Appendix — Firestone Tire & Rubber Co. v. Bruch
Supreme Court brief1989
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87 1054 |f FiLeD
No.
IN THE
SUPREME COURT OF THE UNITED STATES
October Term, 1987
THE FIRESTONE TIRE & RUBBER CO., et al.,
Petitioners,
v.
RICHARD BRUCH,
ALBERT SCHADE,
LEONARD A. SMOLINSKI, et al.,
Respondents.
APPENDIX TO
PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Martin WaALbD*
James D. CRAWFORD
DEENA JO SCHNEIDER
Schnader, Harrison, Segal & Lewis
Suite 3600
1600 Market Street
Philadelphia, Pennsylvania 19103
(215) 751-2188
Attorneys for Petitioners
Counsel of Record
TABLE OF CONTENTS
Page
Re I oo, cee hneeuresccscvcescs Al
District Court Memorandum and Order .............. A45
ESN PET EL EEE EET T ee A74
Court of Appeals Order Denying Petition for Rehearing A75
ey do ian bdeb eed ees se avs A77
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 86-1448
BRUCH, Richard, CHUBB, John R. and SCHADE,
Albert and SCHOLLENBERGER, Richard and SMITH,
Ronald R. and SMOLINSKI, Leonard A. In their
individual capacities and as representatives of the
class of former, salaried, non-union employees of the
Firestone Plastics Division which was sold to the
Hooker Chemical Division of the Occidental
Petroleum Corporation,
Appellants
v.
FIRESTONE TIRE AND RUBBER COMPANY and
FIRESTONE TIRE & RUBBER COMPANY
RETIREMENT PLAN FOR SALARIED EMPLOYEES
and FIRESTONE TIRE & RUBBER COMPANY STOCK
PURCHASE AND SAVINGS PLAN,
Appellees
On Appeal from the United States
District Court for the
Eastern District of Pennsylvania
(D.C. Civil No. 82-3286)
A2
Argued December 19, 1986
Before: HIGGINBOTHAM, BECKER, Circuit Judges
and DUMBAULD, District Judge*
(Filed Aug. 31, 1987)
PAULA R. MARKOWITZ (Argued)
Markowitz & Richman
1100 North American Building
121 South Broad Street
Philadelphia, PA 19107
Attorney for Appellants
MARTIN WALD (Argued)
DEENA JO SCHNEIDER
ARDEN J. OLSON
Schnader, Harrison, Segal & Lewis
Suite 3600
1600 Market Street
Philadelphia, PA 19163
Attorneys for Appellees
OPINION OF THE COURT
BECKER, Circuit Judge.
Three classes of former salaried employees of the
Plastics Division of defendant Firestone Tire & Rubber
Co (‘Firestone’) allege that the administrator of
Firestone’s pension and welfare plans improperly
denied them various benefits allegedly due under those
plans. The “rub” is that the plan administrator is
The Honorable Edward Dumbauld, United States District Court
for the Western District of Pennsylvania, sitting by designation.
A3
Firestone itself -- which is also the sole source of
funding for the plan at issue in Count I. To evaluate
plaintiffs’ claims we must address important questions
about the scope of judicial review of decisions by
pension plan administrators on plan participants’
claims for benefits.
Proceeding individually, the named plantiffs also
contend that the plan administrator did not respond
properly to their requests for information. In Count VII
of their complaint, these plaintiffs invoke the statutory
remedy for that wrong provided in § 502(c) of ERISA,
29 U.S.C. 8 1132(c), and ask the court to order
defendants to pay each named plaintiff damages of
$100 per day.
After concluding that the plan administrator's
decision to deny benefits should be reviewed under the
deferential arbitrary and capricious standard, the
district court granted summary judgment for
defendants on all of the counts now before us. We
affirm that decision with respect to Counts III and V,
but reverse with respect to Counts I| and VII.
With regard to Count I, we hold that the decision
by Firestone to deny benefits under the Termination
Pay plan should be reviewed de novo by the court and
that there should be deference to neither the plan
administrator's nor the participants’ construction of
plan terminology. We accordingly remand so that the
district court can decide the proper construction of the
relevant plan language.
With regard to Count VII, we hold that an
individual has standing to request damages pursuant
to § 502(c) of ERISA even if he is no longer an employee
and is not entitled to any benefits other than those he
has already received when he requested information
under that provision. Section 502(c) confers wide
discretion on the district court, however, to determine
how much the claimant should receive in damages. We
A4
remand Count VII to permit the district court to
exercise that discretion.
I. BACKGROUND FACTS
AND STATEMENT OF CONTENTIONS
The three plaintiff classes consist of a total of over
500 former salaried employees of the Plastics Division
of defendant Firestone Tire & Rubber Co. When
Firestone sold its Plastics Division to the Occidental
Petroleum Corporation on November 30, 1980, “most if
not all" of the class members were offered the
opportunity to continue in the positions they had
occupied under Firestone. Most accepted. Firestone
maintained three welfare or pension plans which are
relevant for present purposes.
First, under the Termination Pay plan Firestone
provided severance pay to salaried employees under
certain conditions discussed in detail below. After the
sale of the Plastics Division, plaintiffs requested
benefits pursuant to that plan but Firestone denied
them. Plaintiffs challenge that denial in Count I.
Second, under the Retirement Plan, Firestone
offered defined retirement benefits if employees retired
at age 65; it offered other somewhat smaller benefits if
employees took early retirement, which they could do
under certain limited circumstances. The Retirement
Plan also offered deferred vested benefits, which were
smaller than either the regular or the early retirement
benefit, to employees who could not meet the
conditions for either regular or early retirement but
who could meet other less stringent conditions. After
the sale of the Plastics Division plaintiffs sought early
retirement benefits, but Firestone denied their claims
and awarded only the lesser deferred vested benefit.
Plaintiffs challenge this decision in Count III.
Firestone also maintained a Stock Purchase Plan,
under which one class of plaintiffs had been
AS
accumulating stock. When Firestone sold the Plastics
Division some of these class members’ accumulated
stock rights had not vested pursuant to the Plan. In
Count V, plaintiffs contend that the sale of the Plastics
Division was a partial termination under ERISA, 26
U.S.C. § 411(d)(3), automatically vesting their rights
under the Plan on the date of the sale.
Finally, after the sale several of the named
plaintiffs wrote to Firestone to request information
about their benefits under each of the above plans.
Plaintiffs contend that Firestone failed to respond
properly to these requests, as required by section 502
of ERISA.' That provision also gives participants and
beneficiaries a private right of action for damages
against the plan administrator if the administrator
does not fulfill his § 502(c) obligations. The named
plaintiffs who sought information press that right of
action in Count VII.
The district court granted summary judgment for
defendants on all of the above claims. The court also
dismissed several other counts, but plaintiffs do not
appeal these decisions.’
1. ERISA section 502(c) requires employers to respond within
thirty days to requests by plan participants for certain kinds of
information. Specifically, § 502(c) incorporates by reference the
information producing requirements set out in ERISA 8 105, 29
U.S.C. 8 1025. That provision requires plan administrators to tell
participants and beneficiaries the total amount of their accrued
benefits and “the nonforfeitable pension benefits, if any, which
have accrued, or the earliest date on which benefits will become
nonforfeitable.” 29 U.S.C. § 1025(a)(1) and (2).
2. Count II, which alleged that a partial termination of the
Retirement Plan had taken place, was withdrawn by stipulation; it
later became the gravamen of another lawsuit, Sikora v. Firestone
Tire & Rubber Co., which has since been settled. Count IV, which
sought return of employee contributions to the Retirement Plan,
was also withdrawn by stipulation. Count VI, in which plaintiffs
sought credit for vacation time accrued but not yet taken, remained
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At the heart of the district court's opinion granting
summary judgment on Counts I, IIl_and V was the
court’s deference to decisions by the plan
administrator. In each case the administrator based its
denial of claims on a construction of plan language.
The district court believed that it could not reverse the
administrators’ constructions of the plans’ terms
unless they were arbitrary and capricious, and it felt
obliged to uphold the administrator's decisions given
that standard of review.
At the core of the plaintiffs’ challenge to the district
court’s decision is their contention that the district
court should not have applied the arbitrary and
capricious standard in this case. We now address that
contention.*
in the case throughout the district court proceedings. The district
court granted summary judgment for Firestone on that Count, and
plaintiffs have not appealed that decision.
3. Defendants argue that the propriety of the arbitrary and
capricious standard was not properly challenged in the district
court and therefore that the issue cannot be raised on appeal. We
reject this contention for two reasons.
It is true that the plaintiffs did not argue in the district court in
terms that the arbitrary and capricious standard was
inappropriate. But while plaintiffs accepted the label, they did
disagree with the defendants in the district court about the amount
of deference which the court should accord the plan
administrator's decision. We therefore think that the substance of
the question of deference was sufficiently raised in the district
court.
