LEXINGTON, Ky. -- A settlement in a suit against IBM Corp. and recent court decisions raise questions about when employers need to tell employees about potential pension plan changes and how much company executives are required to say.
A U.S. District Court in Lexington approved Sept. 14 the agreement in the case brought by 300 retirees against IBM for failing to make changes in materials distributed to employees about its defined benefit pension plan once the information became incorrect.
As part of the settlement, IBM has agreed to retract its request for U.S. Supreme Court review of an appellate opinion favoring the retirees.
The case states that once the company seriously considers changes in employee benefits, it has to inform employees about it, explained Ken Hall, lead counsel for the retirees.
In this case, the retirees complained IBM encouraged them to take an early retirement package without informing them that the company had changed its retirement plans to allow certain employees to take five-year leaves of absence to reach their retirement date, Mr. Hall said.
"This could have an application to any kind of pension plan," he said.
Any time an employer provides information about a benefit plan so that employees can make informed decisions, the employer must also inform employees of subsequent changes that could affect their decisions, Mr. Hall said.
This ruling is the latest in a string of opinions in various appellate districts across the country since 1996. Three years ago, the Supreme Court was asked to review a similar case but declined, Mr. Hall said. Recently, the 9th U.S. Circuit Court of Appeals held that proposals made during collective bargaining needed to be disclosed.
Each of these cases has been decided based on its particular factual circumstances, said Richard L. Menson, managing partner of the Chicago office of McGuirre, Woods, Battle & Boothe."What we have are cases all over the country where judges are trying to interpret the serious consideration issue," Mr. Menson said.
The challenge is that whenever company executives come up with an idea that concerns employee benefits, business heads may have to decide whether to disclose it to employees, he said.
Still, it is important for employers to note that courts are looking closely at the issue, said Gary Howell, partner at Gardner, Carton & Douglas.
"This case is significant because, depending on where the employer is located, they (employers) need to be aware that courts are looking more closely at the duty to disclose whenever they are contemplating changes in an ERISA program," Mr. Howell said. "They need to know what the law is and what the duty to disclose is."
And the issues raised are equally applicable to defined contribution plans, explained William A. Schmidt, partner in the Washington law firm of Hall, Hastings, Janofsky & Walker.
"Any time an employer talks to an employee about benefits, you have similar issues," Mr. Schmidt said.