In the

United States Court of Appeals

For the Seventh Circuit ____________

No. 03-3907

RANDALL A. BEACH,

Plaintiff-Appellee,

v.

COMMONWEALTH EDISON COMPANY,

Defendant-Appellant.

____________

Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 00 C 3357—Joan Humphrey Lefkow, Judge.

____________

Petition for Rehearing and

Rehearing En Banc

____________

DECIDED—NOVEMBER 17, 2004

____________

Before POSNER, EASTERBROOK, RIPPLE, MANION, KANNE,

ROVNER, WOOD, EVANS, WILLIAMS, and SYKES, Circuit

Judges.

Plaintiff-appellee filed a petition for rehearing and

rehearing en banc on September 7, 2004. A majority of the

judges on the panel voted to deny rehearing. A judge called

for a vote on the petition for rehearing en banc, but a

majority of the active judges did not favor rehearing en
2 No. 03-3907

Œ Chief Judge Flaum did not participate in the consideration of

the petition for rehearing en banc.

banc.Œ Accordingly, the petition is denied.

RIPPLE, Circuit Judge, with whom EVANS, Circuit Judge,

joins, dissenting from the denial of rehearing en banc. This

decision merits the attention of the full court in an en banc

proceeding. Under the panel’s holding an employer-administrator speaks as an ERISA fiduciary only when it speaks

about new benefits created by an amendment to an established benefit plan under which the employer and employee

have a preexisting fiduciary relationship, as opposed to

when that employer-administrator speaks about benefits in

a new plan. Such a narrow view cannot exist comfortably

with the rationale of Varity Corporation v. Howe, 516 U.S.

489 (1996). Moreover, as noted later in this opinion, there

is a division among the circuits that frustrates the evenhanded enforcement of the statute and, consequently, the

intent of the Congress in ensuring protection for employees’

benefits plans.

Varity stands at least for the proposition that, when a

company such as ComEd becomes a fiduciary to an employee with respect to an ERISA “plan,” then its fiduciary

duties of loyalty and care can attach to representations

made regarding new plans under which the employer and

employee do not have a preexisting fiduciary relationship.

Varity gave no hint, and neither have subsequent cases,

that the critical distinction a court must draw in determining whether an employer-administrator spoke in a fiduciary
No. 03-3907 3

status is whether that employer spoke about an “amendment” to an existing plan or about a “new” plan.

It would be intolerable to allow an employer-administrator to avoid the ramifications of its fiduciary status by

simply attaching the label “new plan”—as opposed to “plan

amendment”—to the subject of its misrepresentations.

Furthermore, at least in the situation in which an employer-administrator is offering enhanced, sweetened

benefits to induce early retirement or separation, the line

between a plan “amendment” and a “new” plan is indeed

blurry and easily distracts from the critical issue. The

enhanced benefits can form the basis of a totally “new” plan;

they can be added as “amendments” to an existing plan; or

they can be part of a plan that “supplements” an existing

plan. Regardless of the label, under Varity’s reasoning, the

critical factor is that there is a nexus between the new

benefits about which the employer speaks and the existing

plan under which an employer-employee fiduciary relationship already exists.

In the present case, Mr. Beach participated in ComEd’s

retirement pension plan and its health-care plan; he and

ComEd had a fiduciary relationship with respect to these

plans. The Voluntary Separation Plan (“VSP”) at issue, in

essence, supplemented or amended these existing plans

with further retirement benefits. Importantly, the benefits in the retirement plan and the health-care plan cannot

be untied from the VSP, which offered, inter alia, severance

pay that would supplement his pension benefits and health

benefits that would replace, upon retirement, his benefits

under the health-care plan. Thus, Varity fully supports the

conclusion that when ComEd misrepresented the status of

the VSP and its future plan-related benefits, it was

“administer[ing]” the retirement plan and the health-care
4 No. 03-3907

1 My colleagues seem to agree that representations about

new benefits that have a nexus to benefits in an existing plan

which the employer and employee have a fiduciary relationship

constitute fiduciary acts under Varity, regardless of the label

attached to the new benefit (e.g., amendments, new plan or

supplement plan). See slip op. at 5 (“Varity shows that candid and

complete information is required if two plans are in existence, and

the sponsor tries to persuade employees to give up benefits under

one in exchange for benefits of the other.”). They appear, however,

to elevate form over substance by drawing an artificially tight

nexus between those new, future benefits and the benefits in the

existing plan. See id. at 3-4 (rejecting that ComEd operated as a

fiduciary when it misrepresented to Mr. Beach the VSP’s status,

because “the plan under which Beach wants (and was awarded)

benefits does not amend or modify any of ComEd’s other

plans—nor did Beach have to choose between its benefits and

those of the plans in which he was a participant. . . . [The VSP]

does not amend, supplement, or replace any other plan.”).

