Petition — Consumers Power Co. v. Utility Workers Union

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fF ALEXAND WT STEVAS,

IN THE L alaatovatn

Supreme Court of the United States

October Term, 1980

No.

Consumers Power Company, and the

Pension Plan tor Employees of Consumers

Power Company.

Petitioners

VS.

Utility Workers Union of America

AFL-CIO, and its Michigan State Utility

Workers Council, Lewis J. Tinklepaugh,

Clarence J. Segorski, Leo Lingram, Burnell Clough

Robert Yon, Ray Rogers and Paul de Hate,

Respondents

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT

OF APPEALS FOR THE

SIXTH CIRCUIT

WILLIAM O. ALLEN

ARUNAS T. UDRYS.,

DONOVAN E. CHENEY AND

WILLIAM M. ABBOTT

Attorneys for Petitioner

145 South Jackson Street

Jackson, Michigan 49201

(517) 787-4100

PRELIMINARY MATTER

QUESTION PRESENTED

Did the Court of Appeals err in hold-

ing that the Pension Plan for Employees of

Consumers Power Company cannot continue to

determine the benefits under the Plan by

using a collectively bargained offset

which credits to Plan benefits weekly

benefits received under the Michigan

worker's compensation law?

LIST OF PARTIES TO THE PROCEEDING

The names of all the parties to this

proceeding are contained in the caption of

the case.

ii

TABLE OF CONTENTS

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APPENDIX

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TABLE OF AUTHORITIES

Alessi v. Raybestos-Manhattan, Inc., 616

F.2d 1238, Supreme Court Docket No.

79-1943

Buczynski v. General Motors Corporation,

616 F.2d 1238, Supreme Court Docket No.

80-193

IN THE

Supreme Court of the United States

October Term, 1980

No.

Consumers Power Company, and the

Pension Plan for Employees of Consumers

Power Company.

Petitioners

i

Utility Workers Union of America

AFL-CIO, and its Michigan State Utility

Workers Council, Lewis J. Tinklepaugh,

Clarence J. Segorski, Leo Lingram, Burnell Clough

Robert Yon, Ray Rogers and Paul de Hate,

Respondents

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT

OF APPEALS FOR THE

SIXTH CIRCUIT

Petitioners, Consumers Power Company and the Pension |

Plan for Employees of Consumers Power Company, pray that

a writ of certiorari issue to review the opinion of the United

States Court of Appeals for the Sixth Circuit, entered in this

case on January 6, 1981, and with respect to which a

rehearing was denied on February 13, 1981.

REPORTS OF OPINIONS BELOW

The opinion of the Court of Appeals

will be reported at 637 F2d 1082 (1981).

The opinion of the United States District

Court appears at 453 F.Supp 447 (1978).

JURISDICTION

The opinion of the United States

Court of Appeals for the Sixth Circuit was

entered on January 6, 1981. On January 16,

1981, a timely Petition for Rehearing was

filed on the part of the Petitioners with

the Court of Appeals. This Petition was

denied by Order of the Court of Appeals on

February 13, 1981. The jurisdiction of

this Court is invoked under 28 USC

§1254(1) and §210l(c).

STATUTORY PROVISIONS AND

REGULATIONS INVOLVED

Internal Revenue Code of 1954, Sec.

40l(a) (5), 26 U.S.C. §401 (a) (5)

Employees Retirement Income Security Act,

Sec. 203(a), 29 U.S.C. §1053(a)

Internal Revenue Code of 1954, Sec. 41l,

26 U.S.C. §411

Employees Retirement Income Security Act,

Sec. 3(19), 29 U.S.C. §1002(19)

Income Tax Regulations, Sec. 1.411l(a)-4,

26 CFR §1.411(a)-4

Pension Benefit Guaranty Corporation

Regulations, Sec. 2605.3, 29 CFR §2605.3

Pertinent provisions of the statutes

and regulations are set forth in Appendix

C, infra, pages 47 to 5l

STATEMENT OF THE CASE

Petitioner Consumers Power Company

("Consumers") is a corporation organized

under the laws of the State of Michigan,

with its principal offices in Jackson,

Michigan, and is engaged as a public util-

ity in the production, transmission, dis-

tribution and sale of energy, including

electricity and gas, within the State of

Michigan. Michigan Gas Storage Company

and Northern Michigan Exploration Company

are wholly-owned subsidiaries of Con-

sumers.

Effective July 1, 1944, Consumers

established the Pension Plan for Employees

of Consumers Power Company ("Plan") for

its eligible employees. The Plan has been

qualified under the Internal Revenue Code

Since its adoption. The Plan is a defined

benefit plan which provides participants

with an ascertainable benefit upon retire-

ment. This Plan has been the subject of

collective bargaining between the Utility

Workers Union ("Union") and Consumers for

Many years.

In 1966, a worker's compensation

offset provision was added to the Plan in

a supplemental agreement which resulted

from negotiations between Consumers and

the Union. The collectively bargained

offset provision remained in the Plan

through several subsequent rounds of ne-

gotiations, including negotiations which

led to the most recent collective bargain-

ing agreement. That agreement was effec-

tive September 1, 1977, and provided that

the Plan was to remain in effect for a

period of six (6) years.

Following the enactment of ERISA on

September 2, 1974, the Plan was amended to

conform to the requirements of ERISA. As

a collectively bargained plan, dis-

cussions with the Union were conducted

concerning the necessary ERISA amendments

and other matters. No objection to the

offset was made by the Union.

Thereafter, the amended Plan was

Submitted to the Internal Revenue Service

for qualification. During the qualifi-

cation process, all interested parties

were notified of the proceedings pursuant

to Section 7476(b) (2) of the Internal Rev-

enue Code, 26 USC 7476(b)(2). Pursuant to

this notification the Utility Workers

Union appeared on behalf of its members

who were interested parties, and objected

to the worker's compensation offset pro-

vision. The Internal Revenue Service de-

termined that this objection was without

merit and issued a favorable determination

letter stating that the Plan was qualified

for tax purposes.

The Internal Revenue Service noti-

fied the Union representative of its de-

termination, and Plaintiffs instituted

the instant litigation by filing a Com-

plaint in Federal District Court seeking a

declaratory judgment which would void

portions of the agreement between the par-

ties by removing the worker's compensation

offset from the Plan.

The retirement benefits for a parti-

Cipant under the Plan are determined in

Section V of the Plan, with the benefit

formula pertinent to this case being con-

tained in subsections 1 and 2. Subsection

1 is the first of a two-part formula which

establishes a participant's aggregate re-

tirement income from the Company. Accord-

ing to the second part of the formula in

subsection 2, the amount of retirement

income to be paid from the Plan is de-

termined by offsetting the total retire-

ment income amount by the weekly worker's

compensation payments’ received by the

participant from the Company. The sum of

the payments, under the Plan and under the

worker's compensation act, provide the

participant with his aggregate retirement

income from the Company.

Subsection 2 provides in pertinent

part:

2. Workmen's Compensation. All

Workmen's Compensation weekly pay-

ments received by a retired employee

from the Company, Michigan Gas Stor-

age Company, Northern Michigan Ex-

ploration Company, or anyone else

making such payments for one of these

companies will be a credit against

any Retirement Income or any other

payments under this Plan...

All worker's compensation payments

as well as plan benefits are provided

completely by Consumers. Participants are

not required to make any contribution.

The worker's compensation offset never

reduces the total retirement benefit which

the employee has been promised and to

which he is entitled. There is no offset

for payments in liquidation of claims or

for medical expenses paid by Consumers

under the worker's compensation law.

The Court of Appeals, one Judge dis-

senting, held that the offset provision of

the Plan violates 29 USC §1053(a).

BASIS FOR FEDERAL JURISDICTION

The basis for Federal jurisdiction in

the United States District Court is 29 USC

§1132.

REASONS FOR GRANTING THE WRIT

1. The issue in this case is pre-

sently before this Court in Buczynski v

General Motors Corporation and Alessi v

Raybestos-Manhattan, Inc., Docket Nos.

80-193 and 79-1943, respectively. These

cases were orally argued on March 4, 1981,

and it is contemplated that this Court

will decide the issue before the end of

this term of the Court. It is anticipated

that the decision in the Buczynski and

Alessi cases will dispose of the issue in

this case.

2. In addition, a conflict exists

between the Courts of Appeals for the

Third and Sixth Circuits, the Court of

Appeals for the Third Circuit having de-

cided the Buczynski and Alessi cases di-

rectly contrary to the decision of the

Court of Appeals for the Sixth Circuit in

this case. Consequently, in the highly

unlikely event that Buczynski and Alessi

are not decided by this Court on their

merits, this case should be reviewed by

the Court in order to eliminate the con-

flict between the Circuits.

3. The issue presented in this case

is of nation-wide importance. The opinion

of the Court of Appeals strikes down a

well-conceived system of integration and

correlation of benefits for retired per-

sons, developed over a period of thirty

years, and involving about 7,200 pension

plans throughout the United States. As

pointed out by the dissenting Judge in the

Court of Appeals, the majority opinion of

the Court of Appeals is a "very direct

threat to the stability of the pension

plan itself", and "the temporary benefits

which a few may gain by the benefit of this

"doubledipping' must inevitably be offset

by the economic realities that in the

future the impact is bound to be felt in

the financial weakening of an otherwise

sound pension system."1

The worker's compensation offset has

been expressly approved and encouraged by

the Un.ted States Treasury Department for

over thirty years. The Treasury Depart-

ment has expressed its approval in a long

series of regulations and rulings. More

recently, the Treasury Department has been

joined by the Pension Benefit Guaranty

Corporation, whose Board of Directors

consist of the Secretaries of Treasury,

Labor and Commerce. The effect of the

majority opinion of the Court of Appeals

is to strike down the determinations of

the Treasury Department and the Pension

Benefit Guaranty Corporation.

lappendix A, p.22

CONCLUSION

This Court should issue a writ of

certiorari because:

1. This case will be governed by the

Court's decision in Buczynski and Alessi.

2. It will be necessary to resolve a

conflict between the Circuits on the issue

involved in this case.

3. The issue involved in this case is

one of paramount importance.

For these reasons, it is respectfully

submitted that this Petition for Writ of

Certiorari should be granted.

Respectfully submitted,

William O. Allen

Arunas T. Udrys

Donovan E. Cheney

William M. Abbott

Attorneys for

Petitioners

145 S. Jackson Street

Jackson, Michigan 49201

(517) 787-4100

APPENDIZ A

No. 78-1402

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

Utitity Workers UNION OF AMERICA |

AFL-CIO, anpb Its MICHIGAN STATE

Utitity Workers Councit, Lewis

J. TinKLEPAUGH, CLARENCE J. SE-

corsKI, Leo LINGRAM, BURNELL

CLoucu, Ropert Yon, Ray Rocers| APPEAL from the

AND Pau. De Harte, United States District

Plaintiffs-Appellees,; Court for the Eastern

District of Michigan,

v. Southern Division.

