NONPRECEDENTIAL DISPOSITION
To be cited only in accordance with
Fed. R. App. P. 32.1
United States Court of Appeals
For the Seventh Circuit
Chicago, Illinois 60604
Argued May 5, 2011
Decided August 3, 2011
Before
DANIEL A. MANION, Circuit Judge
DIANE P. WOOD, Circuit Judge
ANN CLAIRE WILLIAMS, Circuit Judge
No. 10‐3287
Kenneth A Carter, et al.,
Appeal from the United States District
Plaintiffs‐Appellants, Court for the Northern District of Illinois,
Eastern Division
v.
No. 8 CV 7169
Pension Plan of A. Finkl & Sons Company
for Eligible Office Employees, et al., Rebecca R. Pallmeyer, Judge.
Defendants‐Appellees.
O R D E R
No. 10‐3287 Page 2
When a qualified pension plan decides to terminate, it must follow a careful and
exacting process that ends with the plan purchasing annuities for all its beneficiaries from a
third‐party private insurance company. The A. Finkl & Sons Pension Plan decided to
voluntarily terminate, but after going through some extensive initial steps, it realized that it
would be too expensive and formally withdrew from the process. At the heart of its decision
was an amendment to the plan that provided that if the plan terminated, the employees could
keep working at Finkl while still receiving the annuities that Finkl purchased for them. The
costs associated with this benefit were far more than Finkl anticipated.
After Finkl notified its employees and the government agency that it had decided not
to terminate the Plan, a group of Finkl employees sued. They claimed that the Plan had taken
away some of their protected rights, rights that are guaranteed under the Employment
Retirement Income Security Act of 1974, 29 U.S.C. § 1001, et seq. (the Act), and under the Plan’s
own provisions. Under the Act and Finkl’s own plan, some benefits are protected from
amendment—that is, certain benefits once given cannot be taken away or decreased. This is
commonly referred to as the anti‐cutback provision or anti‐cutback clause, depending on
whether it is contained in the Act or the plan’s own terms.
Plaintiffs argued that their ability to receive an annuity while still working at Finkl was
protected both by the Act and under the language of Finkl’s plan. The Plan protects
beneficiaries from amendments that decrease “accrued benefits.” Plaintiffs recognized that the
amendment gave them the right to receive an annuity while still working only if the plan
terminated. Thus, they claim that the plan had in fact terminated and their right to the annuity
while still working had accrued.
The district court found that plaintiffs’ ability to receive an annuity while still working
is not a protected right under either the Act or the Plan’s own terms. The Act only protects
certain benefits, and those relevant here are all tied to benefits available at retirement. The
district court also found that plaintiffs’ ability to receive an annuity while still working was
contingent on the Plan terminating. Despite plaintiffs’ argument to the contrary, the Plan never
terminated—it was in the process of terminating but quickly withdrew from the process
prescribed by the Act and the governing regulations when it discovered the unexpected
financial impact.
Plaintiffs now appeal and we affirm. The district court was correct that plaintiffs’ right
to an immediate annuity while still working at Finkl was not a right protected by the Act.
Further, the plaintiffs would only have an accrued and thus protected benefit under the Act if
the Plan terminated, and the Plan did not terminate. Instead, it withdrew from the process
No. 10‐3287 Page 3
before it was completed. Thus, plaintiffs do not have an accrued right that was protected from
amendment.
1. Background
Finkl is a large steel company based in Chicago. Among the benefits it offers employees
is a defined benefit pension plan that qualifies under the Employment Retirement Income
Security Act of 1974, 29 U.S.C. § 1001, et seq. At some point in 2006, Finkl decided to terminate
its Plan. The record isn’t completely clear why, but it seems that Finkl anticipated merging with
another company; apparently, the outstanding liability that attached to the Plan was a
stumbling block. So in hopes of moving forward with the merger, Finkl decided to terminate
the Plan. Although Finkl and its Plan are separate legal entities, for clarity’s sake we sometimes
refer to them as one.