More importantly, the decision challenged in Count I is based
entirely on the plan administrator's construction of a certain key
term. We find ourselves unable to decide whether that construction
should resolve the case -- a question which even the defendants
want us to answer -- without deciding how much deference should
be accorded the plan administrator's decision. We therefore must
decide the proper scope of review.
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Il. SCOPE OF REVIEW
A. Plaintiffs’ Contentions
Plaintiffs argue that both the common law of trusts
and federal common law developed pursuant to ERISA
counsel against deferring to decisions by fiduciaries
with interests adverse to those of the claimants. Such a
conflict can occur, for example, if the employer is the
plan administrator and the plan provides that the
employer's contributions in a given year are
determined by the cost of satisfying plan liabilities in
the prior year. Or, as in this case with respect to Count
I, a conflict of interest may occur if the plan
administrator is also the employer and the plan is
unfunded, so that any benefits provided by the plan are
paid directly by the employer out of its general
corporate funds.
Plaintiffs advance two arguments to justify
rejection of the arbitrary and capricious standard, anc
though these theories are based on different legal
principles they produce essentially the same result.
First, plaintiffs argue that the principles of trust law
should control, that under trust law the plan
adminstrator owes the employees a fiduciary duty, and
that courts enforce that duty by construing all plan
language “solely in the interest of the beneficiary.”
Piaintiffs argue further that the sole benefit standard
requires courts to construe all ambiguities in plan
language in favor of the beneficiaries, and in favor of
coverage.
Alternatively, plaintiffs argue that contract law
controls, that the welfare plan at issue in Count! is a
unilateral contract drafted by defendant Firestone, and
that the principles of contract law require that
ambiguities be construed against the draftsman. The
result under this theory is also to construe ambiguities |
regarding coverage in favor of the employee or former
employee requesting benefits.
A8&
B. Current Law on the Scope of Review
The clear weight of authority under ERISA is
against the plaintiffs’ position. As defendants correctly
note in their response to plaintiffs’ argument, most
courts of appeals have applied the arbitrary and
capricious standard when considering challenges to
plan administrators’ denial of benefits. Kosty v. Lewis,
319 F.2d 744 (D.C. Cir. 1963); Miles v. New York State
Teamsters Conference, 698 F.2d 593 (2d Cir. 1983);
Holland v. Burlington Industries, 772 F.2d 1140 (4th
Cir. 1985), affirmed mem. as Brooks v. Burlington
Industries, 106 S.Ct. 3267, cert. denied as Slack v.
Burlington Industries, 106 S.Ct. 3271 (1986)*:
Dennard v. Richards Group, Inc. 681 F.2d 306, 314
(Sth Cir. 1982); Varhola v. Doe, 820 F.2d 809 (6th Cir.
1987); Blakeman v. Mead Containers, 779 F.2d 1146
(6th Cir. 1985); Pabst Brewing Co. v. Anger, 784 F.2d
338 (8th Cir. 1986) (per curiam); Dockray v. Phelps
Dodge Corp., 801 F.2d 1149 (9th Cir. 1986); Anderson
v. Ciba-Geigy Corp., 759 F.2d 1518 (11th Cir. 1985).°
4. A summary affirmance by the Supreme Court has
precedential value, see Robert L. Stern, et al., Supreme Court
Practice 287 (6th ed. 1986). But the petition for certiorari which
the Court granted, and with respect to which it affirmed, presented
only the question whether ERISA preempted state regulation of the
severance plan. See 54 U.S.L.W. 3237 (1986). The summary
affirmance in Brooks therefore does not affect the question of scope
of review.
A second petition for certiorari was also filed in this case,
which did ask the Court to rule on the propriety of the arbitrary and
capricious standard. See Slack v. Burlington Industries, 54
U.S.L.W. 3470. That petition was denied, see 106 S.Ct. 3271
(1986); such a decision, of course, has no precedential weight.
5. This Court has not taken a position on this issue We have
held:
When the amount of benefits to which a distinct group of
A9
Most of these courts -- though, as we discuss below, not
all -- have applied this standard without stopping to
ascertain whether the plan's funding obligations gave
the plan administrator an interest adverse to the
claimants with respect to the question whether
benefits should be paid.
The arbitrary and capricious standard has not
been applied unanimously, however, or without
misgivings. First, recognizing the possibility that an
interested decisionmaker'’s bias may prejudice him
against the claimant and thereby deprive the claimant
of an impartial hearing, this Court has explained in
detail why it refused to defer to decisions made under
ERISA by such fiduciaries.
In Struble v. New Jersey Brewery Employees’
Welfare Trust Fund, 732 F.2d 325 (3d Cir. 1984), we
declined to apply the arbitrary and capricious standard
when reviewing a decision by plan administrators to
return to the employers money which the employers
had paid to fund a specified level of employee benefits.
The beneficiaries alleged that if the trustees had
fulfilled their duty to act “solely in the interest of the
beneficiaries,” ERISA 8 404, 29 U.S.C. § 1104, they
would have used the excess to purchase more benefits
for the employees rather than returning the surplus to
the employers. We held that when beneficiaries sue
claiming that plan fiduciaries “have sacrificed the
interests of the beneficiaries as a class in favor of some
third party's interests,” reviewing courts must “apply
beneficiaries is entitled [is at issue], pension trustees must
necessarily strike a balance between the interests of the
beneficiaries who are members of this group and
beneficiaries who are not. . . . Because the trustees in these
circumstances must reconcile competing interests of
different beneficiaries, the trustees’ choice cannot be said to
violate their fiduciary duty unless it is arbitrary and
capricious.
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the strict statutory standards of ERISA” rather than
“the more deferential ‘arbitrary and capricious’
standard.” 732 F.2d at 333-34.°
Edwards v. Wilkes Barre Publishing Co. Pension Trust, 757 F.2d
52, 56 (3d Cir. 1985), quoted with approval in Northeast Dep't
ILGWU v. Teamsters Local No. 229, 764 F.2d 147, 163 (3d Cir.
1985). See also Gaines v. Amalgamated Insurance Fund, 753 F.2d
288 (3d Cir. 1985) (applying arbitrary and capricious standard
without noting whether or not plan was established pursuant to
8 302, but where propriety of arbitrary and capricious standard
was not challenged).
We explained in Struble v. New Jersey Brewery Employees’
Welfare Trust Fund, 732 F.2d 325, 333 (3d Cir. 1984), however,
and reiterate in this opinion, that while the arbitrary and
capricious standard should be applied only when the trustee is
choosing among beneficiaries: when one of the possible
beneficiaries of the trustee's decisions is the trustee himself, this
degree of deference is inappropriate.
6. A number of cases, both in and out of the pension context,
rely on similar principles. One such case in the pension area is
Teamsters Local 115 v. Yahn & McDonnell, Inc., 787 F.2d 128
(3rd Cir. 1986), affirmed without opinion by an equally divided
Court, 55 U.S.L.W. 4662 (1987). There we struck down one part of
the arbitration provisions of the Multiemployer Pension Plan
Amendments Act because it violated the due process clause of the
Fifth Amendment. Pursuant to MPPAA, plan trustees -- who had a
fiduciary duty to maximize the value of the plan's fund -- decided
the amount owed to a Multiemployer Pension Plan by an employer
withdrawing from the plan. In subsequent challenges to the
trustees’ decision the trustees’ determination was to be presumed
correct, and reversed only if the withdrawing employer could show
“by a preponderance of the evidence that the determination was
unreasonable or clearly erroneous.” 29 U.S.C. 1401](a)(3)(A). We
held the statute unconstitutional because according this
presumption of correctness to the decision of an interested party
deprived the withdrawing employer of a fair hearing. 787 F.2d at
142.
A line of California cases relies on the same principle. In
Graham uv. Scissor-Tail, Inc., 28 Cal. 3d 807, 171 Cal. Rptr. 604,
623 P.2d 165 (1981) the California Supreme Court held an
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Second, even some courts that apply the label
“arbitrary and capricious” to describe the scope of their
rev’ wv in fact subject plan administrators’ decisions to
mre rigorous review than that normally accorded
uuider the arbitrary and capricious standard under
certain circumstances, especially when the plan
administrator possesses an adverse interest. A line of
cases in the Ninth Circuit provides one example. In
Harm v. Bay Area Pipe Trades Pension Plan Trust
Fund, 701 F.2d 1301, 1305 (9th Cir. 1983) (citations
omitted), the court held that if a plan provision
excludes a “disproportionate number” of participants
from benefits, “the burden shifts to the trustees to
show a reasonable purpose for the exclusion.”