ConsuMERS PoWwER COMPANY, AND

Tue PENSION PLAN FoR EMPLOYEES

or CoNsuMERS POWER COMPANY,

Defendants-Appellants.

Decided and Filed January 6, 1981.

Before: ENcLE and Kertu, Circuit Judges, and Peck, Senior

Circuit Judge.

Peck, Senior Circuit Judge, delivered the opinion of the

Court, in which Kerru, Circuit Judge, joined. ENcex, Circuit

Judge, (pp. 21-23) filed a separate dissenting opinion.

Peck, Senior Circuit Judge. There is a single question

presented by the appeal now before the Court: do the non-

forfeitability provisions of the Employees Retirement Income

Security Act of 1974 (ERISA), 29 U.S.C. § 1053(a), prohibit

the reduction of pension benefits by the amount that a pen-

2 Utility Wkrs. Union v. Consumers Power No. 78-1492

sioner receives in workers’ compensation insurance benefits?

Although this question appears simple, it in fact raises several

difficult issues of statutory interpretation. Not only is the

Court required to interpret various provisions of ERISA (in

conjunction with related provisions of the Internal Revenue

Code of 1954 [IRC], 26 U.S.C. § 1 et seq.), the Court also is

required to analyze the nature of the workers’ compensation

benefits that are provided by staie law.

At the outset, we note that the question on appeal has

recently engendered conflicting decisions in several federal

courts. For example, in the United States District Court for

the Eastern District of Michigan (the district in which the

present action was decided), the exact question before us

has now been addressed on four separate occasions. In Bor-

dine v. Evans Products Co., 453 F. Supp. 19 (E.D. Mich. 1978);

Pavlovic v. Chrysler Corp., Civ. No. 7-70438 (E.D. Mich.

January 10, 1978); and Carlson v. Bundy Manufacturing Co.,

Civ. No. 6-72274 (E.D. Mich. August 18, 1977), the district

court upheld the validity of the so-called “workers’ compensa-

tion offset” (i.e., the reduction in pension benefits by the

amounts that pensioners receive in workers’ compensation

benefits ). Judge Philip Pratt, the district judge in the present

case, wrote the Carlson decision; however, in his opinion

herein reviewed, Judge Pratt, with exemplary candor, recon-

sidered his reasoning in Carlson and reached the opposite

result. In the present action, Judge Pratt entered summary

judgment in favor of plaintiffs, and held that the reduction in

pension benefits by the amount that a pensioner receives in

workers’ compensation benefits is a forfeiture that is pro-

hibited by the non-forfeitability provisions of ERISA. See

Utility Workers Union v. Consumers Power, 453 F. Supp. 447

(1978). Shortly after Judge Pratt issued his opinion in the

present case, two decisions of the United States District Court

for the District of New Jersey expressly followed his reasoning

therein. See Buczynski v. General Motors Corp., 456 F. Supp.

867 (D.N.J.), rehearing denied, 464 F.Supp. 133 (1978);

No. 78-1402 Utility Wkrs. Union v. Consumers Power 3

Alessi v. Raybestos-Manhattan, Inc., CA No. 78-0434 (D.

N.J. February 15, 1979). However, on appeal, both of

these cases were reversed by the Third Circuit Court of

Appeals, on the ground that Congress gave its implicit ap-

proval to workers’ compensation offsets in various ERISA

provisions. Based on this holding, the Third Circuit concluded

that ERISA pre-empted a New Jersey statute that expressly

prohibited pension plans from incorporating workers’ compen-

sation offsets. See Buczynski v. General Motors Corp., 616

F.2d 1238 (3d Cir.), cert. dismissed sub. nom. Alessi v. Ray-

bestos-Manhattan, Inc., —— U.S. ——, 101 S.Ct. 25 (1980).

We have heard oral argument in the present case, and

have reviewed the lengthy and comprehensive briefs that have

been submitted by the parties and by the numerous amici.

After careful consideration, we find ourselves is disagreement

with the position taken by the Third Circuit in Buczynski, and

we affirm the judgment of the district court herein. We are

convinced that this result comports both with the statutory

language of ERISA, and with the legislative history of the Act.

STATEMENT OF THE CASE

Plaintiffs in the present case include the Utility Workers

Union of America, and its Michigan State Utility Workers

Council. These plaintiffs are the labor organizations that are

bargaining agents for the operating, maintenance and construc-

tion employees of defendant, Consumers Power Company.

Plaintiffs also include seven individual employees of Con-

sumers Power, each of whom receives workers’ compensation

benefits under Michigan law, and each of whom is eligible to

receive retirement benefits under the Pension Plan for Em-

ployees of Consumers Power Company.

The facts of the present case are both straightforward and

undisputed. The Pension Plan for the Employees of Con-

sumers Power provides for the calculation and payment of

normal or early retirement benefits, in section V-1 of the Plan,

as follows:

4 Utility Wkrs. Union v. Cc nsumers Power No. 78-1402

V-1. Normal or Deferred Retirement Income

The monthly Retirement Income payable to an em-

ployee who, at Normal Retirement Date or at Deferred”

Retirement Date, retires on or after January 1, 1976,

pursuant to the provisions of the Plan from the service

of the Company, will be an amount equal to the product

of the employee’s Final Pay times the sum of the per-

centages determined as follows:

14% for each of the first 20 years of Accredited Service.

1% for each of the next 10 years of Accredited Service.

4% for each of the next 10 years of Accredited Service. . . .

The Plan further provides, in section V-2, for the reduction

of a pensioner’s retirement benefits by the amount of weekly

workers’ compensation payments that the pensioner receives

from Consumers Power or its subsidiaries under the Michigan

Workers’ Compensation Act, MCLA 418.101 et seq. (The Plan

does not provide an offset for payments that are made in

liquidation of claims or for payments for medical expenses

that are made by Consumers Power under the workers’ com-

pensation law.) Section V-2 of the Plan reads as follows:

V-2. Workmen’s Compensation. All workmen’s Com-

pensation weekly payments received bv a retired em-

ployee from the Company, Michigan Gas Storage Com-

pany, Northern Michigan Exploration Company, or any-

one else making such payments for one of those com-

panies will be a credit against any Retirement Income or

any other payments under this Plan. Monthly payments

under the Plan will be reduced by the amount of such

credit pursuant to the following rules:

(a) The Credit will be based on Workmen’s Com-

pensation paid during the preceding month. If

Workmen’s Compensation payments are made for

the entire month, the credit will equal 4-1/3 weekly

Workmen’s Compensation payments.

No. 78-1402 Utility Wkrs. Union v. Consumers Power 5

(b) The maximum credit against any Retirement

Income or any other payments under this Plan for

Workmen's Compensation payments in any month

will be the amount of such monthly payments due

under this Plan for the succeeding month.

The above provision for a workers’ compensation offset, which

was incorporated into the Pension Plan in 1966, is the subject

of the present litigation.

PLAINTIFFS ALLEGATIONS

In their complaint, plaintiffs attacked the workers’ compen-

sation offset of the Consumers Power Pension Plan on three

statutory grounds:

(1) Plaintiffs alleged that the offset worked a partial or

total forfeiture of benefits to which the individual plaintiffs

had non-forfeitable rights, in violation of § 203(a) of ERISA,

29 U.S.C. § 1053(a).

(2) Piaintiffs alleged that the offset allowed Consumers

Power to satisfy its workers’ compensation liabilities out of

Pension Plan assets, in violation of § 403(c)(1) of ERISA,

29 U.S.C. § 1103(c)(1). That section provides, in part, that

“the assets of a plan shall never inure to the benefit of any

employer and shall be held for the exclusive purposes of

providing benefits to participants in the plan and their bene-

ficiaries and defraying reasonable expenses of administering

the plan.”

(3) Plaintiffs alleged that the workers’ compensation offset

amounted to an assignment of an employee’s accrued retire-

ment benefits for the purpose of satisfying Consumers Power's

liability under the Michigan Workers’ Compensation Act,

supra. Plaintiffs argued that such assignment violated § 206

(d)(1) of ERISA, 29 U.S.C. § 1056(d)(1), which reads,

“Each pension plan shall provide that benefits provided under

the plan may not be assigned or alienated.”

6 Utility Wkrs. Union v. Consumers Power No. 78-1402

Upon cross-motions for summary judgment, the district

court entered judgment in favor of plaintiffs, holding that

the workers’ compensation offset violated the vesting and for-

feiture requirements of section 203(a) of ERISA. We agree

with this conclusion of the district court, and thus we do not

reach the merits of plaintiffs’ other two allegations.

STATUTORY PROVISIONS/TREASURY REGULATIONS

Our application of the provisions of ERISA to the workers’

compensation offset now in question begins with an analysis

of the minimum vesting standards that are set out in section

203 of ERISA, 29 U.S.C. § 1053. Specifically, subsection (a)

(2)(A) of section 203, 29 U.S.C. § 1053(a)(2)(A), establishes

the following non-forfeitability requirement:'

Each pension plan shall provide that an employee’s

right to his normal retirement benefit is nonforfeitable

upon the attainment of normal retirement age and in

addition . . . an employee who has at least 10 years of

service has a nonforfeitable right to 100 percent of his

accrued benefit derived from employer contributions.

In interpreting the scope of this non-forfeitability requirement,

several definitions that are set out in § 3 of the Act, 29 U.S.C.

§ 1002, are relevant. For example, 29 U.S.C. § 1002(19) pro-

vides that,

the term “nonforfeitable” when used with respect to a

pension benefit or right means a claim obtained by a

1 ERISA contains certain exceptions to this non-forfeitability re-

quirement which concededly do not apply to any of the plaintiffs in

this action. See 29 U.S.C. § 1053(a)(3). Congress exempted from

the non-forfeitability requirement of section 203(a) (2) pension plans

which provide that payment shall cease if the survivor dies, plans

which suspend payments while the participant is reemployed in

certain types of industries, plans in which certain amendments are

made retroactive, plans ir which members have voluntarily withdrawn

their mandatory contrib .ions, and plans that are designed to forestall

economic failure.

No. 78-1402 Utility Wkrs. Union v. Consumers Power 7

participant or his beneficiary to that part of an imme-

diate or deferred benefit under a pension plan which

arises from the participant's service, which is uncon-

ditional, and which is legally enforceable against the

plan.

Further, 29 U.S.C. § 1002(22) defines a “normal retirement

benefit” for purposes of ERISA as “the benefit under the plan

commencing at normal retirement age,” and 29 U.S.C. § 1002

(23)(A) provides that the “accrued benefit” to which a pen-

sioner receives a non-forfeitable right is “the individual’s ac-

crued benefit [as] determined under the [pension] plan... .”

