Walling v. Brady

Opinions of the United

1997 Decisions States Court of Appeals

for the Third Circuit

7-30-1997

Walling v. Brady

Precedential or Non-Precedential:

Docket 96-7526

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Recommended Citation

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Filed July 30, 1997

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 96-7526

JOSEPH R. WALLING, and other

individuals similarly situated

v.

EDWARD J. BRADY; HAROLD R. BROHAWN;

JOHN D. DANIELLO; WILLIAM R. HICKMAN;

TERRANCE M. SHANNON; JOHN W. STEWART;

JAMES R. WAHL; ALFRED C. WILSON, JR.,

as Trustees of the Plumbers and Pipe

Fitters Local Union No. 74 Pension Fund;

PLUMBERS AND PIPE FITTERS LOCAL UNION NO. 74

PENSION FUND,

Appellants

On Appeal from the United States District Court

for the District of Delaware

(D.C. No. 94-cv-00410)

Argued June 16, 1997

BEFORE: COWEN, ALITO and SEITZ, Circuit Judges

(Filed July 30, 1997)

Richard L. Abbott, Esq. (argued)

Theisen, Lank, Mulford & Goldberg

P.O. Box 1470

1201 Orange Street

One Commerce Center, Ninth Floor

Wilmington, DE 19899

COUNSEL FOR APPELLEE

Joseph R. Walling, and other

individuals similarly situated

Kent Cprek, Esq. (argued)

Richard B. Sigmond, Esq.

Sagot, Jennings & Sigmond

510 Walnut Street

The Penn Mutual Towers, 16th Floor

Philadelphia, PA 19106-3683

COUNSEL FOR APPELLANTS

Edward J. Brady

Harold R. Brohawn

John D. Daniello

William R. Hickman

Terrance M. Shannon

John W. Stewart

James R. Wahl

Alfred C. Wilson, Jr., as Trustees

of the Plumbers And Pipe Fitters

Local Union No. 74 Pension Fund

Plumbers and Pipe Fitters Local

Union No. 74 Pension Fund

2

Susan K. Hoffman, Esq.

Pepper, Hamilton & Scheetz

18th & Arch Streets

3000 Two Logan Square

Philadelphia, PA 19103-2799

COUNSEL FOR

AMICUS-APPELLEES

Local Union No. 626, United

Brotherhood of Carpenters &

Joiners of America Pension Fund,

as Plan Sponsor of Carpenters

Local No. 626 Pension & Annuity

Plan

Teamsters Pension Trust Fund of

Philadelphia and Vicinity

Teamsters Health and Welfare

Fund of Philadelphia and Vicinity

Carpenters Pension and Annuity

Fund of Philadelphia and Vicinity

Carpenters Health and Welfare

Fund of Philadelphia and Vicinity

Steamfitters Local Union No. 420

Pension Fund

Steamfitters Local Union No. 420

Welfare Fund

OPINION OF THE COURT

COWEN, Circuit Judge.

Appellants appeal from the February 9, 1996, order of

the district court granting summary judgment to plaintiff-

appellee Joseph R. Walling and a class of persons he

represents, and denying appellants' cross motion for

summary judgment. Walling v. Brady, 917 F. Supp. 313 (D.

Del. 1996). The district court held that the Board of

Trustees ("Trustees") of an ERISA-qualified multi-employer

3

pension fund had abused its discretion when it amended its

pension plan to authorize the payment of an additional

$100 per month to only 85% of the fund participants rather

than the full membership. We will reverse.

I.

The Plumbers and Pipefitters Local Union No. 74 Pension

Fund ("Pension Fund") and the Trustees were sued by a

class of 54 participants in the Pension Fund, with Walling

appointed as the designated class representative. The

plaintiffs asserted that the Trustees unlawfully diverted

pension funds in violation of 29 U.S.C.A. § 1103(c)(1) (1985

and Supp. 1997) and breached their fiduciary duty under

29 U.S.C.A. § 1104. The eight individuals serving as

trustees of the Pension Fund (four are appointed from the

union, four from management) are the same eight people

who serve as the trustees of the Plumbers and Pipefitters

Local Union No. 74 Welfare Fund ("Welfare Fund"). The

management representatives to the boards of trustees are

appointed by the Delaware Mechanical Contractors'

Association, Inc., which represents the multiple employers

who support the Pension Fund and the Welfare Fund.