Similarly, in Jung v. FMC Corp., 755 F.2d 708, 711-12
(9th Cir. 1985), the same court construed the arbitrary
and capricious standard to provide:
Where, as here, the employer's denial of benefits to
a class avoids a very considerable outlay [by the
employer], the reviewing court should consider
that fact in applying the arbitrary and capricious
standard of review. Less deference should be given
to the trustee's decision.
arbitration agreement unconscionable, and refused to enforce it,
because it designated as arbitrator a member and former official of
the labor union of which one of the parties was a member. This
principle, however, was not offended in Dryer v. Los Angeles Rams,
40 Cal.3d 406, 220 Cal. Rptr. 807, 709 P.2d 826 (1985), because
the panel which served as arbitrator was composed of two members
representing one side and two representing the other. See also /n re
Cross & Brown Co., 167 N.Y.S.2d 573 (App. Div. 1957), which
declined to enforce an arbitration agreement between a real estate
broker and his empioyer because it appointed the employer's Board
of Directors as arbitrator. The court held that such an agreement
contravenes the “well-recognized principle of ‘natural justice’” that
“a man may not be a judge in his own cause.” Id. at 575.
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Finally, in Dockray v. Phelps Dodge Corp., 801 F.2d
1149, (9th Cir. 1986) the court defined the standard of
review with great care, shaping it in response to “the
countervailing tugs of divided loyalty pulling” at the
plan administrator.
At the time that Administrator/Employee
Benefits’ Director McGowan denied Dockray’'s
pension appiication [a] strike [against the
employer] had entered its third month. The strike
had been unusally bitter and violent. The Governor
of Arizona had sent National Guardsmen to protect
replacement workers as they crossed the lines of
massed pickets outside the mine gates. Scuffles,
property damage, vigilante violence, and
numerous arrests had attracted national media
attention to the dispute. For Dockray to “win” his
pension would no doubt have boosted the strikers’
morale at a time when Phelps Dodge had
apparently succeeded in overcoming the picketing
and had fully staffed the mine with replacement
workers. Given this highly charged atmosphere,
we think it unrealistic to grant the same
substantial deference to the consideration of
Dockray’s application by an adminjstrator who is
also a senior member of Phelps Dodge
management as we would to the decision of a
wholly independent fund trustee in simiiar
circumstances.
On remand, the burden of persuasion, of
course, remains with Dockray. To prevail, Dockray
must show that the Administrator breached his
statutory fiduciary duty to act “for the sole and
exclusive benefit” of the fund's beneficiaries,
including Dockray. 29 U.S.C. § 186(c)(5). The
court will weigh the Adminstrator’s rebuttal of
Dockray’s evidence of bias against the arbitrary
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and capricious standard. However, the district
court should be appreciably more critical of the
reasons advanced by the Administrator, and less
willing to resolve all ambiguities in the
Administrator's favor, than the court would be if
the fund were administered by an independent
trustee.
801 F.2d at 1152-53 (footnote omitted).
Similarly, in Dennard v. Richards Group, Inc. 681
F.2d 306, 314 (5th Cir. 1982) the Fifth Circuit held
that whether a plan administrator's interpretation of a
term is arbitrary and capricious turns, inter alia, on
the “legally correct” meaning of the term. The Fifth
Circuit also emphasized that the facts of a particular
case should influence the district court reviewing a
plan administrator's decision. On remand, therefore,
the district court was instructed to consider the
“factual background of the determination by a plan
and inferences of lack of good faith, if any.” 681 F.2d at
314.
We believe that these cases reflect significant
dissatisfaction with the arbitrary and capricious
standard when the employer can profit from its
decision to deny benefits. We also believe, however,
that the propriety of the standard depends on the
context in which it is used. In particular, we think it
important to distinguish between the standard’s use
under some ERISA plans and its use in review of
decisions made by trustees of plans established
pursuant to § 302(c) of the Labor Management
Relations Act, 29 U.S.C. § 186(c). We can explain this
distinction best by tracing the development of the
arbitrary and capricious standard. As the discussion
in Part I C shows, the standard reached ERISA after it
was adopted from the common law of trusts by courts
construing the LMRA. The safeguards present in the
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LMRA distinguish that context from many
administrative decisions made under ERISA and
indicate that the standard should apply in only some
ERISA contexts.
C. The Origin of the Arbitrary and Capricious
Standard
The arbitrary and capricious standard governs
judicial review of plan adminstrators’ decisions in
pension plans set up under § 302(c)(5) of the Labor
Management Relations Act, 29 U.S.C. § 186(c)(5), see
e.g., Wolf v. National Shopmen Pension Fund, 728
F.2d 182 (3d Cir. 1984), and courts appear to have
imported the standard into ERISA by analogy to cases
concerning LMRA plans. As we explained in Struble,
732 F.2d at 333:
The “arbitrary and capricious” standard derives
from section 302(c)(5) of the LMRA. That section
imposes a duty of loyalty on section 302 trustees by
permitting employer contributions to a welfare
trust fund only if the contributions are used “for
the sole and exclusive benefit of the employees.
... Section 1104 of ERISA imposes a similar
duty of loyalty, and not surprisingly the courts
have applied the ‘arbitrary and capricious”
standard under ERISA as well.
See, e.g., Music v. Western Conference of Teamsters
Pension Trust Fund, 712 F.2d 413 (9th Cir. 1983). The
LMRA cases, in turn, borrowed principles from the
common law of trusts -- a body of law which also
formed the basis for ERISA itself. We therefore begin
our analysis with a brief review of the relevant trust law
doctrines.
The paradigmatic common law trustee must act
solely for the benefit of the beneficiaries. Restatement
(Second) of Trusts § 170. If the settlor of the trust
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instructs that the trust assets be distributed among
the beneficiaries, without prescribing the method for
doing so, he perforce relies on the trustee's discretion
to determine how the allocation should be made.
Courts therefore respect the aliocation decision unless
it constitutes an abuse of discretion. See id. § 187,
which provides:
Where discretion is conferred upon the trustee
with respect to the exercise of a power, its exercise
is not subject to control by the court, except to
prevent an abuse by the trustee of his discretion.
Comment (g) to Restatement § 187 explains,
however, that courts will not defer to a trustee's
judgment when a conflict of interest threatens the
trustee’s impartiality:
g. Improper motive. The court will control the
trustee in the exercise of a power where he acts
from an improper even though not a dishonest
motive. .. . In the determination of the question
whether the trustee in the exercise of power is
acting from an improper motive the fact that the
trustee has an interest conflicting with that of the
beneficiary is to be considered.
Building on these trust law principles, the Labor
Management Relations Act created a framework within
which employers could set up pension plans for their
unionized employees. Under § 302(c)(5) of the LMRA,
however, “employees and employers [must be] equally
represented in the administration of [the pension or
welfare] fund.” The LMRA sets out elaborate
requirements intended to protect the plans it
authorizes from control by a party biased toward either
the employees or employer.’
7. Section 302(c)(5)(B) provides as follows:
in the event the employer and employee groups deadlock on
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The arbitrary and capricious standard was first
used under LMRA plans in a line of cases in the district
court for the District of Columbia (and subsequently
approved by the D.C. Circuit). These cases have two
themes.
First, the courts discussed the impartiality of the
LMRA decisionmakers, and they relied on that
impartiality in settling on the arbitrary and capricious
standard. Second, the cases also attempted to
determine whether an employee's interest in his
pension benefits was contractual or equitable. If the
former, these first courts believed, then judicial review
of an administrator's decision would be de novo, as
would a court's review of a standard breach of contract
claim. If the interest was equitable, however -- as is a
beneficiary's interest in his right to receive benefits
pursuant to a trust -- then the court would be more
deferential.
Both of these themes reappear in the current
debate about the appropriate scope of review under
ERISA. It will therefore be helpful to review these early
cases in some detail.
The first court to address these questions was Van
Horn v. Lewis, 79 F. Supp. 541 (D.D.C. 1948), decided
approximately a year after the passage of the LMRA.
There the employer Trustee of a § 302 plan challenged
the Trustees’ decision to set benefits at a particular
level. The district court noted that the LMRA divided
the administration of such fund and there are no neutral
persons empowered to break such deadlock, such agreement
[must] provide[] that the two groups shall agree on an
impartial umpire to decide such dispute, or in event of their
failure to agree within a reasonable length of time, an
impartial umpire to decide such dispute shall, on petition of
either group, be appointed by the district court of the United
States for the district where the trust fund has its principal
office.
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power equally between employer and employe=
representatives, holding that the plan “specifically
pives each Trustee equal power both in the
establishment of the Fund and its administration.” For
this reason and because the plan was “a benefical
Fund, and the rules applicable to charitable trusts
undoubtedly apply,” the court held that “the majority
of the Trustees have a right to act” so long as their
decision is not “improper, unbusinesslike, or not in
accordance ... with the letter and the spirit of the
Labor Management Relations Act.” Id. at 544.
In Hobbs v. Lewis, 159 F. Supp. 282 (D.D.C.
