In the
United States Court of Appeals
For the Seventh Circuit
No. 10-1558
JOHN S ULLIVAN, et al., individually
and as representatives of a class,
Plaintiffs-Appellants,
v.
CUNA M UTUAL INSURANCE S OCIETY and
CUNA M UTUAL G ROUP M EDICAL C ARE
P LAN FOR R ETIREES,
Defendants-Appellees.
Appeal from the United States District Court
for the Western District of Wisconsin.
No. 09-cv-455-vis—Barbara B. Crabb, Judge.
A RGUED O CTOBER 21, 2010—D ECIDED A UGUST 10, 2011
Before E ASTERBROOK, Chief Judge, and M ANION and
H AMILTON, Circuit Judges.
E ASTERBROOK, Chief Judge. CUNA Mutual Insurance
Society maintains a health-care plan for the benefit of its
retirees. Beginning in 1982 it gave retirees credit toward
their share of the cost, if they had unused sick-leave
2 No. 10-1558
balances. CUNA Mutual calculated how much each per-
son’s unused sick-leave days would be worth at that
person’s daily wage. Workers covered by a collective-
bargaining agreement could choose between taking
that sum in cash or putting it toward the retiree’s pre-
mium. Management employees did not have that option.
Executives who quit before retirement age, or who
decided not to participate in the health plan, did not
receive payment or any other form of compensation
for unused sick leave. It had value only as a credit
toward health-care costs during retirement.
Here is a simple example. An executive retires with
unused sick leave valued at $50,000. CUNA Mutual
contributes half of the $10,000 annual cost of health care;
the employee is responsible for the rest. For 10 years, the
employee’s portion is met by drawing down the sick-
leave balance at a rate of $5,000 a year. Effectively
CUNA Mutual covers 100% of the medical-care costs for
a decade. Beginning in year 11, the retiree must pay $5,000
a year as his share of the health-care plan, and CUNA
Mutual contributes the other $5,000.
Things changed at the end of 2008. CUNA Mutual
amended the Plan and stopped paying any part of
retirees’ health-care costs. This meant not only the end
of CUNA Mutual’s explicit payment, but also the end of
retirees’ ability to use their sick-leave balances to cover
their portion, with one exception: Employees who could
have taken their sick-leave balances in cash are treated
as having done so and then invested that money in an
account to be administered by the health-care plan. Thus
No. 10-1558 3
retirees who formerly worked under a collective-bar-
gaining agreement continue to have the benefit of their
sick-leave balances. But after the 2008 change these bal-
ances are used to pay 100% of the cost (until each
account is exhausted), rather than 50% or whatever other
sharing ratio was in place when the person retired.
A class of retirees filed this suit under the Employee
Retirement and Income Security Act. The class repre-
sentatives are four retired executives who never had
an option to take their sick-leave balances in cash, plus
one retiree who had that option but elected to leave
the money on deposit. The district court granted judg-
ment on the pleadings to CUNA Mutual and its Plan.
683 F. Supp. 2d 918 (W.D. Wis. 2010).
Health care is a welfare-benefit plan under ERISA. The
statute recognizes two principal differences between
pension plans and welfare-benefit plans. First, although
pension plans must be funded, with assets held in
trust, welfare-benefit plans need not be funded. See 29
U.S.C. §1081(1) (exempting welfare-benefit plans from
the funding requirements in §1083). CUNA Mutual
operates its Plan on a pay-as-you-go basis; general corpo-
rate revenues support all health-care benefits. Second,
although pension benefits vest, welfare benefits do
not. Employers are free to reduce or abolish benefits
under welfare plans. See 29 U.S.C. §1051(1) (exempting
welfare-benefit plans from the vesting rules in
§§ 1052–61). Employers nonetheless may create vested
welfare benefits by contract. See, e.g., Bidlack v.
Wheelabrator Corp., 993 F.2d 603 (7th Cir. 1993) (en banc);
4 No. 10-1558
Vallone v. CNA Financial Corp., 375 F.3d 623, 632 (7th
Cir. 2004). CUNA Mutual’s health-care plan does not
promise vested benefits, and each version has contained
a clause reserving its right to modify or eliminate the
benefit. For example, the 1995 version of the Plan
provides: “The Employer expects the Plan to be perma-
nent, but since future conditions affecting the employer
cannot be anticipated or foreseen, the Employer must
necessarily and does hereby reserve the rights to amend,
modify or terminate the Plan . . . at any time by action of
its Board.” Language of this kind permits amendments.
See Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73 (1995).
One more legal proposition sets the stage for this
appeal. The fiduciary duties created by ERISA are limited
to the administration of a plan. When deciding what
benefits to include in a plan, an employer is free to
prefer its own interest (and that of its investors) over
the interests of employees and retirees. See Hughes
Aircraft Co. v. Jacobson, 525 U.S. 432 (1999); Lockheed Corp.
v. Spink, 517 U.S. 882 (1996). CUNA Mutual therefore
was entitled to cut back on health benefits even though
this dashed retirees’ expectations. But it still had to
comply with any specific requirements in ERISA and
the Plan’s organic documents.
The retirees’ principal argument is that CUNA
Mutual violated 29 U.S.C. §1106(a)(1)(D) by diverting
plan assets to itself. This subsection prohibits any
“transfer to, or use by or for the benefit of a party in
interest, of any assets of the plan”. An employer is a
statutory “party in interest”. 29 U.S.C. §1002(14)(C).
No. 10-1558 5
According to the retirees, sick-leave balances are assets
of the Plan, assets that CUNA Mutual appropriated. They
observe that, when CUNA Mutual amended the Plan,
its balance sheet reflected a gain of more than $120
million. This must be the value of the seized assets, the
retirees believe.
Plaintiffs misunderstand the nature of the sick-leave
balances and the reasons why CUNA Mutual revised
its accounting treatment. The sick-leave accounts of
former managers don’t contain money and never did.
They were not assets of the Plan, which always has
been financed by cash from both retirees and CUNA
Mutual. Far from being assets, these balances were lia-
bilities: they represented amounts that CUNA Mutual
had agreed to contribute to the Plan in lieu of cash
from retirees. Any given retiree might have deemed the
balance a personal asset, in the sense that it represented
CUNA Mutual’s promise not to ask the retiree to pay
for health care until the balance had been exhausted.
But §1106(a)(1)(D) deals with assets of the Plan, not
with employers’ unfunded promises.
Because CUNA Mutual had pledged to pay part of all
retirees’ health costs (and all of each employee’s costs,
until the sick-leave balance reached zero), it had to carry
this obligation as a liability on its books. Accounting
conventions require employers to capitalize the value
of future contributions. This is where the $120 million
figure came from: CUNA Mutual estimated the amount
it would need to pay each year (an amount that
included the sick-leave balances, which represented
6 No. 10-1558
payments that CUNA Mutual made before calling on
retirees to chip in their own money) and then
discounted this stream of payments to present value. The
total was a little more than $120 million, reflected as a
liability on the firm’s balance sheet. When CUNA Mutual
amended the Plan in 2008 so that it no longer paid
for retirees’ health care, it removed this debit. The
result was a one-time gain. Yet no assets changed hands;
CUNA Mutual did not take anything out of the Plan.
It simply reduced the amount it would pay in. Section
1106(a)(1)(D) has not been violated.
As the retirees see things, if the sick-leave balances
were not “assets of the plan”, then they must be outside
of ERISA and governed by state law. See Massachusetts
v. Morash, 490 U.S. 107 (1989); see also 29 C.F.R.
§2510.3–1(b)(2) (defining those fringe benefits that are
not treated as ERISA plans). As the district court
observed, however, this part of the retirees’ argument
has the same flaw as the reliance on §1106(a)(1)(D). It
conceives of the sick-leave balances as an asset that
the employer has appropriated. In Morash the Court
held that an employer’s vacation leave system, which
provided that unused time would be compensated as
days worked, was not a welfare-benefit plan under
29 U.S.C. §1002(3). This meant that ERISA did not
preempt state law, which required employers to keep
their promises about employees’ compensation. CUNA
Mutual, by contrast, never promised managerial workers
that it would pay them for unused sick days. The
question in this litigation is not what value unused sick
leave had outside an ERISA plan but what value it has
No. 10-1558 7
within this Plan—which is a welfare-benefit plan under
§1002(3). State law does not affect whether an ERISA
plan must allow retirees to treat unused sick leave as
a substitute for money.
