Krawczyk v. Harnischfeger Corp.
| Decision Date | 25 February 1994 |
| Docket Number | No. 89-C-1419.,89-C-1419. |
| Citation | 869 F. Supp. 613 |
| Parties | Elvin W. KRAWCZYK and Gladys M. Krawczyk, Plaintiffs, v. HARNISCHFEGER CORPORATION and Harnischfeger Corporation Salaried Employees Retirement Trust, First National Bank of Chicago, Master Trustee, Defendants. |
| Court | U.S. District Court — Eastern District of Wisconsin |
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Mark Phillips, Brookfield, WI, for plaintiffs.
Thomas W. Scrivner and Chris J. Trebatoski, Michael, Best & Friedrich, Milwaukee, WI, for defendants.
DECISION AND ORDER
Elvin and Gladys Krawczyk are suing Elvin's former employer, Harnischfeger Corporation, as well as Harnischfeger Corporation Salaried Employees Retirement Trust, and First National Bank of Chicago, master trustee, for what they allege are Elvin's accrued and unpaid pension benefits. See 29 U.S.C. § 1132(a)(1)(B). The Krawczyk's case was removed to this court from the Circuit Court of Waukesha County, Wisconsin. See 28 U.S.C. § 1441(b). After removal, the Plaintiffs amended their Complaint to restate their state law claims under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001-1461. This court has jurisdiction over the subject matter of this case pursuant to 28 U.S.C. § 1331 and 29 U.S.C. § 1132(e) & (f). In their Amended Complaint the Plaintiffs allege that the Defendants did not calculate Elvin's pension correctly because they did not include a $20,000.00 lump sum benefit Elvin received in 1983, as part of Elvin's total compensation. The Plaintiffs are seeking past due benefits, an order increasing future benefits, and punitive damages.1 In the course of the briefing of motions for summary judgment, the Plaintiffs have suggested other avenues of relief under ERISA and state law and have demanded damages and statutory penalties for the Defendants' alleged breaches of duty and assorted misconduct.
The Defendants have answered and denied liability. They take the position that the decision of the Harnischfeger Pension and Investment Committee Plan Committee should be upheld because it is not arbitrary or capricious. After an opportunity for discovery, they moved for summary judgment on the ground that no material facts are in dispute and that they are entitled to judgment as a matter of law. See Federal Rule of Civil Procedure 56(c). As a threshold matter, the court found that the Defendants had not complied with ERISA provisions governing administrative claims procedures prior to suit. See 29 U.S.C. § 1133 and 29 C.F.R. § 2560.503-1(f). Therefore, the court denied the motion and remanded this action to the Harnischfeger Corporation Pension Committee for reconsideration. See Decision and Order of September 13, 1990. After the parties returned to this court, the Defendants again moved for summary judgment. The Plaintiffs, in response, raised new allegations2 that Elvin had not received the proper Plan documents prior to making his retirement decision. He said he had only been furnished the plan summary, not the plan itself. Consequently, the court again remanded this matter to the Plan Committee,3 but the Plaintiffs waived a rehearing and chose to proceed in this court on cross motions for summary judgment. The parties have completed supplemental briefing and the motions are now ready for decision.
The record shows that Elvin Krawczyk began work for Harnischfeger in 1941. See Transcript of Hearing Before the Pension and Investment Committee, Harnischfeger Industries, at Exhibit 3, ¶ 1.4 In 1983, Elvin was working at Harnischfeger's Escanaba, Michigan plant as a salaried employee when he was told that he was being laid off and that the plant would be closed. At the time of the closing, Harnischfeger offered special termination benefits to certain employees, including Elvin. See Id. at Exhibit 1. Elvin elected to accept the early retirement plan under which he would receive a severance benefit of $20,000.00 (the equivalent of approximately six months salary) which he wanted paid in a lump sum in 1983. See Id. at Exhibit 8.
On October 14, 1983, prior to electing the termination benefits, Elvin asked to review a copy of the Harnischfeger retirement plan document. See Id. at Exhibit 7. Elvin's last day of work was October 31, 1983, and he received the lump sum on November 30. Harnischfeger did not supply a copy of the plan until December 7, 1983.