The Pension Fund is a defined-benefit plan. It does not

have a "finite asset pool" and is able to incur unfunded

liabilities. The employers and the Pension Fund jointly

share liability for the fund's obligations. The provisions of

the Pension Fund give the Trustees, collectively as plan

administrator, wide latitude to

[d]ecide all questions relating to the interpretation of

the Trust Agreement and Plan. The exercise of

discretion or determination of questions arising in the

administration, interpretation and application of the

Trust Agreement or Plan shall be final and binding

except as otherwise provided by law.

App. at 349-50. The plan administrator also may "[a]mend,

alter or otherwise change the Pension Plan in any way not

inconsistent with applicable laws or regulations of

government agencies or the provisions of this Trust." Id. at

350.

4

An actuarial consultant retained by the Trustees reported

that successful investments had caused the Pension Fund

to have a surplus. The Trustees were aware that the

Welfare Fund was simultaneously faced with increased

health care costs and that the Trustees had already

decided, in their capacity as the Welfare Fund board of

trustees, to impose a requirement that all Welfare Fund

participants pay a $100 per month fee for their coverage,

which previously had not required such a fee. The Trustees

chose to address the imbalance between the funds by

paying an additional $100 per month in benefits to those

members of the Pension Fund who, by virtue of also being

members of the Welfare Fund, would now have to pay $100

each month to the Welfare Fund: "The Trustees openly

concede that the motivation behind this additional $100

per month Pension Fund benefit was to maintain the

purchasing power of those retired Welfare Fund individuals

who now shouldered an additional $100 monthly burden,

presumably on a fixed income." Walling, 917 F. Supp. at

317. The Trustees also noted that the Pension Fund did not

reduce the benefits for Walling or any member of his class;

indeed, all Pension Fund participants received a separate

5% increase in benefits. The Walling class members, as well

as all the other members of the Pension Fund, have

received more than they had anticipated receiving from the

Pension Fund upon retirement. The class members consist

of Pension Fund members who do not also participate in

the Welfare Fund; they retired without fulfilling sufficient

years of service to qualify for Welfare Fund benefits.

Walling and his class asserted that the surplus should

have either been retained by the Pension Fund or

distributed equally to all participants. They note that all

Pension Fund members were faced with rising health care

costs, regardless of whether they were Welfare Fund

participants, and claimed that the payment of an

additional, monthly $100 to only the 85% of Pension Fund

members who are also Welfare Fund members was not a

valid "Pension Fund interest." Id. at 322.

The district court agreed with Walling. It held that

appellants violated their fiduciary duty of loyalty in

amending the plan to provide the supplemental $100

5

benefit. In so holding, the district court determined that

appellants violated their duty of loyalty, whether that duty

is reviewed under the strict " `prudent' person standard" or

the more relaxed "arbitrary and capricious" standard. Id. at

321. We will reverse. We hold that no fiduciary duty

applies, and that the Trustees acted within their powers as

settlors in amending the Pension Fund plan.

II.

Subject matter jurisdiction over this matter was exercised

by the district court pursuant to 29 U.S.C.A. § 1132, as an

action to clarify benefits and enforce rights under the

Employee Retirement Income Security Act ("ERISA"). We

have appellate jurisdiction under 28 U.S.C.A. § 1291

(1984). This court exercises plenary review over the district

court's grant of summary judgment. We will affirm

summary judgment "if there is no genuine issue of material

fact and the moving party is entitled to judgment as a

matter of law." Smith v. Hartford Ins. Group, 6 F.3d 131,

135 (3d Cir. 1993).

III.

A.

The district court concluded that the fiduciary duty (set

forth in 29 U.S.C.A. § 1104) applied to the Trustees'

amendment to the Pension Fund plan, which provided for

the additional $100 per month payment. It determined that

the Trustees had failed to act with the duty and loyalty

required of a fiduciary. In the view of the district court,

under either the "prudent person" or the "arbitrary and

capricious" standard of review, the Trustees' actions were

improper. The court based its decision largely on a

perceived difference between multi- and single-employer

plans, citing dicta in Siskind v. Sperry Retirement Program,

Unisys, 47 F.3d 498, 506 (2d Cir. 1995). Siskind states that

multi-employer plans differ from single-employer plans on

the issue of fiduciary obligations. As the Second Circuit

explained:

6

The cases holding plan amendment to be an

administrative and fiduciary task concern

multiemployer pension plans, jointly administered by

trustees representing the employers and trustees

appointed by and representing the union. In the

multiemployer setting, trustees amending a pension

plan affect the allocation of a finite plan asset pool . . . .

For that reason trustees administering a multiemployer

plan are expected to act solely for the benefit of

beneficiaries and are barred from acting on the

employers' behalf.

