Ohio Workers' Pension Suit Barred by ERISA

January 13, 2003 (PLANSPONSOR.com) - ERISA blocks legal claims under state law by former employees who allege their former employer breached its fiduciary responsibility by not paying them promised pension "transition contributions," a federal appeals court ruled.

Calling the lower court ruling “well reasoned,” the US 6 th Circuit Court of Appeals upheld the decision on the ERISA pre-emption issue. Appeals judges also agreed with the trial judge that the workers weren’t entitled to the pension contributions under plan documents, Washington-based legal publisher BNA reported.

The BNA story presented this case background:

Baxter International Inc. reorganized its operations in 1996 and created a spin-off company called Allegiance Corp. Allegiance in turn created a subsidiary known as Allegiance Healthcare Corp.

After the spin-off, Allegiance created a defined contribution pension plan for its employees. Certain Baxter employees were asked to transfer to Allegiance. To prevent the Baxter employees from losing their accrued benefits in Baxter’s defined benefit pension plan, Allegiance promised the employees it would pay them eight years of “transition contributions” to the new defined contribution plan in exchange for their surrender of their accumulated pension benefits under Baxter’s plan.

In 1998, Allegiance sold Allegiance Healthcare. After the sale, Allegiance Healthcare was downsized and many of the former Baxter employees lost their jobs. Allegiance stopped making transition contributions to the employees’ pension accounts and the employees sued, alleging Allegiance breached its contract with them by terminating the contributions.

A federal judge in the US District Court for the Southern District of Ohio dismissed the employees’ lawsuit, finding that under Allegiance’s governing plan documents, an employees were entitled only to the transition contributions if they remained employed by the company.

The case is Nester v. Allegiance Healthcare Corp., 6th Cir., No. 01-3555, 1/10/03.