Amicus Brief — Alessi v. Raybestos-Manhattan, Inc.

Nos. 79-1943, 80-193

(Consolidated)

Supreme Court of the United States

October Term, 1980

No. 79-1943

JOSEPH ALESSI, RAYMOND BUISSON, STEPHEN

MICHALSKI, CHARLES REPKA and

T. EDWARD WHITE,

Appellants,

vs.

RA BESTOS-MANHATTAN „INC. and RAYBESTOS-

MANHATTAN, INC. EMPLOYEE RETIREMENT

PLAN, jointly, severally or in the alternative,

Appellees.

ON APPEAL FROM THE UNITED STATES COURT

OF APPEALS FOR THE THIRD CIRCUIT

No. 80-193

HENRY BUCZYNSKI, ALEX BORUSOVIC and

OTHER RETIREES SIMILARLY SITUATED,

Petitioners,

vs.

THE GENERAL MOTORS CORPORATION,

Respondent.

On Writ of Certiorari to The United States

Court of Appeals for the Third Circuit

MOTION OF NATIONAL STEEL CORPORATION

FOR LEAVE TO FILE BRIEF AS AMICUS

CURIAE AND BRIEF AMICUS CURIAE:

Of Counsel — R. VoLRk

WILLIAM W. Scorr, Jr. HORP, REED & ARMSTRONG

Car H. — Jr. 2900 Grant Building

JEFFREY S, BLUM Pittsburgh, Pa. 15219

THORP, REED & ARMSTRONG (412) 288-7771

2900 Grant Building

Pittsburgh, Pa. 15219

SMITH BROS., Law PRINTERS, 620 SECOND AVENUE, PITTSBURGH, Pa. 18216

1

MOTION FOR LEAVE TO FILE BRIEF

AS AMICUS CURIAE

NOW comes National Steel Corporation hereinafter

(“National”) and respectfully moves the Court for leave

to file a brief Amicus Curiae in support of the position

of Appellees Raybestos-Manhattan, Inc., and Raybestos-

Manhattan, Inc., Employees Retirement Plan and Re-

spondent The General Motors Corporation.

The question before the Court which N ational

wishes to address is whether the Employee Retirement

Income Security Act of 1974 prohibits a monthly pen-

sion benefit provided under a negotiated, non-contribu-

tory pension plan from being based, in part, on the

workmen’s compensation benefit that may be received

by a retired plan participant. Such provisions are com-

monly known as workmen’s compensation offsets,

National, the nation’s fourth largest steel company,

has entered into collective bargaining agreements with

the United Steelworkers of America which provide for

such workmen’s compensation offsets. In entering into

these agreements and determining their anticipated

costs National took into account the savings that would

result from such offsets. Accordingly National has a

direct interest in the issue to be decided by the Court

and in the continuing validity of such offsets.

Additionally National is a defendant in a class ac-

tion Tolbert v. National Steel Corporation (S.D. Illinois,

No. 81-3003) in which the plaintiffs are challenging the

validity under ERISA of the workmen’s compensation

offset contained in the Granite City Steel Division of

National Steel Corporation—United Steelworkers of

America Pension Plan.

WHEREFORE National moves this Court to allow the

filing of the Brief of Amicus Curiae National Steel Cor-

ii

Motion for Amicus Curiae.

poration in support of the position of Appellees and Re-

spondent which is submitted herein with the requisite

number of printed copies.

Respectfully submitted,

CHARLES R. VOLK

THORP, REED & ARMSTRONG

2900 Grant Building

Pittsburgh, Pennsylvania 15219

(412) 288-7771

WILLIAM W. Scort, Jr.

CARL H. HELLERSTEDT, JR.