Id. (emphasis added)(citations and internal quotations

omitted). In contrast, the employer sponsoring a single-

employer plan, "must have latitude in the sound

management of its business to determine the benefits it will

guarantee." Id. at 505 (citing Johnson v. Georgia-Pacific

Corp., 19 F.3d 1184, 1188 (7th Cir. 1994)). The court then

held, "to the extent [the trustees' actions are] not regulated

by ERISA, they may act without invoking their fiduciary

duties to plan beneficiaries." Id. at 507.

B.

Arguments are advanced by both parties concerning

whether the Siskind approach (analyzing single- and multi-

employer cases differently) has been made obsolete by the

Supreme Court's recent decision in Lockheed Corp. v.

Spink, ____ U.S. ____, 116 S.Ct. 1783 (1996), which was

filed after the district court entered the appealed-from

order. In Lockheed, the Supreme Court explained that:

Plan sponsors who alter the terms of a plan do not fall

into the category of fiduciaries. As we said with respect

to the amendment of welfare benefit plans . . .

"[e]mployers or other plan sponsors are generally free

under ERISA, for any reason at any time, to adopt,

modify, or terminate welfare plans." When employers

undertake those actions, they do not act as fiduciaries,

but are analogous to the settlors of a trust.

___ U.S. at ___, 116 S.Ct. at 1789 (citations

omitted)(alteration in original). The Court made clear that

7

this reasoning applied to both "pension benefit plans" and

"welfare benefit plans." Id. at 1789-90.

Lockheed speaks of "plan sponsors," a term that applies

to both single-employer sponsors and multi-employer

sponsors under ERISA, and the opinion lacks any hint that

single- and multi-employer plans should be analyzed

differently. At the same time, the silence of Lockheed on

this topic could arguably be a result of its subject matter,

a single-employer plan. The Court did not mention multi-

employer plans nor state that its decision was intended to

reach them or to address their particular characteristics.

While we do not read Lockheed to be the definitive word

that there are never valid occasions on which to distinguish

between the two types of plans, we find that the instant

case is clearly one in which the fiduciary duty does not

apply. Lockheed states in simple language that "[p]lan

sponsors who alter the terms of a plan do not fall into the

category of fiduciaries." Id. at 1789. The plan feature (a

finite asset pool) on which Siskind based its deviation from

this bright-line rule is not present here.

In discussing the distinction between single- and multi-

employer plans, Siskind drew heavily on the Sixth Circuit's

opinion in Musto v. American General Corp., 861 F.2d 897,

912 (6th Cir. 1988). Musto placed importance on the fact

that a multi-employer plan involves a finite asset pool.

However, before Siskind was decided, the Sixth Circuit

issued Pope v. Central States Southeast & Southwest Areas

Health and Welfare Fund, 27 F.3d 211 (6th Cir. 1994). Pope

did not place emphasis on the "finite asset pool distinction"

and found no reason to treat multi-employer and single-

employer plans differently when the sponsor of either is

merely amending its plan:

[A]mendment of multi-employer plans does not

[materially] differ from amendment of single-employer

plans. . . . A company "normally acts in its role as

employer, not in its role as fiduciary" when amending

a single-employer plan. Musto, 861 F.2d at 912.

Imposition of fiduciary obligations in favor of plan

participants and beneficiaries would thus divide the

company's loyalties, a result ERISA was designed to

8

prevent. The trustees of a multi-employer plan do not

act in the role of employers when enacting plan

amendments which simply affect the allocation of an

asset pool among participants and beneficiaries. See

Musto, 861 F.2d at 912. However, multi-employer plan

trustees assume a position analogous to that of a

single-employer plan administrator when they amend a

plan to protect its financial stability. As in cases

involving single-employer plans, the policy encouraging

employers to establish welfare benefit plans is served

by permitting trustees of multi-employer plans to

amend such plans without fiduciary considerations.

Furthermore, and again like cases involving single-

employer plans, imposition of fiduciary obligations in

cases involving multi-employer plans would divide the

trustees' loyalties and might keep them from pressing

for generous welfare plan benefits.

Pope, 27 F.3d at 213-14 (citations omitted).

