Workers Misled into Resigning not Due Benefits

August 28, 2008 ( - The U.S. District Court for the Northern District of New York has ruled that an employer does not owe back pay and benefits to 14 workers who claim they were errantly told they must resign or retire to access money in their 401(k) plan accounts.

In his opinion, Senior District Judge Frederick J. Scullin, Jr. pointed out that the workers alleged they were induced to resign or retire and did not allege any injury to their plan accounts, which is the action covered by the U.S. Supreme Court’s decision in LaRue v. DeWolff, Boberg & Associates Inc. allowing individual Employee Retirement Income Security Act (ERISA) cases to move forward (See Justices OK Individual ERISA Suits in Landmark Ruling).   “It did not expand § 502(a)(2) to allow individual claims that are not based on losses to plan assets,” Scullin wrote, referring to the LaRue ruling.

Citing other Circuit court rulings, Scullin decided that since the workers sought back pay and lost benefits for multiple years during which they did not work, their legal claims could not be considered incidental to their claims for rescission of their elections to receive lump sum distributions and reinstatement of their employment. “Back pay and lost benefits address past losses while reinstatement addresses future losses and the parties’ continuing relationship,” Scullin said, so the workers’ claim was not “integral” to the remedy of reinstatement of employment.

The court did, however, decide there were genuine issues of material fact warranting a jury’s decision on the claim for rescission and reinstatement.

The fourteen workers of a paper company participated in a strike during which their employer hired replacement workers. When the strike ended there were not enough positions to reinstate all the strikers, so the 14 were not reinstated.

When they consulted both a benefits manager and personnel director about accessing funds from their 401(k) accounts, the workers claim they were told that they would have to resign or retire to access their funds. However, the company had told the employees of the availability of loans and hardship withdrawals in meetings when it adopted the plan, and had provided a summary plan description explaining these plan features.

The case is Harris v. Finch, Pruyn & Co., N.D.N.Y., No. 1:05-cv-951, 8/26/08.