1.1 Plan Termination Process
Under the Act, a plan may only terminate after an involved process. Depending on how
you count the steps, there are over thirteen with many, many regulations to follow. First, there
must be sufficient assets to cover the plan’s liabilities—the benefits promised to its beneficiaries,
namely the employees. Then, if the plan anticipates that it has enough assets, it must get
permission from the federal agency that oversees and insures pension plans: the Pension
Benefit Guaranty Corporation, which we refer to as the Agency. Once that happens, a detailed
timeline for terminating the plan is set by the Agency and the governing regulations. Under this
schedule, the plan proceeds through several steps involving various accountings, forms, and
approvals. Finally, the plan buys annuities from a third‐party insurance company to ensure that
the beneficiaries receive all the retirement benefits they have earned. This is referred to as the
distribution of assets.
After the distribution of assets occurs, the plan certifies to the Agency that it has
completed the process. The Agency reviews all the documents and either agrees or issues a
notice of non‐compliance. A notice of non‐compliance nullifies all the plan’s previous actions
and renders it on‐going, which means that under the law the plan has not terminated. Thus,
it is still operating and must comply with all of the Act’s provisions—this includes funding the
plan. If a plan fails to comply with the Act’s provisions, it can lose its qualified tax status,
opening itself and its beneficiaries up to severe tax consequences and penalties. 26 U.S.C.
§ 411(d)(6)(A); Id. § 402(b)(1) (employees pay taxes on the contributions as gross income), id.
§ 404(a)(5); Flight Attendants Against UAL Offset v. Comm’r of Internal Revenue,165 F.3d 572,
574–75 (7th Cir. 1999); e.g., John D. Colombo, Paying for Sins of the Master: An Analysis of the Tax
No. 10‐3287 Page 4
Effects of Pension Plan Disqualification and a Proposal for Reform, 34 Ariz. L. R. 53, 54–57 (1992).
Plans want to avoid losing their qualified tax status at all costs. In fact, some refer to the threat
of losing the qualified tax status as the “‘nuclear bomb’ method of enforcement.” Id. at 55.
1.2. The Finkl Plan Termination
Believing that the Plan’s assets could cover its liabilities, Finkl began the tedious process
for terminating the plan. After it received permission from the Agency to proceed with the
termination, the Agency set a target date for the Plan to finish the accountings and disburse its
assets. Finkl also notified employees about the decision to terminate the Plan. Soon thereafter,
the Plan adopted Amendment 1, which provided, in relevant part, that
[i]f a Participant has not begun to receive a benefit under the Plan at the time
benefits are to be distributed on account of termination of the Plan, he may elect
to receive his benefit ... under the Plan in the form of an immediate annuity or a
deferred annuity ... regardless of whether he remains employed by the Employer.
(emphasis added).
Much of this case centers on Amendment 1 and its effect.
After amending the formal, written pension plan and sending out notice, problems
began to arise. Citing the fact that it had taken “considerably longer than anticipated to
complete benefit election forms,” the Plan wrote to the Agency and asked for more time. The
Agency granted it an extension. And months later, the Plan again sought and was granted
another extension for completing the process.
Following this second extension—and fifteen months after it was first scheduled to
terminate—the Plan sent the beneficiaries a benefit‐election form. This form showed the
employees a dollar figure for the benefits they individually should anticipate receiving every
month; it also let the employees choose whether they wanted to receive an immediate annuity
or wait for retirement to start receiving benefits. A number of Finkl’s employees—several of
them the plaintiffs in this case—returned the forms with their own benefit calculations on them,
correcting what they believed were erroneous calculations on the Plan’s part. On the forms,
several of the employees also elected to receive immediate life annuities while remaining
employed with Finkl. This would enable them to take full advantage of the benefit that
Amendment 1 provided.
1.3 Finkl Withdraws from the Termination
No. 10‐3287 Page 5
Four days after receiving these forms, Finkl balked at finishing the termination process.
Apparently when the forms were returned, Finkl realized that it had underestimated the Plan’s
outstanding obligations. In the words of Finkl’s Human Resources Director, “[it] became
concerned that the additional contribution Finkl would be required to make could be more than
originally estimated.” After Finkl realized that terminating the Plan would be too expensive,
on May 28 it sent a letter to all the beneficiaries to notify them that the company was not going
to terminate the Plan. At the same time, the Plan sent a letter to the Agency letting it know that
the Plan would not continue with the termination process. Responding to the Plan’s letter, on
June 6 the Agency informed the Plan that as far as it was concerned the termination was
withdrawn and the Plan remained on‐going. It also directed the Plan to notify its beneficiaries
that “the Plan did not (or will not) terminate.” Soon after, the Plan amended the contract a
second time, nullifying Amendment 1 with Amendment 2, which provided that “[Amendment
1] is hereby deleted in its entirety.”