JEFFREY S. BLUM

THORP, REED & ARMSTRONG

2900 Grant Building

Pittsburgh, Pennsylvania 15219

iii

TABLE OF CONTENTS

PAGE

Motion For Leave To File Brief As Amicus Curiae 1

Interest of Amicus Curiae National Steel Corpora-

ag ARN SEF ̃—— RR RON tea 1

„„ oi.scsc\.... ccvccsccacsercoscbicccesczchalinsvcnes, 1

nn OT FIG IEEE ENE 3

r A pn 3

II. Workmen's Compensation Offsets Are Integral

Factors In The Computation And Determina-

tion Of A Pension Plan's Benefits And Thus

Are Not A Prohibited Forfei ture. 5

III. The Nature Of Workmen’s Compensation And

Retirement Benefits Does Not Preclude Off-

setting Pension Benefits Since Those Benefits

„ e 11

IV. Disailowing The Workmen’s Compensation Off.

sets Will Provide An Unexpected Windfall For

Employees And A Costly And Unanticipated

Burden For Employers . q 16

C ̃ KKK 0000000 18

CASES CITED: PAGE

Amory v. Boyden Associates, 434 F. Supp. 671 (S. D.

. ̃ TAT ae gk a tke 9

Fielder v. Travelers Insurance Company, 79 Mich.

App. 449, 263 N. W. 24 9 (1977) 14

Fisher v. Consolidated Freight Wrap, Inc., 12 Ore.

App. 417, 507 P. ad 53 (1978) . . . . 13

Gasparick v. H. C. Price Construction Co., 399 Mich.

483, 490, 247 N. W. 2d 824 (1976) 14

Heidler v. Industrial Commission, 482 P. 2d 889

— ——— ͤ cist 12

Keller v. Graphic Systems of Akron, Inc., 422

F. Supp. 1005 (N. D. Ohio, 19760) 9

iv

Table of Contents.

PAGE

Lewis v. Merrill Lynch Pierce Fenner & Smith, 431

e eeebeeseeesee 9

Lofty v. Richardson, 440 F.2d 114 (C. A. 6, 1971) 5

Los Angeles Department of Power and Water v.

r e e 17

Mazor v. State of Maryland, 279 MD. 355, 369 A. 2d

„ ee eee 15

Puffer Mercantile Co. v. Arellano, 546 P. 2d 481 Colo.

%%% ͤ M ³·˙ AA ss 12

Riley v. MEBA Pension Trust, 570 F.2d 406 (C. A.

ee een 9

Scott v. C. E. Powell Coal Co., 402 P. 73, 166 A. 2d

/ ̃ ̃ͤͤUanm VA... ee ubaihaee 12

Utility Workers Union of America v. Consumers

Power Company, (C. A. 6, No. 78-1402, January

enen 4

Winer v. Edison Brothers Stores Pension Plan, 447

SOG, Gt (ELD. BEO., TOTS) ici icbiSiiciiccceicccccccseccssees 9

STATUTES CITED:

Employee Retirement Income Security Act of 1974,

P. L. 93-406, 88 Stat. 829, 29 U.S.C. Section 1001

%%% ͤ doaugSediced 1. 3

, ..... 6

, ͤ .. aS Bae 8 ee ALORA a 7

Internal Revenue Code of 1954, 26 U.S.C. Section

%% e 6

REGULATIONS CITED:

Pension Benefit Guaranty Corporation Regulations,

e on 6

Treasury Regulations on Income Tax, 26 C.F.R.

„„ 4, 6, 17

1

v

Table of Contents.

LEGISLATIVE HISTORY: PAGE

H. Rep. No. 533, 93 Cong., 1974 U.S. Code Cong., &

Admin. News, p. 4639, 5655-5656 3

S. Rep. No. 383, 93 Cong., 1974 U.S. Code Cong., &

Admin. News p. 4890-49330 7

REVENUE RULINGS CITED:

Rev. Rul. 68-243, 1968-1 C. B. 16//2ꝛ7 17

TREATISES CITED:

1 Larson, Workmen’s Compensation Law, §§1.00,

ß d Neda Ske. eicsincese. 13

4 Larson, Workmen’s Compensation Law, 5897.10,

N. A 13

INTEREST OF AMICUS CURIAE

NATIONAL STEEL CORPORATION

The interest of Amicus Curiae National Steel Cor-

poration is described in the preceeding motion for leave

to file brief as Amicus Curiae.

