concurring in part and dissenting in part:
I.
The majority attempts to distinguish three controlling Supreme Court precedents by declining to give retroactive effect to one of them, in violation of that Court’s retroactivity jurisprudence, and by then looking to a policy concern that contravenes an intricate and carefully-considered congressional enactment. Finding neither rationale persuasive, I respectfully dissent from parts II and III of the majority opinion.
The Supreme Court recently held as follows:
[There are] two independent requirements that a taxpayer must meet before a recovery may be excluded under § 104(a)(2). First, the taxpayer must demonstrate that the underlying cause of action giving rise to the recovery is “based upon tort or tort type rights”; and second, the taxpayer must show that the damages were received “on account of personal injuries or sickness.” 1
Thus, even though the conduct giving rise to Dotson’s recovery caused him personal injury, and though the parties to McLendon v. Continental Group, Inc., 802 F.Supp. 1216 (D.N.J.1992), intended that the settlement would compensate for that injury, Dotson may deduct his recovery only if his cause of action — the Employee Retirement Income Security Act of 1974 (“ERISA”) — is “based upon tort or tort type rights.” See Schleier, - U.S. at-n. 6, 115 S.Ct. at 2165 n. 6; United States v. Burke, 504 U.S. 229, 238, 112 S.Ct. 1867, 1872-73, 119 L.Ed.2d 34 (1992).
A cause of action is based upon tort or tort-type rights only if it creates a remedy for a personal injury. See Schleier, - U.S. at ---, 115 S.Ct. at 2166-67; Burke, 504 U.S. at 237 n. 7, 241, 112 S.Ct. at 1872 n. 7, 1874. Specifically, it must provide for recovery of compensatory or punitive damages. A claim that permits only equitable relief for “injuries of an economic character” does not pass this test. See Burke, 504 U.S. at 238-39, 241, 112 S.Ct. at 1872-73, 1874; Schleier, - U.S. at---, 115 S.Ct. at 2166-67.
ERISA’s civil enforcement provision, ERISA § 502(a), 29 U.S.C. § 1132(a) (1994), does not permit recovery of compensatory or punitive damages. Mertens v. Hewitt Assocs., 508 U.S. 248, 113 S.Ct. 2063, 124 L.Ed.2d 161 (1993); Medina v. Anthem Life Ins. Co., 983 F.2d 29, 32 (5th Cir.), cert. denied, 510 U.S. 816, 114 S.Ct. 66, 126 L.Ed.2d 35 (1993). “Without explicit instructions from Congress, we are bound to the plain language of the statute that limits suits to the terms of the plan at issue.” Medina, 983 F.2d at 32. The Supreme Court arguably interpreted § 502(a) in a more liberal fashion in Varity Corp. v. Howe, - U.S. -, 116 S.Ct. 1065, 134 L.Ed.2d 130 (1996), but it did not overrule Mertens. See id. at -, 116 S.Ct. at 1076.
*691Dotson argues that Mertens and Medina are distinguishable because his underlying claims arose under ERISA § 510, 29 U.S.C. § 1140 (1994). Section 510 provides the substance of Dotson’s underlying claims, but § 502(a) determines the available remedies. As Mertens and Medina define the scope of remedies permitted by § 502(a), they are on point.
Finally, Dotson asserts that we should characterize the settlement according to his allegations in McLendon, not in light of subsequent legal developments. This contention is irrelevant.
As explained above, there are two requirements for a § 104(a)(2) exclusion. The first asks whether the underlying cause of action redresses personal injury; the second looks to whether the settlement compensates for such an injury. See, e.g., Wesson, 48 F.3d at 897, 899. In short, the first test requires a legal classification, the second a factual characterization.
Dotson is correct that Mertens and Medina do not affect the factual determination of whether the settlement actually compensated for personal injury, but he cannot avoid the fact that those cases classify his cause of action as one that does not redress personal injury. As “[a] judicial construction of a statute is an authoritative statement of what the statute meant before as well as after the decision of the case giving rise to that construction,” Rivers v. Roadway Express, 511 U.S. 298, -, 114 S.Ct. 1510, 1519, 128 L.Ed.2d 274 (1994) (emphasis added), Mertens and Medina control.
As ERISA does not permit recovery of compensatory or punitive damages, it does not redress personal injuries. Cf. Mertens, 508 U.S. at 255, 113 S.Ct. at 2067-68 (analogizing ERISA to title VII, which, the Court found in Burke, does not redress tort-type rights). Thus, Dotson has not met the threshold requirement for a § 104(a)(2) exclusion.
II.
A.
