Retirees are typically given a choice of either a lump sum retirement payout or an annuity, paid over their lifetime. Annuities often have a cost-of-living adjustment that is made every year in the future, but lump sum payments do not. In this case, the plaintiff took the lump sum payout, then sued the pension plan administrator, claiming that a cost-of-living adjustment for those choosing an annuity is an "accrued benefit" and must be paid to all retirees, including those taking the lump sum.
The Seventh Circuit agreed, ruling that COLAs are accrued benefits for those taking both annuities and lump sum payments, even though the plan provides otherwise. The NAM filed an amicus brief supporting a petition for rehearing by the pension plan administrator. We urged the court to examine the pension plan as a whole, as required by the Seventh Circuit's earlier decision in the Hickey case, and others. Failing to do so would cause many plans to be rewritten or eliminated. The decision interferes with the autonomy of the contracting parties to define their relationship, could lead to more prevalent underfunding of pension plans, and could encourage more retirees to choose lump sum payments, which is becoming a risky trend.
On Oct. 10, 2007, the court refused to rehear this case.