SUMMARY OF ARGUMENT

Congress’ concern in enacting the anti-forfeiture

provisions of ERISA was to ensure that after an em-

ployee completed a certain number of years of service

with an employer he would have a vested right to receive

a promised benefit. A workmen’s compensation offset

contained in a pension plan is an integral factor in the

plan’s computation and determination of benefits to

which a retired employee is entitled. It does not result

in a complete denial of all pension benefits and obliga-

tions determined under the terms of the plan. Rather

the net effect of the offset is to provide retired employees

with a total monthly benefit that is equal to the entire

benefit provided under the plan. Accordingly it is not a

“forfeiture” of a retirement benefit as that term is de-

fined under ERISA.

Workmen’s compensation benefits and retirement

benefits paid under a pension plan serve the same pur-

pose—to recompense an employee for his loss of earning

power. If a retired employee were to receive concurrently

workmen’s compensation benefits and retirement ben-

efits under a pension plan, he would be receiving dupli-

cate benefits while only suffering one wage loss. Since

workmen’s compensation benefits arise from a loss of

earning power and are not a means of quasi-tort recov-

ery, the commentators and the pre-ERISA cases recog-

nize that it would be contrary to public policy and

inconsistent with the nature of workmen’s compensation

to prohibit workmen’s compensation offsets.

Summary of Argument.

Workmen’s compensation offsets do not deprive

retired employees of deferred wages which they have

earned. Rather an employer must take into account the

cost of providing pension benefits. If a pension plan

contains a workmen’s compensation offset the antici-

pated cost of providing pension benefits is less than if

the plan did not provide such benefits. The savings re-

sulting from the presence of a workmen’s compensation

offset in a pension plan permits an employer to provide

to all employees a greater pension benefit or a different

benefit that would not have been available absent the

offset. If workmen’s compensation offsets are not per-

mitted employees will receive greater than bargained for

total benefits and employers will be saddled with un-

anticipated, burdensome costs.

Argument.

ARGUMENT

The Employee Retirement Income Security Act of 1974

does not prohibit the Monthly Retirement Pension

Benefit provided under a negotiated, non-contribu-

tory pension plan to be based in part on the amount

of the Monthly Workmen’s Compensation Benefit

received by a retired employee.

I. Introduction

In 1974, Congress enacted the Employee Retirement

Income Security Act of 1974, P.L. 93-406, 88 Stat. 829,

29 U.S.C. Section 1001 et seq., (““ERTSA’’)—a complex

panoply of labor and tax laws governing this country’s

private pension system. Congress’ purpose in enacting

ERISA was (1) to establish minimum standards of

fiduciary conduct for those dealing with retirement plans

and (2) to improve the equitable character and sound-

ness of private pension plans by requiring them (a) to

vest the accrued benefits of employees who had signifi-

cant periods of service with an employer, (b) to meet

minimum standards of funding and (c) to guarantee

the adequacy of the plans’ assets. H.Rep. No. 533, 93

Cong., 1974 U.S. Code Cong., & Admin. News, p. 4639,

5655-5656.

The only question before the Court which will be

addressed by Amicus National Steel Corporation is

whether ERISA permits a monthly pension benefit pro-

vided under a negotiated, non-contributory pension plan

to be based, in part, on the workmen’s compensation

benefit that may be received by a retired plan partici-

pant.

In the companion cases of Buczynski v. The General

Motors Corporation and Alessi v. Raybestos-Manhattan,

Inc., the United States Court of Appeals for the Third

Argument.

Circuit held that such workmen’s compensation offsets

were not prohibited by ERISA. The holding of that court

was based on the validity of Treasury Regulation 1.411

(a)-4(a) (1979) which expressly authorizes workmen’s

compensation offsets and on the court’s view that Con-

gress did not intend to prohibit such offsets.

On November 3, 1980, the Court noted probable

jurisdiction in the appeal of Alessi et al., and granted

the petition for writ of certiorari of Buczynski et al.,

and consolidated the cases.

On January 6, 1981, the United States Court of

Appeals for the Sixth Circuit decided Utility Workers

Union of America v. Consumers Power Company (No.