1958), the de novo approach surfaced for the first tine.
There the court reviewed a plan administrator's denial
of benefits. The Pension Plan relied on Van Horn to
contend that “the Fund is a charitable trust” and
therefore “that the court cannot interfere in its
decisions unless the Trustees act arbitrarily or
unreasonably.” The district court rejected that
contention, however, holding:
In the first place, I do not agree that this Fund is a
charitable trust, involving mere gratuities, but am
of the opinion that money paid from [the plan] is in
the nature of a fringe benefit, a term of recent
origin, or deferred, contingent compensation
which the employees of signatories may be entitled
to receive in addition to their wages, and which
was procured for them by their bargaining agent,
the United Mine Workers of America. ... An
employee therefore has a contractual right to this
pension if and when he comes within the
regulations prescribed by the Trustees.
159 F. Supp. at 286. The Trustees also pointed to a
term in the Trust agreement “which grants them full
authority in respect of coverage, eligibility, amounts of
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benefits, etc.” id. The district court construed this
clause to grant the Trustees
the right to set up requirements for eligibility, etc.,
which they have done ... and to pass upon
applications for pension when made and
determine whether they come within the
requirements. However, I do not believe it
comprehends the deprivation of an applicant's
right of recourse to the Courts when he disagrees
with the determination of the Trustees on this
point, regardless of whether they acted arbitrarily
or unreasonably.
Id.
The debate continued in Ruth v. Lewis, 166 F.
Supp. 346 (D.D.C. 1958). There the trustees pointed to
language in the plan document making them
responsible for the decision whether to grant or deny
benefits, and they contended that this language
committed the benefits decision entirely to their
discretion, so that there could be no judicial review at
all. The district court disagreed, holding
This Court is of the opinion that despite the
contractual provisions in the trust instrument
giving absolute discretion to determine eligibility
to the fund, judicial review does lie where
applicants can show a breach of fiduciary trust,
fraud or arbitrary action.
166 F. Supp. at 349 (footnotes omitted).*
8. In so holding the district court applied the principle
articulated in § 187 of the Restatement (Second) of Trusts:
Where discretion is conferred upon the trustee with respect
to the exercise of a power, its exercise is not subject to control
by the court, except to prevent an abuse by the trustee of his
discretion.
See text above, typescript at 16.
Al9
Judge Holtzoff, writing in 1960 in Kennet v.
United Mineworkers of America, 183 F. Supp. 315
(D.D.C. 1960) still found the question vexing. He began
his answer by noting that the LMRA “authorized the
establishment of welfare funds by employers for the
sole and exclusive benefit of the employees of the
employer and their families and dependents,” and that
“[t]he statute further provided . . . that the employees
and employers were to be equally represented in the
administration of thle] fund.” Id. at 316. He then
presented the trust law reasoning relied upon by Ruth
v. Lewis:
In effect, we are confronted with a trust fund
governed by three trustees and a large groups of
beneficiaries of the trust fund. One of the principal
branches of equity jurisprudence has traditionally
been the protection of the rights of beneficiaries of
trust funds. A beneficiary of a trust fund is entitled
and has always been entitled to have recourse to a
court of equity to secure the proper performance of
the duties of the trustees and his rights in the
fund. Consequently, on this ground alone the
Court would have the power to determine the
plaintiff's legal rights in the fund and the
correctness of the action of the trustees in denying
him a pension.
183 F. Supp. at 317.
Judge Holtzoff then set out the contractual
approach to the problem before him, which is much
akin to the argument made before us by the plaintiffs
here:
There is another approach to this problem.
Contrary to the argument of defendant's counsel,
the payments made from the fund are not gifts or
gratuities. The employer, in making payments into
A20
the fund, is not making a gift. This fund was
established pursuant to a contract between the
union and the employers governing the terms of
employment. Payments into the fund are part of
the compensation received by the employee over
and above his weekly wages. The services rendered
by him are the consideration for both his wages
and his pension. ... The employee may be
regarded as a third party beneficiary to a contract.
The Court concludes, therefore, that recourse
to judicial action may be had to enforce rights
under this fund and in such an action the Court
will review the legal rights of the plaintiff and
determine whether any erroneous decision has
been reached by the trustees on questions of law. It
will also review, to a limited extent, decisions of the
trustees on questions of fact; certainly whether
there is any substantial evidence sustaining the
decision on questions of fact. . . . Finally, and it is
not denied that this may be done, the Court will
review the question of whether the action of the
trustees is in any way arbitrary or capricious.
Id. at 317-18.
In reliance on this line of cases the District of
Columbia Circuit settled on the arbitrary and
capricious standard for review of decisions by plan
administrators in § 302(c) plans. See Danti v. Lewis,
312 F.2d 345 (D.C. Cir. 1962): Kosty v. Lewis, 319
F.2d 744 (D.C. Cir. 1963). This circuit subsequently
did likewise. See Gomez v. Lewis, 414 F.2d 1312 (3d
Cir. 1969).
D. Application of the LMRA Rule Under ERISA
The first ERISA cases to invoke the arbitrary and
capricious standard did so without any discussion of
A2]
the differences between the LMRA and ERISA contexts.
See, e.g., Bayles v. Central States Pension Fund, 602
F.2d 97, 99-100 and n.3 (5th Cir. 1979); Bueneman v.
Central States Pension Fund, 572 F.2d 1208 (8th Cir.
1978). So have most subsequent cases. We believe,
however, that in applying the common !aw of trusts
under ERISA courts must be cognizant of the features
that distinguish the ERISA arrangements from the
paradigmatic common law situation. Both ERISA and
the LMRA permit the trust form to be used by
employers for the benefit of their employees even
though -- since they deal with each other at arms’
length, like buyers and sellers of any other commodity
-- there will sometimes be conflicts of interest between
those two groups. This difference does not prevent the
trust form from being used, but it does require that
trust principles not be applied mechanically in the new
context.
In their oversight of a trust where the impartiality
of the trustee had been carefully assured, the LMRA
courts could easily adopt the principle of trust law
applicable with respect to judicial review of an
impartial trustee's execution of his duties. At least one
court has done so in explicit reliance on § 187 of the
Restatement of Trusts. See Brune v. Morse, 475 F.2d
858, 860 n.2 (8th Cir. 1973). Because the LMRA's
precautions assure that the plan administrator will be
neutral, it is easy to understand why the courts
adopted this rule for judicial review of decisions made
in the administration of an LMRA plan.
In the unfunded pension plan at issue in Count | of
the complaint in this case, however, there is no
assurance of the trustee's impartiality. The plan is
controlled entirely by the employer, not by a group
evenly divided between employer and employees.
Because the plan is unfunded, every dollar provided in
benefits is a dollar spent by defendant Firestone, the
A22
employer; and every dollar saved by the administrator
on behalf of his employer is a dollar in Firestone’s
pocket. As we have already seen, the principle
articulated in 8 187 does not govern judicial review of
such a trustee's decisions.
Two rationales are most frequently advanced to
justify deference even in this context to fiduciaries’
decisions. The first is that they have more expertise
than judges in the management of pension plans; the
implication is that the fiduciary whose decision is
deferred to is more likely than the judge to have
answered correctly the question about the meaning of
the plan's term. See Berry v. Ciba-Geigy Corp., 761
F.2d 1003, 1006 (4th Cir. 1985) (preferring the
decision of plan admininstrators, “whose experience is
daily and continual, [over that of] judges whose
exposure is episodic and occasional;” see also Ponce v.
Construction Laborers Penion Trust, 628 F.2d 537,
542 (9th Cir. 1980) (“trustees are knowledgeable of the
details of a trust fund (both its purpose and its
operation), and thus they are in a position to make
prudent judgments concerning participant
eligibility. )”
We reject this rationale for two reasons. First, in
the context of claims for benefits, the questions which
courts must address do not usually turn on
information or experience which expertise as a claims
administrator is likely to produce. As in this case, the
validity of the claim is likely to turn ona question of law
or of contract interpretation. Courts have no reason to
defer to private parties to obtain answers to these
kinds of questions.” Secondly, as we have explained,
there is a significant danger that the plan
9. This is to be contrasted with, for example, a decision about
how to invest plan funds. Deference in that context is entirely
A23
administrator will not be impartial. The lack of
impartiality offsets any remaining benefit which the
administrators’ expertise might be thought to
produce. "®
Another rationale for deference is also commonly
advanced -- that courts should not interfere in the
trustees’ decision to aid one group of beneficiaries at
the expense of another. We agree that deference to that
kind of decision is entirely appropriate. Struble, 732
F.2d at 333 (upholding use of arbitrary and capricious
standard where issue is “whether the trustees have
correctly balanced the interests of present claimants
against the interests of future claimants”). The same
degree of deference should be accorded to investment
decisions made by plan administrators, so long as a
conflict of interest is not alleged.'’ As we explained in
appropriate so long as the fiduciary makes no investment in the
employer's business or commits some other, similar abuse.
