Teufel vs. Northern Trust Company, et al.

Filing 45

MEMORANDUM Opinion and Order. Signed by the Honorable John W. Darrah on 3/6/2017. Mailed notice. (eg,)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
JAMES P. TEUFEL, on behalf of himself and all
others similarly situated,
Plaintiff,
v.
THE NORTHERN TRUST COMPANY,
THE NORTHERN TRUST COMPANY
PENSION PLAN, THE NORTHERN TRUST
COMPANY EMPLOYEE BENEFIT
ADMINISTRATIVE COMMITTEE,
KATIE O’NEILL, KIM SOPPI,
BOB CHAPELLE, YUAN CHEN,
AMYRE COLEMAN, HEATHER HESTON,
DAWN ROMEI, MARK SULLIVAN,
MARK WELCH, DIANE HUGHES, and
CHANDRA WILENSKY,
Defendants.

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Case No. 14-cv-7214 and
Case No. 15-cv-2822

Judge John W. Darrah

MEMORANDUM OPINION AND ORDER
On March 20, 2016, Plaintiff James P. Teufel filed a Second Amended Complaint against
Defendants The Northern Trust Company, The Northern Trust Company Pension Plan,
The Northern Trust Company Employee Benefit Administrative Committee, Katie O’Neill,
Kim Soppi, Bob Chapelle, Yuan Chen, Amyre Coleman, Heather Heston, Dawn Romei,
Mark Sullivan, Mark Welch, Diane Hughes, and Chandra Wilensky, pursuant to the
Employee Retirement Income Security Act of 1974 (“ERISA”), as amended, 29 U.S.C. §§ 1001,
et seq., and the Age Discrimination in Employment Act (“ADEA”), 29 U.S.C. §§ 621, et seq., on
behalf of himself and other participants in The Northern Trust Company Pension Plan.
Defendants filed a Motion to Dismiss [66]. For the reasons set forth below, Defendants’ Motion
[66] is granted.