78-1402, January 6, 1981). In that case the Sixth Circuit

held that workmen’s compensation offsets were a for-

feiture prohibited by ERISA. The basis for the Sixth

Circuit’s holding was that pension benefits and social

security benefits (which may be used to offset p asion

benefits) have the same “source of entitlement.” On

the other hand the Sixth Circuit reasoned that work-

men’s compensation benefits are paid solely because an

employee has sustained an occupational injury within

the course of his employment. Thus, the Sixth Circuit

concluded that workmen’s compensation benefits were

not part of “an integrated and correlated retirement

system” that could be used to offset pension benefits

under ERISA.1

1. Interestingly in reaching that conclusion the

Sixth Circuit failed to note its prior decision in Lofty v.

Richardson, 440 F.2d 114 (C.A. 6, 1971) in which it up-

held the constitutionality of reducing social security dis-

ability benefits by the amount of workmen’s compensa-

tion benefits received where the total received under the

two programs exceeds 80 percent of previous average

monthly wages.

Argument.

In this brief we will attempt not to restate the

presentation of Appellants Raybestos-Manhattan, Inc.,

and Raybestos-Manhattan, Inc. Employee Retirement

Plan and of Respondent The General Motors Corpora-

tion. We will address ourselves to certain arguments

of the Appellants and Petitioners and to the opinion of

the Sixth Circuit in Utility Workers concerning Con-

gress’ intent in adopting an anti-forfeiture provision;

the nature of workmen’s compensation benefits vis-a-vis

retirement benefits; and the role of collective bargaining

with respect to such benefits.

II. Workmen’s Compensation Offsets Are Integral Fac-

tors In The Computation And Determination Of A

Pension Plan’s Benefits And Thus Are Not A Pro-

hibited Forfeiture.

The pension plans which are the subject of this case

provide, in effect, that the retirement benefit which a

retired employee is entitled to receive will be reduced

or offset by the amount of the workmen’s compensa-

tion benefit, if any, that he receives from his former

employer or on his former employer’s behalf. There is

no provision in ERISA which expressly prohibits such

a provision. Indeed, the pertinent Treasury Regulations

specifically permit such an offset as do those of the

Pension Benefit Guaranty Corporation. See Treasury

Regulations on Income Tax, 26 C.F.R. Section 1.411(a)

—4(a); 29 C. F. R. Section 2605.2. Nevertheless the Ap-

pellants, Petitioners and United States Court of Appeals

for the Sixth Circuit contend that such a provision con-

stitutes a forfeiture prohibited by ERISA since a com-

pany could legitimize any forfeiture of vested pension

benefits simply by including the forfeiture into the pen-

sion plan’s computation procedures. We submit, how-

Argument.

ever, that this reasoning misconstrues the meaning of

the term “forfeiture” and fails to recognize Congress’

intent in enacting the anti-forfeiture provisions of

ERISA.

Section 203(a) of ERISA and Section 411(a) of the

Internal Revenue Code each require that “an employee’s

right to his ‘normal retirement benefit’ [be] nonfor-

feitable upon the attainment of normal retirement age.“

(Emphasis supplied.) Each section also provides that

a plan must meet certain vesting requirements under

which an employee- participant must be entitled to a

certain specified percentage of his “accrued benefit“

after a specified number of years of service.

The terms “accrued benefit” and “normal retire-

ment benefit” are defined in Section 3 of ERISA for

purposes of Section 203(a), and they are also defined

in Section 411 of the Internal Revenue Code. The term

“normal retirement benefit” is defined in ERISA and

the Internal Revenue Code as “the greater of the early

retirement benefit under the plan or the benefit under

the plan commencing at normal retirement age.” “Ac-

crued benefit” is defined in ERISA and the Internal

Revenue Code in the case of a defined benefit plan (as

are the plans here) as “the individual’s accrued benefit

determined under the plan . . . expressed in the form of

an annual benefit commencing at normal retirement

age.”

Finally the definition of the term nonforfeitable“

is contained in Section 3(19) of ERISA. That section

states that the term nonforfeitable, when used with

respect to a pension benefit or right—

means a claim obtained by a participant or his

beneficiary to that part of an immediate or deferred

Argument.

benefit under a pension plan which arises from the

participant’s service, which is unconditional, and

which is legally enforceable against the plan. (Em-

phasis supplied.)

Thus, the term “nonforfeitable” does not apply to

the manner in which benefits are to be computed. Rather

these sections provide that once an employee has com-

pleted a certain number of years of service he must be

entitled to receive some benefit and the benefit which

he is entitled to receive cannot be taken away from him.