1.4 Plaintiffs’ Demands
Less than two weeks after this second amendment, the plaintiffs hired an attorney and
demanded that the Plan immediately comply with Amendment 1 and distribute the Plan’s
assets. Specifically, the plaintiffs claimed that Amendment 2 violated the Act’s anti‐cutback
provision. That provision prohibits pension plans from taking away beneficiaries’ protected
rights, lest the Plan lose its tax‐qualified status. The Plan’s attorney wrote back and told the
plaintiffs that they were not entitled to the benefits they sought. The attorney articulated the
same position that the Plan has taken throughout this litigation: the plaintiffs’ right to receive
the benefit offered under Amendment 1 was contingent on the Plan terminating, but since it
was only in the process of terminating when Finkl decided to withdraw from the process, the
Plan did not terminate. And since the Plan did not terminate, the plaintiffs did not have any
right to the benefits promised under Amendment 1. The Plan also continued to operate as
though it were an on‐going Plan complete with Finkl making periodic contributions.
Five months passed from the initial letter from Finkl’s attorney, when the plaintiffs sent
the Plan’s attorney a second letter demanding that the pension committee review the claim
forms that the plaintiffs had originally filed. On the original claim forms, the plaintiffs had
opted to receive the annuity while working and claimed that the Plan had calculated their
benefits incorrectly. In particular, the plaintiffs claimed that the Plan improperly excluded
certain bonuses Finkl paid them from their pension‐benefit calculation. Plaintiffs’ second claim
rests on how these bonuses are calculated. Like many companies, Finkl paid its employees
bonuses. Initially, these bonuses were not counted towards the employees’ pension benefits.
But in 1991, Finkl amended the contract and started to categorize its bonuses as either special
No. 10‐3287 Page 6
or regular. Under the contract’s terms, regular bonuses counted towards an employee’s benefit
calculation for retirement, while special bonuses did not. The plaintiffs claimed that they didn’t
know about this distinction and that both should have been counted towards their final benefit
calculation.
Ultimately, the Plan denied both claims. And when the plaintiffs appealed the denial
through the Plan’s review process, that appeal was also denied. In its decision, the pension
committee echoed the reasoning given months earlier by the Plan’s attorney: namely, the
plaintiffs’ right to an annuity while still working under Amendment 1 was contingent on the
Plan terminating, but since the Plan never terminated, the plaintiffs weren’t entitled to the
annuity. The pension committee also rejected the plaintiffs’ argument concerning the special
bonuses.
After this, the plaintiffs filed suit repeating the claims and arguments they had made
before the pension committee, while also claiming they were entitled to attorney’s fees. In a
very thorough order, the district court granted summary judgment in the Plan’s favor. The
court held that Amendment 2 did not violate the Act’s anti‐cutback provision, nor did it violate
the Plan’s own anti‐cutback clause. The court also held that the plaintiffs had no legitimate
claim to enhanced benefits by counting both regular and special bonuses in their pension‐
benefit calculation. And it held that the plaintiffs were not entitled to attorney’s fees. The
plaintiffs appeal, pressing the same arguments.
2.1 Anti‐Cutback Rule
The crux of this appeal is whether plaintiffs are entitled to the benefits promised them
under Amendment 1—that is, do they have the right to receive a life annuity while still
working at Finkl. Normally, beneficiaries do not receive their pension benefits before they
actually retire. As a general matter, if a plan disburses plan assets to a beneficiary before he
retirees, the plan will lose its protected tax‐status. 26 U.S.C. § 401(a); Rev. Rul. 56‐693, 1956‐2
CB 282 modified by Rev. Rul. 60‐323, 1960‐2 CB 148; IRS Notice 2007–8 (noting “a qualified
pension plan is generally not permitted to pay benefits before retirement”).While there are
certain exceptions to that general statement, they are narrow and inapplicable here.
