M. Michael Reilly v. Continental Casualty C O.

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 14-2888
M. M ICHAEL R EILLY ,
Plaintiff-Appellee,
v.
C ONTINENTAL C ASUALTY C O.,
Defendant-Appellant.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 13 C 2885 — Sara L. Ellis, Judge.
____________________
A RGUED A PRIL 21, 2015 — DECIDED M AY 6, 2015
____________________
Before EASTERBROOK and R IPPLE, Circuit Judges, and
R EAGAN , District Judge.*
EASTERBROOK, Circuit Judge. Michael Reilly participated in
a pension plan offered by Continental Casualty Co., which
the parties call CNA but which we call Continental to avoid
the initialism. Continental administers its own defined-
* Of the Southern District of Illinois, sitting by designation.

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2 No. 14-2888
benefit plan, which provides that the pension depends on
the highest average compensation in any 60-month period of
employment. “Compensation” is a defined term: regular sal-
ary, incentive compensation, and deferred compensation de-
posited in §401(k) plans are in (as are some other items),
while educational bonuses, referral bonuses, overseas allow-
ances, and some other items are out. The district court’s
opinion, 2014 U.S. Dist. LEXIS 102788 (N.D. Ill. July 29, 2014),
has the complete list of inclusions and exclusions, which we
need not repeat.
When Reilly left Continental’s employ in 1999, he re-
ceived a statement of his qualifying compensation that im-
plied a monthly benefit of about $5,400 starting in 2012,
when he would turn 65 and become eligible. Come 2012,
however, Continental sent Reilly a different calculation,
showing lower compensation and entitlement to roughly
$4,200 a month. When internal appeals did not avail him,
Reilly filed this suit under §502(a)(1)(B) of the Employee Re-
tirement Income Security Act (ERISA), 29 U.S.C.
§1132(a)(1)(B). The district judge concluded that Continen-
tal’s decision was arbitrary and capricious (which the parties
agree is the governing standard), and the court ordered it to
pay monthly benefits at the $5,400 level. Continental con-
tends in this court that its calculation should have been sus-
tained, and if not that the district court should have remand-
ed for a new calculation rather than ordering payment at the
rate projected in 1999.
The district court found Continental’s 2012 decision to be
arbitrary and capricious because it is not based on the Plan’s
definition of “compensation”—at least is not demonstrably
based on that definition. Instead of using the amount of

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No. 14-2888 3
compensation that had been calculated in 1999, Continental
in 2012 used a different number. For example, in 1999 Reilly
was told that his 1994 qualifying compensation had been
$315,042; but in 2012 Continental told Reilly that his 1994
qualifying compensation had been only $164,747.16. (Ad-
justments were made for other years too; we need not dis-
cuss them.)
Why the difference? Continental asserted that the 1999
statement reflected Reilly’s qualifying compensation plus a
“benefit salary.” Problem: “benefit salary” is not a term used
or defined in the Plan. It is apparently a term employed at
Continental to determine health and disability coverage, but
as far as the district judge could see (and as far as we can de-
termine) it has nothing to do with anyone’s pension. So what
Continental said in 2012 boiled down to “the 1999 calcula-
tion was based on something other than qualifying compen-
sation”—which sets the stage for a proper calculation but is
not itself one.
Continental did not tell Reilly, or the district court, or us,
why $164,747.16 is the right number for 1994. It said that it
had added up the eligible items but did not demonstrate
this, nor did it show how it had ascertained Reilly’s top-60-
months’ compensation. No matter how many times Conti-
nental rattles off the phrase “benefit salary”—which it has
done an awful lot—this is not an explanation of the 2012 deci-
sion because it leaves everyone in the dark about how Reil-
ly’s qualifying compensation was calculated. An explana-
tion-free decision is arbitrary and capricious.
What Continental needed to do was apply the Plan’s def-
inition. For each month in 1994, how much did Reilly earn in
regular salary? How much in incentive compensation? How

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4 No. 14-2888
much was deposited in his name in a §401(k) plan? Having
computed qualifying “compensation” for each month of
Reilly’s employment, Continental then could find the highest
60-month period and use the Plan’s formula to come up with
a monthly benefit. Maybe Continental did exactly that—but
if so the exercise is not in the record and has never been sub-
ject to review or dispute by Reilly.
To show that $164,747.16 is an unexplained number does
not justify a judicial award of a $5,400 monthly pension,
however. The court needed to determine (or allow the ad-
ministrator to determine) the right number, not just to as-
sume that whatever had been estimated in 1999 is Reilly’s
entitlement. Like the 2012 calculation, it reflects only Conti-
nental’s say-so rather than a demonstration that the Plan’s
terms lead to a particular outcome.
Reilly, as the plaintiff, has the burdens of production and
persuasion. So we would have expected him to offer a calcu-
lation in support of the pension to which he claims entitle-
ment. He did not. Instead he stood on the Plan’s 1999 esti-
mate. Yet that has no more support than the 2012 calculation.
One or the other may be mistaken; indeed, both may be mis-
taken. The only way to reach a reliable decision is to apply
the Plan’s terms to Reilly’s qualifying compensation, one
month at a time, to find the top-60-month average. Continen-
tal should have all the necessary records. If Reilly did not
keep his own set of monthly records, he is entitled to receive
the data from Continental—and to contest Continental’s
compensation figures, if he thinks them mistaken.
The district court’s decision cannot stand, because Reilly
has not tried to show that $5,400 is the only possible out-
come of a proper calculation process. All that has been estab-

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No. 14-2888 5
lished to date is that Continental’s 2012 decision is unrelia-
ble. By working through the original compensation num-
bers, the parties may be able to agree what the right pension
is under the Plan’s terms. If agreement is elusive, the district
court must remand this matter to Continental so that the
administrator can make a fresh calculation, which then could
be subjected to another round of judicial review.
The judgment is reversed, and the case is remanded for
further proceedings consistent with this opinion.

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