Put simply, Congress was concerned that after several

years with an employer, an employee have a vested right

to receive a promised benefit,

Indeed, this conclusion is supported by the pertinent

legislative history (S. Rep. No. 383, 93 Cong., 1974 U.S.

Code Cong. & Admin. News, 4890, 4930) :

Unless an employee’s rights to his accrued

pension benefits are nonforfeitable, he has no as-

surance that he will ultimately receive a pension.

Thus, pension rights which have slowly been stock-

piled over many years may suddenly be lost if the

employee leaves or loses his job prior to retirement.

Today slightly over two thirds of the private

pension plans provide some vested rights to pension

benefits before retirement. However, as a general

rule, employees do not acquire vested rights until

they have been employed for a fairly long period

with a firm or are relatively mature. Since there

is no general applicable legal requirement for pre-

retirement vesting, some plans do not offer this

type of vesting at all, and among those plans which

do, there is no uniformity in the vesting rules as

Argument.

provided. At present, only one out of every three

employees participating in employer-financed plans

has a 50 percent or greater vested right to his ac-

crued pension benefits. As a result, even employees

with substantial periods of service may lose pension

benefits on separation from employment. Extreme

cases have been noted in which employees have

lost pension rights at advanced ages as a result

of being discharged shortly before they would be

eligible to retire.

x * —

For reasons indicated above, the committee

concluded that it is necessary and desirable to pro-

vide a minimum standard of vesting for all qualified

pension plans. (Emphasis supplied.)

The pension plans in question here, like most pen-

sion plans containing workmen’s compensation offsets,

provide for a normal retirement benefit that takes into

account any workmen’s compensation benefits received

by a retired employee from the employer or on its be-

half. Accordingly, the workmen’s compensation offset

is an integral factor in the plans’ computation and deter-

mination of benefits to which a retired employee is en-

titled. Thus, it is not a forfeiture (1) of a normal retire-

ment benefit or (2) of an accrued benefit as those terms

are defined in ERISA. Rather, the workmen’s compensa-

tion offset is used to determine the amount of a partici-

pant’s normal retirement benefit to be received under

the plan. Calling the offset a forfeiture is irreconcilable

with the fact that the offset is a factor used to deter-

mine a normal retirement benefit. Thus, we submit that

the offset cannot be considered a forfeiture of that bene-

fit.

9

Argument.

The cases relied upon by Appellants (Br. 14, 15)

and Petitioners (Br. 20, 21) Winer v. Edison Brothers

Stores Pension Plan, 447 F. Supp. 836 (E.D. Mo., 1978) ;

Keller v. Graphic Systems of Akron, Inc., 422 F. Supp.

1005 (N.D. Ohio, 1976) ; Lewis v. Merrill Lynch Pierce

Fenner & Smith, 431 F. Supp. 271 (E.D. Pa., 1977);

Amory v. Boyden Associates, 434 F. Supp. 671 (S.D.

N.Y., 1976); and Riley v. MEBA Pension Trust, 570

F. 2d 406 (C. A. 2, 1977) do not compel a different con-

clusion. These cases dealt with the validity of denying

a participant a benefit on account of his entering the

employ of a competitor rather than with the validity

of computing a participant’s normal retirement or ac-

crued benefit, That is, they involve provisions which

result in a complete denial of all pension obligations,

while the provisions in question here involve the deter-

mination of the amount of the benefit to which the par-

ticipant is entitled.

Thus, these cases reflect Congress’ concern with

employees’ vested rights in retirement benefits not being

forfeitable, rather than with the formula used to com-

pute retirement benefits payable under a plan. Here, of

course, the worker’s right to his benefit is not disturbed

by the workmen’s compensation offset. Unlike the sit-

uation in the cases supra, where the retired employee

lost his right to receive any benefit under the plan, a

retired employee under the plans here receives the total

benefit to which he is entitied regardless whether that

benefit is paid under the plan alone or under the plan

and under workmen’s compensation.

The Sixth Circuit in Utility Workers Union (Slip.

