HR Hell at Pfizer: Retiree's Stock Options Are Cancelled in a Paperwork Error

A federal appeals court has ruled that if Pfizer (PFE) wrongly tells employees their stock options are good for 10 years when they retire, and then cancels them when they realize they've made a mistake, that's OK -- even if someone retires based on that advice. If you think that ruling is harsh, you're not alone. One judge dissented, noting Pfizer's human resources department made "multiple misrepresentations and omissions to
repeated inquiries by one of the plan's beneficiaries."

Exactly when to retire can be one of the most significant financial decisions you can make. Companies like Pfizer, which consist of a complicated skein of acquired companies that each had their own legacy retirement plans, often end up with hodge-podge of retirement options for different employees depending on which company they started in and how long they've been employed.

That was the case for Dr. Diana Bell, who initially wanted to retire on July 19, 2002. She was an original employee of Pfizer who had earned five years' of employment service prior to 1994. That left her eligible for Pfizer's "Pre-1994 benefit" plan, but not its current "Pfizer Retirement Annuity Plan." Before she retired, Bell wanted to know what would happen to her stock options, which she believed had a 10-year exercise period. She contacted HR to check. According to the ruling, HR referred her to Payal Sahni, a Pfizer HR specialist. Shani referred to her Kimberly Malik in Pfizer's pension benefits administration department. And Sahni directed Bell to Jacqueline Gomez, a stock options analyst at Pfizer. Finally, Gomez advised Bell -- whose questions about her own retirement contained some mistaken information about which benefit she was entitled to -- that she would retain her options for the original 10-year period. Gomez told Bell in an email that she'd keep the 10-year options:

Yes, those are the general guidelines for retirement under the [Pfizer Retirement Annuity Plan].

On July 15, 2002, four days before Bell's scheduled final day at Pfizer, the company announced plans to acquire Pharmacia-Upjohn. The proposed merger had two effects on Bell's retirement plans: first, Pfizer's stock fell nearly 20 percent on news of the acquisition, which left many of Bell's stock options underwater; second, Bell viewed the acquisition and reorganization of certain departments as providing her new opportunities to advance in her career within Pfizer. Thus, Bell decided not to retire

However, on or about August 15, 2003, Bell was informed by Pfizer that certain of her stock options had been cancelled and that others would be cancelled on September 1, 2003.

The judges sided with Pfizer, arguing that because they'd given out mistaken information regarding a plan she was not entitled to, "the only misinformation conveyed did not relate to appellant's status under the ERISA plan." The Employee Retirement Income Security Act (ERISA) is a federal law that sets minimum standards for pension and health plans to provide protection for workers in these plans.

Judge Brian M. Cogan dissented:

This is a case about a company making multiple misrepresentations and omissions to repeated inquiries by one of the plan's beneficiaries, Dr. Diana Bell, regarding its ERISA regulated retirement plan. Because I conclude that Pfizer was acting in a fiduciary capacity when it made those misrepresentations and omissions, I dissent.

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