On Wednesday, March 16, the Seventh Circuit inspired a collective sigh of relief among actuaries and plan administrators everywhere. In Cocker v. Terminal Railroad Association of St. Louis Pension Plan for Nonschedule Employees, 15-2690, the Court acknowledged the concept of actuarial equivalence in finding that the defendant plan’s calculation of the plaintiff’s pension benefit was correct.

The plaintiff, Roger Cocker, retired from Union Pacific Railroad in 2006, but went to work for Terminal Railroad at that time. Although his normal retirement age under the Union Pacific pension plan would have been in 2019, he elected to receive early pension benefits under that plan beginning in 2009. His monthly benefit under that plan was $1,022.94, rather than the $2,311.73 he would have received had he commenced benefits in 2019. The plaintiff then retired from Terminal in 2010 and claimed benefits pursuant to that employer’s plan. The Terminal plan provided that benefits from any other retirement plan would be offset for the amount “that would have been payable under such other plan in the form of a Single Life Annuity commencing on the Participant’s Normal Retirement Date.” The plan administrator concluded that this offset amount would be $2,311.73, the amount plaintiff would have begun receiving in 2019 based on plaintiff’s total years of work. The Southern District Court of Illinois disagreed, finding that the administrator should only have reduced plaintiff’s pension by the lesser amount he began receiving from the Union Pacific plan in 2009.

Judge Richard Posner—writing for the three-judge Seventh Circuit panel—disagreed with the lower court. The Court recognized that using the lower offset would have provided plaintiff with a windfall because the two amounts were actuarial equivalents. Under the Union Pacific plan, the plaintiff had the same total expected payment over his lifetime regardless of when he elected to commence payments. Forcing the Terminal plan to use the lower offset would place plaintiff in a better position by choosing to begin benefits earlier even though he had worked the same amount. The Court noted that this same conclusion was recently reached by the Eight Circuit in a “virtually identical case.” Ingram v. Terminal R.R. Ass’n of St. Louis Pension Plan for Nonschedule Employees, 812 F.3d 628 (8th Cir. 2016). The Court acknowledged the plan administrator’s conflict of interest, but found it irrelevant because its interpretation of the plan was correct. It thus found no violation of ERISA or the plan in using the higher offset.

While this decision does not break any new ground, it avoids a circuit split that could have been exploited by plaintiffs’ attorneys. It also provides some assurance to plan administrators that courts often recognize the concepts on which they routinely base decisions and administer plans.