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A company mulling the possibility of sweetening its early-retirement plan with a view to reducing its labor costs faces a dilemma when an employee nearing retirement age asks if any changes to the plan are in the works. If the company is completely forthcoming, the employee will probably delay retirement in the hope that the sweetened plan will be implemented, thus frustrating the employer’s purposes to a degree. But if the company is too evasive, it may violate the duty imposed on it by the Employee Retirement Income Security Act of 1974 (ERISA) to administer benefit plans as a fiduciary for its employees. Between 1993 and 2000, a consensus emerged among five circuits, with minor quibbles, that employers are not liable under ERISA for giving misleading answers to such questions unless their musings on future changes have solidified to the point where one can say that a proposal is under “serious consideration.” The only holdout was the 2d U.S. Circuit Court of Appeals, which, in its 1997 case Ballone v. Eastman Kodak Co., 109 F.3d 117, ruled that the stage of a proposal was only one factor among many when deciding whether ERISA had been violated. On July 9, the 5th Circuit joined the 2d in breaking from the “serious consideration” consensus, with its ruling in Martinez v. Schlumberger Ltd., No. 02-20173. Less than a month On July 1, 1988, William Martinez, Frank Ditta and Lafayette Kirksey took early retirement from Schlumberger, an oilfield and information services company. They took that step only after asking personnel officers if the company had any plans to enhance its early-retirement program in the near future. They were told that it did not. Less than a month later, on July 27, the company announced an amendment to its plan that would have added another year’s salary into the calculation of benefits for the three plaintiffs. When the three employees filed suit in federal court, they discovered that Schlumberger had been corresponding with a consultant about proposed changes to its plan as early as May. Despite that fact, the trial judge ruled against them on summary judgment, holding that, because the proposal was not presented to upper management until July 14, it was not under “serious consideration” when the plaintiffs questioned personnel officers. The “serious consideration” test was first applied in this context by the 3d Circuit in 1993′s Fischer v. Phila. Elec. Co., 994 F.2d 130, and later amplified when the court revisited that case in 1996 ( Fischer II, 96 F.3d 1533). The court reasoned that only if a company hid serious plans, and not mere musings, could it be said to have engaged in a material misrepresentation, the threshold laid down by ERISA. Much of the Fischer court’s reasoning was later adopted by the 1st, 6th, 9th and 10th circuits. However, the 5th Circuit agreed with the 2d that determining materiality required an examination of a wide range of facts. “Serious consideration” could not serve as a handy substitute. The court wrote that “whenever an employer exercises a fiduciary function, it must speak truthfully.” It added, “[W]e find [no] safe harbor for predictions of the future. When an employer speaks to the future of a plan, employees are justified in concluding that it is backed by the authority of a plan administrator, and should therefore be entitled to trust in those representations.” It did acknowledge, though, that “serious consideration,” could be one of the factors in the materiality inquiry, stating, “[T]he more seriously a plan is being considered, the more likely a representation about the plan is material.” The court’s rebuke of the trial judge was cold comfort to the three employees in the end. It held that statements like “I ain’t heard anything about [an early-retirement] package” were not materially misleading since they were so clearly the unsupported speculations of fellow employees. Young’s e-mail address is gyoungnlj.com.

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