ERISA plan sponsors have great latitude about how to structure their benefits. But the U.S. Court of Appeals for the Seventh Circuit illustrates one limit to that freedom in Williams v. Rohm and Haas Pension Plan, ___ F.3d ___, 2007 U.S. App. LEXIS 19275, decided earlier this week. Williams was entitled to pension benefits through his employer. He could take them either in a lump sum payment or in an annuity paid out over time. But the Plan provided cost of living adjustments (COLAs) for those who took their money over time and refused to provide any payment for the value of those COLAs to retirees who, like Williams, took payment in a lump sum. Williams sued on behalf of himself and all similarly situated retirees. The trial court agreed with Williams that the Plan improperly discriminated between the two groups of retirees in how it treated the COLAs. The Plan appealed and the Seventh Circuit affirmed. The key issue to the appeals court was whether COLAs are an “accrued benefit” or an ancillary benefit. ERISA states that plan participants who take lump sum payments of accrued benefits must receive the same present value payment as those who take their pay-outs over time. The statute looks to the terms of the plan documents to determine what an accrued benefit is. And the Plan was quick to point out to the court that it had specifically and clearly drafted the plan language to state that the COLA was not part of the accrued benefit to which retirees were entitled. But the statute also prohibits disparate treatment of similarly situated retirees. It was the latter angle that created problems for the Plan in this case. The court was troubled by the fact that retirees who accepted their benefits over time received more money than those who requested the present value of those same payouts in a lump sum. The remedy? The court simply invalidated the plan provision that was in violation of ERISA and ordered that Plan to pay the present value of the stream of future income, including the value of the COLAs.