As a part of their argument to this Court, defendants focus

on the phrase “under the plan” that Congress incorporated

into each of the three definitions cited above. In essence,

defendants argue that a pensioner receives a non-forfeitable

right only to those accrued retirement benefits that are pro-

vided by the terms of the pension plan. In other words,

according to defendants, if a pension plan provides for a

reduction in benefits as a part of the plan’s benefit computa-

tion process, the reduced benefits are the only accrued bene-

fits to which a pensioner gains a non-forfeitable right. We

reject defendants’ argument for the reason that it proves too

much. As the district court correctly stated, “to hold that

any forfeiture or suspension of benefits is permissible so long

as it is sanctioned by the [pension] plan is to turn [ERISA’s]

entire statutory scheme upon its head.” Utility Workers Union

v. Consumers Power, supra, 453 F. Supp. at 452. (We note

that the district court also stated that its prior decision in

Carlson, supra, had “resulted from excessive attention to the

phrase ‘under the plan’ found in the definitional section of

ERISA... .” Id. at 452, n. 8.) If this Court were to accept

the reasoning of defendants, a company could legitimize any

forfeiture of vested pension benefits simply by including the

forfeiture into its pension plan’s computation procedures. Such

result, however, would be contrary both to the provisions and

to the spirit of ERISA. For example, it has been held that

8 Utility Wkrs. Union v. Consumers Power No. 78-1402

ERISA proscribes the forfeiture of an employee's vested pen-

sion benefits when the employee, upon separation from ser-

vice, engages in employment that is competitive with his for-

mer contributing employer. Sec, e.g., Keller v. Graphic Sys-

tems of Akron, Inc., 422 F. Supp. 1005, 1008 (N.D. Ohio

1976). In light of the illegal nature of such forfeiture for

competitive employment, an employer cannot legitimize the

forfeiture merely by providing in a pension plan that the

benefit reduction is a computational adjustment of the plan’s

benefit level.

On the other hand, this Court acknowledges that not every

reduction in pension benefits is prohibited by the non-for-

feitability requirement of section 203. To the contrary, Con-

gress has specifically sanctioned the practice of offsetting pen-

sion benefits by the amount that a pensioner receives in social

security benefits. In establishing standards for qualified pen-

sion trusts in the Internal Revenue Code, 26 U.S.C. § 401(a)

(15)(A), Congress provided that,

A trust shall not constitute a qualified trust under this

section unless under the plan of which such trust is a

part, in the case of a participant or beneficiary who is

receiving benefits under such plan . . . such benefits are

not decreased by reason of any increase in the benefit

levels payable under Title II of the Social Security

| free

By prohibiting a pension benefit offset for any increase in

social security payments, Congress implicitly approved the

longstanding practice of offsetting pension benefits by the

amount of social security payments that a participant receives

at the time of his retirement. (We note that 26 U.S.C.

§ 401(a)(15)(A) has a counterpart in ERISA itself, 29 U.S.C.

§ 1056(b)(1).) Thus, certain offsets (i.e., offsets that are

comparable to an offset for social security payments) are re-

ductions in benefits that do not violate the vesting require-

ments of section 203.

No. 78-1402 Utility Wkrs. Union v. Consumers Power 9

In view of the above statutory provisions, the crux of the

present appeal may be framed in the following terms: Is the

workers’ compensation offset that is provided in the Consumers

Power Pension Plan in the nature of an offset for social security

payments — an offset that Congress implicitly sanctioned in

the provisions of ERISA — or is the workers’ compensation off-

set a forfeiture that is prohibited by the broad non-forfeita-

bility language of section 203(a)? In addressing this ques-

tion, we note that Congress included in ERISA only limited

exceptions to the general non-forfeitability requirement of

section 203. (These exceptions are found in 29 U.S.C. § 1053

(a)(3), and-none are applicable in the present case.?) Fur-

ther, we note that the requirement of non-forfeitability is one

of the essential elements of ERISA’s pension reform plan.

When Congress enacted ERISA, it was concerned about em-

ployees who, after years of service to their employers, were

denied pension benefits on account of their pension plan’s

restrictive vesting requirements. In the Act, Congress in-

tended to provide these employees with guarantees that, after

they had completed certain required years of service, they

would gain unconditional and non-forfeitable rights to fixed

pension benefits. Accordingly, Congress incorporated into

section 203 of ERISA a broad proscription against forfeitures,

and it drew only a few limited exceptions to the statutory

provision. The House Committee, for example, in its com-

ments on section 203, stated unequivocally that “with the

limited exceptions noted [in 29 U.S.C. § 1053(a)(3)], no rights

once they are required to be vested may be lost by the em-

ployee under any circumstance. . . .” H. Rept. 93-807, 1974

U.S. Code Cong. & Admin. News, pp. 4725-6. In light of

the broad non-forfeitability language of section 203, and in

light of the legislative history that underlies that section, this

Court will carefully scrutinize any offset or reduction in pen-

sion benefits in order to determine if the offset or reduction

is a forfeiture that is prohibited by ERISA.

2 See fn. 1, supra.

10 Utility Wkrs. Union v. Consumers Power No. 78-1402

There is a final aspect of ERISA’s statutory scheme that this

Court is required to address in resolving the present appeal —

namely, the regulations and rulings that have been issued by

the Treasury Department on the subject of workers’ compen-

sation offsets over the past twenty-five years. In 1956, the

Treasury Department issued Regulation § 1.401-4(b). That

regulation pertains to section 401(a) of the IRC, 26 U.S.C.

§ 401(a), and to the standards set out therein that must be

met by pension plans in order to qualify for favorable tax

treatment. In this regulation, the Treasury Department statea

that “the total benefits resulting under [a qualified pension]

plan and under such [federal or state] law [must] establish an

integrated and correlated retirement system satisfying the tests

of section 401(a).” In other words, in the regulation, the

' Treasury Department recognized that pension benefits paid

to a retiree may be offset by benefits provided under federal ar

state law, as long as the total venefits under the plan consti-

tute “an integrated and correlated retirement system.” In

1968, 1969 and 1978, the Treasury Department interpreted

Regulation § 1.401-4(b), as it pertains to section 401(a), in

the specific context of workers’ compensation offsets. In the

revenue rulings issued in these years, the Treasury Department

reasoned that an offset for workers’ compensation benefits was

acceptable for purposes of section 401(a) because the total

benefit package provided after such offset constituted “an

integrated and correlated retirement system,” as required by

Regulation § 1.401-4(b). See Rev. Rul. 68-243, 1968-1 C.B.

157; Rev. Rul. 69-421, 1969-2 C.B. 59; Rev. Rul. 78-178, 1978-

20 ILR.B. 9. As an example of its reasoning, the Treasury

Department stated in Rev. Rul. 69-421, 1969-2 C.B. 59, at page

72, the following:

. . . Benefits provided under a pension, annuity, profit-

sharing, or stock bonus plan may be integrated with those

provided under a state or Federal program that, like the

social security program, requires employer contributions

and makes benefits available to the general public. Thus,

No. 78-1402 Utility Wkrs. Union v. Consumers Power 11

benefits payable under a state workmen’s compensation

law or an occupational diseases law may be an acceptable

offset against benefits payable under a qualified plan.

However, benefits payable under a qualified plan may

not be offset by disability damages recovered by an em-

ployee in a common law action against the emplover.

See Rev. Rul. 68-243, C.B. 1968-1, 157.

In 1977, the Treasury Department adopted Regulation § 1.411

(a)-4(a) — a regulation that interprets the vesting and non-

forfeitability provisions of section 411 of the IRC, 26 U.S.C.

§ 411. That regulation reads, in part, as follows:

For purposes of Section 411 of the Code and the regula-

tions thereunder, a right to an accrued benefit is con-

sidered to be nonforfeitable [or vested] at a particular

time if, at that time and thereafter, it is an unconditional

right.

The regulation continues:

Furthermore, nonforfeitable rights are not considered to

be forfeitable by reason of the fact that they may be

reduced to take into account benefits which are provided

under the Socia! Security Act or under any other Federal

or State law and which are taken into account in deter-

mining plan benefits. [Emphasis supplied. ]

Defendants herein rely heavily on the above regulations and

rulings of the Treasury Department. This Court finds itself

in agreement with the terms of the two regulations cited

above. In essence, in Regulation § 1.401-4(b) and Regulation

§ 1.411(a)-4(a), the Treasury Department recognizes the

validity of offsets for benefits provided under federal or state

law, as long as the benefits that are offset are a part of “an

integrated and correlated retirement system.” We agree with

this principle; however, we disagree with the Department’s

application of the principle in its various revenue rulings.

The Department specifically addressed the issue of workers’

12. Utility Wkrs. Union v. Consumers Power No. 78-1402

compensation offsets only in the revenue rulings cited above.

Therein, the Department concluded that workers’ compensa-

tion benefits are benefits that are a part of “an integrated and

correlated retirement system.” It is with this specific con-

clusion of the Treasury Department, found only in its revenue

rulings, that this Court takes exception.

PRELIMINARY QUESTIONS

Before we examine in detail the nature of workers’ com-

pensation benefits, we must address preliminary questions

that have been raised by the parties on appeal. First, plain-

tiffs and defendants dispute at considerable length the ques-

tion of whether or not the workers’ compensation offset of

the Consumers Power Pension Plan was the subject of free

collective bargaining. This question, no matter how it is

resolved, is irrelevant. Even assuming that a challenged offset

has been the subject of collective bargaining, ERISA voids

all private contractual arrangements in violation of its pro-

visions. Under the terms of ERISA, employees may seek

redress for an illegal forfeiture of benefits, despite the fact

that their union has consented to the forfeiture in the col-

lective bargaining process.

Second, plaintiffs and defendants dispute what weight this

Court should accord the various Treasury regulations and

rulings cited above. In the recent case of General Motors

v. Buha, —— F.2d —— (6th Cir. 1980), this Circuit held that

Treasury Regulation § 1.401(a)-13 was a legislative rather

than an interpretative regulation, and that as such the regula-

tion was entitled to considerable deference by the judiciary.

