employees’ behalves. The plan uses that definition both to calculate pensions and to determine if a participant’s pension payment should be suspended. The pension plan undeniably construed the same definition as meaning that if a participant engaged in any of the listed activities, his pension would have to be suspended. But when calculating pensions, the plan took the opposite approach, and applied the definition such that as soon as a participant stopped covered employment, he was retired, resulting in a lower pension amount.
After losing at the district court level, Mr. Schane appealed. The Court of Appeals held that standing alone, the definition of retire was ambiguous, which would ordinarily allow the Trustees to choose how to interpret that definition. But the remainder of the plan, particularly the clause allowing suspensions of benefits, provided context that showed the Trustees’ interpretation was not a reasonable one. Moreover, the court held that the Trustees already chose how to interpret the definition in the context of suspending benefit payments, and it would be arbitrary and capricious to change the meaning of a specifically defined term when the same term is used for another purpose. This holding is significant in the sense that pension plans cannot apply the same definitions differently for different purposes. Under ERISA, when a plan chooses to use one definition for multiple purposes, the participants should expect that definition means the same thing for all purposes.
If you have questions about your pension fund’s calculation of your benefit, call an experienced ERISA attorney today.