It should be noted that we also do not deal here with a
determination of fact by a plan administrator. We leave for another
day the definition of the context, if any. in which courts should
defer to such a determinations.
10. It has also been argued that deferring to the administrator's
decision will make proceedings faster. We acknowledge that But
because the speed is attained by sacrificing the impartiality of the
decisionmaker, we think that it comes at too great a cost.
ll. Our decision today is also not meant to address the scope of
judicial review accorded a plan administrator's decision to change
the terms a plan, by offering different or fewer benefits. See Baker
v. Lukens Steel Co., 793 F.2d 509 (3d Cir. 1986). An employer's
freedom to alter the terms on which it offers employee
compensation may well be broader than its discretion to construe
those terms while they remain unchanged -- and after they have
induced reliance, as the terms of employment normally will.
!
A24
Struble, however, and as the discussion of the common
law principles also makes clear, deference is
inappropriate to the extent that the party who is
alleged to have benefited from the challenged decision
is not a beneficiary. Id. at 333-34 (arbitrary and
capricious standard should not be applied where issue
is whether “they have sacrificed valid interests to
advance the interests of nonbeneficiaries” and noting
that the employer is not a beneficiary). Here, of course,
the employer -- who also made the decision -- is the
party who benefited from the denial of benefits.
Even the cases from other circuits adopting the
arbitrary and capricious standard have allowed
plaintiffs to show that the plan administrator was
influenced by some special kind of improper motive,
though they begin with the presumption that the plan
administrator was impartial. In light of the incentives
facing employers we think that both common sense
and the principles of trust law require rejection of that
presumption.
E. The Standard to be Applied Here
The principles of trust law instruct that when a
trustee is thought to have acted in his own interest and
contrary to the interest of the beneficiaries, his
decisions are to be scrutinized with the greatest
possible care. “Uncompromising rigidity has been the
attitude of courts of equity when petitioned to
undermine the rule of undivided loyalty” which
governs a trustee in the execu*.on of his fiduciary duty.
Meinhard v. Salmon, 249 N.Y. 458, 464, 164 N.E. 545,
546 (1928). Struble applied this standard to review a
decision about how to use surplus plan assets.
This rule would suggest that any ambiguity in the
trust documen. should be resolved in favor of the
beneficiaries, and that is the result for which plaintiffs
contend here. Application of this rule would produce
A25
exactly the opposite result from the one defendants
contend for: under the arbitrary and capricious
standard, a trustee's interpretation of the Plan's
provisions stands unless it is unreasonable; as noted,
under the plaintiffs’ theory, the claimant's
interpretation wins so long as it meets the same low
standard.
We reject the plaintiffs’ rule for reasons similar to
the ones that led us to reject defendants’: plaintiffs, like
defendants, mischaracterize the incentives motivating
the parties. For example, with respect to Count I, the
trustee (Firestone) is clearly not disinterested in the
amount of severance pay awarded; its impartiality
therefore cannot be relied upon to produce a fair result.
But whether the trustee can be a reliable
decisionmaker is an entirely separate question from
whether -- assuming an impartial adjudicator -- the
plan document should be construed in favor of the
employer or the employees.
The trust at issue here provides severance
benefits, which are a form of wages. The benefits were
offered as an inducement to the plaintiffs, to persuade
them to work for Firestone. See Kennet v. United
Mineworkers, 183 F. Supp. at 317. See also Inland
Steel Co. v. N.L.R.B., 170 F.2d 247, 253 (7th Cir.
1948), hoiding that “pension thus promised would
appear to be as much a part of [the workman's] ‘wages’
as the money paid him at the time of the rendition of
his services.” In construing the agreement which
embodies this aspect of the parties’ bargain -- the
Termination Pay Plan -- we therefore think it best to
take as our starting point the principles governing
construction of contracts between parties bargaining
at arms’ length. These principles counsel a
construction of the trust document steering a middle
course between the constructions of the document now
offered by plaintiffs and defendants. In light of the
A26
arms’ length relationship between employer and
employee, that seems most fitting here. Thus the
industry practice with respect to severance pay plans
would shed light on this plan’s meaning, as would past
practice under the plan itself. We apply and elaborate
on this contract construction standard in the following
discussion.
Ill. THE MERITS OF
COUNT I (TERMINATION PAY)
As part of its compensation package for salaried
employees Firestone's Handbook for Salaried
Employees stated:
If your service is discontinued prior to the time you
are eligible for pension benefits, you will be given
termination pay if released because of a reduction
in work force or if you become physically or
mentally unable to perform your job.
The amount of termination pay you will receive will
depend on your period of credited company
service.
App. 283. The parties agree that under ERISA this
statement creates -- and constitutes -- a Termination
Pay Plan, which is an unfunded “Welfare Plan” as
ERISA defines that term. See 29 U.S.C. § 1002(1).
Because the statement has that significance, Firestone
concedes that its Termination Pay plan was subject to
the reporting and disclosure obligations governing all
Welfare Plans. See 29 U.S.C. § § 1021 - 1031. The
parties also agree that Firestone did not comply with
these obligations, though they disagree about the
significance of that dereliction.
Plaintiffs requested termination pay pursuant to
the Termination Pay plan, arguing that the sale of the
Plastics Division constituted a “reduction in force”
within the meaning of the plan. In its capacity as Plan
A27
administrator Firestone denied this request. Firestone
believed that the sale of the Plastics Division did not
constitute a “reduction in force” within the meaning of
that term as it is used in the Termination Pay plan. In
support of their contention plaintiffs rely on a line of
cases holding that severance pay is due whenever an
employee ceases to work for the employer (without
having been fired for cause), even if the employer has
sold the operation in which the employee worked and
the operation's new owner has offered to retain the
employee in his job. One rationale behind these cases
is that salary and benefits may well be lower under the
new employer, and that severance pay is intended to
compensate the employee for these losses -- not merely
to compensate for losses incurred as a result of
unemployment. See Chapin v. Fairchild Camera &
Instrument Corp., 31 Cal. App.3d 192, 107 Cal. Rptr.
111 (lst Dist. 1973); Mace v. Conde Nast
Publications, Inc., 155 Conn. 680, 237 A.2d 360, 363
(1967); Dahl v. Brunswick Corp., 227 Md. 471, 356
A.2d 221 (1976); Owens v. Press Publishing Co., 20
N.J. 537, 120 A.2d 442 (1956); Adams v. Jersey
Central Power & Light Co., 21 N.J. 8, 120 A.2d 737
(1956).
The district court granted summary judgment for
defendants on this Count. It held that Firestone did
not act arbitrarily or capriciously in construing the
term “reduction in force” to exclude a sale in which the
purchaser offers continued employment. Like the
defendant, the district court adopted another line of
cases allowing employers to refuse to provide severance
pay when the employer sells the operation and the new
owner offers all employees the opportunity to work for
him. See, e.g., Holland v. Burlington Industries, 772
F.2d 1140 (4th Cir. 1985), affirmed mem., 106 S.Ct.
A28
3267, cert. denied, 106 S.Ct. 3271 (1986)'*; Pabst
Brewing Co. v. Anger, 784 F.2d 338 (8th Cir. 1986)
(per curiam); Blakeman v. Mead Containers, 779 F.2d
1146 (6th Cir. 1985). A number of cases reach this
result in construing the very Termination Pay plan at
issue here. See Adcock v. Firestone Tire & Rubber Co.,
616 F. Supp. 409 (M.D. Tenn. 1985), affirmed in
relevant part, Nos. 85-6031 and 85-6067 (6th Cir. June
26. 1987); Davidson v. Firestone Tire & Rubber Co.,
No. 84-1215 (W.D. Tenn. May 30, 1986); Sisk v.
Firestone Tire & Rubber Co., No. 83-CV-1448-DT (E.D.
Mich. Sept. 19, 1986).
These cases rely on the arbitrary and capricious
standard, so their holding is limited to the proposition
that an employer does not act unreasonably if it denies
severance pay when the former employees remain
employed; such a holding does not necessarily mean
that severance pay can be due only when employees are
unemployed. The cases suggest, however, that
severance pay is intended only to compensate
employees for losses they incur because they have no
job. See, e.g., Holland, 772 F.2d at 1149 (“Burlington
presented evidence that the plan was primarily
intended for employees who suffered a period of
unemployment when they were involuntarily
terminated from their jobs’).
Because the district court applied the wrong scope
of review, and because application of that (arbitrary
and capricious) standard was outcome determinative,
we must reverse the summary judgment on Count |
and remand for further proceedings consistent with
this opinion. We suggest several principles of
contractual construction which we believe will be
relevant in the proceedings to come. We begin with
several rules of interpretation which aid courts in
12 See note 4 above.
A29
identifying the intention of parties to a contract.
