Trade Group Cleared of ERISA Violation Allegation

January 29, 2007 ( - A Chicago-based food trade group has been cleared of allegations it violated federal law by firing its vice president of sales after finding out the group's pension was underfunded and shortly before he vested.

U.S. District Judge John W. Darrah of the U.S. District Court for the Northern District of Illinois issued the ruling in favor of the National Automatic Merchandising Association (NAMA), which represents the vending and food service industries.

In the ruling, Darrah said the evidence established that NAMA’s chief executive officer, after learning of the pension underfunding, decided to fire Steven DeGrave because of his work performance and that this was “a reasonable response to the problem” as CEO.

Throughout his NAMA tenure, DeGrave received performance reviews indicating that he met NAMA’s expectations but that he needed to improve his performance, according to the ruling.

NAMA’s actuary issued an October 2003 report indicating that the group’s defined benefit plan would be underfunded in 2003 and 2004. Over the next several months, NAMA’s board of directors considered several alternatives to deal with the plan’s funding issues. The board ultimately decided that one way to address the underfunding was to freeze the salaries of all NAMA employees and reduce NAMA’s bonus program, Darrah said in the opinion.

Darrah noted that the plan’s actuary had testified that no one at NAMA inquired about the effect on the plan if an employee was terminated and that DeGrave’s firing had a negligible impact on the 2003 and 2004 underfunding.

Also, after studying its organizational structure, NAMA decided to fire DeGrave, according to the decision. At the time, DeGrave had worked for NAMA for four years and would need to work for the company for another full year before he would have become vested in the plan.

DeGrave sued NAMA alleging it violated ERISA Section 510 by firing him to prevent him from vesting.

The case is DeGrave v. National Automatic Merchandising Association,N.D. Ill., No. 04 C 8147, 1/19/07.