When an employee was terminated from his position, he negotiated a severance package based, in part, on his belief that he would be receiving a pension in a certain amount from the employer’s pension plan (the plan). Unfortunately, the administrator for the plan miscalculated some of the employee’s projected pension numbers (the administrator correctly calculated the lump sum value of the pension benefit, but substantially overstated the benefits payable under the plan’s four annuity payment options). After making an annuity election and signing off on the severance agreement, but before payment of the plan benefit commenced, the error was discovered and a new benefit election form was prepared for the employee. As a result of the error, the employee’s actual benefit for the annuity option he selected was $450 per month less than his original benefit election form had indicated. The employee never returned the recalculated election form to the plan and consequently has not yet received any of his pension benefits. Instead, he filed suit against the plan.
The employee asserted that he relied on the written promise of pension benefits when he was negotiating the terms of his severance agreement. In particular, he asserted that he had relied on the amounts stated on the original election form when he made certain concessions in the severance agreement. His complaint asked the court to stop the plan from paying him anything other than the amount stated in the original election form because he had relied on the representation in the original election form to his detriment when negotiating his severance agreement.
The Court of Appeals for the Seventh Circuit held that the employee’s claim fails for lack of evidence of intentional misrepresentation. The court concluded that none of the employee’s evidence pointed to anything more than an inadvertent mistake or negligence by the plan, and opined that mistakes and negligence are not sufficient to meet the standard for a knowing misrepresentation. The Seventh Circuit also held that the employee’s claim fails for lack of evidence of detrimental reliance. The Seventh Circuit noted that the employee’s argument that he relied on the misstated pension numbers in deciding to sign the severance agreement was undermined by his admission that he did not wish to rescind the severance agreement. Accordingly, the Seventh Circuit affirmed the federal trial court’s grant of summary judgment in favor of the plan. (Pearson v. Voith Paper Rolls, Inc., 7th Cir. 2011)