(Regulation § 1.401(a)-13 was issued pursuant to the au-

thority of 29 U.S.C. § 1202(c), the section that is the authori-

tative basis for Treasury Regulation § 1.401-4(6) and § 1.411

(a)-4(a), supra.) See also Baker v. Otis Elevator, 609 F.2d

686 (3rd Cir. 1979). We note first that in the present case

this Court is in disagreement only with the revenue rulings of

No. 78-1402 Utility Wkrs. Union v. Consumers Power 13

the Treasury Department (Rev. Rul. 68-243, 1968-1 C.B. 157;

Rev. Rul. 69-421, 1969-2 C.B. 59; Rev. Rul. 78-178, 1978-20

I.R.B. 9), and not with the two Treasury regulations cited

above. We further note that all Treasury interpretations,

legislative or otherwise, must be set aside if in the interpreta-

tion “the Secretary has exceeded his statutory authority, or if

the interpretation is ‘arbitrary, capricious, an abuse of discre-

tion, or otherwise not in accordance with the law.” Batterson

v. Francis, 432 U.S. 416, 426 (1977). In our opinion, the

above-cited revenue rulings of the Treasury Department are

at odds both with the statutory language of ERISA and with

its legislative history.

Finally, defendants argue that Congress was aware of those

Treasury Department rulings that concluded that workers’

compensation offsets were allowable under the provisions of

ERISA. See, e.g., Hearings before the Subcommittee on Labor

of the Committee on Labor and Public Welfare, U.S. Senate,

92nd Cong., 2nd Sess., on Retirement Income Security for

Employees Act, 1972, June 28 and 29, 1972, Part 3, pp. 997-

980. In light of this, defendants conclude that Congress’

failure to change the relevant statutory language of ERISA

was an implicit approval of the Treasury Department inter-

pretations. We point out that the pre-ERISA interpretations

of the Treasury Department to which defendants refer per-

tained only to section 401(a) of the IRC — the “discrimination”

section of the Code and not to those sections of the Code that

relate to vesting and forfeitability under ERISA. Based in

part on this fact, we conclude that these Treasury Department

interpretations were not of such a longstanding nature or of

such obviousness that Congressional failure to change ERISA’s

statutory language was tantamount to acquiescence in the

administrative practice. See Helvering v. Winmill, 305 U.S. 79

(1938).

14 Utility Wkrs. Union v. Consumers Power No. 78-1402

NATURE OF WORKERS’ COMPENSATION BENEFITS

We now return to the central question presented on appeal:

Are workers’ compensation benefits and social security benefits

“like” benefits for purposes of ERISA? (As indicated above,

Congress has implicitly approved offsets for social security

benefits in 26 U.S.C. § 401(a)(15)(A), supra. Thus, we as-

sume that if workers’ compensation benefits and social security

benefits are “like” benefits, an offset for compensation benefits

will also comport with ERISA’s provisions.) This question

may be rephrased to use the language of the Treasury De-

partment: Are pension benefits, social security benefits, and

workers’ compensation benefits all a part of “an integrated

and correlated retirement system,” so that any one of the

benefits may be used to offset the other under the provisions

of ERISA? See Regulation § 1.401-4(b), supra.

The parties on appeal and the numerous amici have pro-

posed several systems by which we can compare pension

benefits, social security benefits and workers’ compensation

benefits. One such system is based on the so-called “common

fund” doctrine. According to this doctrine, pension benefits,

social security benefits and workers’ compensation benefits are

all like benefits because they spring from the same fund (i.e.,

they are all pai:!, at least in part, by the employer). This

is obviously a self-serving argument for the employer, and

we find it to be of little use in the present context. The fact

that an employer incurs multiple liabilities, or pays multiple

benefits to an employee does not, in and of itself, make all

such liabilities or benefits comparable. This “common fund”

doctrine may find some support in revenue rulings such as

Rev. Rul. 68-243, 1968-1 C.B. 157. Therein, the Treasury

Department stated:

The effect of section 401(a)(5) of the Code is to per-

mit total [retirement] benefits, inclusive of those provided

under the social security or similar program, to be used

for comparative purposes. ... A program, like the social

No. 78-1402 Utility Wkrs. Union v. Consumers Power 15

security program, that requires employer contributions

and makes benefits available to the general public is a

similar program... .

Since the benefits payable under a workmen's compen-

sation law or occupational diseases law are available to

the general public, it is held that benefits payable under

such laws are acceptable as an offset against benefits

payable under the qualified pension plan in the instant

case. However, benefits under the plan may not be offset

by disability damages recovered by an employee in a

common law action against the employer.

However, we first of all question the correctness of the Treas-

ury Department's conclusion that benefits payable under the

workers’ compensation law are benefits that are available to

the “general public.” Benefits payable under a typical workers’

compensation statute are available only to a subclass of em-

ployees who have sustained a work disability (other than a

normal age disability) within the course of their employment.

In other words, workers’ compensation benefits, unlike social

security benefits and pension benefits, are available only to

those employees who have fallen victim to certain unexpected

disabilities. Moreover, we find that the factors set out in Rev.

Rul. 68-243, supra — the funding of the program through em-

ployer contributions, and the availability of benefits to the

general public — are merely superficial aspects of the various

programs that we now consider. We find that these factors ‘o

not shed any light on the fundamental nature of pension bene-

fits, social security benefits and workers’ compensation bene-

fits, so as to aid in a determination of whether these benefits

all fit within “an interated and correlated retirement system,”

as required by Regulation § 1.401-4(b), supra.

There is a second and more substantive system that defen-

dants recommend for use in comparing workers’ compensation

benefits with pension and social security benefits This svs-

tem is based on what we will call the “ultimate purpose” doc-

16 Utility Wkrs. Union v. Consumers Power No. 78-1402

trine. Defendants argue that workers’ compensation benefits,

social security benefits, and pension benefits are all like bene-

fits, because each is intended to provide “wage loss protec-

tion” when an employee is required to retire for a reason such

as age, injury, or lack of work. In support of this argument,

defendants cite state case law and academic treatises that

indicate that workers’ compensation is no longer a tort remedy,

but is now a system of wage loss protection. See, e.g., Fielder

v. Travelers Insurance Co., 79 Mich. App. 449, 263 N.W.

2d 9 (1977); Mazor v. State of Maryland, 279 Md. 355, 369

A.2d 82 (1977); 4 Larson, Workmen’s Compensation Law,

§ 97.51. Plaintiffs forcefully dispute this contention that work-

ers’ compensation is designed exclusively to provide wage

loss protection, and they appear to view a concession on this

point as fatal to their position. Further, the district court

herein was careful not to hold that workers’ compensation is

simply in the nature of wage replacement. Judge Pratt rea-

soned as follows:

In Michigan, workmen’s compensation is a comprehen-

sive replacement of the traditional tort remedies and their

attendant common-law defenses. Cruz v. Chevrolet Grey

Iron Div., General Motors Corp., 398 Mich. 117 (1976)

(Opinion of Coleman, J.); Sims v. R. D. Brooks, Inc., 389

Mich. 91 (1973). See MCLA §§ 418.131, 418.141. That

this system has compensatory elements beyond mere wage

replacement is evident in MCLA § 418.357 which provides

for up to 50% reductions in benefits paid to persons be-

tween their 65th and 75th birthdays. Despite the rela-

tively few individuals who can be expected to earn in-

come during these years, the legislature has provided

continued benefits for them, presumably to compensate

them, at least partially, for the added burden of their

occupationally acquired disability.

We tend to agree with this reasoning of Judge Pratt. How-

ever, we do not agree that defendants will necessarily prevail

this appeal if we accept the position that workers’ compen-

No. 78-1402 Utility Wkrs. Union v. Consumers Power 17

sation benefits are merely a part of a wage replacement system.

The fact that various benefits serve the same ultimate purpose

necessarily does not render all of them like benefits, in terms

of ERISA. For example, when an employee leaves his em-

ployer and begins work at a competitor's business, the em-

ployee may gain rights to pension benefits under the pension

plan of the competitor. These new pension benefits serve the

purpose of wage loss protection; yet if they are offset against

the pension benefits that the employee has earned at his former

employer’s, the offset is an illegal forfeiture under the terms

of ERISA. See Keller v. Graphic Systems of Akron, Inc., supra,

(forfeitures for competitive employment violate the non-for-

feitability provisions of ERISA). Likewise, an employee may

take out a private insurance policy to provide him with wage

loss protection on the occurrence of a disabling injury. These

insurance benefits also serve the purpose of wage loss protec-

tion; however, under ERISA, these benefits could not be used

to reduce the employee’s pension benefits under the pension

plan of his employer.

We conclude that retirement benefits are like benefits for

purposes of ERISA only when the “source of their entitlement”

is the same. Pension benefits and social security benefits,

regardless of the event that triggers their payment (e.g., age

or injury), are earned on account of the years of service that

the employee-beneficiary has completed. In short, the years

of service are the element that gives the employee the basic

entitlement to the benefits. Congress focused on this fact in

ERISA. When an employee devotes a substantial portion of

his working life to his employer, ERISA guarantees the em-

ployee an unconditional right to pension benefits. In other

words, ERISA reflects the fact that pension benefits are in the

nature of deferred compensation that the employee has earned

for the years of service that he has provided his employer.

When Congress defined the term “non-forfeitable” in ERISA,

it used the following language:

18 Utility Wkrs. Union v. Consumers Power No. 78-1402

[T]he term “nonforfeitable” when used with respect to a

pension benefit or right means a claim obtained by a par-

ticipant or his beneficiary to that part of an immediate or

deferred benefit under a pension plan which arises from

the participant's service... .

29 U.S.C. § 1002(19) (emphasis added). The same source of

entitlement, then, is the factor that makes retirement benefits

like benefits for purposes of ERISA. In other words, retire-

ment benefits that have the same source of entitlement are

all a part of “an integrated and correlated retirement system,”

and these benefits may be offset against each other in accord-

ance with ERISA’s provisions. See Regulation § 1.401-4(b),

supra.

In conclusion, pension benefits and social security benefits

are like benefits because they are both earned on account of

the years of service that an employee has completed. Workers’

compensation benefits, on the other hand, are not comparable

in this regard. For purposes of workers’ compensation law,

it is irrelevant whether an employee has been at work for

twenty years, ten years, five years, or one day. Workers

compensation benefits are paid solely because an employee

has sustained an occupational injury within the course of his

employment. Such injury is not only the event that triggers

the payment of workers’ compensation benefits; it is the sole

source of the employee’s entitlement to these benefits. Ac-

cordingly, the reduction of pension benefits by the amount

that an employee receives in workers’ compensation benefits

is not an offset that is in the nature of an offset for social

security payments. That is, workers’ compensation benefits

are not a part of “an integrated and correlated retirement

system” that properly includes pension benefits and social

security benefits. To the contrary, the reduction of pension

benefits by the amount that an employee receives in workers’

compensation benefits is an illegal forfeiture that is prohibited

by the non-forfeitability provision of section 203(a) of ERISA,

29 U.S.C. § 1053(a).

No. 78-1402 Utility Wkrs. Union v. Consumers Power 19

CONCLUSION

Judge Pratt characterized the present case as “a tortuous

struggle of inference and counter-inference drawn from a

highly specialized statute and its attendant legislative his-

tory.” Yet, at the same time, Judge Pratt recognized that the

case touches upon human situations. This recognition is entire-

ly consistent with the provisions of ERISA and its legislative

history. ERISA was designed to eliminate the human abuses

that were imposed upon employees as a result of the unfair

deprivation of their pension benefits.