BACKGROUND
The following is taken from Plaintiff’s Amended Complaint, which is assumed to be true
for purposes of a motion to dismiss. See Reger Dev., LLC v. Nat’l City Bank, 592 F.3d 759, 763
(7th Cir. 2010).
Plaintiff resides in Cook County, Illinois. Plaintiff is an employee of The Northern Trust
Company and a participant in The Northern Trust Company Pension Plan (the “Plan”). (Compl.
¶ 1.) Defendant The Northern Trust Company (“Northern”) is an Illinois banking corporation
with its principal place of business located in Chicago, Illinois. Northern is the sponsor of the
Plan within the meaning of ERISA Section 3(16)(B), 29 U.S.C. § 1002(16)(B), the trustee of the
Pension Trust, and the fiduciary of the Plan. (Compl. ¶ 2.) The Plan is a defined benefit pension
plan within the meaning of ERISA. Defendant The Northern Trust Company Employee Benefit
Administrative Committee (the “Benefit Committee”) is the named Plan Administrator and
named Plan Fiduciary. Defendants Katie O’Neill, Kim Soppi, Bob Chapelle, Yuan Chen,
Amyre Coleman, Heather Heston, Dawn Romei, Mark Sullivan, Mark Welch, Diane Hughes,
and Chandra Wilensky (“Committee Members”) are, or were, members of the Benefit
Committee and Plan fiduciaries during the relevant period. Plaintiff asserts claims under ERISA
and ADEA against Northern, the Plan, the Benefit Committee, and the Committee Members.
Plaintiff began his employment at Northern on or about March of 1998. Plaintiff became
a participant in the Plan at that time. Over the course of Plaintiff’s employment at Northern, his
average annual compensation increases have exceeded 5.1 percent. Until 2002, the Plan
provided defined pension benefits pursuant to a formula referred to as the “Traditional Benefit
Formula.”
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In 2002, the Plan was amended to add a second formula, the Pension Equity Plan Benefit
Formula (the “PEP Formula”), in addition to the Traditional Benefit Formula. Participants who
already had an Accrued Benefit were permitted to choose which formula would apply to them
going forward. Plaintiff chose the Traditional Benefit Formula. Effective April 1, 2012,
Northern further amended the Plan by providing that no additional Credited Service would be
recognized under the Traditional Formula (“2012 Amendment”). (Dkt. 42 ¶¶ 22-23.) Instead, a
revised PEP Formula applied to all participants for all periods of service after March 31, 2012.
On January 26, 2012, Northern issued a notice of the upcoming Plan changes to the
Plan’s participants. The notice stated:
If you are a Pension Plan participant who is currently under the Traditional
Formula, your benefits earned after March 31, 2012 will be calculated under the
Pension Equity Plan (PEP) Formula. This change will not impact benefits earned
under the Traditional Formula through March 31, 2012.
• Credited service and eligible compensation under the Traditional Formula
will be determined as of March 31, 2012.
• This eligible compensation, determined as of March 31, 2012, will be
increased at a rate of 1.5% per year for the time period you continue to
earn benefits under the Pension Plan.
(Dkt. 42-4 at 1.)
LEGAL STANDARD
Rule 12(b)(6) permits a defendant to move to dismiss a complaint for “failure to state a
claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). To survive a motion to
dismiss, a complaint must allege “enough facts to state a claim to relief that is plausible on its
face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). “Threadbare recitals of the
elements of a cause of action, supported by mere conclusory statements, do not suffice.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 555). However,
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plaintiffs are not required to “plead the elements of a cause of action along with facts supporting
each element.” Runnion ex rel. Runnion v. Girl Scouts of Greater Chicago & Nw. Indiana,
786 F.3d 510, 517 (7th Cir. 2015). Rather, the complaint must provide a defendant “with ‘fair
notice’ of the claim and its basis.” Tamayo v. Blagojevich, 526 F.3d 1074, 1081 (7th Cir. 2008)
(quoting Fed. R. Civ. P. 8(a)(2) and Twombly, 550 U.S. at 555). When evaluating a Rule
12(b)(6) motion, the court accepts the complaint’s well-pleaded factual allegations as true and
draws all reasonable inferences in the plaintiff’s favor. Twombly, 550 U.S. at 555-56.
ANALYSIS
As a preliminary matter, Plaintiff filed a Motion [110] to strike and deem waived, “new
arguments and assertions” made in Defendants’ Reply in Support of their Motion to Dismiss
[104]. It is well established that arguments raised for the first time in the reply brief are waived.
Mendez v. Perla Dental, 646 F.3d 420, 424 (7th Cir. 2011). When the nonmovant raises new
issues or arguments in response to a summary judgment motion, the movant is entitled to
respond to those new issues in its reply brief. See Central States, Southeast and Southwest Areas
Pension Fund v. White, 258 F.3d 636, 640 n. 2 (7th Cir. 2001). To the extent that Defendants’
Reply in Support of their Motion to Dismiss contain arguments not previously raised and not in
response to arguments raised by Plaintiff, these arguments will be deemed waived.
ERISA Claims
Plaintiff alleges that the 2012 Plan Amendment illegally decreased his accrued benefit in
two ways: (1) locking the average compensation as of March 21, 2012, and increasing the
average compensation by 1.5 percent per year instead of basing the average compensation on the
highest annual average in any five-consecutive-year period; and (2) by freezing increases in
