Early Retirement Choice Doesn't Bar Severance Pursuit

November 5, 2001 (PLANSPONSOR.com) ? A plan administrator acted improperly in determining that workers that took an early retirement offer were precluded from also pursuing claims for severance pay, according to a federal judge.

In the ruling, the U.S. District Court for the Northern District of Illinois found that the plan administrator acted unreasonably in finding that the employees who had accepted retirement benefits during the reduction in force were precluded from claiming a right to severance pay. The court said the severance plan’s language did not “necessarily eliminate the possibility that an employee could collect both retirement benefits and separation pay.”

Either Or?

According to Judge Matthew F. Kennelly, Donnelley gave its employees an either-or choice. “Employees who opted for enhanced early retirement benefits were given no separation pay, … and employees who opted for special augmented separation pay received no enhanced early retirement benefits.”

Following a 1993 decision by Sears Roebuck to discontinue its catalogue operations, R.R. Donnelley & Sons decided two days later to close its Chicago Manufacturing Division, which had been responsible for printing Sears’ catalog, according BNA Daily Labor Report. Donnelley outlined an enhanced early retirement option and a severance plan in one communication, followed by another letter in which employees were given the option of retiring prior to the date the division was scheduled to shut down.

A number of employees reportedly challenged the either-or choice, but severance and retirement plan administrators denied the employees’ claims for both early retirement benefits and severance pay.

The employees brought a lawsuit under the Employee Retirement Income Security Act (ERISA) contending, among other things, that all employees discharged in the division’s shutdown were entitled to benefits under the severance plan regardless of their election on early retirement benefits.

Doubling Up?

The severance plan administrator claimed that workers who opted for early retirement benefits were not “separated” from the company as required under the severance plan. Alternatively, the administrator said that allowing employees who took the severance package to also gain early retirement benefits would have been allowing them to “benefit doubly.”

However, in ruling for the employees, the court rejected Donnelley’s contention that it had not intended to pay separation benefits to employees who “retired,” noting that it “was, indisputably, a forced retirement occasioned by reduction in the CMD workforce and discontinuation of the employees’ jobs.”

“Under the plain terms of the Summary Plan Description as well as the Plan itself, such employees were eligible for separation pay, whether or not they were deemed by Donnelley to have ‘retired,’ ” the court said.