Some of the cases cited above suggest that there is
a practice of paying severance pay whenever employees
leave an employer, regardless of whether or not the
employees are actually without a job for a time. At the
same time, the defendants have cited cases showing
that many employers do not pay severance pay unless
the employees are in fact without a job. We have no way
of telling which -- if either -- of these cases represents
current practice. The district court should attempt to
answer that question on remand. See Restatement
(Second) of Contracts § 202(5) (instructing that “the
manifestations of intention of the parties to a promise
or agreement are interpreted as consistent ... with
any relevant . . . usage of trade’).
Similarly, the defendants have argued that their
own practice with respect to the Firestone Termination
Pay plan is that benefits are paid only if employees are
without any job when they cease work for Firestone.
Plaintiffs have contested this version of Firestone’s
past practice. In determining the plan's meaning the
district court should take account of such evidence of
past practice under the plan. See Restatement
(Second) of Contracts § 202(4)."
Additionally, plaintiffs have pointed to language in
a Firestone memorandum which they claim supports
their contention that a reduction in force includes any
separation of an employee from Firestone regardless of
whether or not the employee has another job. This
evidence, if credited and if construed as plaintiffs
13. That section provides:
Where an agreement involves repeated occasions for
performance by either party with knowledge of the nature of
the performance and opportunity for objection to it by the
other, any course of performance accepted or acquiesced in
without objection is given great weight in the interpretation
of the agreement.
A30
invite the court to construe it, would also support the
result for which they contend. See Restatement
§ 202(5) ("[wjherever reasonable, manifestations of the
parties to a promise or agreement are interpreted as
consistent with each other’).
The district court may also find that, under the
common usage in the trade, or under Firestone’s past
practice, Termination Pay is awarded even if employees
remain employed if their compensation drops
substantially when the employees cease to work for the
employer. Here the parties disagree about whether or
not the plaintiffs’ compensation after the sale of the
Plastics Division is as great as it was before --
particularly with respect to benefits, such as the
provision of Termination Pay. If the district court
determines that the award of Termination Pay turns on
the difference in the employees’ compensation before
and after the sale, it should ascertain the scope of any
such difference in rate of pay.
It may be, however, that while these canons of
construction prove helpful, they do not resolve the case
by themselves. That is in part because this is a
unilateral contract, and it may be that the parties here
simply never agreed on what the term “reduction in
force’’ would mean; if that is so then rules of
interpretation designed to help courts identify that
intention will not be helpful. The problem facing the
district court on remand would then be akin to the
difficulties a court faces when parties omit an essential
term. The Restatement instructs that in that
circumstance “a term which is reasonable in the
circumstances is supplied by the court.” Restatement
(Second) of Contracts § 204. If the parties here did not
agree on what would constitute a “reduction in force,”
so that the court cannot enforce their intention, then
the court should adopt the most reasonable
A3]
understanding of the term."
IV. SCOPE OF REVIEW AND COUNTS III AND V
We must also discuss the issue of scope of review in
connection with Counts III and V. In Count III plaintiffs
have alleged that certain representations in the
Employee Handbook about the Early Retirement Plan
estop Firestone from denying plaintiffs Early
Retirement benefits and awarding them “deferred
vested benefits” instead. In Count V plaintiffs contend
that the sale of the Plastics Division constituted an
early termination of the Stock Ownership Plan as
described in ERISA, 29 U.S.C. 8 411 (d)(3), which in
turn caused otherwise unvested rights in that plan to
vest on the date of sale.
The district court held that defendants were not
equitably estopped from denying plaintiffs Early
Retirement benefits, and that there was no partial
termination. But the arbitrary and capricious
standard was not entirely absent from this part of the
district court’s opinion. The plaintiffs argued that the
plan description led them to reasonably expect
benefits, and that our holding in Northeast Dept
ILGWU v. Teamsters Local 229 Welfare Fund, 764
F.2d 147 (3d Cir. 1985) therefore compelled the award
of those benefits. The district court held that
plaintiffs’ theory is inconsistent with the standard
of review under which I must approach this case,
i.e. the arbitrary and capricious standard.
Northeast Dept. ILGWU, 764 F.2d at 163.
Defendants’ decision must be sustained unless
14. Even in this eventuality, however, the court will be helped
in identifying the most reasonable term by the information
discussed above relating to the parties and the industry's past
practice and to Firestone’s other statements regarding the term's
meaning
A32
that decision was arbitrary and capricious. |
cannot defer to plaintiffs’ interpretation although
it is one factor to be considered.
Slip op. at 26.
The arbitrary and capricious standard also
appears in the parties’ arguments under Count V,
having to do with an asserted partial termination of the
plan, and in the district court's decision on that count.
Plaintiffs argued that defendants were obliged to
address the question whether there had been a partial
termination; the defendants’ failure to address that
question, the plaintiffs argued, made the denial of
benefits arbitrary and capricious. The district court
held that the defendant's action was not arbitrary and
capricious, and therefore that it was permissible under
ERISA.
Because of the nature of the challenges advanced
in Counts III and V, we believe that the question of
deference to the administrator's decision has no place
in the court's discussion of the claims advanced in
those parts of the complaint. The standard of conduct
governing the fiduciary is that his conduct not be
“arbitrary, capricious, or made in bad faith, not
supported by substantial evidence, or erroneous on a
question of law.” Rehmar v. Smith, 555 F.2d 1362,
1371 (9th Cir. 1977) (emphasis added). Whether or
nor Firestone is equitably estopped from denying
benefits is, for present purposes, a question of law. So
is the question whether or not there was a partial
termination.
Put another way, trustees only have discretion to
decide those matters expressly delegated to them by the
trust instrument. Comment a to Restatement of
Trusts (Second) § 187 (emphasis added), which sets
out the arbitrary and capricious standard, provides:
A33
The exercise of a power is discretionary except to
the extent to which its exercise is required by the
terms of the trust or by the principles of law
applicable to the duties of trustees.
While the decision to grant or deny benefits may be
committed to the trustee's discretion by a trust, ihe
question whether there has been a partial termination,
or whether or not the plan is equitably estopped from
denying a claim, are never committed to the trustee at
all. Those questions are governed by “the principles of
law applicable to the duties of trustees.” When posed to
a court the court must answer them de novo. See
Rosen v. Hotel and Restaurant Employees, 637 F.2d
592. 597 (3d Cir. 1981) (ignoring arbitrary and
capricious scope of review and determining equitable
estoppel claim on the merits, without any deference to
plan administrator).
V. THE MERITS
OF COUNT III
(EARLY RETIREMENT BENEFITS)
At issue in Count III is the distinction between
Early Retirement and Deferred Vested benefits. Three
kinds of benefits are relevant for purpeses of this
Count.
The Retirement Plan provided that employees
could retire with regular Retirement benefits at age 65.
However, employees could also retire before age 65 if
they had ten years of service, or if they were at least 55
years old and had thirty years of service. The Early
Retirement benefit they would then receive would be
equal to the Regular Retirement benefit minus .4% for
each month by which the employee's age was less than
62. and .2% for each month by which the employee's
age was less than 50.
Finally, an employee who was eligible for neither
A34
Regular or Early Retirement benefits could still receive
deferred vested benefits, so long as he had ten years of
service with Firestone. The deferred vested benefit was
smaller than the Early Retirement benefit, and was
equal to the actuarial equivalent of the amount the
employee would have received had he taken regular
retirement at his last rate of pay."*
Predicating their claim on the theory of equitable
estoppel, the plaintiffs argue in Count Ill that they are
entitled to Early Retirement benefits, which Firestone
refused to award plaintiffs, instead of the deferred
vested benefit, which plaintiffs actually received.
Plaintiffs argue that the plan misled them into
believing that they would received the Early Retirement
benefit and that they are therefore entitled to receive it.
The district court correctly summarized the
requisites of an equitable estoppel claim: there must be
a material misrepresentation or omission, reasonable
reliance thereon, and damage. See Rosen, 637 F.2d at
597: Consolidated Express v. New York Shipping
Ass'n. 602 F.2d 494, 510 (3d Cir. 1979); see also
Restatement (Second) of Contracts § 90 comment a
(“Estoppel prevents a person from showing the truth
contrary to a representation of fact made by him after
another has relied on the representation”). We agree
with the district court that there has been no
misrepresentation here, because the plan summary
was sufficiently clear about the distinction between the
early retirement benefit and the deferred vested
benefit.