Indeed, the general rule reflects the Act’s purpose: to ensure that employers keep the
promises they’ve made to retirees—“retirees” being the key term. Cent. Laborers’ Pension Fund
v. Heinz, 541 U.S. 739, 743 (2004). While plan administrators may freely and unilaterally amend
the plan to address challenges and changes that arise, the Act has a specific provision that
forbids plan administrators from amending plans in such a way that they decrease
No. 10‐3287 Page 7
beneficiaries’ protected benefits. 29 U.S.C. § 1054(g); Herman, 423 F.3d at 691 (“Plan
amendments are permitted . . . , but an amendment may not decrease benefits that have already
accrued.” (quotation omitted)). We commonly refer to this as the anti‐cutback provision. Under
it, changes that diminish certain benefits are prohibited—in other words, there are certain
promises the Plan must keep or lose its tax‐protected status. Heinz, 541 U.S. at 746–47; see also
Board of Trustees of Sheet Metal Workersʹ Natl. Pension Fund v. C.I.R., 318 F.3d 599, 602 (4th Cir.
2003) (“Under ERISA and the Tax Code, a qualified pension plan is exempt from taxation, and
to remain qualified for tax‐exempt status, a plan may not violate the anti‐cutback rule which
prohibits a planʹs elimination or reduction of an accrued benefit.”). Additionally, a plan can
have its own anti‐cutback clause that protects benefits beyond those listed in the statute. See Call
v. Ameritech Mgmt. Pension Plan, 475 F.3d 816, 820 (7th Cir. 2007) (outlining one such case). And
the Plan is obligated to abide by its own contract.
Here, the plaintiffs argue that they are entitled to relief under both the Act’s anti‐cutback
prohibition and the pension plan’s anti‐cutback clause. So, there are two questions: first,
whether Amendment 2 violated the Act’s anti‐cutback provision; second, whether Amendment
2 violated the contract’s own anti‐cutback clause. Concerning the first question, we don’t offer
the plan administrator’s decision any deference—it is a legal question. Diaz v. Prudential Ins.
Co. of Am., 499 F.3d 640, 643 (7th Cir. 2007). Concerning the second question, because the Plan
gave the plan administrator discretion when interpreting the contract, we review its decision
under the arbitrary‐and‐capricious standard. Jenkins, 564 F.3d at 861. Under that standard, we
look to ensure that the administrator’s decision “has rational support in the record.” Davis v.
Unum Life Ins. Co. of Am., 444 F.3d 569, 576 (7th Cir. 2006) (quotation omitted).
2.2 Protected Rights under the Act
For the plaintiffs to make a claim under the Act, they have to establish that Amendment
2, which simply deleted Amendment 1 in its entirety, diminished a benefit protected by the
anti‐cutback provision. 29 U.S.C. § 1054(g). That provision protects retirement subsidies, early‐
retirement benefits, and “accrued benefits,” which are defined as any “annual benefit
commencing at normal retirement age.” Id. § 1002(23); 26 U.S.C. 411(d)(6). But Amendment 1
gave the plaintiffs the right to an immediate annuity while still working. It was not tied in any
manner to the plaintiffs’ actual retirement—and retirement is a necessary condition for a benefit
to be considered an accrued benefit or an early‐retirement benefit. Thus, Amendment 1 is not
a protected benefit under any of those sections.
No. 10‐3287 Page 8
The anti‐cutback provision also keeps plans from reducing an “optional form of benefit”
offered in the pension plan. 29 U.S.C. § 1054(g)(1)(2)(B). The Act doesn’t define the phrase
“optional form of benefit,” but the Treasury regulations define it as:
a distribution alternative (including the normal form of benefit) that is available under
the plan with respect to an accrued benefit or a distribution alternative with respect to
a retirement‐type benefit.