This leaves the retirees’ argument that the Plan itself
created vested rights. The problem with this argument
is that every version of the Plan reserved the right to
change required contributions or even eliminate health-
care benefits. CUNA Mutual never told its workers
that rights were “vested” or would continue for their
“lifetime.” Not that “lifetime” is a magic word; as we
observed in Vallone, “ ‘lifetime’ may be construed as ‘good
for life unless revoked or modified.’ ” 375 F.3d at 633.
What such a word means depends on context—including
the context provided by language expressly reserving
the right to change or eliminate benefits, language that
CUNA Mutual’s Plan shares with the plan at issue in
Vallone.
Instead of contending that they had been assured
that health benefits were vested (or any equivalent), the
retirees try to flip the burden. They observe that many
documents handed out by CUNA Mutual—including the
forms that they signed when enrolling in the Plan—did not
contain a reservation of rights to change the Plan. That
omission could matter if an employer must show, not
only that the right to amend had been reserved, but
also that this reservation was known to all workers. That
is not, however, an employer’s burden. To establish
that rights have vested as a matter of contract, the plan
participant must demonstrate that the employer tied
8 No. 10-1558
its own hands. The absence from any given communica-
tion of language reserving a right to amend a plan is
some distance from the presence of language negating
that entitlement. Silence is just that—silence. Participants
need more than silence to establish vested rights to
lifetime benefits. So we held in Bidlack, Vallone, and many
other decisions, including Cherry v. Auburn Gear, Inc., 441
F.3d 476 (7th Cir. 2006), and United Auto Workers v.
Rockford Powertrain, Inc., 350 F.3d 698 (7th Cir. 2003).
CIGNA Corp. v. Amara, 131 S. Ct. 1866 (2011), holds that
silence in a summary plan description about some
feature of a pension plan does not override language
in the plan itself. The Justices observed that it is essential
to a “summary” plan description that things be left out;
a summary plan description covering every feature of
a plan would not be a “summary.” Moreover, the Court
held, even if a summary plan description contradicts the
full plan, the terms of the full plan continue to govern
participants’ entitlements. ERISA directs judges to
enforce the terms of a plan; it does not authorize judges
to change those terms. 29 U.S.C. §1132(a)(1). See 131 S. Ct.
at 1876–80. A participant who draws an unfounded
inference from an omission from a summary plan descrip-
tion is not entitled to a remedy. And if this is true
about gaps in a summary plan description—a document
that ERISA itself requires plan sponsors to give to all
participants, see 29 U.S.C. §1022(a)—then silence in
an election form cannot override the terms of a plan.
Just as it would be a mistake for an employer to lard a
summary plan description with the complexities of a full
No. 10-1558 9
plan, it would be a blunder to add pages of caveats and
reservations to an election form, which is supposed to
be simple. People who want more details can look to
other documents. It takes time to read and understand
extra information, and the addition of hard-to-digest
notices can lead to errors by masking the nature of the
choice that a participant needs to make. Employers that
want to help their workers make intelligent retirement
decisions should pare down forms so that they focus
on what matters most. See Omri Ben-Shahar & Carl E.
Schneider, The Failure of Mandated Disclosure, 159 U. Pa. L.
Rev. 647 (2011). See also Todd v. Société BIC, S.A., 9 F.3d
1216, 1218–19 (7th Cir. 1993) (en banc); Robinson v.
McNeil Consumer Healthcare, 615 F.3d 861, 869–70 (7th
Cir. 2010). Cf. Jerry Avorn & William Shrank, Highlights
and a Hidden Hazard—The FDA’s New Labeling Regulations,
354 N.E. J. Medicine 2409 (2006). Our retirees do not say
that they were misled by the election forms; they would
have opted into the Plan no matter what the forms said.
(To repeat for the last time: There was nothing else the
executives could have done with the unused sick-leave
balances, and the union workers, who had a choice to
cash out, are receiving full credit for those balances, just
as if they were funds on deposit.)