In this context, we make the following observations and

pose the following hypotheticals. Assume that two workers,

who have earned comparable wages and who have completed

comparable years of service, retire. The one worker is healthy

and he retires because he has reached normal retirement age.

The other worker retires because he has suffered a severe

work-related injury that renders him totally disabled. The

injured worker receives workers’ compensation benefits; how-

ever, his total benefit package remains the same bécause his

pension benefits are reduced by his workers’ compensation

benefits. The healthy worker, on the other hand, receives the

identical benefit package, but remains free and able to supple-

ment his pension benefits by post-retirement work. As another

example, assume that a worker who is eligible for pension

benefits is totally disabled in a work-related accident. If the

worker receives workers’ compensation benefits, he will ex-

perience a dollar-for-dollar reduction in his pension benefits.

Why should this worker file an action under a workers’ com-

pensation statute? In their brief, defendants provide an an-

swer to this question. They point out that it is preferable

from a tax point of view to receive workers’ compensation

benefits as opposed to pension benefits. To be kind, we find

defendants’ answer to be unpersuasive.

The above hypotheticals are typical of real-life situations

that would occur if defendants’ position on appeal were ac-

cepted by this Court. Yet, these situations are the very ones

20 = Utility Wkrs. Union v. Consumers Power No. 78-1402

that ERISA sought to eliminate. They call to mind the special-

ized and technical legal terms that are applicable in this case

— “chilling of the right to bring a workers’ compensation suit,”

“a penalty,” “a forfeiture.” Judge Pratt depicted the human

element in the case in the following cogent terms:

Pensions, in contrast, represent deferred income, or

other benefits foregone by the worker in hopes of a more

secure retirement. See, e.g., Mosley v. National Maritime

Union Pension and Welfare Plan, supra. A pension plan

participant must labor for the employer for a period of

time before acquiring vested benefits. Upon attainment

of retirement age, he or she is entitled to the agreed-upon

payments. A retiree receiving pension benefits who does

not have a compensable disability is in a far different

position than a retiree who has, for example, lost a limb.

To hold as defendants contend, that each of these two

hypothetical individuals is meant to receive the same

post-retirement compensation is excessively short-sighted.

A person who has lost his leg has suffered a greater dis-

ruption of his life than merely diminution of his earning

capacity. If the Court were to accept the defendants’

argument, both the healthy and the maimed retirees

would receive the same post-retirement income even

though the burdens on the two are clearly disparate.

We find Judge Pratt’s reasoning to be accurate and persua-

sive. We affirm the district court’s grant of summary judgment

in favor of plaintiffs, for the reasons stated above.

No. 78-1402 Utility Wkrs. Union v. Consumers Power 21

EncEL, Circuit Judge, dissenting. I respectfully dissent. I

find more persuassive the opinion of Judge Garth in Buczynski

v. General Motors Corp., 616 F.2d 1238 (3rd Cir. 1980), cert.

granted, 49 U.S.L.W. 3322 (Nov. 3, 1980). In Buczynski

Judge Garth makes an extensive review of the legislative his-

tory of ERISA and concludes that Congress gave its implicit

approval to the prior IRS practice of allowing offsets for

workers’ compensation benefits. Given the breadth of the

Social Security program, Judge Garth also concludes that Con-

gress approved offsets for disability benefits.

In my opinion, the result reached by the majority's construc-

tion of ERISA is inflexible, and is at odds with the statutory

and regulatory scheme. The plain language of the pension

plan for the employees of Consumers Power Company, which

the union now seeks to repudiate, is not inconsistent with the

provisions of ERISA, but on the contrary is consistent with the

eligibility requirements under the Internal Revenue Code, 26

U.S.C. § 401(a)(15)(A) (1976), and with its counterpart in

ERISA, 29 U.S.C. § 1056(b)(1) (1976). Both our circuit, in

General Motors Corp. v. Buha, 623 F.2d 455 (6th Cir. 1980),

and the Third Circuit in Baker v. Otis Elevator, 609 F.2d 686

(3rd Cir. 1979), have recognized that Treasury Regulation

§ 1.401(a)-13 is a legislative rather than an interpretative reg-

ulation and as such is entitled to considerable deference by the

judiciary. That regulation provides in part:

Furthermore, non-forfeitable rights are not considered to

be forfeitable by reason of the fact that they may be

reduced to take into account benefits which are provided

under the Social Security Act or under any other federal

or state law and which are taken into account in de-

termining planned benefits.

The majority, which states that it “finds itself in agreement”

with the terms of the cited regulation, nonetheless holds that

the regulation is not applicable to state laws providing for

workmen’s compensation benefits. In support thereof it asserts

22 Utility Wkrs. Union v. Consumers Power No. 78-1402

that it is not bound by the revenue rulings of the Treasury

Department, which more particularly recognize that work-

men’s compensation law and occupational disease law, being

available to the general public, are acceptable as an offset

against benefits payable under a qualified pension plan. See

Revenue Ruling 67-243 (1968) — 1 C.B. 157.

While I readily recognize that a Treasury Department

Revenue Ruling does not have the force of the regulation,

it is in my opinion entirely consistent with the regulation

itself and with the overall statutory scheme. It is true that

workmen’s compensation laws partake both of “wage loss pro-

tection” as well as an historic remedy in tort. While admitted-

ly the issue is not without difficulty, in my opinion the majority

opinion fails to refute the reasoning of Judge Garth and his

recognitien that workmen’s compensation is in very real mea-

sure much like social security in the breadth of its coverage.

See Buczynski vy. General Motors Corp., supra, 616 F.2d at

1246-47.

In my opinion, the district court and the majority here

appear overly concerned with the potential impact which the

receipt of workmen’s compensation benefits will have upon

non-forfeitability where those benefits are to be received even

after normal retirement age. While this is, in a sense, true,

it is no more true in the case of workmen’s compensation than

it is with social security, and thus in my opinion it is not in-

consistent with the intent of the statutory scheme. It would

seem to me that the litigants ought to be as much concerned

with the very direct threat to the stability of the pension plan

itself by the impact of the majority’s decision upon the integri-

ty of the fund and its capability for providing real benefits to

the workers at Consumers Power upon their retirement. The

temporary benefits which a few may gain by the benefit of

this “double dipping” must inevitably be offset by the economic

realities that in the future the impact is bound to be felt

in the financial weakening of an otherwise sound pension

system. ERISA is a most useful addition to the body of

No. 78-1402 Utility Wkrs. Union v. Consumers Power 23

American law which is designed to protect the working man

against forfeiture of pension rights. The interpretation given

the Act by the Third Circuit is, in my opinion, to be preferred

because it retains flexibility, avoids potential abuse, while fully

protecting the objective of the Act in assuring income protec-

tion in a variety of circumstances.

APPENDIX B

24

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF MICHIGAN

SOUTHERN DIVISION

UTILITY WORKERS UNION

OF AMERICA, et al,

Plaintiffs,

- CIVIL ACTION

vs.

NO. 7-71747

CONSUMERS POWER COMPANY,

and the PENSION PLAN FOR

EMPLOYEES OF CONSUMERS

POWER COMPANY,

Defendants.

/

MEMORANDUM OPINION AND ORDER

GRANTING PLAINTIFFS' MOTION FOR

SUMMARY JUDGMENT AND DENYING

DEFENDANTS' MOTION FOR SUMMARY JUDGMENT

The individual plaintiffs are former

employees of defendant Consumers Power

Company and participants in defendant Plan

who currently have their privately funded

retirement benefits reduced because of

deductions or offsets for payments re-

ceived under the Michigan Workers' Com-

pensation Act. The individual plaintiffs

seek to represent a class of similarly

25

Situated Plan participants.1 The Union,

which is the authorized collective bar-

gaining agent for the employees of Con-

Sumers Power Company, seeks to maintain

this action on behalf of its membership.

The complaint alleges that the Con-

Sumers Power Company's Pension Plan policy

of offsetting pension benefits in an

amount equal to the workmen's compensation

benefits received by an eligible retiree

on a monthly basis* violates the Employees

Retirement Security Act of 1974 (ERISA),

29 U.S.C. §1001 et seq. Specifically, the

plaintiffs claim that the provision re-

lating to workmen's compensation offsets

(1) operates as a forfeiture in violation

of 29 U.S.C. §1053(a); (2) improperly re-

duces the company's funding obligation in

violation of 29 U.S.C. §1103(c) (1); and

(3), in effect functions as an assignment

of pension benefits contrary to the pro-

lNone of the parties have filed a motion re-

lating to class certification as required by FRCP

23(c) (1). Inasmuch as the class aspects of this

litigation have no bearing on the liability is-

sues, the Court can properly postpone consid-

eration of class-wide relief until after a de-

cision on liability.

2section V(2) of the Pension Plan provides that

monthly pension payments will be reduced in an

amount equal to workmen's compensation benefits

paid in the preceding month. Under no cir-

cumstances, however, will the monthly offset

exceed the amount of normal pension benefits due

for the month in which the workmen's compensation

payments were made. Thus, no single monthly

offset can ever be applied to more than one month

of pension benefits. To the extent that workmen's

compensation payments exceed the pension benefit

in any month, neither the Plan nor the workmen's

compensetion fund can recover the difference.

26

of pension benefits contrary to the pro-

visions of 29 U.S.C. §1056(d)(1). The

plaintiffs seek a declaration that the

portions of the pension plan which pro-

vides for workmen's compensation offsets

violates ERISA; that further implementa-

tion of the provision be enjoined; and

that they be awarded recovery of pension

benefits improperly withheld. There are

no disputed issues of fact. The parties

have filed cross-motions for summary

judgment and extensive briefs.

This case presents the Court with

difficult issues of statutory interpreta-

tion. The problems a Court ordinarily

confronts in construing a Congressional

enactment are increased here by the fact

that the intricacies of the recent, Sweep-

ing revision of the law relating to pen-

Sions embodied in ERISA must be considered

in conjunction with the state workmen's

compensation system. Since neither Con-

gress nor any court has spoken directly to

the subject,2 the parties have requested

3The only case presented to the Court which

considers the precise issue raised in this lawsuit

is Carlson v. Bundy Manufacturing Co., Civ. No.

6-72274 (E.D. Mich. Aug. 18, 1977) in which this

Court found the offset to be permissible. There,

however, the legal issues were briefed much less

extensively. Both parties agree that the Court

should examine the issues fully in the context of

the instant case. The most expeditious way to do

this is to proceed without further reference to

the Carlson opinion which is, in any event, a much

more superficial exploration of the question than

is evident in the record of this litigation.