26 C.F.R. § 1.411(d)–3(g)(6)(ii). Although that isn’t a particularly clear definition, parsing the
language gives some clarity to the regulation’s meaning. The “distribution alternative” the
regulation refers to means a beneficiary’s right to choose how his pension payments will be
made. See Call,475 F.3d at 821. So, for example, a beneficiary can opt for a lump‐sum payment
instead of a fixed annuity when he retires. Wetzler v. Illinois CPA Soc. & Foundation Ret. Income
Plan, 586 F.3d 1053, 1059 (7th Cir. 2009); 26 C.F.R. § 1.411(d)–4(b)(2) (providing other
examples). Regardless of the form that the distribution alternative takes, an “optional form of
benefit” is always tied to “an accrued benefit” or “a retirement‐type benefit.” 26 C.F.R. §
1.411(d)–3(g)(6)(ii). That is, with immaterial exceptions, the lump‐sum payment has to be
connected with the employee actually retiring. 29 U.S.C. 1002(23).
But here, the plaintiffs aren’t retiring or taking a retirement‐type benefit. They want to
receive the annuity and keep on working for Finkl. Yet nothing in the Act, regulations, or case
law suggests that an annuity to non‐retired workers would qualify as an “optional form of
benefit” under the Act. Cf. Arndt v. Security Bank S.S.B. Employees’ Pension Plan, 182 F.3d 538,
549–42 (7th Cir. 1999) (holding that disability benefits are not retirement‐type benefits); Ross v.
Pension Plan for Hourly Employees of SKF Industries, Inc., 847 F.2d 329, 333 (6th Cir. 1988) (holding
that a plant‐shutdown benefit is not an “optional form of benefit”). Indeed, a distribution of
that form could cause the Plan to violate § 401(a) and lose its tax‐qualified status. IRS Notice
2007–8 (providing “a qualified pension plan is generally not permitted to pay benefits before
retirement”). Thus, the benefit offered under Amendment 1 is not the type of promise that the
Act’s anti‐cutback provision protects from revision.
2.3 The Plan’s Anti‐Cutback Clause
That doesn’t mean the Plan’s own anti‐cutback clause cannot give broader protection
than the Act and keep the beneficiaries from having Amendment 1 taken away from them. See
Call, 475 F.3d at 821 (holding that the pension plan’s anti‐cutback language offered more
protection than the Act’s). Broadly written, the contract—Article 11.1(a) of the Plan, to be
precise—protects against amendments that diminish benefits that have already accrued:
No. 10‐3287 Page 9
No pension benefit already accrued at the time of such revocation, termination,
amendment, alteration, modification, or suspension shall be discounted or reduced
thereby. (emphasis added).
When the Plan denied the plaintiffs’ claim, it viewed Amendment 1 as providing a protected
benefit to the plaintiffs only if the Plan terminated. Absent its termination, the beneficiaries did
not have a “pension benefit already accrued” and thus a protected right to the immediate
annuity while still working at Finkl. The plaintiffs argue first that this is an unreasonable
reading of the Plan. And second, the plaintiffs argue that even if they only had an accrued right
after the plan terminated, the Plan did, in fact, terminate. So, under the Plan’s logic, their rights
under Amendment 1 have vested.
2.3.1 Plan’s Interpretation Was Reasonable
The plaintiffs’ first argument—that the plan administrator’s interpretation was arbitrary
and capricious—rests on Amendment 1’s text. Amendment 1 provides that the beneficiary’s
right to elect this annuity while working comes “at the time benefits are to be distributed on
account of termination of the Plan.” We read these contracts “sensibly.” Call,475 F.3d at 821.
And a reasonable reading of Amendment 1 is that beneficiaries can elect to receive the benefit
once the Plan terminates; until then, the beneficiaries don’t have that right. Put differently, if
the Plan’s assets are not distributed, which does not happen unless the Plan terminates, then
a beneficiary cannot choose to take the annuity and keep on working. Based on Amendment
1’s text, the Plan’s reading is reasonable.
2.3.2. The Plan Did Not Terminate
In their briefs, the plaintiffs anticipated that we might read Amendment 1 this way, so
they argue that if the Plan must terminate before they can receive the annuity while still
working, then the Plan has, in fact, terminated. As we noted above, a plan’s termination is not
a trifling affair. This is a highly regulated area of the law, and there is a prescribed and
comprehensive process that pension plans must follow when they terminate, complete with
forms, notifications, steps, approvals, deadlines, and finally, the distribution of assets. E.g.,
Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 446 (1999). And the Act does not provide any
method for voluntarily terminating a plan, except what is found in § 1341. To be sure, the Plan
went through the initial steps—over a period of many months, it received permission from the
No. 10‐3287 Page 10
Agency and gave employees notice. But the process goes beyond giving notice. In fact, the Plan
did not come close to finishing the process the Act prescribes: the Plan never distributed its
assets. 29 U.S.C. § 1341(b)(1)(D); 29 C.F.R. § 4041.21(a)(4) (to have a valid termination, a plan
must distribute “the plan’s assets”).
