April 11, 2018

The Seventh Circuit ruled that Northern Trust’s new pension formula does not violate federal benefits or worker discrimination laws.  At issue in James Teufel v. Northern Trust Company et. al. was a 2012 amendment to the company’s pension plan that limited the salary increase considered by the funding formula to 1.5 percent each year, regardless of the actual increase.  This change applied only to workers who started at the company before 2002.  Northern Trust executive James Teufel claimed that the amendment illegally reduced older employees’ accrued benefits.

But a three-judge panel held that because the new formula applied only to benefits earned in the future – and not to benefits a worker already accrued – the pension plan amendment did not violate the Employee Retirement Income Security Act. 

“Nothing in the Northern Trust plan’s traditional formula guarantees that any worker’s salary 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,” the circuit court wrote.  “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.”

Partners Craig C. Martin and Amanda S. Amert represented Northern Trust.

News of the Seventh Circuit’s decision was reported in outlets including Bloomberg Law and Law360.