27

the Court to turn to the language of ERISA

and the legislative history to determine

whether the intent of the Act was to permit

the type of pension offset contained in

the Consumers Power Pension Plan.

As with many challenging legal prob-

lems, this one has its genesis with a

common, everyday occurrence--the payment,

Or rather non-payment, of money. Thus, it

is useful to review the practical aspects

of the dispute before undertaking an

analysis of the technical legal issues

involved. In this way the controversy

will have a familiar context which may be

borne in mind thoughout the remainder of

what to this Court is, at times, a tortuous

struggle of inference and counter-infer-

ence drawn froma highly specialized stat-

ute and its attendant legislative history.

The Court is asked, in effect, to

decide how much money certain pensioners

should receive in their monthly checks,

Or, conversely, how much money the Plan

must pay out in benefits to certain of its

participants. Plaintiffs would have the

Court require the payment without any off-

set of full pension benefits to those

retirees covered by the Plan who also

happen to qualify for workmen's compen-

Sation benefits. The defendant objects

that such a requirement would result in an

unconscionable windfall to plaintifffS. It

is clear from the record that striking

down the offset could result in some indi-

viduals receiving combined pension and

workmen's compensation benefits that ex-

ceed the salary they earned while working.

28

Defendant seeks Court approval of the off-

sets as a rational response to the problem

of multiple po :-retirement payments from

the same funding source.4 The plaintiffs,

for their part, object that this result

would completely vitiate the workers'

protection purposes which were motivating

factors in ERISA's enactment. Plaintiffs

fear that approval of this offset would be

the opening wedge in a series of increas-

ingly offensive money saving pension plan

clauses.

STANDING TO SUE

Preliminarily, the defendants argue

that the Union iS not a proper party

plaintiff to this action. The Union, as

exclusive collecting bargaining represen-

tative for the individual plaintiffs,

argues that it has standing to maintain

this action under’ Section 1041l(a) of

ERISA, 26 U.S.C. §7476(b) (2), which gives

the Union a right to make comments on

advance applications for Internal Revenue

Service Qualification for pension plans.

This action is’ brought under 29

U.S.C. §1132. Under subsection (a), civil

actions may be brought by Plan partici-

pants, Plan beneficiaries, the Secretary

of Labor or Plan fiduciaries. Plan par-

4Tt is agreed by the parties that Consumers

Power Company funds the entire cost of both the

workmen's compensation premiums and the pension

plan involved in this litigation.

9For example, plaintiffs cuntend that the

defendants' logic would require approval of plan

Clauses which offset benefits for all manner of

non-job-related conduct, such as speech or

leisure-time activities.

29

ticipants are defined in 29 U.S.C.

§1002(7), Plan beneficiaries in 29 U.S.C.

§1002(8), and Plan fiduciaries in 29

U.S.C. §1002(21). Each of these catego-

ries of entities is different than an

employee organization, which is defined in

29 U.S.C. §1002(4) as

"any labor union or any organization

of any kind. .. which exists for the

purpose, in whole or in part, of

dealing with employers concerning an

employee benefit plan or other mat-

ters incidental to employment rela-

tionships."

The Union is concededly an employee orga-

nization within the meaning of ERISA.

However, an employee organization is not

mentioned in §1132(a) as one of the per-

sons or entities qualified to bring civil

actions to remedy violations of the Act.

Given the detail of the statutory scheme

and the precise language chosen by Con-

gress, the Court is persuaded that the

Union lacks standing to sue under ERISA

for the relief requested here. The indi-

vidual plaintiffs are clearly entitled to

sue under 29 U.S.C. §1132(a) (1), (3), (4).

Had Congress intended to confer the right

to sue on an employee organization it

would have said so. The Union must be

dismissed as a party plaintiff.

FORFEITURE

It is necessary to set forth two pro-

visions of the pension plan and one por-

tion of ERISA to understand the nature of

the plaintiffs' claim in this’ action.

Section V(1) of the Plan says:

30

"The monthly Retirement Income pay-

able to an employee who, at Normal

Retirement Date or at Deferred Re-

tirement Date, retires on or after

January 1, 1976, pursuant to the pro-

visions of the Plan from the service

of the Company, will be an amount

equal to the product of the employ-

ee's Final Pay times the sum of the

percentages determined as follows:

1-1/2% for each of the first 20 years

of Accredited Service;

1% for each of the next 10 years of

Accredited Service;

1/2% for each of the next 10 years of

Accredited Service."

Section V(2) of the Plan describes the

workmen's compensation offset:

"All Workmen's Compensation weekly

payments received by a retired em-

ployee from the Company, Michigan Gas

Storage Company, Northern Michigan

Exploration Company, or anyone else

making such payments for one of those

companies will be a credit against

any Retirement Income or any other

payments under this Plan. Monthly

payments under the Plan will be re-

duced by the amount of such credit

pursuant to the following rules:

(a) The credit will be based on

Workmen's Compensation paid during

the preceding month. If Workmen's

Compensation payments were made for

the entire month, the credit will

equal 4-1/3 weekly Workmen's Compen-

sation payments.

31

(b) The maximum credit against any

Retirement Income or any other pay-

ments under this Plan for Workmen's

Compensation payments in any month

wi]J] be the amount of such monthly

payments due under this Plan for the

Succeeding month."

Plaintiffs argue that the Plan pro-

visions, particularly Section V(2), con-

travene the terms of Section 203 of ERISA,

29 U.S.C. §1053, in which Congress enacted

a broad scheme regulating minimum vesting

standards for pension plans covered by the

Act. Subsection (a) (2) (A) of Section 203,

29 U.S.C. §1053(a) (2) (A), sets out a spe-

cific nonforfeitability requirement:

"Each pension plan shall provide

that an employee's right to his nor-

mal retirement benefit is nonfor-

feitable upon the attainment of nor-

mal retirement age and in addition

- « « an employee who has at least 10

years of service has a nonforfeitable

right to 100 percent of his accrued

benefit derived from employer con-

tributions."

ERISA contains several exceptions to this

nonforfeitability requirement which con-

cededly do not apply to any of the indi-

vidual plaintiffs in this action. 29

U.S.C. §1053(a) (3) .®

6congress exempted from the nonforfeitability

requirement plans which provide that payment

shall cease if the survivor dies, plans which

suspend payments while the participant, is re-

employed in certain types of industries, where

certain amendments are made retroactive, where

plan members have voluntarily withdrawn their

mandatory contributions and to forestall economic

failure of a plan.

32

Initially the plaintiffs argue that

the Court need look no farther than Sec-

tion V(l) of the Plan to find that the

workmen's compensation offset is a for-

feiture. Plaintiffs contend that both the

"normal retirement benefit" and the "ac-

crued benefit", as those terms are used in

Section 203(a) of ERISA are fully defined

in Section V(l1) of the Plan. Failure to

pay the benefits defined in that section,

they reason, is necessarily a forfeiture

within the meaning of the Act. Plain-

tiffs' logic is made complete by the

agreed-upon fact that as to them the de-

fendant has adhered to the offset provi-

sions of Section V(2).

In plaintiffs' view Section V(2) and

the other subsections of Section V’ are

merely formalistic provisions which ar-

ithmatically dictate the amount of each

monthly check. Thus, plaintiffs interpret

the Plan so that only Section V(1) states

the amount of plan benefit, with the re-

maining sections being without signi-

ficance to ERISA. Plaintiffs argue, in

effect, that it is unnecessary to deter-

mine whether the offset provision per se

is a forfeiture since failure to pay the

normal retirement benefit as set forth in

Section V(l1) is clearly a forfeiture under

the Act. Defendants argue, in opposition,

that the Plan's normal retirement benefit,

as that term is used in ERISA, is the sum

to be paid a plan participant taking into

account all parts of Section V of the Plan.

7Subsection 3 describes early retirement income,

subsection 4 supplemental retirement income, sub-

section 5 minimum pension income, subsection 6

maximum retirement income and subsections 7 and 8

discuss the manner in which payments will commence

and terminate.

33

Congress has defined “accrued bene-

fit" to mean "the individual's accrued

benefit determined under the plan..." 29

U.S.C. §1002(23) (A). “Normal retirement

benefit", under the Act means "the benefit

under the plan commencing at normal re-

tirement age." 29 U.S.C. §1002(22). The

Plan itself defines "retirement income" as

"the monthly retirement income provided

for by this Plan." Plan Section I, p. 4.

Section V(2) is clear that the workmen's

compensation offset "will be a credit

against any Retirement Income or any other

payments under this Plan." fThus, while

the Plan is not specific as to what its

draftsmen conceived to be the "normal re-

tirement benefit" and the "accrued bene-

fit", as those terms are employed in

ERISA, there is no doubt that the normal

pension payment calculation includes the

offset.

When construing a contract the Court

must look to the document as a whole.

Here, the Plan speaks of "retirement in-

come" in terms of amounts payable. Sec-

tion V is a comprehensive provision re-

lating to the computation of retirement

benefits. The benefits payable under Sub-

section 1 cannot logically be separated

from the remaining portions of Section V.

Accordingly, the Court concludes that the

normal retirement benefit under the Plan

and the accrued benefit under the Plan are

the benefit payments called for by the

entire computation process of Section V.

The plaintiffs may not prevail simply on

34

the theory that Section V(l), standing

alone, requires full payment to them of

the sums they seek.

This conclusion, however, merely

Starts the process of inquiry; it does not

end it. Having determined that the Plan

treats the workmen's compensation offset

as an integral part of the normal retire-

ment benefit, the question arises whether

the offset violates the nonforfeitability

provisions of 29 U.8.C. §1053.. It i8 not

enough to merely determine that the Plan

defines the normal retirement benefit as a

certain sum, less any offset, and then

conclude that the Plan beneficiary has

received all he is entitled to. ae. 16

necessary to inquire into the nature of

the offset to see if it violates the Act.

This much is clear from Keller v. Graphic

Systems of Akron, Inc., 422 F.Supp. 1005

(N.D. Ohio 1976). In that case the plan

provided that benefits would be forfeited

if an employee resigned and then went to

work for any of the defendant's competi-

tors. A former employee sued to recover

his benefits when he reached early retire-

ment age. While the case was governed by

8This argument may well be an attempt by the

plaintiffs to distinguish the instant case from

Carlson v. Bundy, supra, where the Court held that

there was no forfeiture because those retirees

received all the payments they were entitled to

under the plan. The conclusion the Court reached

in Carlson, that an offset contained in a plan, if

reasonable, is permissible, resulted from exces-

Sive attention to the phrase "under the plan"

found in the definitional section of ERISA, 29 USC

§1002(22), (23). The proper question is not

whether the plan's provisions are reasonable, but

whether they are contrary to the statute. See

discussion on pages 8 and 9, infra.

aa

the effective date provisions of ERISA the

court did observe that:

"It would therefore appear that ERISA

proscribes the forfeiture of an em-

ployee's vested rights to qualified

plan benefits for engaging in employ-

ment competition with his former

contributing employer upon sepa-

ration from service." Id. at 1008.