Op. 7) stated:

10

Argument,

If this Court were to accept the reasoning of

defendants, a Company could legitimize any for-

feiture of vested pension benefits simply by includ-

ing the forfeiture into [sic] its pension plans’ com-

pensation procedures. Such result, however, would

be contrary both to the provisions and the spirit of

ERISA.

Yet our position here is not contrary to that of the

Sixth Circuit with respect to the plan provisions that

would deprive an employee of all the benefits due to him

under the terms of a plan. Rather we only contend that

an offset is not a forfeiture where, as here, it provides

that the benefits payable by a plan are reduced if the

retired employee receives benefits of a like kind from

his employer or on his employer’s behalf. Thus, where,

as here, the net effect of the offset is to provide retired

employees with a total monthly benefit from an em-

ployer that is equal to the entire benefit provided under

the pension plan, it should not be considered a for-

feiture.

11

Argument.

III. The Nature Of Workmen’s Compensation And Re-

tirement Benefits Does Not Preclude Offsetting Pen-

sion Benefits Since Those Benefits Are Duplicative.

It is almost universally recognized that workmen’s

compensation benefits and retirement benefits paid un-

der a pension plan serve the same purpose—to recom-

pense an employee for his loss of earning power. Thus,

if a retired employee were to receive concurrently work-

men’s compensation benefits and retirement benefits un-

der a pension plan, he would be receiving a duplicate

benefit while suffering only one wage loss.

Petitioners, Appellants and the Sixth Circuit fail to

recognize the similar nature and purpose of such ben-

efits. In Utility Workers Union the Sixth Circuit (Slip.

Op. 20) quoted the District Court in that case:

both the healthy and the maimed retirees

would receive the same post-retirement income even

though the burdens on the two are clearly disparate.

Even though this may be the case, we submit that

it is not inequitable and that it should make no difference

in determining the benefits that a retired worker will

receive. Those who believe the contrary are under the

mistaken belief that workmen’s compensation provides

for a quasi-tort recovery rather than a means of pro-

tecting against wage loss. Indeed, an analysis of the

nature of workmen’s compensation payments and pen-

sion retirement benefits reveals that each is designed

to compensate an employee for his loss of earning power

while a recovery in tort is intended to make whole those

who have been wronged.

Professor Arthur Larson, who is this country’s lead-

ing authority on the subject of workmen’s compensation,

12

Argument.

characterizes workmen’s compensation as a wage loss

protection system, similar to social security and private

pensions, which, of course, are also means of protecting

against wage loss. Moreover, Professor Larson rec-

ognizes that the nature and purpose of workmen’s

compensation differ fundamentally from damages re-

coverable as the result of the commission of a tort.

First, the payment of workmen’s compensation is de-

pendent only upon the occurrence of a work-connected

injury. Neither negligence nor fault of the employer or

the employee are taken into account in determining

whether an employee is entitled to payment. Second, the

social philosophy behind workmen’s compensation is

that of providing protection and support and preventing

destitution rather than righting a wrong—the concern

of tort law. Third, unlike tort recoveries, under work-

men’s compensation the only injuries for which com-

pensation will be received will be those producing a

disability with a resulting loss in edrning power. More-

over, the compensation will not restore to a claimant

what he has lost. Rather, the compensation when added

to the claimant’s remaining earning ability will pre-

sumably enable him to exist without being a burden to

others. See 1 Larson, Workmen’s Compensation Law,

§§1.00, 2.00-2.70.2

2. Professor Larson’s view of workmen’s compen-

sation is rooted in and supported by the cases. See e.g.

Heidier v. Industrial Comm’n., 482 P.2d 889 (Ariz. App.,

1971) (Only disability from accident was sexual im-

potence which did not affect earning capacity. Claimant

not entitled to benefits for disability, in the absence

of a loss of earning capacity.) ; Puffer Mercantile Co. v.

Arellano, 546 P.2d 481 (Colo., 1975) (Loss of testicle did

not result in loss of earning capacity so that claimant

not entitled to award.) ; Scott v. C. E. Powell Coal Co.,

13

Argument.