As noted above, the Pension Fund is a multi-employer

plan that does not have a "finite asset pool," yet the

presence of such a pool is the sole reason Siskind

articulated for distinguishing between single- and multi-

employer plans. Pope stands for the proposition that the

Sixth Circuit, despite its authorship of Musto, is prepared

to treat single- and multi-employer plans similarly in the

absence of some other salient difference. In the instant

case, the employers and the Pension Fund jointly share

liability for the fund's obligations. The rationale for having

the fiduciary duty of loyalty apply is therefore absent,

because the Trustees have the power to incur unfunded

liabilities, as with any settlor or grantor in a single-

employer trust. All employers in a multi-employer plan are

collectively a single employer in the language of 29 U.S.C.A.

§ 1060 (explaining that other ERISA sections should "be

applied as if all employees of each of the employers were

employed by a single employer"). Section 1002(16)(B) of

ERISA uses the term "plan sponsor" rather than

"employer," indicating that the term "sponsor" is meant to

encompass more than single employers:

The term "plan sponsor" means (I) the employer in the

case of an employee benefit plan established or

9

maintained by a single employer . . . or (iii) in the case

of a plan established or maintained by two or more

employers or jointly by one or more employers and one

or more employee organizations, the association,

committee, joint board of trustees, or other similar

group of representatives of the parties who establish or

maintain the plan.

Id.

The distinction embraced in dicta by Siskind, and relied

upon by the district court, was due to its finding a material

difference in the administration of single- and multi-

employer plans. Finding no such difference here, we hold

that the simple fact that the plan at issue is a multi-

employer plan is insufficient to cause the fiduciary duty to

attach to the Trustees' actions.

C.

The principal reason that the fiduciary duty typically

attaches to the actions of plan trustees--that their action is

administrative or discretionary in character--is absent

here. ERISA draws a distinction between employers

modifying their plans ("plan modifiers") on the one hand,

and fiduciaries exercising the discretion vested in them as

plan administrators, on the other. The single-/multi-

employer distinction described in the foregoing paragraphs

is a byproduct of this more central distinction. Musto noted

the interconnectedness of these two sets of distinctions:

In amending a multi-employer plan, where the level of

contributions of each participating employer has

generally been set by collective bargaining, the trustees

"affect the allocation of a finite plan asset pool between

participants," as defendants point out in their brief,

and hence act as plan administrators subject to a

fiduciary duty. But when, as here, there is only one

employer, there is normally no "plan asset pool" to be

affected. In amending a single employer plan, therefore,

the company normally acts in its role as employer, not

in its role as fiduciary.

861 F.2d at 912.

10

In the instant case, the district court properly placed

emphasis on the fiduciary-administrator/employer-plan

modifier dichotomy. "[W]hen employers wear `two hats' as

employers and administrators, `they assume fiduciary

status "only when and to the extent" that they function in

their capacity as plan administrators, not when they

conduct business that is not regulated by ERISA.' " Walling,

917 F. Supp. at 319 (first alteration in original)(quoting

Curcio v. John Hancock Mut. Life Ins. Co., 33 F.3d 226, 234

n.10 (3d Cir. 1994)(quoting Payonk v. HMW Indus., Inc.,

883 F.2d 221, 225 (3d Cir. 1989)(citations omitted)). As to

the meaning of "business . . . not regulated by ERISA," id.,

we stated in Nazay v. Miller, "ERISA's concern is with the

administration of benefit plans and not with the precise

design of the plan." 949 F.2d 1323, 1329 (3d Cir.

1991)(citing Hozier v. Midwest Fasteners, Inc., 908 F.2d

1155, 1159 n.3 (3d Cir. 1990)). Similarly, the Supreme

Court explained in Varity Corp. v. Howe, ___ U.S. ___, ___,

116 S.Ct. 1065, 1071 (1996), that

a "person is a fiduciary with respect to a plan," and

therefore subject to ERISA fiduciary duties, "to the

extent" that he or she "exercises any discretionary

authority or discretionary control respecting

management" of the plan, or "has any discretionary

authority or discretionary responsibility in the

administration" of the plan. ERISA § 3(21)(A) [29

U.S.C.A. 1002(21)(A)]. Varity was both an employer and

the benefit plan's administrator [,]

and was therefore acting as a fiduciary only to the extent it

acted as an administrator. In Lockheed, the Court

concluded that "the act of amending a pension plan does

not trigger ERISA's fiduciary provisions." 116 S.Ct. at 1790.

This approach was acknowledged by the district court:

Courts have reasoned that an employer who is also a

plan administrator acts as a fiduciary only when it

functions in its capacity as plan administrator, not

when it conducts business that is not regulated by

ERISA. Because ERISA does not require the creation of

employee pension plans in the first instance, an

employer who designs, amends, or terminates a

11

pension benefit plan is not "administering"[the] plan

and thus does not act as a fiduciary.