Accord: 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). To hold that

any forfeiture or suspension of benefits

is permissible as long as it is sanctioned

by the plan is to turn the entire statutory

scheme upon its head.

A nonforfeitable claim is one

"Obtained by a participant or his

beneficiary to that part of an im-

mediate or deferred benefit under a

pension plan which arises from the

participant's service, which is un-

conditional and which is legally en-

forceable against the plan."

Plaintiffs' argument, stripped to its es-

sentials, is that they have an unqualified

right to their normal retirement benefit,

which is aptly defined in Section V(l) and

that the workmen's compensation offset

imposes a condition on entitlement to that

benefit which violates Section 203 because

it does not come within one of the ex-

ceptions set out at 29 U.S.C. §1053(a) (3).

Plaintiffs' position finds consider-

able support in Riley v. MEBA Pension

7cust, 370 7.26 466 (26 Cir. i877). The

a ee

: 36

plaintiff in Riley had been a port engi-

neer for a shipping line for many years.

Prior to his retirement he wrote the

trustees of his pension plan to inform

them he was being considered for a posi-

tion with the U.S. Department of Commerce,

Maritime Administration. He requested a

waiver of a provision of the pension plan

which stated that subsequent employment in

the maritime industry would preclude pay-

ment of retirement benefits for the dura-

tion of his second employment. The

trustees refused the waiver. After ac-

cepting the civil service job, he filed

Suit. The Second Circuit, per Judge

Friendly, held that the fact that benefits

were "suspended" instead of "terminated"

was Of no legal significance. As far as

Mr. Riley was concerned the suspended

benefits would never be paid to him. The

Court ruled that:

"as regards employer contributions,

the employee's rights must be non-

forfeitable if he has met certain

conditions relating to age and years

of service which Riley concededly has

done. Section 3(19), 29 U.S.C.

§1002(19), defines 'nonforfeitable'

aS meaning, among other things, a

Claim ‘which is unconditional and

which is legally enforceable against

the plan.' The provision of Article

II A, §13, quoted above, fn. 2,

places a condition on Riley's claim

to the monthly benefits to which he

otherwise would be entitled and makes

his claim legally unenforceable

against the Plan; it thus constitutes

a forfeiture within the meaning of

ERISA." Id. at 409.

37

With respect to the purposive argument

made by those defendants that the decision

for plaintiff would result in a windfall,

and thus was not intended by Congress to be

a forfeiture,? the court said:

"It is true that employment by the

government in a task Similar to that

which port engineers’ perform for

private employers may involve the

same evil of 'doubleuipping', i.e., a

pensioner's taking a job that would

Otherwise have been available to a

member of the union who had not re-

tired, aS private employment would.

The Trustees say that this was the

evil at which Art. II A, §13 was

aimed, and they argue that

§203(a) (3) (B) (ii) [29 USC §1053(a)-

(3) (B) (ii)] Should be construed ac-

cordingly. But it would be sheer

speculation to assume that Congress

wished courts to depart so far from

the ordinary meaning of its language;

for all we known Congress might have

been happy to have a body of skilled

pensioneers willing to work for the

Government at federal salaries." Id.

at 410.

%The defendant argued that the case fell within

one of the exceptions to the forfeiture require-

ment, that of later employment in the same indus-

try, 29 USC §1053 (a) (3) (B) (ii). The court

rejected this defense preferring to treat the

language "same industry" in a colloquial, rather

than a technical sense. Thus, working for the

government in the maritime field was not employ-

ment in the same industry as a private shipping

line. Defendants in the case at bar do not argue

that the workmen's compensation offset falls

within the terms of 29 USC §1053(a) (3).

38

The parties are in serious disagree-

ment as to the persuasive force of Riley.

The plaintiffs contend that the case

stands for the proposition that Section

203 must be strictly construed against a

forfeiture. This reading of Riley focuses

on the importance of permitting no condi-

tion subsequent to entitlement to benefits

that are not specifically allowed by stat-

ute. Seen from this perspective the case

at bar is easy to resolve. Congress has

outlawed most subsequent limitations on

the right to receive pension benefits, the

workmen's compensation offset is such a

condition subsequent, and it is not within

the permitted exceptions of 29 U.S.C.

§1053(a) (3). Defendants argue that Riley

is distinguishable from the case at bar

because it involves a complete evasion of

all pension obligations due to the employ-

ee's relationship to a third party. Here,

defendants say, the plaintiffs'

post-retirement income comes from the same

funding source. The fact that the

post-retirement payments come from dif-

ferent funds should not, in defendants'

view, obscure the fact that, from one

source or another, the defendants are pay-

ing an amount equal to the sum called for

in Section V(1) of the Plan. A necessary

entailment of defendants' position is that

offsets which relate to state statutes,

including the workmen's compensation

acts, are different fromoffsets triggered

by private sector considerations.

The legislative history accompanying

the enactment of ERISA is hardly conclu-

sive as to Congress' conception of the

propriety of workmen's compensation off-

sets. It is clear that the law was enacted

39

for the benefit of employees who had been

victimized by inequitable plan pro-

visions, or poorly funded plans. In its

preamble to the Act, the Congress said its

purpose was to

"protect interstate commerce, the

taxing power and the interests of

participants in private pension

plans and their beneficiaries by im-

proving the equitable character and

the soundness of such plans by re-

quiring them to vest the accrued

benefits of employees with signifi-

cant periods of service, to meet

minimum standards of funding, and by

requiring plan termination insur-

ance.” 29 U.S.C. §100l1(c).

Commenting on Congress' purpose, one court

has observed:

"Our analysis begins by way of back-

ground, with the findings of Congress

concerning the vesting requirements

of the post-World War II private pen-

sion plans. Vesting refers to the

nonforfeitable interest that an em-

ployee acquires in a pension plan,

entitling him to pension bene-

4 Sane [A common failing of

pre-ERISA plans was that] if service

terminated prior to meeting the age

Or service requirements, many em-

ployees were denied benefits despite

many years of employment, creating

vividly documented ‘difficulties and

hardships.' The denial of pension

benefits under such circumstances

is, moreover, particularly inequit-

able since 'the pension contribu-

tions previously made on behalf of

40

the employee may have been made in

lieu of additional compensation or

some other benefits which he would

have received . . .' The employee

excluded from a pension thus gets the

worst of both worlds: he works for

years at a diminished salary in order

to contribute to a pension fund and

then, because of the failure to meet

a restrictive vesting requirement,

he is denied all pension benefits.

The Congressional response to the

abuses of employees by pension plans

was to impose on private pension

plans minimum vesting requirements

that involve either graduated vest-

ing or a relatively short service

requirement prior to 100% vesting."

Mosley v. National Maritime Union

Pension & Welfare Plan, 438 F.Supp.

413, 423-4 (E.D. Pa. 1977) (citations

omitted). See Hewlett-Packard Co. v.

Barnes, 425 F.Supp. 1294, 1297 (N.D.

Cal. 1977).

This concern for the plight of the

worker apparently prompted the broad non-

forfeitability language of Section

203(a). The House Committee said;

"With the limited exceptions noted

above, no rights once they are re-

quired to be vested may be lost by the

employee under any circumstances

. - For example, a vested benefit

is not to be forfeited because the

employee later went to work for a

competitor, or in some other way was

considered 'disloyal' to the employ-

er." H. Rept. 93-807, 1974 U.S. Code

Cong. & Adm. News 4725-6. See alsouH.

Conf. Rept. 93-1280, 1974 U.S. Code

Cong. & Adm. News 5052.3.

41

On the other hand there is language in the

various reports which indicates that Con-

gress may have been more concerned to

ensure that workers would find at least

minimal financial support upon their re-

tirement than with any desire to prohibit

forfeitures in all forms.

"Its most important purpose will be

to assure these workers that they may

look forward, with anticipation, toa

retirement with financial security

and dignity, and without fear that

this period of life will be lacking

in the necessities to sustain them as

human beings within our society."

H.Conf. Rept. 93-533, 1974 U.S. Code

Cong. & Adm. News 4646. See H. Rept.

93-807, 1974 U.S. Code Cong. & Adm.

News 4719.

In addition to this inconclusive

picture from the legislative history, the

Court must necessarily consider the sec-

tions of ERISA which integrate the Social

Security Act into the national pension

laws. In creating standards for qualified

trust status for pension plans Congress

Said:

"A trust shall not constitute a

qualified trust under this section

unless under the plan of which such

trust is a part, in the case of a

participant or beneficiary who is

receiving benefits under such plan

- - ». such benefits are not decreased

by reason of any increase in the

benefit levels payable under Title II

of the Social Security Act... ." 26

U.S.C. §401(a) (15) (A).

42

This section has its COUREES PRES in ERISA

itself, 29 U.S.C. §1056(b) (1). 10 Congress

thus considered the relationship between

some other statutory schemes and ERISA,

prohibited certain offsets, but said

nothing about others. Is the Court to

conclude from this that the failure to

prohibit workmen's compensation offsets

should be understood as approval of the

practice? This would be going too far. It

is true that Congressional silence in this

case is not positive evidence of an inten-

tion to outlaw the offset. Neither, how-

ever, is it a positive indication of an

intention to approve it. At best, the

Court can conclude only that Congress

spoke to the relation between certain fed-

eral retirement programs and ERISA. Its

failure to refer to any state-mandated

insurance programs cannot, in view of the

policy of federalism and comity, be

treated as any conclusive indicia of in-

tent. tl

l10?the text of the two statutes is almost

identical. The only difference is that in Title

29 the Congress prohibited deductions for bene-

fits payable under the Railroad Retirement Act of

1937 in addition to the Social Security Act.

llphis conclusion is especially strong in view

of Congress' silence as to state workmen's com-

pensation programs despite its presumed knowledge

of their existence.

Nor do regulations by the Secretary of the Trea-

Ssury compel a different result. The defendant

points to Treasury Regulation 1.411(a)-4(a),

(continued on page 43)

43

The Court must look, as well, to the

nature of workmen's compensation programs

to discern the intent of Congress in this

area. Different types of insurance pro-

grams serve differing needs of the Amer-

ican worker. Unemployment insurance re-

imburses a worker for loss of income due to

non-medical causes; disability insurance

compensates workers for lost income due to

non-occupational illness; and workmen's

compensation laws protect workers against

the loss of income due to work-related

illness. Standard Oil of California v.

Agsalud, 442 F.Supp. 695 (N.D. Cal. 1977).