The majority opinion is subject to two interpretations. First, it could be read to hold that ERISA provided tort-type remedies at the time of the McLendon settlement. Second, it could be interpreted to enunciate an exception to Schleier, Burke, and Wesson for cases in which the law was unsettled at the time of a judgment or settlement. Neither rationale is tenable.
I read the majority opinion to find that ERISA provided tort-type remedies at the time of the McLendon settlement, even though those remedies “no longer exist,” having been buried in “the shifting sands of statutory interpretation.” See op. at 4393. As the Supreme Court recently reminded us, “[a] judicial construction of a statute is an authoritative statement of what the statute meant before as well as after the decision of the case giving rise to that construction.” Rivers, 511 U.S. at --, 114 S.Ct. at 1519 (emphasis added).
Moreover, as the Supreme Court is the authoritative interpreter of federal law, earlier lower-court opinions reaching a different conclusion are “wrong.” Id.2 Thus, Mertens holds that ERISA never provided compensatory remedies, and lower courts were in error to believe otherwise.3
The majority attempts to distinguish Rivers by asserting that “[although ... Mertens may retroactively apply to pending ERISA *692cases, this case is not an ERISA case.” Op. at 4394. The publisher’s decision to give Mertens a “pensions” headnote and this case an “internal revenue” one hardly restricts Mertens’s precedential value. In fact, the Supreme Court recently prohibited “the erection of selective temporal barriers to the application of federal law” in all cases:
When this Court applies a rule of federal law to the parties before it, that rule is the controlling interpretation of federal law and must be given full retroactive effect in all cases still open on direct review and as to all events, regardless of whether such events predate or postdate our announcement of the rule.
Harper v. Virginia Dep’t of Taxation, 509 U.S. 86, 97, 113 S.Ct. 2510, 2517, 125 L.Ed.2d 74 (1993) (emphasis added).
Finally, the majority asserts that retroactive application of Mertens and Medina would be inequitable. See op. at 4394. While federal courts formerly considered whether retroactive application of a precedent would cause inequity in the individual case, the Supreme Court recently overruled that test, see Harper, 509 U.S. at 94-95 & n. 9, 113 S.Ct. at 2515-17 & n. 9, explaining that “we can scarcely permit the substantive law [to] shift and spring according to the particular equities of [individual parties’] claims of actual reliance on an old rule and of harm from a retroactive application of the new rule.” Id. at 97, 113 S.Ct. at 2517 (quoting James B. Beam Distilling Co. v. Georgia, 501 U.S. 529, 543-44, 111 S.Ct. 2439, 2447-48, 115 L.Ed.2d 48 1 (1991) (opinion of Souter, J.)) (internal quotations omitted).4
Of course, retroactivity doctrine yields to the finality of judgments and therefore applies only to pending cases. See James B. Beam, 501 U.S. at 541, 111 S.Ct. at 2446-47 (opinion of Souter, J.). If the parties to McLendon had actually litigated the question of whether ERISA entitled the plaintiff class to recover compensatory or punitive damages, the ensuing judgment might control our decision of that question. Dotson cannot assert collateral estoppel, however, because the district court did not actually and necessarily decide the remedies question when it approved the class action settlement, see EEOC v. American Airlines, 48 F.3d 164, 167 (5th Cir.1995); nor can Dotson assert res judicata, as the Commissioner was not a party to McLendon, see Travelers Ins. Co. v. St. Jude Hosp., 37 F.3d 193, 195 (5th Cir.1994), cert. denied, - U.S. -, 115 S.Ct. 1696, 131 L.Ed.2d 559 (1995).
In reality, this case does not implicate the principle of retroactivity. “It is only when the law changes in some respect that an assertion of nonretroactivity may be entertained.” James B. Beam, 501 U.S. at 534, 111 S.Ct. at 2443 (opinion of Souter, J.). Neither the Supreme Court, nor the Third Circuit (in which the parties settled McLendon), nor this circuit has ever held that ERISA permits the recovery of compensatory or punitive damages. The controlling law never changed; the parties to McLendon simply read it incorrectly. To the extent that it declines to apply controlling precedent, the majority opinion is simply in error.
B.
1.
By focusing on the nature of the settlement rather than of the underlying cause of action, the majority appears to create an exception to Schleier, Burke, and Wesson for cases in which the scope of available remedies was “unsettled” at the time of settlement. See op. at 4394. The majority justifies this exception by looking to Congress’s *693presumed intent and a public policy favoring “finality and predictability of taxation.” Id. at 4395.