Walling, 917 F. Supp. at 319-20 (citations omitted).

Nonetheless, the district court failed to recognize the result

dictated by this distinction. Because the Trustees were not

administering the plan, their amendment was not a

fiduciary act.

The jurisprudence of this area is marked by the drawing

of a sharp distinction between 1) the sponsors of a plan

acting as an administrator (which is discretionary and

therefore fiduciary) and 2) the sponsors of a plan amending,

altering, terminating, or otherwise redesigning the plan

itself (functions considered to be not discretionary and

therefore not fiduciary).1 "Discretion" for the purpose of

determining the applicability of fiduciary obligations means

solely that the plan administrator is making a choice

reserved to it by the plan document in administering the

plan, not tinkering with the plan document itself.

These dichotomies, single-employer/multi-employer and

employer/fiduciary, are useful as guideposts in determining

whether the fiduciary duty applies. In the particular matter

before us, the employer/fiduciary dichotomy unequivocally

tells us that the Trustees were not acting as a fiduciary

when they amended the Pension Fund's plan design. ERISA

clearly states, in pertinent part:

_________________________________________________________________

1. See, e.g., Fagan v. National Stabilization Agreement of Sheet Metal

Indus. Trust Fund, 60 F.3d 175, 178 (4th Cir. 1995); Izzarelli v. Rexene

Prods. Co., 24 F.3d 1506, 1524-25 (5th Cir. 1994); United Paperworkers

Int'l Union v. Jefferson Smurfit Corp., 961 F.2d 1384, 1386 (8th Cir.

1992); McGann v. H & H Music Co., 946 F.2d 401, 407 (5th Cir. 1991);

Hozier, 908 F.2d at 1160-61; Musto v. American Gen. Corp., 861 F.2d at

912 ("[W]hen an employer decides to establish, amend, or terminate a

benefits plan, as opposed to managing any assets of the plan and

administering the plan in accordance with its terms, its actions are not

to be judged by fiduciary standards."); Young v. Standard Oil (Indiana),

849 F.2d 1039, 1045 (7th Cir. 1988) ("In short, an employer does not

owe its employees a fiduciary duty when it amends or abolishes a

severance benefit plan."); Cunha v. Ward Foods, Inc., 804 F.2d 1418,

1432-33 (9th Cir. 1986); Phillips v. Amoco Oil Co., 799 F.2d 1464, 1471

(11th Cir. 1986); Amato v. Western Union Int'l, Inc., 773 F.2d 1402, 1417

(2d Cir. 1985).

12

Except as otherwise provided in subparagraph (B), a

person is a fiduciary with respect to a plan to the

extent (I) he exercises any discretionary authority or

discretionary control respecting management of such

plan or exercises any authority or control respecting

management or disposition of its assets, (ii) he renders

investment advice for a fee . . . or has any authority or

responsibility to do so, or (iii) he has any discretionary

authority or discretionary responsibility in the

administration of such plan.

29 U.S.C.A. § 1002(21)(A) (emphasis added). None of the

above-described situations that give rise to thefiduciary

duty is present here.

IV.

We reject the district court's statement that the

"[t]rustees enacted the amendment to advance non-Pension

Fund interests." Walling, 917 F. Supp. at 322. The court

simply identified the wrong criteria: since the Trustees, as

settlors, were free to scrap the plan altogether, they were

free to advance non-Pension Fund interests in making

design changes to it.

In sum, the ERISA fiduciary obligations simply do not

apply to a plan amendment. See Lockheed, 116 S.Ct. at

1789. The Trustees, acting collectively as settlor, were free

to make any amendment that did not run afoul of relevant

ERISA regulations. No such regulation was implicated here.

See, e.g., 29 U.S.C.A. § 1054(g)(amendment generally may

not decrease accrued plan benefits) and § 1085b (if

adoption of an amendment results in underfunding of a

defined benefit plan, the sponsor must post security for the

amount of the deficiency). Walling and his class had no

accrued or vested benefits that were affected by the

Trustees' actions. The Pension Fund plan explicitly states:

12.04 No Vesting in Assets. No person other than

the Trustees of the Pension Fund shall have any right,

title, or interest in any of the income or property of any

funds received or held by or for the account of the

Pension Fund, and no person shall have any vested

right to benefits provided by the Pension Plan . .. .

13

App. at 180.

V.

For the reasons stated herein, we will reverse the

February 9, 1996, order of the district court. The matter

will be remanded to the district court with a direction to

enter an order granting the Trustees' motion for summary

judgment.

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

14