A recent ruling by U.S. Court of Appeals for the 1st Circuit questioned the fairness of a Treasury Department regulation that allowed a company to amend its retirement plan, causing a retiree’s benefits to drop significantly, but it affirmed a lower court’s ruling dismissing his case.

The 1st Circuit’s unanimous Oct. 6 panel ruling in Tasker v. DHL Retirement Savings Plan affirmed the dismissal by District of Massachusetts Judge Nancy Gertner of retiree Jeffrey Tasker’s key claim against DPWN Holdings (USA) Inc., the U.S. arm of German logistics and delivery company DHL International GmbH. 

Tasker originally worked for Airborne Express, which DHL later acquired “either shortly before or shortly after” his 2004 retirement, according to court papers. He sued DHL over a retirement plan change that took away his right to transfer his account balance in DHL’s defined contribution retirement plan to its defined benefit retirement plan.

Defined benefit retirement plans offer workers specific benefits based on factors such as age, earnings, and years of service. Defined contribution plan payments depend on how much money the retiree contributed while working and the performance of the plan’s investments.

The 1st Circuit held that DHL’s plan change did not violate the anti-cutback rule under the Employee Retirement Income Security Act (ERISA). That rule prohibits certain plan amendments that would decrease or eliminate a participant’s accrued benefits. The opinion, authored by Senior Judge Bruce Selya and joined by judges Kermit Lipez and O. Rogeriee Thompson, concluded, “the unambiguous language of the [Treasury Department] regulation allowed the defendants to eliminate the transfer option.”

In his conclusion, Selya wrote that the case was a hard one to decide because “it requires us to deny relief to a plaintiff for whom we have considerable sympathy.” Selya noted that Tasker worked for many years, planned for his retirement and discovered that his monthly annuity would be half what he expected. “On general notions of fairness, the plaintiff deserves better.”

Selya continued, explaining that courts must follow the lead of a statute and the implementing regulations when they’re clear: “Were we arbitrarily to ignore an unambiguous regulation allowing the action taken by the defendants, we would be making bad law. We must abjure so wayward an approach.”

He also pointed out that Congress could update the statute or the Treasury Department secretary could change the regulations “to minimize or abate inequities of the sort that the plaintiff has experienced here….In the absence of any such ameliorative action by either Congress or the Secretary, our hands are tied.”

Tasker’s lawyer, Bob Catapano-Friedman of Boston-based Catapano-Friedman Law Firm, said he and his client are disappointed by the ruling and are in the process of evaluating the opinion. They are considering all options, including filing a petition for rehearing and applying for a writ of certiorari from the U.S. Supreme Court, said Catapano-Friedman.

“This is an opinion that opens the door for companies to look for ways of reading the regulations in ways in which they were never intended to subvert the intentions and principals of ERISA and to take away benefits that ERISA was designed to protect,” said Catapano-Friedman.

In his appeal briefs, Tasker claimed a March 2004 estimate pegged his monthly annuity at $4,163.92 plus a survivor option. He opted to start payments on or after October 2008.

In April 2008, DHL’s retirement account trustee company informed him that his estimated monthly benefits would be $2,200.00. He claimed that he was told that July that the 2004 estimate “was higher because it contemplated Tasker’s exercise of his transfer right.”

The 1st Circuit’s decision to uphold the Treasury regulations “benefits everyone because it means everybody knows what they can and cannot do,” said DHL’s lawyer, Jeremy Blumenfeld, a partner in the Philadelphia office of Morgan, Lewis & Bockius. “The fact that employers have that certainty gives them the flexibility to offer benefits to a greater extent than they might otherwise be wiling to do,” Blumenfeld said. “I do think that benefits everyone.”

Blumenfeld also said that it’s important that the judges followed the law “notwithstanding Tasker’s arguments about general notions of fairness.”

The refreshing part of this ruling is that the court looked at the plain language of a Treasury regulation and upheld it, which is pretty unremarkable, said Steven Friedman, a New York partner who chairs the employee benefits and executive compensation practice group at Littler Mendelson. Friedman isn’t involved in the Tasker case.

“Had it gone the other way, had the plaintiff prevailed, then that would have caused an enormous amount of consternation among employers,” Friedman said. “If those pieces of guidance are overturned by courts, then there’s a great deal of uncertainty placed in the [retirement] plan design process.”

Sheri Qualters can be contacted at squalters@alm.com.