In Michigan, workmen's compensation is a

comprehensive replacement of the tradi-

tional tort remedies and their attendant

common-law defenses. Cruz v. Chevrolet

Grey Iron Div., General Motors Corp., 398

Mich. 117 (1976) (Opinion of Coleman, J.);

Sims v. R.D. Brooks, Inc., 389 Mich. 91

(1973). See MCLA §§418.131, 418.141.

That this system has compensatory elements

beyond mere wage replacement is evident in

Footnote +1 continued from page 42:

adopted in 1977, which provides: "Furthermore,

nonforfeitable rights are not considered to be

forfeitable by reason of the fact that they may be

reduced to take into account benefits which are

provided under the Social Security act or under

any other Federal or State law and which are taken

into account in determining plan benefits."

The Court cannot accept the contention of defend-

ants that the Secretary of the Treasury has been

given authority to make final interpretations of

the statute. Nor can the Court say that this

regulation is either of such long-standing or of

such obviousness that failure to change the lan-

guage by statute amounts to Congressional acqui-

ensence in some administrative practice. See

Helvering v. Winmill, 305 US 79 (1938).

44

MCLA §418.357 which provides for up to 50%

reductions in benefits paid to persons

between their 65th and 75th birthdays.

Despite the relatively few individuals who

can be expected to earn income during

these years, the legislature has provided

continued benefits for them, presumably to

compensate them, at least partially, for

.the added burden of their occupationally

acquired disability.

Pensions, in contrast, represent de-

ferred income, or other benefits foregone

by the worker in hopes of a more secure

retirement. See, e.g., Mosley v. National

Maritime Union Pension and Welfare Plan,

Supra. A pension plan participant must

labor for the employer for a period of time

before acquiring vested benefits. Upon

attainment of retirement age, he or she is

entitled to the agreed-upon payments. A

retiree receiving pension benefits who

does not have a compensable disability is

ina far different position than a retiree

who has, for example, lost a limb. To hold

as defendants contend, that each of these

two hypothetical individuals is meant to

receive the same post-retirement compen-

Sation is excessively short-sighted. A

person who has lost his leg has suffered a

greater disruption of his life than merely

diminution of his earning capacity. If

the Court were to accept the defendants'

argument, both the healthy and the maimed

retirees would receive the same

post-retirement income even though the

burdens on the two are clearly disparate.

The defendant asks the Court to deny

the injured worker, who otherwise quali-

fies for workmen's compensation benefits,

45

any such compensatory payments in the tace

of unambiguous statutory language which

disapproves of any forfeiture.1] The

justification for this exception to the

anti-forfeiture language of ERISA is the

inference that since Congress explicitly

approved offsets for Social Security pay-

ments, it must have intended to permit

offsets for workmen's compensation pay-

ments. This inference, in turn, rests on

the supposition that Congress meant to

free employers from the responsibility of

making duplicative payments. Defendants’

reasoning, however, is not convincing. As

previously indicated, Congress has set

forth a broad rule of non-forfeitability

and then provided certain limited excep-

tions to it. In Riley and Keller this

Congressional language has been construed

in favor of workers. The Court is per-

Suaded that Congress did not intend to

exempt workmen's compensation payments

from the non-forfeitability requirement

of ERISA. Just as in the Riley case, the

workmen's compensation offset provision

of this pension plan places a condition on

the plaintiffs' claim to monthly benefits

which makes that claim legally unenforce-

able against the plan. It therefore con-

stitutes a forfeiture as that term is used

in ERISA. The language of the statute is

Clear and unambiguous. The reasoning of

the defendant is tenuous and speculative.

l2as a technical matter, of course, the plain-

tiffs are not denied their workmen's compensation

payments, but rather their pension is reduced an

equivalent amount. Functionally, the result is

the same as if the workmen's compensation payments

were withheld. Significantly for purposes of this

case, the method of the offset brings the case

Squarely within the contours of ERISA's forfeit-

ure provisions.

46

The Court chooses to follow the plain

meaning of the statutory language. Plain-

tiffs are entitled to summary judgment. 13

The plaintiffs' motion for summary judg-

ment is therefore granted, and the defen-

dants' motion for summary judgment is de-

nied. The Utility Workers Union of Amer-

ica is dismissed as a party plaintiff.

Entry of judgment will be withheld pending

the resolution of the class aspects of

this litigation.

IT IS SO ORDERED.

PHILIP PRATT

United State District Judge

Dated: June 13, 1978

Detroit, Michigan

l3~his determination makes it unnecessary to

consider plaintiffs' other claims that the offset

provision contravenes ERISA.

47

APPENDIX C

STATUTES AND REGULATIONS INVOLVED

INTERNAL REVENUE CODE OF 1954, Sec.

401 (a) (5) (26 U.S.C. §401l(a)(5) after

amendment by ERISA (P.L. 93-406):

(5) A classification shall not be

considered discriminatory within the

meaning of paragraph (4) or section

410(b) (without regard to paragraph

(1) (A) thereof) merely because it

excludes employees the whole of whose

remuneration constitutes "wages" un-

der section 3121(a)(1) (relating to

Federal Insurance Contributions Act)

Or merely because it is limited to

salaried or clerical employees.

Neither shall a plan be considered

discriminatory within the meaning of

Such provisions merely because the

contributions or benefits of or on

behalf of the employees under the

plan bear a uniform relationship to

the total compensation, or the basic

Or regular rate of compensation, of

such employees, or merely because the

contributions or benefits based on

that part of an employee's remuner-

ation which is excluded from "wages"

by section 3121 (a) (1) differ from the

contributions or benefits based on an

employee's remuneration not’ so ex-

Cluded, or differ because of any re-

tirement benefits created under the

State or Federal law. For purposes

of this paragraph and paragraph (10),

the total compensation of an indi-

vidual who is an employee within the

meaning of subsection (c) (1) means

Such individual's earned income (as

48

defined in subsection (c)(2)), and

the basic or regular rate of compen-

sation of such an individual shall be

determined, under regulations pre-

scribed by the Secretary, with re-

spect to that portion of his earned

income which bears the same ratio to

his earned income as the basic or

regular compensation of the employ-

ees under the plan bears to the total

compensation of such employees. For

purposes of determining whether two

or more plans of an employer satisfy

the requirements of paragraph (4)

when considered as a Single plan, if

the amount of contributions on behalf

of the employees allowed as a deduc-

tion under section 404 for the tax-

able year with respect to such plans,

taken together, bears a uniform re-

lationship to the total compensa-

tion, or the basic or regular rate of

compensation, of such employees, the

plans shall not be considered dis-

Criminatory merely because the

rights of employees to, or derived

from, the employer contributions un-

der the separate plans do not become

nonforfeitable at the same rate. For

the purposes of determining whether

two or more plans of an employer

satisfy the requirements of para-

graph (4) when considered as a single

plan, if the employees' rights to

benefits under the separate plans do

not become nonforfeitable at the same

rate, but the levels of benefits pro-

vided by the separate plans satisfy

the requirements of regulations pre-

scribed by the Secretary to take ac-

49

count of the differences in such

rates, the plans shall not be con-

Sidered discriminatory merely be-

cause cf the difference in such

rates.

EMPLOYEES RETIREMENT INCOME SECURITY ACT,

Sec.

203(a) (29 U.S.C. §1053(a)):

(a) Each pension plan shall provide

that an employee's right to his nor-

mal retirement benefit is non-

forfeitable upon the attainment of

normal retirement age and in addition

Shall satisfy the requirements of

paragraphs (1) and (2) of this sub-

section.

INTERNAL REVENUE CODE OF 1954, Sec. 411

(26 U.S.C. §411):

Sec.

SEC. 411. MINIMUM VESTING STANDARDS.

(a) GENERAL RULE.---A trust shall

not constitute a qualified trust

under section 401l(a) unless the plan

of which such trust is a pert pro-

vides that an employee's right to his

normal retirement benefit is nonfor-

feitable upon the attainment of nor-

mal retirement age (as defined in

paragraph (8)) and in addition sat-

isfies the requirements of para-

Graphs (1) and (2) of this subsec-

Sion. «-.

EMPLOYEES RETIREMENT INCOME SECURITY ACT,

3(19) (29 U.S.C. §1002(19)):

(19) The term "nonforfeitable"

when used with respect to a pension

benefit or right means a claim ob-

tained by a participant or his bene-

ficiary to that part of an immediate

.

= ——————_ OO Or oo +

50

Or deferred benefit under a pension

plan which arises from the partici-

pant's service, which is_ uncon-

ditional, and which is legally en-

forceable against the plan. For pur-

poses of this paragraph, a right to

an accrued benefit derived from em-

ployer contributions shall not be

treated as forfeitable merely be-

cause the plan contains a provision

described in section 203(a) (3).

INCOME TAX REGULATION, Sec. 1.411(a)-4 (26

CFR Sec. 1.411(a)-4):

§1.41l1l(a)-4 Forfeitures, suspen-

sions, etc.

(a) Nonforfeitability. Certain

rights in an accrued benefit must be

nonforfeitable to satisfy the re-

quirements of section 4ll(a). This

section defines the term "non-

forfeitable" for purposes of these

requirements. For purposes of sec-

tion 411 and the regulations there-

under, a right to an accrued benefit

is considered to be nonforfeitable at

a particular time if, at that time

and thereafter, it iS an uncon-

ditional right. Except as provided

by paragraph (b) of this section, a

right which, at a particular time, is

conditioned under the plan upon a

subsequent event, subsequent perfor-

mance, or subsequent forbearance

which will cause the loss of such

right is a forfeitable right at that

time. Certain adjustments to plan

benefits such as adjustments in ex-

cess of reasonable actuarial reduc-

tions, can result in rights being

51

forfeitable. Rights which are con-

ditioned upon a termination or par-

tial termination are considered to be

forfeitable because of such condi-

tion. However, a plan does not vio-

late the nonforfeitability require-

ments merely because in the event of

a termination an employee does not

have any recourse towards satisfac-

tion of his nonforfeitable benefits

from other than the plan assets or

the Pension Benefit Guaranty Cor po-

ration. Furthermore, nonforfeitable

rights are not considered to be for-

feitable by reason of the fact that

they may be reduced to take into

account benefits which are provided

under the Social Security Act or

under any other Federal or State law

and which are taken into account in

determining plan benefits....

PENSION BENEFIT GUARANTY CORPORATION

REGULATIONS, Sec. 2605.2 (29 CFR §2605.2):

"Pension benefit" means a benefit

payable as an annuity, or one or more

payments related thereto, to a par-

ticipant who permanently leaves or

has permanently left covered employ-

ment, or to a surviving beneficiary,

which payments by themselves or in

combination with Social Security

Railroad Retirement, or workmen's

compensation benefits provide a sub-

Stantially level income to the re-

cipient.