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by Kari A. Smith
No, not because you're going to shoot your eye
out. But because you may invoke the wrath of an ERISA lawsuit if
you terminate a veteran employee who's entitled to some major cash
upon retirement. The District Court of Massachusetts allows a claim
to proceed to determine whether a bank simply fired an employee
to avoid paying out retirement benefits.
Jacqueline Benham began working at Lenox Savings
Bank in 1961, making her the bank's second longest employee. By
1997, Benham elevated to the position of senior vice president --
one of three senior ranking officers in the bank. Throughout her
30+ career at Lenox, Benham took advantage of three retirement plans,
including a defined benefit plan called the Savings Bank Employees
Retirement Association (SBERA plan), a deferred compensation plan
called the Brick Plan, and a 401(k) plan.
The SBERA plan provided for a life annuity vesting
at age 65, with the participant receiving 1.75 percent of average
compensation a year for service up to 25 years and 6 percent of
average annual compensation in excess of $48,756. With the Brick
Plan, Benham would be entitled to $24,248 a year for five years
after she reached age 65. To receive this benefit, Benham agreed
to serve in an executive capacity for five years, after which point
she would be fully vested. In addition, the bank contributed $2,000
a year to Benham's 401(k) account.
Change in leadership, benefits
In 1993 Michael Christopher became the president
of Lenox. While working closely with Christopher, Benham observed
his method of operation and, specifically, his concern over the
cost of the bank's benefit plan. In fact, Christopher noted in one
document that "the Bank's benefit plans 'was becoming prohibitive
and was having considerable consequences to the earnings of the
Bank.'"
In 1994 Christopher concluded that the Brick
Plan had not been properly adopted and then advised the plan participants
there were problems with the plan and then proposed other benefits
they might take advantage of other benefits to replace it. One such
alternative was that a participant agree to receive only 70 percent
of his or her benefits. To agree to this, participants were required
to sign a document acknowledging the plan was "void and without
effect." Benham did so in July 1995.
Next Christopher addressed the very generous
SBERA plan. After finding that it was the most generous plan in
the SBERA system, Lenox reduced employee benefits from 1.75 percent
to 1.25 percent of average annual compensation. When analyzing the
plan, Christopher also found that he and the second in command at
Lenox weren't as well compensated as other execs in other SBERA
plans. As a result, Christopher implemented the Senior Employee
Retirement Plan (SERPS), which provided him with 65 percent of his
final average compensation and the vice-president 60 percent of
his final average compensation. Benham however was not included
in this plan because her retirement benefits already placed her
in the 60 percent range. In fact, Benham was identified as the participant
owed the highest benefit amount.
After making these changes, Lenox was estimated
to save a total of $767,000. Some of those savings came directly
from Benham herself: at 1.75 percent, she was estimated to receive
$545,520, but only $493,134 at the new rate of 1.25 percent.
Change in employment
In October 1997 Benham was terminated for her
involvement with "three questionable loans to family members," her
failure to "make changes that Christopher had recommended," as well
as her failure to "implement many of the recommendations of the
Bank's credit consultant" and "communicate fully with independent
auditors."
Specifically Benham had asked other employees
to process a mortgage application under the First Time Home Buyer's
Program, a home equity loan, and an installment loan to pay creditors
on behalf of her daughter and son-in-law. The loans were questionable
because certain information had not been included in the applications,
such as the fact that the son-in-law had owned a home with a previous
wife, his alimony payments weren't excluded from his reported income,
the proper loan-to-value ratio had not been met for the home equity
loan and the personal loan application was incomplete. Christopher
claimed this was a violation of Lenox's Code of Conduct.
The other factor, the failure to comply with
an auditor's recommendations, centered around Benham not meeting
with the auditor to specifically discuss the recommendations and
not correcting all of the things recommended.
What's the trouble?
On the surface, Benham appears to have been fired
for legitimate reasons. But Benham claims Lenox was really just
avoiding the payout of more than $500,000 in retirement benefits
to her.
ERISA ‚510 says that it's unlawful "for any person
to discharge, fine, suspend, expel, discipline, or discriminate
against a participant or beneficiary for exercising any right to
which he is entitled under the provisions of an employee benefit
plan... for the purpose of interfering with the attainment of any
right to which such participant may become entitled under the plan."
In short, whether the "employment action was taken with the specific
intent of interfering with the employee's ERISA benefits."
Back and forth
The court holds that Benham has met her burden
of establishing a prima facie case: (1) she is a member of a protected
class under ERISA; (2) she was qualified for the position she held;
and (3) she produced evidence that her discharge "occurred under
circumstances that give rise to an inference of discrimination."
To the last prong, Benham asserts that she has
"acquired significant retirement benefits and was terminated at
a time when the Bank appeared to be directly concerned with the
costs of its retirement programs and had taken efforts to reduce
the financial burden those programs created." In addition, Christopher,
who terminated her, was well aware of the amount of money Benham
would receive in retirement.
As a result of establishing her prima facie case,
the burden shifts to the defendant-employer to prove it was not
acting in a discriminating manner. The court holds that Lenox does
so by offering evidence that Benham's performance had declined in
recent years (failing to comply with internal audits) and that she
had defied the bank's Code of Conduct (by her involvement with the
three loans to her daughter).
When the employer offers a good reason, the burden
flops back to the plaintiff to show the reason offered is pretexual.
The court holds that Benham meets this criteria also by providing
enough 'weaknesses, implausibilities, inconsistencies, incoherencies,
or contradictions" in Lenox's reasoning that a jury could "infer
that the employer did not act for the assert non-discriminatory
reasons."
The court agrees there are inconsistencies in
the "decline in job performance" reason because Benham's performance
evaluations never rated her at a less-than-acceptable level. The
fact that her reviews slipped from "above acceptable" to simply
"acceptable," probably wasn't enough to merit a "'substantial decline'
warranting termination."
Benham's failure to comply with the independent
auditors was also questionable upon further examination. For example,
of the 30 exceptions found after the first audit in July 1997, only
some of them appeared to be very important, and Benham actually
corrected 22 of them before her termination. Further, some of the
remaining fixes depended upon the cooperation of other departments
not under Benham. Lenox also offers up a second audit with which
Benham did not comply, but again further examination reveals that
the audit may have actually occurred after her termination.
The non-compliance with the Code of Conduct was
also problematic because the other employees who were involved in
the processing of those loans were not terminated or even disciplined
in any way. To the contrary, one employee was later promoted to
vice president of consumer lending and the other two received bonuses
and raises.
What's the outcome? Still undecided. It has only
been sent to trial for a jury to decide. But no matter what the
outcome, there lies a message for employers. You must balance your
company's business decisions with your employee's welfare. Benham's
performance may have deteriorated and even been somewhat dishonest,
but termination may have been too extreme. It may have been better
to simply reprimand her, monitor her behavior, and give her a timeframe
in which her performance was to improve. By not doing so, Christopher's
reasoning does seem suspect -- an appearance any employer wants
to avoid.
CaseFacts
Court: U.S. District Court for District of Mass.
Date: Nov. 3, 2000
Citation: Benham v. Lenox Sav. Bank, No. Civ. A. 98-30004-MAP, 2000
WL 1656278
This article is courtesy of HRWire. All rights reserved.
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