James Teufel v. Northern Trust Company , 887 F.3d 799 ( 2018 )


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  •                                In the
    United States Court of Appeals
    For the Seventh Circuit
    ____________________
    Nos. 17-1676 & 17-1677
    JAMES P. TEUFEL,
    Plaintiff-Appellant,
    v.
    THE NORTHERN TRUST COMPANY, et al.,
    Defendants-Appellees.
    ____________________
    Appeals from the United States District Court for the
    Northern District of Illinois, Eastern Division.
    Nos. 14 C 7214 & 15 C 2822 — Rubén Castillo, Chief Judge.
    ____________________
    ARGUED OCTOBER 30, 2017 — DECIDED APRIL 11, 2018
    ____________________
    Before WOOD, Chief Judge, and BAUER and EASTERBROOK,
    Circuit Judges.
    EASTERBROOK, Circuit Judge. In 2012 Northern Trust
    changed its pension plan. Until then it had a defined-benefit
    plan under which retirement income depended on years
    worked, times an average of each employee’s five highest-
    earning consecutive years, times a constant. Example: 30
    years worked, times an average high-five salary of $50,000,
    times 0.018, produces a pension of $27,000. (We ignore sev-
    2                                           Nos. 17-1676 & 17-1677
    eral wrinkles, including an offset for Social Security benefits,
    a limit on the number of credited years, and a limit on the
    maximum credited earnings.) The parties call this the Tradi-
    tional formula. As amended, however, the plan multiplies
    the years worked and the high average compensation not by
    a constant but by a formula that depends on the number of
    years worked after 2012. The parties call this arrangement
    the new PEP formula, and they agree that it reduces the pen-
    sion-accrual rate. (There is also an old PEP formula, in place
    between 2002 and 2012, for employees hired after 2001; we
    ignore that wrinkle too.) Recognizing that shifting everyone
    to the new PEP formula would unsegle the expectations of
    workers who had relied on the Traditional formula, North-
    ern Trust provided people hired before 2002 a transitional
    benefit, treating them as if they were still under the Tradi-
    tional formula except that it would deem their salaries as in-
    creasing at 1.5% per year, without regard to the actual rate of
    change in their compensation.
    James Teufel contends in this suit that the 2012 amend-
    ment, even with the transitional benefit, violates the anti-
    cutback rule in ERISA, the Employee Retirement Income Se-
    curity Act. 29 U.S.C. §§ 1001–1461. He also contends that the
    change harms older workers relative to younger ones, violat-
    ing the ADEA, the Age Discrimination in Employment Act.
    29 U.S.C. §§ 621–34. The district court dismissed the suit on
    the pleadings, 
    2017 U.S. Dist. LEXIS 31674
    (N.D. Ill. Mar. 6,
    2017), and Teufel appeals.
    The anti-cutback rule provides:
    The accrued benefit of a participant under a plan may not be de-
    creased by an amendment of the plan, other than an amendment
    described in section 1082(d)(2) or 1441 of this title.
    Nos. 17-1676 & 17-1677                                        3
    29 U.S.C. §1054(g)(1). Neither §1082(d)(2) nor §1441 magers
    to this case; the anti-cutback rule has other provisos too, but
    none applies. So all that magers is the basic requirement: the
    “accrued benefit” of any participant may not be decreased.
    Teufel insists that the 2012 amendment reduced his “accrued
    benefit” because he expected his salary to continue increas-
    ing at more than 5% a year, as it had done since he was hired
    in 1998, while the 2012 amendment treats salaries as increas-
    ing at only 1.5% a year.
    To analyze this contention we need to be precise about
    how pension benefits are calculated for employees, such as
    Teufel, hired before 2002 and still covered by the Traditional
    formula until 2012. The plan first calculates an employee’s
    accrued benefit as of March 31, 2012. That process starts with
    the number of years of credited service, multiplies that by
    the consecutive-high-five average salary, and multiplies by
    0.018. The plan adjusts that result in following years by treat-
    ing the high-five average (before 2012) as if that figure had
    continued to increase by 1.5% a year for each year worked
    after 2012. Finally, the plan adds benefits calculated under
    the new PEP formula for service after March 31, 2012.