The retirees had an expectation, to be sure: Many
a day they may have struggled in to work, despite ail-
ments that could have justified taking time off, in order
to preserve their sick-leave balances and thus earn
credit toward medical care in retirement. But although
expectation interests may lead employers to refrain from
reducing retirees’ benefits—employees would be more
10 No. 10-1558
likely to call in sick, or demand higher wages or vested
pension benefits, if arrangements such as CUNA
Mutual’s pre-2008 policy prove to be unstable—equitable
considerations do not reduce employers’ legal entitle-
ment to change welfare-benefit plans. Hughes Aircraft and
Lockheed hold that employers are entitled to disregard
employees’ interests when amending ERISA plans. If
silence in election forms and summary plan descriptions
cannot override the express terms of the formal plan,
silence in the long years before retirement (the decades
when employees had to decide 200 days a year whether
to work or call in sick) cannot override a plan’s express
terms.
Reliance interests are universal. The terms of the
pension or welfare plan in force when a given worker is
30, 40, or 50 affect how much that worker saves privately
and how long the person continues to work. Yet those
interests do not prevent employers from changing
their plans once the worker reaches 60, 70, or 80. ERISA
forbids any reduction in vested pension benefits but
gives employers discretion over other benefits. If reliance
interests block a reduction in welfare benefits, then
the distinction between pension and welfare plans would
be abolished, and Hughes Aircraft and Lockheed would
be effectively reversed.
CUNA Mutual reserved the right to amend its health-
care plan. It is a business decision, not a legal question,
whether to use that authority to retirees’ detriment.
A FFIRMED
No. 10-1558 11
H AMILTON, Circuit Judge, dissenting in part. I respect-
fully dissent from the portion of the decision affirming
dismissal of plaintiffs’ claims based on the cancellation
of their unused sick leave accounts. Relying on CUNA
Mutual’s reservation of the right to amend or terminate
its benefit plan, my colleagues have come to a decision
in this case that is not inconsistent with precedent. The
decision, however, is not compelled by precedent. We
can and should reconcile conflicting plan provisions
without giving absolute trumps to the employer’s reserva-
tion of a right to amend or terminate the plan. Nothing
in the statute itself or in the Supreme Court’s interpreta-
tions of it prevents us from interpreting ERISA in a
way that stays closer to its purposes and protects the
legitimate reliance interests of the employee-plaintiffs
in this case.
The relevant facts alleged here are not complex. As part
of an overall compensation package offered to persuade
employees to continue to work, and to work hard, CUNA
Mutual promised in 1982 that retiring employees could
take the value of unused sick leave over the course of
their careers and use that value to pay the employees’
shares of retiree health benefits. This was a valuable
promise, or at least it appeared to be a valuable promise.
CUNA Mutual kept track of unused sick leave. By late
2008, the company’s promised contributions to retirees’
health insurance costs based on individual sick-leave
credits for non-union employees and accrued promises
to subsidize retirees’ health care added up to more than
$121 million.
12 No. 10-1558
But 2008 was a tough year for many insurance
companies like CUNA Mutual. CUNA Mutual looked
for ways to improve its balance sheet. One bright idea
was simply to cancel the promise, to wipe away the
$121 million liability, and thus to add $121 million
to the bottom-line equity of the company, all with just
an easy stroke of a pen. The idea was too attractive
to pass up. CUNA Mutual’s board decided to renege on
the $121 million promise and the company pocketed the
take. As Woody Guthrie sang: “Some will rob you with
a six-gun/And some with a fountain pen.” 1
Apart from judicial interpretations of ERISA — a law
enacted to protect employee benefits — this would pre-
sent a straightforward claim for promissory estoppel
or breach of a unilateral contract. CUNA Mutual made
a promise to its employees. That promise was intended
to induce those employees to rely upon it. Many in
fact reasonably relied upon that promise, some for
more than a quarter-century. The reliance is easy to
understand for anyone who has ever woken up feeling
a little under the weather but wanted to save sick leave
for times when it would really be needed. When the
promise was broken, those employees were harmed. A
state court could craft a suitable remedy for those
injured employees. Schlosser v. Allis-Chalmers Corp., 271
N.W.2d 879, 889 (Wis. 1978) (pre-ERISA case affirming
summary judgment for plaintiff class after employer
1
“Pretty Boy Floyd,” as reprinted in Woody Guthrie, American
Folksong, New York (1961).