Under the Harnischfeger Corporation Salaried Employees Retirement Plan (the Plan), retirement benefits were calculated according to a formula that considered age at retirement, years of service, and the average compensation of the highest consecutive five full calendar years (out of the last ten) of employment. See Id. at Exhibit 4. Elvin's highest five years of compensation occurred in the last five years of his employment from 1979 through 1983, when his average annual salary was $37,614.24. See Id. at Exhibit 27. Using this figure and the other components of the Plan formula, Harnischfeger calculated Elvin's pension payment to be $1,598.62 per month. See Id. at Exhibits 28 & 30. Elvin claims that he was led to believe the entire $20,000.00 lump sum payment would be included in the pension calculation, thereby increasing his compensation for 1983, and increasing his average compensation for purposes of the Plan formula. Richard Schulze, Harnischfeger's Senior Vice President for Human Resources and Public Relations, on the other hand, says that Elvin was informed prior to his retirement that the full lump sum would not be included in the pension calculation. See Id. at 30-34. If the lump sum would have been included, the average salary over the highest five year period would have been $41,778.29 and the monthly pension payment would have been $1,778.29. See Id. at 42-43. As it was, Harnischfeger included part of the $20,000.00 in the pension calculation in order to complete Elvin's salary for the year 1983.
On December 9, 1993, two days after he had received a copy of the Plan and Harnischfeger's pension calculation which excluded most of the lump sum payment, Elvin presented his claim to the Harnischfeger Plan Committee. See Id. at Exhibit 15. After the Plan Committee denied his claim, Elvin commenced this action.
Because the Plan Committee's notice to Elvin of the denial of his claim did not adequately specify the grounds for the denial or inform him of any appeal rights and because Elvin argued that he was not able to present material evidence because of the deficient notice, this court remanded his claim to the Plan Committee to determine whether Elvin was eligible for increased benefits. See Opinion and Order of September 13, 1990. See also Wolfe v. J.C. Penney Company, 710 F.2d 388, 392 (7th Cir.1983). In compliance with the court's Order, the Plan Committee sent a series of letters to Elvin and his counsel, informing them of the reasons for the previous denial and informing them of Elvin's right to another hearing. That hearing took place on May 8, 1991. Harnischfeger produced two witnesses — Jeralym Meyer, Harnischfeger's Director of Employee Benefits, and Richard Schulze, Harnischfeger's Vice President — Human Resources. Elvin's counsel presented Elvin's affidavit and made an oral statement. Elvin himself did not testify.
At the hearing Meyer stated that the Harnischfeger Plan definition of "compensation" is:
... the total amount received by the employee for such calendar year exclusive of prizes, awards and allowances for foreign service....
Transcript of Hearing Before the Pension and Investment Committee, Harnischfeger Industries, at 13. The definition of "final average compensation" for purposes of computing a pension benefit is:
... the highest average compensation paid to participants during any five consecutive calendar years during the ten calendar years preceding his retirement or termination of employment.
Id. Meyer explained that Harnischfeger considered severance pay to be income replacement and that it was the company's practice to count only that portion of the severance benefit that would complete a calendar year for the purpose of calculating the pension benefit. See Id. at 15-17. She also testified that this practice was followed with all employees at the Escanaba plant who received the severance benefit. See, e.g. Id. at 18-20 & Exhibit 10. Schulze testified that including the severance benefit in the pension calculation would have provided a windfall to the recipient and would have an adverse impact on the Plan and the other participants. See Id. at 31.
Elvin's counsel argued that the Plan definition of "compensation" did not exclude severance pay and that, therefore, it should be included in the year paid. He also claimed that Elvin had detrimentally relied upon his belief that the entire severance amount would be included in the pension benefit calculation. Because of what he calls Harnischfeger's "misrepresentations," Elvin says that he elected to take the severance benefit as a lump sum, thereby incurring additional income tax liability in 1983. He also suggests that he would have chosen a different retirement plan or even termination and unemployment compensation had he not believed that the severance pay would increase his pension benefit if taken as a lump sum during his last year of employment.
After deliberating, the Plan Committee arrived at the following conclusions:
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