The majority’s exception fails to serve either of these goals. First, while the majority may be correct that Congress feels “sympathy for the victims of personal injuries” in general, see id., Congress specifically chose not to permit Dotson to recover for that injury. ERISA, “an enormously complex and detailed statute that resolved innumerable disputes between powerful competing interests,” does not provide compensatory or punitive relief, Mertens, 508 U.S. at 262, 113 S.Ct. at 2071-72, and its broad preemption clause ensures that Dotson could not recover under state law, see ERISA § 514(a), 29 U.S.C. § 1144(a) (1994).
Thus, Schleier and Mertens reflect the same Congressional purpose — Congress limited the personal injury exclusion to legally protected injuries and chose not to protect Dotson’s injury. The majority’s extension of § 104(a)(2) to interests that are not legally protected is therefore inconsistent with both the Supreme Court’s interpretation of that statute and the legislative purpose the majority purports to implement.
The majority opinion does not foster “finality and predictability of taxation,” either. In order to determine whether Dotson prosecuted a tort-type action under its modified test, the majority finds itself examining the subjective motives of the litigants, the pleadings and course of proceedings, and the evidentiary rulings of the special master. See op. at 4394-96. Such a fact-intensive inquiry hardly fosters predictability.
In addition, predictability is generally considered to be important because it permits parties to structure their behavior with knowledge of its legal consequences. In the present context, however, wronged parties will litigate whatever claims are available to them, and defendants will settle if the cost of settlement is less than the expected cost of litigation. Thus, a plaintiff could change his behavior in only one respect — creation of a distorted paper trail purporting to show a good-faith belief in the availability of nonexistent remedies. While crafty lawyering is inevitable, we need not encourage it.
Finally, Schleier and Burke are not distinguishable. While the law regarding the scope of available remedies was well-established at the time of the awards underlying those cases, the law regarding the awards’ tax status was not. In fact, both cases reversed lower-court decisions and drew dissents. That Schleier and Burke clarified tax law rather than substantive law is irrelevant: We bear an obligation to treat similarly-situated litigants similarly, and therefore to apply the law — or at least our understanding of the law — to all parties before us. Some litigants are thereby disadvantaged, but that disadvantage results inexorably from “the nature of precedent, as a necessary component of any system that aspires to fairness and equality.” James B. Beam, 501 U.S. at 543, 111 S.Ct. at 2447 (opinion of Souter, J.).
The Supreme Court retroactively applied tax decisions twice in recent years, see Harper; James B. Beam, each time subjecting litigants to mammoth tax liabilities. The Court rejected a “good faith” argument in the latter case: “Georgia collected in good faith what was at the time a constitutional tax. The Court now subjects the State to potentially devastating liability without fair warning.” James B. Beam, 501 U.S. at 558, 111 S.Ct. at 2456 (O’Connor, J., dissenting). In short, the policy concerns driving the majority opinion are familiar ones, and the Court has already rejected them in favor of an orderly system of justice.
2.
Dotson and the majority cite to only one authority that supports their position, and the Supreme Court implicitly overruled that case. The decision in Reese v. United States, 28 Fed.Cl. 702 (1993), aff'd, 24 F.3d 228 (Fed.Cir.1994), cited by Dotson, illustrates the correct methodology. The Court of Federal Claims interpreted Burke to impose “two distinct requirements”: The underlying suit must be tort-like, and the plaintiff must have received the excluded portion of the damage award “on account of’ personal injury. See id. at 710. The petitioner sought to exclude punitive damages awarded for claims that were definitely tort-like: sex discrimina*694tion, sexual harassment, and intentional infliction of emotional distress. See id. at 703. In connection with the second requirement, the taxpayer contended that the jury’s award of punitive damages should be considered to be compensatory rather than punitive because the law did not provide for recovery of punitive damages. The court rejected that argument, finding that characterization of the damage award did not depend upon subsequent legal developments. See id. at 711.
I agree with the straightforward analysis employed in Reese. Subsequent legal developments do not affect the character of an award and therefore do not have an impact on the second test. As the first test does not require characterization of the actual award, however, Reese does not speak to it.5
Threlkeld correctly states the first test: “The determination of whether damages are received on account of a personal injury properly depends on the nature of the claim.” Threlkeld v. Commissioner, 87 T.C. 1294, 1305, 1986 WL 22061 (1986), aff'd, 848 F.2d 81 (6th Cir.1988). The passages quoted by the majority discuss the problem of determining which claim the parties settled, not whether that claim redresses tort-like injuries. See id. at 1305-06. The Threlkeld court found that the settlement at issue was attributable to a malicious prosecution claim, and “an action for malicious prosecution would be classified as an action for personal injuries” under state law. Id. at 1307. In short, the Tax Court correctly determined that the plaintiffs cause of action sounded in tort as a matter of substantive law, not on the facts of the case.