For this reason Professor Larson recognizes that

both workmen’s compensation and retirement benefits

payable under a pension plan are elements in an overall

wage-loss protection system and rejects the concept

that a worker should receive workmen’s compensation

benefits and retirement benefits as a result of that wage

loss (4 Larson §§97.10, 97.51) :

Wage-loss legislation is designed to restore to

the worker a portion, such as one-half or two-thirds,

of wages lost due to the three major causes of wage-

loss: physical disability, economic unemployment,

and old age. The crucial operative fact is that of

wage loss; the cause of the wage loss merely dic-

tates the category of legislation applicable. Now if

a workman undergoes a period of wage loss due to

all three conditions, it does not follow that he

should receive three sets of benefits simultaneously

and thereby recover more than his actual wage. He

is experiencing only one wage loss, and in any logi-

cal system, should receive only one wage-loss bene-

fit. (Emphasis supplied.)

With specific respect to pension plan offsets Professor

Larson states:

Although avoidance of duplication cannct ordinar-

ily be achieved under American statutes in these

402 Pa. 73, 166 A.2d 31 (1960) (No recovery for loss of

taste and smell.) ; Fisher v. Consolidated Freight Wrap,

Inc., 12 Ore. App. 417, 507 P.2d 53 (1973) (Pain and

suffering not compensable unless the pain is disabling. )

Thus the courts and Professor Larson have recognized

that workmen’s mye ypc ay payments are only to be

made for the loss of earning power and that they are

not the same as a recovery in tort.

14

Argument.

cases by, so to speak, trimming at the compensa-

tion end, it is frequently achieved by express lan-

guage trimming at the private plan end, that is, by

reducing the private benefits by the amount of any

compensation payments. Even when the language

of the plan is not specific, a court may give the

benefit of the doubt to a construction that will avoid

over-lapping payments . . The implication seems

to be that duplication of benefits, even between a

private pension and a compensation act, is so abhor-

rent to the court that the language of the pension

scheme does not even “make sense” if it results in

such duplication. (Emphasis supplied. )

Various courts considering the question prior to ERISA

reached this same conclusion. In Fielder v. Travelers In-

surance Company, 79 Mich. App. 449, 263 N.W. 2d 9

(1977), the Michigan Court of Appeals held valid a

workmen’s compensation offset in a pension plan because

(79 Mich. App. 452) :

The purpose of workmen’s compensation is to

recompense an employee for his loss of earning

capacity due to a work-related injury. Gasparick v.

H. C. Price Construction Co., 399 Mich. 433, 490,

247 N. W. 2d 824 (1976). Similarly, we construe

pension benefits as compensation for loss in earning

capacity occasioned by the employee’s ultimate re-

tirement. Where, as here, early retirement is pre-

cipitated by a work-related injury for which the

employee is receiving workmen’s compensation, we

find nothing offensive in a private contractual ar-

rangement in which the employer and employee

agree that the employee shall not be twice com-

pensated for the same loss of earning capacity.

15

Argument.

Similarly, Mazor v. State of Maryland, 279 Md. 355,

369 A.2d 82 (1977), involved a workmen’s compensation

offset. There, the Court of Appeals of Maryland stated

(at 369 A.2d 88) :

Our holding recognizes that workmen’s compensa-

tion is one facet of an overall system of wage-loss

protection, and that the underlying principle of the

system is to restore to the workers a portion of

wages lost by physical disability, unemployment,

or old age. It follows that although two or more

causes of wage loss may coincide, the benefits need

not be cumulative, for the worker experiences but

one wage loss.

Thus, the authorities and courts have recognized

that it would be contrary to public policy and incon-

sistent with the nature of pension benefits and work-

men’s compensation to prohibit workmen’s compensation

offsets. Indeed, if such offsets were not allowed, a retired

employee might well receive combined payments from a

pension plan and from workmen’s compensation that

exceed his pre-retirement income.3

Finally, in Utility Worker’s Union the Sixth Cireuit

questioned (Slip. Op. 19) why a worker should seek

workmen’s compensation benefits if those benefits would

result in an offset of his pension benefits. The question

fails to recognize that often a worker will seek and

receive workmen’s compensation benefits before he re-

3. See e.g. Utility Workers Union, Appellant’s

Brief p. 7, where it is stated that if the workmen’s com-

pensation offset was invalidated certain plaintiffs would

receive workmen’s compensation benefits and on

benefits totaling 119 percent of their pre-re ent

wages.