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Final Offset Compensation at 1.5 percent for the time period after the adoption of the 2012 Plan
Amendment.
Under ERISA, the “accrued benefit of a participant under a plan may not be decreased by
an amendment of the plan, other than an amendment described in section 1082(d)(2) or 1441 of
this title.” 29 U.S.C.A. § 1054(g)(1). Under the Traditional Benefit Formula, a participant’s
“Accrued Benefit” was calculated by: (1) multiplying 1.8 percent of a participant’s “Average
Compensation” by his number of years of “Credited Service” (up to thirty-five years); and then
(2) subtracting (0.5 percent of the lesser of Final Offset Compensation or Covered
Compensation) multiplied by his number of years of “Credited Service” (up to thirty-five years).
Accrued Benefit was defined as “the monthly benefit payable under the Plan in the form
of a single life annuity upon the participant’s attainment of ‘Normal Retirement Age’.” The Plan
defined “Average Compensation” as “the highest annual average of the Compensation received
by the participant during the full calendar months in any five-consecutive-year period that occurs
in the participant’s years of Credited Service.” “Credited Service” was defined as the time the
participant was employed by Northern and eligible to participate in the Plan. (Dkt. 42-1.) The
2012 Amendment stated that a participant’s Accrued Benefit includes the “Accrued Benefit, if
any, under the [Traditional Formula] as of March 31, 2012.”
Defendants argue that any increases to the Accrued Benefit after 2012 were potential
increases and had not actually accrued and were not protected by ERISA. Plaintiff cites to
several cases that allegedly protect benefits based on future occurrences. In Hickey v.
Chicago Truck Drivers, Helpers and Warehouse Workers Union, 980 F.2d 465 (7th Cir. 1992),
the Seventh Circuit held that a cost-of-living adjustment was an essential element of the
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retirement benefit that could not be eliminated without violating the anti-cutback rule. Hickey,
980 F.2d at 470. However, the cost-of-living adjustment in Hickey would have applied no matter
what those workers did. It was not dependent on any future events. Similarly, in Ruppert v.
Alliant Energy Cash Balance Pension Plan, 726 F.3d 936 (7th Cir. 2013), the Seventh Circuit
held that a benefit calculation was invalid because it had the effect of reducing future interest
rates. Again, those future rates were not dependent on anything a plan participant did. That
interest would have accrued regardless. In Shaw v. Int’l Ass’n of Machinists & Aerospace
Workers Pension Plan, 750 F.2d 1458 (9th Cir. 1985), a pension contained a “living pension”
feature that matched increases in the retiree’s pension benefits to salary increases in the position
the retiree held immediately prior to retirement. Shaw, 750 F.2d at 1460. The Ninth Circuit held
that the living-pension feature was not “conditional,” because it was based on “an occurrence
wholly outside the pensioner’s control.” Id. at 1464.
In this case, the Average Compensation, as defined by the Plan, was dependent on
possible future wage increases and dependent on Plaintiff’s continued employment with
Northern. As the Supreme Court stated, “employers are perfectly free to modify the deal they
are offering their employees, as long as the change goes to the terms of compensation for
continued, future employment.” Cent. Laborers’ Pension Fund v. Heinz, 541 U.S. 739, 747
(2004). “Where the right to future benefit accruals are contingent on additional service, such
future increases are not presently accrued benefits.” Cinotto v. Delta Air Lines Inc., 674 F.3d
1285, 1297 (11th Cir. 2012). In Cinotto, the Eleventh Circuit held that a more favorable social
security offset had not accrued when an amendment changed the plan, because Plaintiff had not
yet reached the age where the favorable offset applied. Cinotto, 674 F.3d at 1296-97. The right
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to a more favorable offset was “entirely dependent” on Plaintiff’s providing future service until
that age. Id. At most, Plaintiff had “an expectation of a future accrual.” Id. at 1297. Under the
Plan here, future benefit accruals, i.e., a higher Accrued Benefit based on potential future raises,
were contingent on additional service, and additional raises. Additional service and raises are
not wholly outside Plaintiff’s control, and an increased Accrued Benefit would not have
necessarily occurred. At most, Plaintiff here had an expectation of future accrual of a higher
Accrued Benefit.
Further, the terms of the Plan did not consider possible future service. Plaintiff cites to
Savani v. URS Prof’l Sols., LLC, 592 F. App’x 166 (4th Cir. 2014), where the Fourth Circuit held
that an early retirement pension supplement “explicitly incorporated future service into the
calculation of an accrued benefit.” Savani, 592 F. App’x at 172-73. Here, the Plan authorized
Northern to amend the terms so long as it did not “decrease the Accrued Benefit of any Member
(determined as of the time the amendment was adopted).” Dkt. 42-2, § 13.1. Further, Credited
Service was calculated as the years “completed” and did not guarantee benefits based on future
years’ service or possible raises.
Plaintiff was dependent on future employment and raises to become eligible for the
potentially higher Accrued Benefit. Additionally, the language of the Plan did not entitle
Plaintiff to have his Accrued Benefit based on uncompleted years of service that may or may not