No. 10-1558 13
unilaterally modified retiree life insurance benefits to
detriment of retirees; employer’s reserved power to
amend plan could not be exercised to deprive retirees
of rights after they had fully performed their services);
see also Cantor v. Berkshire Life Ins. Co., 171 N.E.2d 518,
522 (Ohio 1960) (finding that employee’s rights in pre-
ERISA retirement plan became vested once the em-
ployee had complied with conditions entitling him to
participate in plan even where employer had reserved
right to amend or terminate the plan); Restatement (Sec-
ond) of Contracts § 90 (“A promise which the promisor
should reasonably expect to induce action or forbearance
on the part of the promissee or a third person and
which does induce such action or forbearance is binding
if injustice can be avoided only by enforcement of the
promise.”).
I agree with my colleagues, however, that ERISA
requires us to treat any state law claim as preempted. The
unused sick leave of the non-union employees here was
not treated as a regular payroll practice that could be
exempt from ERISA under Massachusetts v. Morash, 490
U.S. 107 (1989), but was instead used to pay for retiree
health insurance, an employee welfare benefit plan
under ERISA. The unused sick leave could benefit em-
ployees only if they stayed at CUNA Mutual until retire-
ment, and the unused sick leave was never available to
the non-union employees in the form of cash.
In light of ERISA preemption, the controlling issue
here is whether ERISA defeats such a theory of promissory
estoppel under federal law. It is worth recalling here
14 No. 10-1558
that ERISA was enacted to protect employees from em-
ployers who mismanaged or even looted funds set aside
to provide employee benefits — both pension plans and
welfare plans. See, e.g., Shaw v. Delta Air Lines, Inc., 463
U.S. 85, 90 (1983). Promissory estoppel is part of the
common law we apply in interpreting ERISA. E.g., Miller
v. Taylor Insulation Co., 39 F.3d 755, 758-59 (7th Cir. 1994).
Yet in this case, the company is using ERISA as a shield
to deny these employees any remedy for the broken
$121 million promise.
At least with respect to dismissal of claims based on
cancellation of the unused sick leave credits, this result
is not mandated by the language of ERISA or by the
decisions of the Supreme Court interpreting the law,
nor, in my view, by circuit precedent. To the extent this
result might be deemed mandated by prior decisions
of this court giving trumps to reservation-of-rights
clauses in welfare benefit plans, we should be willing
to reconsider those decisions.
In similar cases in which employers have reneged on
promised welfare benefits that employees have relied
upon, the opinions of this court and of district courts
applying our decisions often express sympathy for
the poor, benighted employees who simply were not
sophisticated enough to understand how their em-
ployers could take away the promised welfare benefits.
For example, when employees accepted an early retire-
ment package that promised “lifetime” health insur-
ance, we affirmed summary judgment for the em-
ployer that cancelled the “lifetime” benefits, but wrote:
No. 10-1558 15
“As laypersons, the plaintiffs’ confusion on this issue
is understandable; it is also very unfortunate, if it was
a basis for their accepting the [early retirement] package.
But in the perhaps beady eyes of the law, the ‘lifetime’
nature of a welfare benefit does not operate to vest that
benefit if the employer reserved the right to amend or
terminate the benefit. . . .” Vallone v. CNA Financial Corp.,
375 F.3d 623, 634 (7th Cir. 2004). In Cherry v. Auburn
Gear, Inc., 441 F.3d 476 (7th Cir. 2006), we affirmed sum-
mary judgment for an employer who terminated “life-
time” health insurance benefits. We blamed the
union for the plaintiffs’ failure to understand why the
promise was deemed worthless: “The distinction
between lifetime benefits and vested benefits is ‘a legal
distinction that understandably escaped’ many of the
retirees. ‘It is difficult to imagine that someone
without legal training would be able to fully compre-
hend a reservation of rights clause and how a court
would interpret such a clause.’ ” Id. at 486 (citations
omitted). We see similar regret from the district court in
this case against CUNA Mutual: “It is understandable
that plan participants might have been confused about
the duration of welfare benefits. What seemed to them
to be lifetime benefits turned out to be something else
altogether, because of the reservation of rights clause
in the plan. No doubt plaintiffs feel cheated by the loss
of the benefits they anticipated. However, neither the
understandable nor unfortunate nature of the circum-
stances changes the result of this case.” Sullivan v. Cuna
Mutual Ins. Society, 683 F. Supp. 2d 918, 935 (W.D. Wis.
2010). Many other cases could be cited with similar ex-
pressions of sympathy and regret.