15. The deferred vested benefit is paid over more years than the
regular retirement benefit, because the employee begins receiving
the former before he turns 65, when the latter begins. The actuarial
equivalent of the regular pension benefit is an amount which
reflects this fact, reducing the amount paid each month so that the
present value of the total income stream Is equal to the present
value ef the income stream produced by the regular pension
benefit
A395
The employee handbook gives an example of how
the early retirement benefit is computed, explaining
that a 55 year old employee who elected to receive the
early retirement benefit would receive 66.4% of the
amount he would have received had he taken regular
retirement.'’® The handbook gives no examples of how
to compute a deferred vested benefit, nor does it define
the term “actuarial equivalent.”
Several named plaintiffs testified in deposition
that they expected to receive Early Retirement benefits
when Firestone sold the Plastics Division. (Although
they did not identify by name the benefit to which they
thought they were entitled, these employees testified
that they expected to receive 66.4% of the amount they
would have received had they taken regular retirement.
The precision of the employees’ recollection as to the
fraction of their regular retirement benefits
represented by the benefit they expected makes clear
that they were thinking of the early retirement benefit.)
While the named plaintiffs’ testimony would
certainly justify a finding that the plaintiffs did not
understand how their benefits program worked,
however, this evidence does not identify any factual
misrepresentation in the handbook. The handbook
correctly sets out the eligibility requirements for both
the deferred vested and early retirement benefits.
Indeed, the plaintiffs point to no statement in the
handbook which they claim is false. The only fault
16. This number was computed as follows:
The early retirement benefit is equal to the regular retirement
benefit reduced by .4% for each month by which the employee's age
is less than 62. A 55 year old employee is 84 months younger than
62. so his retirement benefit would be reduced as follows:
84x 4% = 33.6%
100% - 33.6% 66.4%.
A36
plaintiffs can identify with the handbook is that while
it gave examples of what the early retirement benefit
would be for employees retiring at various ages, it gave
no such examples for the deferred vested benefit. That
is obviously not a misrepresentation, and it is not the
omission of a fact: it is only the omission of what might
have been a helpful explanation.
Finding no misrepresentation or omission, we
need not investigate the merits of the other elements of
an equitable estoppel claim. '7 The district court's grant
of summary judgment for Firestone on Count Ill will be
affirmed.
IV. THE MERITS OF
COUNT V
(THE STOCK OWNERSHIP CLAIM)
In Count V plaintiffs contend that Firestone’s sale
of its Plastics Division constituted a partial
termination of the Stock Ownership Plan within the
meaning of ERISA, 26 U.S.C. § 41 1(d)(3).
The district court concluded that there was no
partial termination because the Plastics Division's sale
affected only a very small fraction of the total number of
employees covered by the Stock Ownership Plan. In so
holding the district court relied on a line of cases and
1.R.S. Revenue Rulings which define a partial
termination in terms of the percentage of employees in
the plan who were affected by the corporation's
transaction. See Babb v. Olney Paint Co., 764 F.2d
17. Plaintiffs make some suggestion in their briefs that we
should judge misrepresentations particularly strictly in the ERISA
context because of the employer's statutory obligation to write the
plan “in a manner calculated to be understood by the average plan
participant.” ERISA § 102. 29 U.S.C. § 1022. Plaintiffs do not
articulate this argument clearly, however, and the plaintiffs
apparently did not raise it before the district court. We accordingly
do not address it.
ds, meni
A37
240 (4th Cir. 1985); Ehm v. Phillips Petroleum Co.,
583 F. Supp. 1113 (D. Kan. 1984); Wishner v. St.
Luke's Hospital Center, 550 F. Supp. 1016, 1019
(S.D.N.Y. 1982); Rev. Rul. 81-27, 1981-1 C.B. 228;
Rev. Rul. 73-284, 1973-2 C.B. 139; Rev. Rul. 72-439,
1972-2 C.B. 223. Under each of these authorities, the
facts of this case would not constitute a partial
termination, because only 2.2% of the employees
covered by the pian were terminated. See Babb, 764
F.2d at 243 (12.84% not enough to constitute partial
termination); Ehm, 583 F. Supp. at 1116 (2.5% not
sufficient); Wishner, 550 F. Supp. at 1019 (3.7% not
sufficient).
Plaintiffs argue, however, that these cases are
either inapposite or wrongly decided, and that the
Revenue Rulings are not dispositive on the question
whether a partial termination has occurred for ERISA
purposes. Our decision in United Steelworkers v.
Harris & Sons Steel Co., 706 F.2d 1289 (3d Cir. 1983)
supports the latter proposition, for we held there that
facts constituting a partial termination for tax
purposes will not necessarily constitute such a
termination for ERISA purposes. We decided in Harris
that Pension Benefit Guaranty Corporation insurance,
which ERISA makes available only on partial
termination, might in fact have been available to the
plaintiff steelworkers even though the employer had
not engaged in a tax code partial termination.
Plaintiffs argue further that whether a partial
termination has occurred for present purposes should
turn on the total number of employees affected, or the
amount of money the employer saves by terminating
the affected employees. In support of this proposition
they cite Weil v. Terson Co. Retirement Plan, 750 F.2d
10 (2d Cir. 1984), in which the Second Circuit held
that a partial termination for ERISA purposes should
be identified on the basis of “the number of employee
A38
terminations made in connection with” the
transaction said to constitute the partial termination.
Id. at 12.
We reject the plaintiffs’ contention, and disagree
with the approach taken by the Second Circuit in Weil.
Section 411(d}(3) provides in pertinent part that
a trust shall not constitute a qualified trust under
section 401(a) unless the plan of which such trust
is a part provides that--
(A) upon its termination or partial
termination...
the rights of all affected employees to benefits
accrued to the date of such termination, partial
termination, or discontinuance, to the extent
funded as of such date, or the amounts credited to
the employees’ accounts, are nonforfeitable.
This provision is intended to prevent employers
from maintaining pension plans for the purpose of
deferring income, and thereby reducing their taxes,
rather than for the purpose of providing retirement
benefits for employees. The penalty for violation of this
section -- i.e. for maintenance of a plan that does not
provide for full vesting on partial termination -- is loss
of § 401 qualification -- a very severe penalty. As a
result of this provision, all qualifying pension plans
contain the assurances required by this section.
Plaintiffs can then sue on the basis of the plan
language, as they have done here.
We believe that the structure of the statute
suggests that a partial termination should be found
under § 411(d)(3) only if so many people have been
terminated that the plan appears to have been created
as a mechanism for deferring the recognition of
income, and thereby reducing taxes, rather than as a
mechanism for the provision of retirement benefits to
A39
employees. That formulation suggests that the district
court was correct in focusing on the percentage of
employees in the plan who were affected by the
transaction said to constitute a partial termination.
Because that fraction was so low in this case --
approximately 2% -- the district court was also correct
in holding that the sale of the Plastics Division did not
constitute a partial termination.
We note that the plaintiffs’ argument is essentially
driven by the theory that the partial terinination
provision was designed to protect employees from
dismissals motivated by an employer's desire tc avoid
paying pension benefits. That desire was indeed a very
important goal of ERISA. But Congress pursued that
goal in other sections of ERISA, by providing detailed
mandatory vesting schedules, and such requirements
are a much more precise way of solving the problem of
strategically motivated dismissal. Attributing this goal
to the partial termination provisions as well makes the
partial termination provision seem both superfluous
and clumsy. This consideration also supports the
result we reach.
We note, however, that it is not easy to divine the
purpose of § 411(d)(3). Without a clear sense of the
provision’s purpose it is difficult to decide what should
and should not constitute a partial termination.
Clarification from Congress or the Internal Revenue
Service as to the purpose of this provision would make
it substantially easier to enforce.
VI. THE MERITS OF COUNT VII
(REQUEST FOR INFORMATION)
In the last Count before us on appeal three of the
named plaintiffs sue individually, alleging that the
plan administrator failed to respond properly to their
requests for information made pursuant to § 502(c) of
ERISA, 29 U.S.C. § 1132(c). That section provides:
A40
Any administrator who fails or refuses to comply
with a request for any information which such
administrator is required by this subchapter to
furnish to a participant or beneficiary . . . may in
the court's discretion be personally liable to such
participant or beneficiary in the amount of up to
$100 a day from the date of such failure or refusal.
The district court held that these plaintiffs were not
entitled to relief under this provision because they had
made their requests for information after they ceased
to be Firestone employees. The district court held that,
because they were no longer Firestone employees and
because -- as it had concluded earlier in the same
opinion -- they were not entitled to any benefits from
any of the plans, the named plaintiffs were not
“participants or beneficiaries” of the plans.
ERISA defines the term “participants” to mean
any employee or former employee of an employer,
or any member or former member of an employee
organization, who is or may become eligible to
receive a benefit of any type from an employee
benefit plan which covers employees of such
employer or members of such organization, or
whose beneficiaries may be eligible to receive any
suxh benefit.
29 U.S.C. § 1002(7). The statute defines a
“beneficiary” as “a person designated by a participant,
or by the terms of an employee benefit plan, who is or
may become entitled to a benefit thereunder.” Id.
