Termination of 'Lifetime' Benefits Is Not a Fiduciary Breach

The 7 ^th Circuit Court of Appeals, affirming a lower court’s ruling, found welfare benefits described as “lifetime” benefits can be revoked if the plan documents allow for such changes.   “This story does not have a happy ending,” Circuit Judge Richard Cudahy said in the opinion, pointing to the legal distinction between “lifetime” and “vested” welfare benefits in ruling the company acted within its providence in terminating the retirees Health Care Allowance benefits.

In 1991, The Continental Insurance Company offered an early retirement package that was accepted by 347 employees.   Included in this package was that HCA that was positioned as a “lifetime” welfare benefit.    In 1995, Continental was acquired by CNA Financial Corporation (CNA) and in 1998, CNA notified the early retirees that as of January 1, 1999, their HCA benefit would be terminated.

A group of early retirees brought suit against CNA, alleging claims of wrongful denial of benefits under the Employee Retirement Income Security Act (ERISA), breach of contract, estoppel and a breach of fiduciary duty.

In granting summary judgment on behalf of the defendants, theUnited States District Court for the Northern District of Illinois, Eastern Division,determined that eligible employees were told that the benefits were for their own and their spouses’ lifetimes.   However, employees accepting the early retirement package were not told the benefits could be changed or revoked.   Upholding the lower court’s ruling, the appellate court found the “factual determinations are reasonable and are supported by the record.”  

Even if Continental had no “intention of terminating the early retirees’ benefits, it did know that under ERISA its plan documents allowed it to do so,” the court said.

The case is   Vallone v. CNA Fin. Corp., 7th Circuit Court of Appeals.