    This statement of the new formula shows why Teufel
    cannot succeed. If, instead of amending the plan in March
    2012, Northern Trust had terminated the plan, calculated
    Teufel’s accrued benefit, and deposited that sum in a new
    plan with additions to come under the new PEP formula,
    then Teufel would not have had any complaint. (He con-
    cedes that this is so.) What actually happened is more favor-
    able to him: he gets the vested benefit as of March 2012 plus
    an increase in the (imputed) average compensation of 1.5% a
    year (for pre-2012 work) for as long as he continues working.
    4                                      Nos. 17-1676 & 17-1677
    Teufel wants us to treat the expectation of future salary
    increases as an “accrued benefit,” but on March 31, 2012,
    when the transition occurred, the only benefit that had “ac-
    crued” was the sum due for work already performed. What
    a participant hopes will happen tomorrow has not accrued
    in the past.
    Suppose the Traditional formula had remained un-
    changed but that in March 2012, as part of an austerity plan,
    Northern Trust had resolved that no employee’s salary could
    increase at a rate of more than 1.5% a year. That would have
    had the same effect on the pre-2012 component of Teufel’s
    pension as the actual amendment, but a reduction in the rate
    of salary increases could not violate ERISA, which does not
    require employers to increase anyone’s salary. Curtailing the
    rate at which salaries change would not affect anyone’s “ac-
    crued benefit.” Since that is so, the actual amendment also
    must be valid.
    Teufel relies on decisions such as Hickey v. Chicago Truck
    Drivers Union, 
    980 F.2d 465
    (7th Cir. 1992); Ruppert v. Alliant
    Energy Cash Balance Pension Plan, 
    726 F.3d 936
    (7th Cir. 2013);
    and Shaw v. Machinists & Aerospace Workers Pension Plan, 
    750 F.2d 1458
    (9th Cir. 1985). In these cases the language of the
    pension plan itself promised an increase in pension bene-
    fits—in one, a cost-of-living adjustment, in another a rate of
    interest added to the pension if the worker quit before re-
    tirement age, and in the third an adjustment in light of the
    salary earned by the current holder of the retiree’s old job.
    The decisions all hold that these adjustments are part of the
    “accrued benefit” because they are among the pension plans’
    terms. See also Central Laborers’ Pension Fund v. Heinz, 
    541 U.S. 739
    (2004) (plan cannot agach new conditions to bene-
    Nos. 17-1676 & 17-1677                                         5
    fits already accrued). But nothing in the Northern Trust
    plan’s Traditional formula guarantees that any worker’s sal-
    ary will increase in future years. Teufel and others like him
    have a hope that it will, maybe even an expectation that it will,
    but not an entitlement that it will—and for the purpose of
    identifying the “accrued benefit” that’s a vital difference.
    ERISA protects all entitlements that make up the “accrued
    benefit” but does not protect anyone’s hope that the future
    will improve on the past. See CinoNo v. Delta Air Lines Inc.,
    
    674 F.3d 1285
    , 1296–97 (11th Cir. 2012).
    One additional ERISA contention calls for brief mention.
    Teufel maintains that the plan’s administrator violated 29
    U.S.C. §1054(h)(2) because it did not furnish all participants
    with a writing that described the 2012 amendment “in a
    manner calculated to be understood by the average plan par-
    ticipant”. To the extent Teufel faults the description for fail-
    ing to tell participants that the amendment eliminated an ac-
    crued benefit, this contention fails for the reasons we have
    already given. To the extent that Teufel finds the language
    too complex—well, it seems clear to us, and it isn’t apparent
    how it could have been made much simpler (all of these
    pension formulas have complexities). True, what seems clear
    to a federal judge may not be clear to “the average plan par-
    ticipant”, but Northern Trust provided its staff with an
    online tool that showed each worker exactly what would
    happen to that worker’s pension, under a number of differ-
    ent assumptions about future wages and retirement dates,
    and under both the pre-2012 approach and the amended
    plan. A precise participant-specific summation is hard to
    beat for clarity and complies with §1054(h)(2). Teufel makes
    a few other arguments based on ERISA, but they do not re-
    quire discussion.