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have included raises. The 2012 Amendment did not violate ERISA’s anti-cutback provision.
Therefore, Defendants’ Motion to Dismiss is granted as to Counts I-V. 1
ADEA Claims
The ADEA makes it unlawful for an employer to discriminate against any employee
“because of” that individual's age. 29 U.S.C. § 623(a). Section 4(i)(1) of the ADEA prohibits
“the reduction of the rate of an employee’s benefit accrual, because of age.” 29 U.S.C. §
623(i)(1)(A). A plan complies with section 4(i)(1) if a participant’s accrued benefit would be
equal to or greater than that of any similarly situated, younger individual who is or could be a
participant. 29 U.S.C. § 623(i)(10)(A)(i). Defendants argue that Plaintiff’s ADEA claims fail
because the Plan complies with section 4(i)(1) and “[c]ompliance with the requirements of
[section 4(i)] with respect to an employee pension benefit plan shall constitute compliance with
the requirements of this section relating to benefit accrual under such plan.” 29 U.S.C.
§ 623(i)(4).
Plaintiff argues that the 2012 Amendment does not qualify for the ADEA “safe harbor”
provision because it applies to benefit accruals, and the alleged reductions for older workers
constitute reductions in accrued benefits. Specifically, Plaintiff alleges that the 2012
Amendment disparately impacted older workers in the following ways: (1) it reduced funding
costs and benefits for older Traditional Formula participants without a similar reduction for
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Plaintiff argues that even if his anti-cutback claim fails, his notice claim under ERISA
still survives. ERISA requires written notice for any amendment to a plan that provides for a
significant reduction in the rate of benefit accrual. 29 U.S.C. § 1054(h). Plaintiff argues that
notice of the 2012 Amendment was deceptive and misleading because the 2012 Amendment
improperly reduced accrued benefits, while the notice stated that accrued benefits would not be
affected. As discussed, the 2012 Amendment did not improperly reduce accrued benefits, so the
notice was not misleading.
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younger PEP Formula Participants; (2) it froze Final Offset Compensation in a manner that
causes a greater reduction in benefits for workers closer to retiring and raises the benefits of
many younger workers; and (3) created compensation structures that froze benefits and reduced
compensation for older workers and did not freeze benefits or reduce compensation for younger
workers. As discussed above, these alleged reductions do not affect accrued benefits, but the
calculation of future Accrued Benefits, or the rate of benefit accrual.
Defendants contend that the 2012 Amendment subjects all participants to the exact same
changes to future benefit accruals, regardless of age; thus, the Plan complies with the
requirements of section 4(i). In cases such as these, “it is essential to separate age discrimination
from other characteristics that may be correlated with age.” Cooper v. IBM Pers. Pension Plan,
457 F.3d 636, 642 (7th Cir. 2006). While Cooper applies to age discrimination claims under
ERISA, the same logic applies to age discrimination claims under the ADEA. Plaintiff attempts
to distinguish Cooper by noting that the inquiry in that case focused on the pension plan’s
funding costs, and not the reduction of benefits. However, whether Plaintiff alleges that the Plan
is discriminatory because of the changes in just funding costs or that the Plan is discriminatory
because of changes in both funding costs and future benefits does not affect the overall inquiry as
to whether the 2012 Amendment discriminates against older workers. Here, as in Cooper, any
differences in pension benefits as a result of the 2012 Amendment are a result of differing years
of service. Older workers are more likely to have worked longer and are more likely to have
begun work when the Traditional Formula was in place. The 2012 Amendment removed the
application of a formula that was more favorable toward older workers and replaced it with a

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formula that applies to all workers. Thus, Defendants’ Motion to Dismiss Counts VI and VII is
granted.
CONCLUSION
For the foregoing reasons, Defendants’ Motion to Dismiss [66] is granted. Plaintiff’s
Second Amended Complaint is dismissed without prejudice. Plaintiff is granted leave to file an
amended complaint within thirty days of the entry of this Order, if he can do so in a manner
consistent with this Opinion and Rule 11 of the Federal Rules of Civil Procedure.

Date:

March 6, 2017

/s/______________________________
JOHN W. DARRAH
United States District Court Judge

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