Finally, the Supreme Court implicitly has overruled Redfield v. Insurance Co. of N. Am., 940 F.2d 542 (9th Cir.1991). Redfield holds that taxpayers may exclude awards of economic damages pursuant to the age discrimination in employment act (“ADEA”), see id. at 547; Schleier holds that ADEA damages are not excludable, because the act does not remedy tort type injuries, see Schleier, - U.s. at ----, 115 S.Ct. at 2166-67. The Redfield court erred in failing to recognize that a cause of action is tort-like only if it permits recovery of compensatory remedies.
The Redfield court also permitted the taxpayer to exclude damages awarded pursuant to state law claims because he “alleged [them] as tort causes of action” and “prayed for tort damages.” 940 F.2d at 547. The court noted that a subsequent state supreme court case, which held that the state law at issue does not permit recovery of tort damages, “cannot retroactively alter the character of damages already awarded.” See id. at 548 n. 2. Because the Ninth Circuit focused exclusively on the plaintiffs allegations in the underlying suit, rather than on the underlying cause of action, it failed to consider whether the subsequent ruling was relevant to the availability of compensatory or punitive damages under the cause of action, rather than under the actual award. In short, the court blurred the two tests for a § 104(a)(2) exclusion.6
As Redfield preceded both Burke and Schleier, the error is understandable. After those cases, however, we are not free to let the facts of the case before us override the first Schleier test. The majority’s reliance on the outdated Redfield opinion instead of Schleier, Burke, and Wesson underscores its error.
III.
Finally, it is important to remember the posture of this case. As Dotson’s recovery is “gross income” within the meaning of 26 U.S.C. § 61(a) (1994), it is tax-exempt only if it falls within the personal injury exclusion of § 104(a)(2). We are therefore constrained by the “default rule of statutory interpretation that exclusions from income must be narrowly construed.” Schleier, - U.S. at -, 115 S.Ct. at 2163 (quoting Burke, 504 *695U.S. at 248, 112 S.Ct. at 1878 (Souter, J., concurring in judgment)). Far from construing the exclusion narrowly, the majority departs from controlling authority in order to protect an injury that Congress chose to leave unprotected. The McLendon settlement is simply a windfall, like lottery winnings or punitive damages, unrelated to any legally-protected personal injury. Cf. Wesson, 48 F.3d at 900 (finding that punitive damages “may be aptly characterized as a windfall” and are not tax-exempt).
Accordingly, I respectfully dissent.. Commissioner v. Schleier, -U.S. -, -, 115 S.Ct. 2159, 2167, 132 L.Ed.2d 294 (1995) (emphasis added); see also Wesson v. United States, 48 F.3d 894, 897 (5th Cir.1995) (stating that "the threshold inquiry ... is to determine if the underlying cause of action seeks to redress a personal injury”) (emphasis added).
. This fundamental principle of adjudication does not rest on the formalist belief that judges do not "make” law. Instead, "the rules that necessarily govern our hierarchical federal court system” dictate that the Supreme Court’s interpretation of a statute is correct, and all other readings are wrong. Rivers, 511 U.S. at -, 114 S.Ct. at 1519.
. The majority observes that a "complicated issue!]” would arise if a taxpayer settled a case in light of the settled law of one circuit and later litigated his right to an exclusion in a different circuit. See op. at 4394 n. 2. That scenario would occur only in rare instances where (1) circuits split on the liability issue, (2) the taxpayer settled his claim, and (3) the taxpayer either (a) chose not to litigate in his home state or (b) participated in a multi-state class action.
This case does not present such a circumstance. Whether the Third Circuit would have reached the same result as we did in Medina is irrelevant, as the Supreme Court settled the question in Mertens. In any event, few legal *692rules are perfect, and to the extent that the majority has identified an anomaly, it belongs to Schleier and Burke, which we are bound to follow.
. In addition, I fail to understand why application of Mertens would cause an unjust result. Dotson’s behavior was in no way affected by an incorrect interpretation of ERISA: He found himself wronged against his will, sought the only possible legal recourse, and accepted the best available settlement. In fact, if the parties to McLendon had construed ERISA correctly, Dotson would have received a far smaller settlement. That Dotson already received one lucky break hardly makes it unjust to deny him another.
. The same is true of cases such as Howard v. Commissioner, 447 F.2d 152 (5th Cir.1971), that decline to recharacterize settlement proceeds based upon the merits of the underlying claims.
. Redfield might also be distinguishable on the ground that it involved a change or clarification of state law by a state court. Cf. Harper, 509 U.S. at 100, 113 S.Ct. at 2519 (recognizing that state courts may be able to limit the retroactive effect of their declarations of state law).