16 No. 10-1558
When federal judges repeatedly confront and ex-
press regret about these “understandable” problems
when employers renege on their promises with impunity,
after the employees have performed their parts of the
bargain and are relying on the employers to perform
their parts, I respectfully suggest that we should recon-
sider the course we are navigating. We should ask
whether higher authority requires us to follow it.
The majority correctly points out that ERISA does not
require that welfare benefit plans provide vested
benefits, see 29 U.S.C. § 1051(1), but that employers may
create vested welfare benefits by contract. See supra at 3-4,
citing Bidlack v. Wheelabrator Corp., 993 F.2d 603, 605
(7th Cir. 1993) (en banc), and Vallone, 375 F.3d at 632. Did
the documents here provide for vested benefits? The
majority says no, relying on the reservation-of-rights
clauses. As an example, the 1995 version of the plan
provides: “The Employer expects the Plan to be
permanent, but since future conditions affecting the
employer cannot be anticipated or foreseen, the Employer
must necessarily and does hereby reserve the right to
amend, modify or terminate the plan . . . at any time by
action of its Board.”
It is common to say that such reservation-of-rights
clauses absolutely trump explicit promises that seem to
conflict with them, as in Vallone. There we held that a
reservation-of-rights clause trumped the promise of
“lifetime” health benefits in an early-retirement package
(where reliance would be very strong). 375 F.3d at 634.
Accord, e.g., UAW v. Rockford Powertrain, Inc., 350 F.3d
No. 10-1558 17
698, 703 (7th Cir. 2003) (explaining that “although the
plan in its current iteration entitles retirees to health
coverage for the duration of their lives and the lives of
their eligible surviving spouses, the terms of the
plan—including the plan’s continued existence—are
subject to change at the will of [the employer]” where
there is a reservation of rights clause), cited in Vallone,
375 F.3d at 633; In re Unisys Corp. Retiree Medical Benefit
ERISA Litig., 58 F.3d 896, 904 (3d Cir. 1995). Under that
approach, the reservation-of-rights clause renders all
promises of future benefits essentially illusory, as if
they were written with disappearing ink. It’s just the
tough luck of the employees who do not understand
the meaning of the reservation-of-rights clauses.
There is a better approach available here, based on both
the plan documents and the nature of the promised
benefits. Vesting need not be an all-or-nothing proposition,
but may allow a district court to craft an appropriate
equitable remedy under a theory of promissory estoppel
based on detrimental reliance. We should start by recog-
nizing that the relevant documents must be read
together and construed as a whole. Bland v. Fiatallis North
America, Inc., 401 F.3d 779, 783 (7th Cir. 2005). Vesting
requires “clear and express” language, but it need not
use the word “vest” or a variant of it. Id. at 784. Perhaps
most important, plan language should be read “ ‘in an
ordinary and popular sense,’ construed as if by a ‘person
of average intelligence and experience.’ ” Id., quoting
Grun v. Pneumo Abex Corp., 163 F.3d 411, 420 (7th Cir.
1998). That’s a lesson we should keep in mind when
we keep expressing regret for the poor employees who
18 No. 10-1558
did not understand that the company was retaining an
absolute right to renege even after the employees per-
formed.
Where “potentially conflicting provisions coexist”
within a document or a contract made up of several
documents, “the rule that contractual provisions be
read as parts of an integrated whole will lead a court to
seek an interpretation that reconciles those provisions.”
Diehl v. Twin Disc, Inc., 102 F.3d 301, 307 (7th Cir. 1996).
While, as this court decided in Bidlack, there is a “pre-
sumption” that an employee’s entitlement to welfare
benefits “expires with the agreement creating the en-
titlement, rather than vesting, . . . the presumption can
be knocked out by a showing of genuine ambiguity,
either patent or latent, beyond silence.” Rossetto v.
Pabst Brewing Co., Inc., 217 F.3d 539, 543 (7th Cir. 2000),
citing Bidlack, 993 F.2d at 606-07 (opinion of Posner, J.).
Where there is ambiguity or vagueness or some “yawning
void . . . that cries out for an implied term” in the con-
tract, courts may look to extrinsic evidence to determine
if employees have an entitlement to benefits. Bidlack, 993
F.2d at 608 (opinion of Posner, J.); see also id. at 607 (ex-
plaining that courts interpolate contract clauses based
on the structure of the contract where it is “unlikely that
the parties had intended so one-sided a deal.”).
