Court Agrees CUNA Mutual Has Right to Change Benefits

August 11, 2011 ( – The 7th U.S. Circuit Court of Appeals has affirmed a lower court ruling that CUNA Mutual Insurance Society was within its rights when it decided to stop allowing for the credit of unused sick leave toward health care costs in retirement.

In a 2-1 decision, the appellate panel noted that 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.  

Instead of contending that they had been assured that health benefits were vested, the retirees pointed out 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. The court said it is not an employer’s burden to show, not only that the right to amend had been reserved, but also that this reservation was known to all workers. 

The appellate court cited the U.S. Supreme Court decision in CIGNA Corp. v. Amara, which held that silence in a summary plan description about some feature of a pension plan does not override language in the plan itself (see Supreme Court Sends Back Cash Balance Notice Decision). According to the opinion, “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.”  

The 7th Circuit said that a participant who draws an unfounded inference from an omission from a summary plan description is not entitled to a remedy, and if this is true about gaps in a summary plan description – a document that the Employee Retirement Income Security Act (ERISA) itself requires plan sponsors to give to all participants – then silence in an election form cannot override the terms of a plan.  

The court also rejected retirees’ principal argument that CUNA Mutual violated 29 U.S.C. §1106(a)(1)(D) by diverting plan assets to itself. According to the retirees, sick-leave balances are assets of the plan, assets that CUNA Mutual appropriated they contend because when CUNA Mutual amended the plan, its balance sheet reflected a gain of more than $120 million.   

The court explained that these balances were liabilities CUNA Mutual had to carry on its books, as accounting conventions require employers to capitalize the value of future contributions. When CUNA Mutual amended the plan in 2008, so 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,” the opinion stated.  

The judge who dissented from the majority claimed that apart from judicial interpretations of ERISA, the case presents a straightforward claim for promissory estoppels or breach of a unilateral contract. “CUNA Mutual made a promise to its employees… When the promise was broken, those employees were harmed,” the judge wrote.  

The opinion is here.