April 21, 2019

April 19, 2019

Subscribe to Latest Legal News and Analysis

April 18, 2019

Subscribe to Latest Legal News and Analysis

Seventh Circuit Affirms Denial of Pension Benefit to Daughter of Participant Who Died Three Days into Retirement

Linda Faye Jones was an employee of Children’s Hospital and Health System, Inc. Tragically, she developed recurring bladder cancer and at the age of 60, decided to retire. As a 37-year employee, Linda was eligible for a substantial pension under her employer’s defined benefit pension plan. 

Linda retired on August 26, 2015 and elected to receive her pension in the form of a ten-year annuity. Payments under her pension were set to commence six days later, on September 1.  Unfortunately, Linda passed away on August 29, just three days into her retirement.

Linda was unmarried but had named her daughter Kishunda as her sole beneficiary for her pension payments. Unfortunately for Kishunda, the plan stated that as follows:

In the case of a Participant who dies prior to the date distributions begin, the Participant’s designated beneficiary will be his or her surviving Spouse, if any, pursuant to the terms of [another plan section].

Had Linda survived another six days until payments began, the plan would have honored her beneficiary designation and Kishunda would have received ten years’ worth of annuity payments. 

Kishunda sued but the U.S. District Court for the Eastern District of Wisconsin, Judge Lynn Adelman presiding, held that the plan administrator’s determination that Kishunda was not eligible to receive the disputed pension benefits was not arbitrary and capricious. In part, the court noted that the rationale for the plan provision was to comply with federal tax laws that state that only spouses can collect pension benefits when a spouse dies before distribution. Finding that it was reasonable for the plan to be drafted in a manner that mimicked these laws, the court declined to adopt Kishunda’s strained interpretation of the plan. In the words of the Seventh Circuit, while the provision “has an unfortunate consequence here,” the provision is not unreasonable.

This case is a notable reminder of how ERISA’s “arbitrary and capricious” standard and lack of a right to a jury trial, can result in outcomes that even the court describes as “unfortunate.”  While readers may understandably question why an employer would insist on enforcing plan language that results in such an inequitable situation, it is also important to keep in mind that operating a plan contrary to its written terms threatens the continued tax qualification of the plan under IRS guidelines. It was no doubt a difficult decision to deny benefits to Kishunda, that decision may have been compelled out of a concern for the tax qualification of the plan as a whole. 

The case is Jones v. Children’s Hosp. & Health System, Inc. Pension Plan, Appeal No. 17-3524 (June 13, 2018). 

Copyright © 2019 Godfrey & Kahn S.C.

TRENDING LEGAL ANALYSIS


About this Author

Todd Smith Insurance Attorney Godfrey Kahn Law Firm
Shareholder

Since joining the firm, Todd has helped clients resolve their most difficult commercial disputes, including those involving employee benefits and insurance coverage. Todd has represented parties in complex commercial litigation throughout the state and is a past president of the Western District of Wisconsin Bar Association, an association of lawyers practicing in the fast-moving federal district court in Madison. Todd is the leader of the firm's ERISA Litigation Team.

In addition, Todd's practice has emphasized representing clients in ERISA litigation and other...

608.284.2653