The plan documents here include not only the
reservation-of-rights clauses, but also the election forms
that most of the plaintiffs signed. In 2001, for example,
plaintiff Olson signed a form accepting the following
statement: “I elect the CUNA Mutual Group Health
No. 10-1558 19
coverage by paying 60% of the monthly premium (CUNA
Mutual pays 40%). My 60% monthly contribution will
be deducted from my estimated sick leave dollar
balance, $145,443.08 until it is exhausted. After that time,
my premiums will be deducted from my monthly
Pension check if I wish to continue coverage.” SA 71
(emphasis added). Plaintiff Specht signed an essentially
identical form. SA 72. Plaintiff Sullivan signed an
earlier form that said: “Effective July 1, 1996, the premium
will be paid from the sick-leave dollar value calculated at
retirement in accordance with the administrative ruling
dated July 9, 1982.” SA 70 (emphasis added).
In my view, all of this language, and especially the
“until it is exhausted” phrase, clearly implies a promise
not to use the reservation-of-rights clause to wipe out
the value of the retiring employee’s performance — in the
form of declining to use sick leave — but to use the value
of that performance for the benefit of the retiree.
Keeping in mind that this case comes to us on bare
pleadings from a Rule 12(b)(6) dismissal, we must
assume that is how these plaintiffs understood the
relevant language from all the documents. That is what
the district judge thought: “It is understandable that
plan participants might have been confused about the
duration of welfare benefits.” 683 F. Supp. 2d at 935.
In deciding how to reconcile the documents, we need
not decide at this point whether resort to parol evidence
is permissible, cf. Bidlack, 993 F.2d 603, but we can and
should pay particular attention to the structure and
incentives of the employer’s promise of benefits to em-
20 No. 10-1558
ployees. It is certainly possible to “reconcile” the con-
flicting provisions as the majority does, by saying simply
that the reservation of rights clause trumps everything
else. But a better solution, and one that is probably more
consistent with the expectations of all interested parties,
is to find a middle ground, a solution more consistent
with all of the plan language and based on the structure
of the promise and the parties’ performance of it. This
was not a one-sided or charitable promise by the em-
ployer. The bargain was clear. The employees pro-
vided their performance over the course of their careers
by refraining from taking the sick leave that was part
of their compensation. The employer kept track of their
individual performance, and it gave them credit for
that performance at the time of retirement by paying
the entire premium for retiree health benefits until the
individual employee’s sick leave dollar balance was
exhausted. The tracking of individual contributions to
these virtual accounts makes the attempted use of the
reservation-of-rights clause even more misleading and
deceptive, and can distinguish this case from cases with
more generic promises of future benefits, if such a dis-
tinction is needed.
Under this approach, the reservation-of-rights clauses
can be interpreted as leaving the employer free to termi-
nate the plan entirely, to eliminate the employer con-
tribution entirely, to stop crediting any new amounts
for unused sick leave, or to modify the scope of the insur-
ance coverage or many other terms of the plan. The
potential need for such changes is understandable. Times
change. Competitive pressures increase. But such general
No. 10-1558 21
language reserving the right to amend or terminate for
such legitimate reasons should not and need not be
interpreted to allow the employer to wipe out the value
of those virtual individual account balances built up
over years, rendering the promise illusory after the other
party has performed. Under the approach I suggest, a
district court could exercise its equitable discretion to
craft a remedy to require that individual retirees receive
in some form the benefit of their performance over the
years. District courts have such equitable discretion
in crafting remedies under promissory estoppel gen-
erally, and under ERISA in particular. If the employer
chooses to terminate the unused sick leave program, or
perhaps even all retiree health insurance, that could be
permissible so long as a remedy was provided to the
individual retirees. But having made the promise it
made, and having benefitted from the employees’ per-
formance for many years, the employer should not be
permitted to use the reservation-of-rights clause to
walk away from its promise and to keep the entire value
of the employees’ performance made in reliance on
that promise.