Beyond that dispositive fact, everything else that attaches to a termination establishes
that the Plan did not terminate. Indeed, Finkl was still making contributions to the Plan. Even
more, the Agency and the IRS still consider the Plan an on‐going plan in full compliance with
the Act. And if the Plan had gone through with some unauthorized, non‐standard termination,
those entities would not consider it in conformity with the Act. Had the Plan done that or if it
had proceeded to give the plaintiffs the benefits they sought without having first terminated,
the Plan would not conform with the Act. Again, plaintiffs aren’t seeking an early retirement
benefit—they don’t want to retire, they want to keep on working. This would not comply with
the Act and would lead to immediate and severe tax consequences for the Plan and for the
beneficiaries. Besides the immediate penalties that would be levied against the Plan, its
beneficiaries would be taxed on all the Plan’s contributions, even though they wouldn’t have
access to these benefits. Against this backdrop, nothing suggests that the Plan terminated, while
everything points to the fact that the Plan has never terminated and remains on‐going. Thus,
the Plan’s decision that it never terminated and therefore the plaintiffs never accrued the right
to receive an annuity while remaining employed with Finkl is reasonable and fully supported
by the record.
3. Benefit Calculation
While that resolves much of the plaintiffs’ first claim, their second claim is a bit different.
They allege that Finkl incorrectly calculated some of the plaintiffs’ pension benefits. As noted
above, Finkl awarded some of its employees bonuses, broken into two categories: regular and
special. Originally the bonuses were not part of the employees’ benefit calculations under the
Plan. But Finkl amended the pension plan in 1991 to reflect that regular bonuses were figured
into the beneficiary’s benefit calculation, but special bonuses were not.
Finkl has consistently followed this practice for twenty years. In support of its motion
for summary judgment, it produced substantial evidence, including the Plan documents, an
affidavit, and its accounting records that detail how these bonuses were calculated. In
opposition, the plaintiffs refute these facts with a simple “not so” and an affidavit from one of
the plaintiffs that he was unaware of the practice of counting regular bonuses but not special
bonuses. But being unaware of a practice does not mean it is not a legitimate, accepted practice
or that Finkl has not been abiding by it for twenty years. And plaintiffs’ claimed ignorance of
No. 10‐3287 Page 11
how these bonuses were distinguished and calculated is not enough to avoid summary
judgment for the Plan. Koszola v. Board of Educ. of City of Chicago, 385 F.3d 1104, 1111 (7th Cir.
2004) (noting “summary judgment is the ‘put up or shut up’ moment in a lawsuit, when a party
must show what evidence it has that would convince a trier of fact to accept its version of
events.” (quotation omitted)). The plaintiffs have not produced any evidence that establishes
a genuine issue of material fact for trial. Thus, the district court did not err in granting
summary judgment in favor of Finkl.
4. Attorney’s Fees
The fact that plaintiffs cannot prevail on either of their substantive claims also resolves
their claim for attorney’s fees. A prerequisite to a party having a claim to an award of attorney’s
fees under the Act is that the petitioner has “achieved ‘some success on the merits.’” Hardt v.
Reliance Standard Life Ins. Co., 130 S.Ct. 2149, 2159 (2010). The plaintiffs have not; thus the
district court did not abuse its discretion by denying their claim.
5. Conclusion
The plaintiffs’ right to an annuity while working for Finkl is not a right protected by the
Act. And Finkl’s plan administrator gave a reasoned explanation for finding that the plaintiffs’
right to such a benefit was not protected by the pension plan’s anti‐cutback clause. Thus, there
was no error in granting summary judgment for the Plan. Further, the plaintiffs have failed to
establish that the Plan’s benefit calculation was arbitrary and capricious, and the district court
did not err in denying the plaintiffs’ claim for attorney’s fees. Accordingly, the judgment of the
district court is affirmed.