Court Rules on Eligibility of Benefits for University Employees (from PLANSPONSOR)

April 6, 2012 (PLANSPONSOR.com) – A court found that University of Chicago employees were not eligible for retirement plan benefits based on their part-time status.

The U.S. District Court for the Northern District of Illinois dismissed claims by plaintiffs, Alan J. Krok, Cynthia Nichols and Lonnie Vinson for failure to state a claim. The plaintiffs argued that the University’s benefit plans eligibility requirements are contrary to the Employee Retirement Income Security Act’s (ERISA’s) minimum participation standards.

According to the court opinion, Section 202(a) of ERISA provides that: “No pension plan may require, as a condition of participation in the plan, that an employee complete a period of service with the employer or employers maintaining the plan extending beyond the later of the following dates– (i) the date on which the employee attains the age of 21; or (ii) the date on which he completes 1 year of service [defined as 1,000 hours of work in a year].” Krok, Nichols and Vinson interpret this provision as prohibiting an employer from denying benefits to any employee who works more than 1,000 hours in a year.

However, the court pointed out that this interpretation has been rejected by the 7th U.S. Circuit Court of Appeals, as well as other circuits, which concluded that an employer can “limit plan participation to certain groups or classifications of employees, as long as that limitation was not based upon age or length of service.”

The plan in effect at the time these plaintiffs were employed states that: “A nonacademic employee of the University will be eligible to become a Participant in the Plan if he or she is employed as a Benefits Eligible Employee for one year; provided that a nonacademic employee shall not be denied eligibility if he or she completes 1,000 hours of service during a Plan Year.”

The court said ERISA also does not mandate that every employee is entitled to participate in a plan that an employer decides to offer. In the present case, the University limits plan participation to employees classified as “Benefits Eligible” since that limitation is not based on age or the length of time that they have been employed by the University, and the limitation does not violate ERISA. Krok, Nichols and Vinson were not hired as “Benefits Eligible” employees.

The district court did not dismiss claims for a fourth plaintiff, James Quinn, finding that an earlier version of the plan did not use the term “Benefits Eligible” employee. The first version of the plan provides that an employee “shall become a Participant as of the first day of the first month after January 1, 1976, following the later of (a) his thirtieth (30th) birthday and (b) the earliest anniversary of his employment date which is the end of two consecutive 12-month periods during each of which he completed 1,000 hours of service for the University.”

Only James Quinn was employed by the University while this plan was in effect, and he alleges he worked over 1,000 hours a year and completed three vesting years of employment. The court found the allegations in the complaint are sufficient for Quinn to survive dismissal based on statutory standing.

The opinion in the case is here.

Rebecca Moore
editors@plansponsor.com

About these ads

About thebenefitblog

Eric is a Vice President at Lockton Insurance Brokers, Inc. He joined Lockton in 2005 specializing in Health and Welfare Benefits, Qualified & Non-Qualified Retirement Plans and Life Insurance for Business Planning. Eric's clients utilize his expertise in the areas of Plan Due Diligence, Transaction Structure, Fiduciary Oversight, Investment Design, Compliance and Vendor negotiation to improve the operational & financial outcome for each client. The Benefit Blog is a place to share that expertise and industry news.
This entry was posted in Executive Benefits, Non Qualified Retirement Plans, Qualified Retirement Plans, Retirement, Retirement Plans. Bookmark the permalink.