This middle-ground approach can be criticized as
giving insufficient weight to the reservation-of-rights
clauses. It can also be criticized as giving too much
weight to those same clauses. To the extent this approach
can be criticized as inconsistent with some of our cases,
I respectfully suggest that we reconsider our approach
to these problems. We should show a greater willing-
ness to pursue ERISA’s fundamental purposes of pro-
tecting employee benefits from abusive practices of
22 No. 10-1558
employers and to use the equitable doctrine of promis-
sory estoppel when its elements are proven.
Several legally sound routes are available, consistent
with the statute and Supreme Court precedents. One
route would be adoption of what Judge Cudahy called
the “weak vest rule” in his opinion for three judges in
Bidlack. 993 F.2d at 610-14. Another would be to recog-
nize how misleading plan documents and communica-
tions with employees have actually been when plans
attempt to use broad reservation-of-rights clauses to
defeat such reasonable expectations of employee-bene-
ficiaries. See, e.g., James v. Pirelli Armstrong Tire Corp., 305
F.3d 439, 448-56 (6th Cir. 2002); In re Unisys Corp. Retiree
Medical Benefits ERISA Litig., 579 F.3d 220, 227-34 (3d
Cir. 2009). Federal courts have often recognized that
ERISA imposes duties on fiduciaries not to mislead a
plan participant. ERISA’s fiduciary duties are implicated
here because the duty not to mislead applies when the
fiduciary should know that the participant is laboring
under a material misunderstanding of plan terms and
benefits. E.g., Kenseth v. Dean Health Plan, Inc., 610 F.3d
452, 466-71 (7th Cir. 2010) (collecting cases). In cases
like this one, I submit, the plan fiduciaries should
know very well that plan participants were (literally)
laboring based on material misunderstandings of plan
benefits.2
2
In the Unisys case, the Third Circuit rejected an argu-
ment by the employer that was simply jaw-dropping: that a
(continued...)
No. 10-1558 23
Employers and courts ruling in their favor often
justify decisions to defeat employees’ expectations by
pointing out that ERISA does not require employers to
establish any benefit plans at all. That is true. See, e.g.,
Conkright v. Frommert, 130 S. Ct. 1640, 1648 (2010) (“Con-
gress enacted ERISA to ensure that employees would
receive the benefits they had earned, but Congress did not
require employers to establish benefit plans in the first
place”); Varity Corp. v. Howe, 516 U.S. 489, 497 (1996)
(courts must accommodate Congress’ desire “not to
create a system that is so complex that administrative
costs, or litigation expenses, unduly discourage em-
ployers from offering welfare benefit plans in the first
place”). That’s why courts should try to interpret ERISA
in a consistent and predictable manner, so that all parties
to ERISA plans know what to expect. See Conkright, 130
S. Ct. at 1648-49. But our protection of employers need
not and should not extend to the point that we bless
institutionalized deception and defeat the reasonable
expectations and reliance interests of employees. Those
employees cannot reasonably be expected to figure out
2
(...continued)
reservation-of-rights clause was not “material” to plan partici-
pants because the employer was not considering any changes
to the plan at the time the plan was described to employees.
579 F.3d at 233. Such reservation-of-rights clauses are
certainly material to employers seeking to avoid their prom-
ises. They should be deemed equally material to employees
who “needed to know in order to protect themselves from
potential harm.” Id.
24 No. 10-1558
that a reservation-of-rights clause tucked into the
plan’s fine print means the employer’s fingers are
crossed and the promise can be erased at the stroke of a
pen. We should reverse the dismissal of the claims based
on the unused sick leave accounts and remand to the
district court for further proceedings, including a ruling
on class certification.
CUNA Mutual’s unionized employees negotiated for
and received a promise that, upon retirement, they
could choose between either a cash pay-out for unused
sick leave or use of their unused sick leave to pay for
health insurance. They were protected from the loss of
their unused sick leave. The non-union employees
in our case received no such option and no such pro-
tection. Their mistake was believing their employer’s
promise. The lower federal courts are unlikely to
change course on our own. Unless and until either the
Supreme Court or Congress acts, the lesson for other
employees from this case and the other cases of broken
promises to retirees is clear: an employer’s reservation
of rights usually means that its promises are written
in disappearing ink. Employees should give no weight
to such promises in deciding whether to stick with
their jobs (or whether to call in sick, in this case). They
should seek either cash, a good union contract, or
vested pension benefits instead of illusory promises.
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