2 A plan is under “serious consideration” when “(1) a specific

proposal (2) is being discussed for purposes of implementation

(3) by senior management with the authority to implement

the change.” Fischer v. Philadelphia Elec. Co., 96 F.3d 1533, 1539

(3d Cir. 1996). The majority of circuits have employed this

approach. See slip op. at 5-6. 

If “serious consideration” were the appropriate threshold, Mr.

Beach’s claim fails because at the time ComEd communicated

the misinformation, ComEd had no “specific proposal” for a severance package before senior management.

plan, and thus acting in a fiduciary capacity.1

The panel opinion, in dicta, expresses the view that an

employer’s duty of accurate disclosure does not begin until

it has “seriously considered” the future offering. See slip op.

at 6-7.2

 Some courts of appeals early developed this litmus

test in an attempt to balance the competing Congressional

goals embodied in the ERISA statute of safeguarding

employee benefits plans, without making those plans so
No. 03-3907 5

3 In this case, ComEd’s human resources staff assured Mr. Beach

that “absolutely” the company would not offer his department

a severance package. Statement of Uncontested Facts ¶ 70. The

evidence, in contrast, reflects that at the time a severance plan to

certain department employees was a possibility. Moreover,

(continued...)

burdensome that employers would be discouraged from

offering them. See Hockett v. Sun Co., 109 F.3d 1515, 1522-

23 (10th Cir. 1997).

Other courts of appeals have rejected the “serious consideration” prerequisite because it creates a “free zone for

lying” to employees about the availability of a future plan

while that plan is being formed but has not yet become a

specific proposal presented for senior management’s

approval. See Martinez v. Schlumberger, Ltd., 338 F.3d 407

(5th Cir. 2003) (adopting the approach of Ballone v. Eastman Kodak Co., 109 F.3d 117 (2d Cir. 1997)). Instead, these

courts employ a “materiality test,” under which only

material misrepresentations (those that would induce

reasonable reliance) are actionable, and whether a plan is

under “serious consideration” is a factor in the materiality

inquiry. See Ballone, 109 F.3d at 124-25.

Under the “materiality test” an employer-administrator

does not have a duty affirmatively to disclose deliberations regarding a new plan absent “serious consideration”

of that plan, but it cannot make material misrepresentations regarding a plan in formation but not yet under

“serious consideration.” See Martinez, 338 F.3d at 429-31;

Wayne v. Pacific Bell, 238 F.3d 1048, 1055 (9th Cir. 2001).

Martinez offers the most mature synthesis of earlier

courts of appeals efforts and we should adopt its approach. Moreover, the materiality test better accomplishes

Congress’ dual purposes of protecting employees’ right

to their benefits and encouraging employers to provide

benefit plans. See Martinez, 338 F.3d at 430-31.3
6 No. 03-3907

3 (...continued)

the staffs’ statements were not mere personal opinion nor

unadorned speculation—they relayed the fact that ComEd had

made a corporate decision not to consider his department for a

severance plan. As such, ComEd would be liable under the

“materiality test.”

A final matter requires the full court’s consideration. The

panel majority, in dicta, seems to favor ComEd’s argument

that ERISA fiduciary liability arises only from deliberate

deceit. See slip op. at 2. The plain language of the ERISA

statute and the common law of trusts disapprove any

scienter requirement in this context. See Mathews v.

Chevron Corp., 362 F.3d 1172, 1183 (9th Cir. 2004). Otherwise, employers-administrators have a mere duty to avoid

committing fraud, which is at odds with Varity. See Hudson

v. Gen. Dynamics Corp., 118 F. Supp. 2d 226, 246 (D. Conn.

2000) (“As the Supreme Court noted in Varity, such conduct

can create liability even among strangers,” and “ERISA

requires more of a fiduciary in discharging such duties than

that he or she simply refrain from outright lying.”). In sum,

Varity, the common law of trusts, our fellow circuits, and

the purposes of ERISA inform us that when an employeradministrator speaks—either directly or through its

benefits representatives—it violates its fiduciary duties

when it (1) misinforms a beneficiary knowing its statement

is false, or (2) recklessly misinforms not knowing whether

the statement is true or not, or (3) misinforms when it

should have known the falsity of its statement. See Wayne,

238 F.3d at 1055.

This case presents an issue of exceptional importance. As

the United States workforce ages and as companies continue to downsize through methods such as early retirement

and voluntary separation programs, the role of ERISA has

become more important. Litigation about the existence and

scope of employer fiduciary duties under ERISA inevitably
No. 03-3907 7

will continue to grow as well. Congress has a right to expect

that the judiciary will take the necessary steps to ensure

that the Congressional will is not frustrated by judicial

interpretations that frustrate the purpose of the statute. We

need to hear this matter en banc and engage in thoughtful

collegial deliberation.

A true Copy:

Teste: 

 ________________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit 

USCA-02-C-0072—11-17-04