16

Argument.

tires. If he is partially disabled, he may continue to

receive those benefits after he returns to work and after

his retirement. Thus, a worker would elect to apply for

workmen’s compensation benefits, notwithstanding the

offset, because of the immediate benefit he would receive.

Thus, we submit that the nature of workmen’s

compensation benefits is such that they may be properly

offset against pension benefits. Whether an employee’s

income is reduced because of retirement or because of

injury he has suffered only one wage loss and he may

be compensated for that wage loss by receiving benefits

from a pension plan, social security or workmen’s com-

pensation. Regardless of the source of those benefits he

should be compensated only once.

IV. Disallowing The Workmen’s Compensation Offsets

Will Provide An Unexpected Windfall For Em-

ployees And A Costly And Unanticipated Burden

For Employers.

Petitioners (Br. 32-35) and Appellants (Br. 18) go

to great pains to argue that retirement benefits are

wages earned during the course of employment but

payable after the completion of the work career. The

implication of their argument is that the workmen’s

compensation offset would deprive them of the deferred

wages which they have earned. This argument mis-

conceives the role that collective bargaining plays in

determining the pension benefits that a retired em-

ployee is entitled to receive.

When an employer and a union enter into collective

bargaining, they ultimately agree to the division of an

17

Argument.

economic package of a certain value. The form of ben-

efits provided to employees in such a package includes

wages and such fringe benefits as retirement benefits

paid under a pension plan. Thus, when an employer, such

as Amicus National Steel or the employers here, agrees

to provide pension benefits to its workers, it must take

into account the cost of providing those benefits. The

anticipated cost of providing those benefits under a plan

which contains a workmen’s compensation offset re-

flects any savings represented by the offset which could

be achieved either by way of a decreased pension lia-

bility or a decreased workmen’s compensation liability.

This anticipated savings results in a greater pension

benefit or the provision of a different benefit that would

not have been available absent the offset.5 This fact was

implicitly recognized by the Court in Los Angeles Dept.

of Power and Water v. Manhart 435 U.S. 702. In dis-

cussing the effect that the allowance of a retroactive

recovery would have on pension plans, the Court stated:

4. Although this argument is addressed to the

economic effect that prohibiting workmen’s compensa-

tion offsets would have on employers like National Steel

Corporation who adopt pension plans pursuant to a col-

lective bargaining agreement, the economic effect

would also be the same on employers who adopt pension

plans outside of a collective bargaining situation.

5. Prior to the institution of the cases challenging

the validity of workmen’s compensation offsets, em-

ployers and unions se nag | employees would have

had no reason to doubt the validity of such offsets. As

noted, supra, Treasury Regulation 411(a)-4(a) specific-

ally permits such offsets. Furthermore, in Rev. Rul. 68-

243, 1968-1 C.B. 167, the Internal Revenue Service held

that benefits payable under a state workmen’s compen-

sation law or an occupational disease law could be an

eT offset against benefits payable under a quali-

plan.

18

Argument.

These plans, like other forms of insurance, depend

on the accumulation of large sums to cover con-

tingencies. The amounts set aside are determined

by a painstaking assessment of the insurer’s likely

liability. (Emphasis supplied. )

Thus, if workmen’s compensation offsets are not per-

mitted employees will receive greater than bargained for

total benefits and employers will be saddled with un-

anticipated and burdensome costs. Moreover, in future

years, other economic benefits provided to employees

will necessarily be reduced by the added cost of dis-

allowing workmen’s compensation offsets.

V. CONCLUSION

For the reasons stated above, the judgment of the

United States Court of Appeals for the Third Circuit

should be affirmed.

Respectfully submitted,

CHARLES R. VOLK

THORP, REED & ARMSTRONG

2900 Grant Building

Pittsburgh, Pennsylvania 15219

(412) 288-7771

WILLIAM W. SCOTT, JR.

CARL H. HELLERSTEDT, I x.

JEFFREY S. BLUM

THORP, REED & ARMSTRONG

2900 Grant Building

Pittsburgh, Pennsylvania 15219