    6                                      Nos. 17-1676 & 17-1677
    Teufel’s argument under the ADEA fares no beger. He
    acknowledges that the plan as a whole, and the 2012
    amendment, is age-neutral, for pension eligibility is distinct
    from age. See Kentucky Retirement Systems v. EEOC, 
    554 U.S. 135
    (2008); Hazen Paper Co. v. Biggins, 
    507 U.S. 604
    (1993).
    Still, he maintains, the correlation between pension eligibil-
    ity and age—plus the fact that the high-five-average feature
    of the Traditional formula was most valuable to older work-
    ers approaching their highest-earning years—means that the
    2012 amendment produces a disparate impact that violates
    the ADEA. (Smith v. Jackson, 
    544 U.S. 228
    (2005), holds that a
    form of disparate-impact analysis applies under the ADEA.)
    The Traditional formula treats older workers beger than
    younger ones (the high-five-average feature is more valuable
    the older one gets); and from this it follows that the elimina-
    tion of the formula (or its reduction to a 1.5% annual in-
    crease) harms older workers relative to younger ones. So the
    argument goes.
    We are skeptical about the proposition that curtailing a
    benefit correlated with age, and so coming closer to eliminat-
    ing the role of age in pension calculations, can be understood
    as discrimination against the old. Kentucky Retirement Sys-
    tems holds that a pension benefit for older workers does not
    violate the ADEA, but not that any such benefit, once ex-
    tended, must be continued for life. At all events, the Su-
    preme Court has never held that the disparate impact of an
    age-neutral pension plan can violate the statute. To the con-
    trary, Kentucky Retirement Systems tells us that the relation
    between the ADEA and pension plans should be understood
    through the language of 29 U.S.C. §623(i), which directly ad-
    dresses the topic.
    Nos. 17-1676 & 17-1677                                       7
    Section 623 as a whole is the basic rule against age dis-
    crimination. Section 623(i)(2) provides that “[n]othing in this
    section” (that is, all of §623) prohibits an employer from “ob-
    serving any provision of an employee pension benefit plan
    to the extent that such provision imposes (without regard to
    age) a limitation on the amount of benefits that the plan pro-
    vides or a limitation on the number of years of service or
    years of participation which are taken into account for pur-
    poses of determining benefit accrual under the plan.” Just to
    avoid any doubt, §623(i)(4) adds: “Compliance with the re-
    quirements of this subsection with respect to an employee
    pension benefit plan shall constitute compliance with the re-
    quirements of this section relating to benefit accrual under
    such plan.” In other words, a pension plan that complies
    with §623(i) does not violate the ADEA.
    The Northern Trust pension plan, both before and after
    the 2012 amendment, complies with §623(i). Benefits depend
    on the number of years of credited service and the employ-
    ee’s salary, not on age. Because salary generally rises with
    age, and an extra year of credited service goes with an extra
    year of age, the plan’s criteria are correlated with age—but
    both Kentucky Retirement Systems and Hazen Paper hold that
    these pension criteria differ from age discrimination. An
    employer would fall outside the §623(i) safe harbor if, for ex-
    ample, the amount of pension credit per year were a func-
    tion of age rather than the years of credited service, or if
    pension accruals stopped or were reduced at a firm’s normal
    retirement age. See 29 U.S.C. §623(i)(1). Stopping pension
    accruals at age 65 used to be a common feature of defined-
    benefit plans. Under §623(i)(1)(A) that is no longer lawful.
    The Northern Trust plan, however, allows accruals past the
    normal retirement date, and accruals do not otherwise de-
    8                                     Nos. 17-1676 & 17-1677
    pend on age. Because the plan complies with §623(i), it satis-
    fies the ADEA.
    AFFIRMED