Court Rules AT&T Did Not Violate Fiduciary Duty

April 6,2005 ( - AT&T has been cleared of violating its fiduciary duty by a federal appeals court in a case involving former employees who felt they were cheated out of retirement benefits.

>The US 3rd Circuit Court of Appeals has ruled that the communications giant did not violate its fiduciary duty under the Employee Retirement Income Security Act (ERISA) because a plan that gave workers an extra incentive to retire was not under serious consideration at the time of their retirement.

>Circuit Judge Richard Nygaard, who was joined by the other two judges in his opinion, ruled that the voluntary retirement incentive program put in place on March 18, 1998, had not been seriously considered until January 7 of that year, when the idea was introduced to an operations group. Since the suit included only employees who had retired before January 1, 1998, Nygaard ruled that none of the employees in the suit were affected by the program.

>In April 1997, AT&T switched from its defined benefit plan to a cash balance plan, and also implemented “special updates” for those workers who were near retirement and feared that their benefits under the cash balance plan would not accrue in time for retirement.. In 1997, a new CEO took over, and, for the purposes of reducing the workforce size, decided to implement a program that would give incentives to workers to retire. However, workers who had taken the special updates felt they were not informed of the incentive program and sued the company in federal district court, alleging breach of fiduciary duty under ERISA.The court granted summary judgment in favor of the company, however.

>In upholding the ruling, Nygaard ruled that “serious consideration” only existed when a specific proposal was being discussed for the purpose of implementation by senior management who have the authority to make changes. Since the first time this could be considered to be true was a week after the employees in the suit retired, they can not claim that they were adversely affected by the new program, the court ruled.

>Nygaard also ruled that the employees were not misled as to their existing benefits. The opinion of the appeals court is available  here .