§ 1002(8).
A line of cases in the Fifth and Ninth circuits takes
the same aporoach as the district court here. See
Nugent v. Jes it High School, 625 F.2d 1285 (5th Cir.
1980); Weiss v. Sheet Metal Workers Local No. 544
Pension Trust, 719 F.2d 302 (9th Cir. 1983); Freeman
A4]
vu. Jacques Orthopedic & Joint Implant Surgery
Medical Group, 721 F.2d 654 (9th Cir. 1983). These
cases hold that one is a participant or beneficiary only
if he is now receiving benefits from the plan or
reasonably expects to receive them in the future
because benefits which are now unvested can
reasonably be expected to vest later.
The wording of 8 502(c) is identical in this respect
to the language in § 502(a), conferring standing to
bring an ERISA claim. Section 502(a)(1) provides that
a civil action may be brought, inter alia, “by a
participant or beneficiary.” 29 U.S.C. § 1132(a)(1).
Applying the logic of the above opinions to the standing
provision leads to the conclusion that one has no
standing to bring an ERISA claim -- i.e. no standing to
claim that he is entitled to benefits -- unless he is
entitled to benefits.”
We reject that conclusion as well as the reasoning
which leads to it. We do not think that a person lacks
standing to claim an entitlement to benefits just
because it turns out that he is in fact not entitled to
those benefits. When a court holds that a claimant is
not entitled to benefits, the claimant loses on the
merits and judgment is entered against him. As a
practical matter, therefore, courts normally read
§ 502(a) as if it read: “a civil action may be brought by
someone who claims to be a participant or
beneficiary.”"”
18. The Fourth Circuit, it should be noted, has expressly
rejected this, holding that one may have standing to sue under
§ 502 even if he is not entitled to benefits. Salomon v.
Transamerica Occidental Life Ins. Co., 801 F.2d 659 (4th Cir.
1986).
19. We have the same common sense understanding of
provisions conferring standing and subject matter jurisdiction
under other statutes. Section 4 of the Clayton Act, for example,
A42
We think that the same reading should be
accorded § 502(c). A provision such as that one,
entitling people to information om the extent of their
benefits, would most sensibly extend both to people
who are in fact entitled to a benefit under the plan and
to those who claim to be but in fact are not. People who
worked for a company for a time, and who are not
certain whether or not they are entitled to benefits
would obviously need the information § 502(c)
discusses in order to know whether to press their
claim.
Moreover, defendants’ understanding would often
allow the entitlement to information to turn on the
plan administrator's belief as to the merits of the
claimant's request for benefits. Yet simply because the
plan administrator believes the claimant is not entitled
to benefits does not mean that he is in fact not so
entitled. The plan administrator might be wrong -- as
he may have been with respect to the Termination Pay
plan at issue in Count I of this complaint. Even the
cases we reject would permit the employee to recover
damages under § 502(c) if the claimant sues and it
turns out that he was entitled to benefits. But if the
employee is left uninformed his rights may remain
unvindicated even if the administrator is wrong,
confers jurisdiction on the federal district courts “to prevent and
restrain violations of sections | to 7 of” title 15. We understand this
provision to confer jurisdiction on the federal courts to hear claims
that a violation has occurred (or will occur). If at the end of trial the
court finds that there was no violation, so that the defendant wins,
the victory is on the merits. We do not hold that, because there was
no violation of the relevant antitrust provision, the court lacked
subject matter jurisdiction.
We note that the Supreme Court rejected a similarly
erroneous rule in Bell v. Hood, 327 U.S. 678, 682 (1946), where the
Court explained that a lack of standing should not be confused with
a lack of subject matter jurisdiction.
A43
because the administrator's failure to provide
information to the employee may prevent the employee
from suing.
Finally, however, -- and this is the most compelling
reason for our holding -- ERISA’s legislative history
makes clear that Congress intended _ the
information-producing provisions to enable claimants
to make their own decisions on how best to enforce
their rights. See S. Rep. 93-127, 93d Cong. Ist Sess. at
27 (ERISA’s reporting and disclosure requirements
imposed so “that individual participants and
beneficiaries will be armed with enough information to
enforce their own rights”). That function can be
performed only if all people with potential rights can
obtain information.
Having said that, we concede that it is expensive
and inefficient to provide people with information
about benefits -- and permitting them to obtain
damages if information is withheld -- if they are clearly
not entitled to the benefits about which they are
informed. But while this is indeed a problem, we do not
believe it insuperable.
Section 502(c) grants significant discretion to the
district court to decide whether to award damages
under that provision. We think that that discretion can
be used, for example by granting summary judgment
in appropriate cases, to prevent strategic behavior by
plaintiffs seeking to take unfair advantage of § 502(c)’s
damage provisions when they are not entitled to any
ERISA benefits. For example, if the employee's claim
for benefits is not colorable, and if the employer
displayed no bad faith in responding to the claim --
taking somewhat too long to respond to it, for instance,
but not ignoring it entirely -- then the district court
would be well within its discretion in setting damages
at SO.
Ad4
CONCLUSION
For the foregoing reasons, we will affirm the
summary judgment on Counts III and V. However, we
will reverse the summary judgment on Counts I and
VII, and remand those aspects of the case to the district
court for further proceedings consistent with this
opinion.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
:
(A.O. U.S. Courts. G.M.C. Printing, Phila... Pa. 215-568-4264)
= —
A45
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
RICHARD BRUCH, et al. > CIVIL ACTION
V. NO. 82-3286
FIRESTONE TIRE & RUBBER
COMPANY, et al.
MEMORANDUM AND ORDER
HUYETT, J. June 9, 1986
This ERISA class action arises out of the November 30,
1980 sale by Firestone Tire & Rubber Company (“Firestone”)
of five of its plants which, together, constituted its Plastics
Division. All five plants were sold as ongoing operations to
Occidental Petroleum, the Hooker Chemical Division. Of the
seven original counts in the second amended complaint, five
remain in this action. All five counts are the subject of the
cross-motions for summary judgment which are presently
pending before me. Before delving into a detailed analysis of
the issues raised by each of plaintiffs’ claims, I will outline
briefly the facts underlying this action, the claims plaintiffs
have raised, the procedural posture of the action, and the
standard by which plaintiffs’ claims must be evaluated.
The five plants which comprised Firestone’s Plastics Di-
visions were located in Pottstown, Pennsylvania; West Cald-
well, New Jersey; Perryville, Maryland; Salisbury, Maryland,
and Baton Rouge, Louisiana and emploved approximately 500
salaried emplovees. The six named plaintiffs are former, sal-
aried, non-union employees who worked at the Pottstown.
Pennsylvania plant. They represent four classes of salaried,
non-union individuals who were employed in Firestone’
Plastics Division on the date of the sale. Following the sale,
plaintiffs and most of the other employees continued, without
interruption, to perform their same jobs at the same rates of
pay as employees of the new owner, Occidental.
Of the five remaining claims, four are being maintained
on behalf of classes; one claim is being asserted by individual
named plaintiffs. In count one, plaintiffs, representing a class
A46
of all salaried employees employed in the five plants on No-
vember 30, 1980 except those employees who retired at the
time of the sale or who have been paid termination pay with
regard to their employment with Firestone’s Plastics Division,
claim that they are entitled to termination pay on the grounds
that they were terminated by Firestone at the time of the sale;
the sale, plaintiffs allege, constituted a reduction in force
under Firestone’s termination pay policies thereby entitling
them to the termination pay.
Count three states a claim for redress for the difference
under Firestone’s Retirement Plan for Salaried Employees
(“Retirement Plan”) between an early retirement benefit and a
deferred vested retirement benefit. Plaintiffs bring this claim
on behalf of a class of all salaried, non-union employees at the
five plants who did not qualify, before the date of the sale, for
normal or early retirement under the Firestone Retirement
Plan. In count five, plaintiffs, on behalf of a class of all sal-
aried, non-union employees at the five plants who had non-
vested accrued benefits credited to their accounts under Fire-
stone's Stock Purchase and Savings Plan (“Stock Plan”), seek
ihe vesting of their unvested interests in Firestone’s contribu-
tions to the Stock Plan.
In count six, plaintiffs represent a class of all salaried,
non-union employees who were employed in the five plants
on the date of the sale who had vacation time accrued on
November 30, 1980 but had not yet taken it. Plaintiffs claim
that they are entitled to the vesting of credit for purposes of
the Retirement and Stock Plans for the accrued vacation time
which was unused at the time of the sale. Finally, in count
seven, several individual plaintiffs state a claim for breach of
ERISA’s reporting and disclosure requirements.
The Employee Retirement Income Security Act of 1974,
29 U.S.C. §§ 1001 et seg., is a comprehensive statute designed
to protect employees enrolled in pension and welfare benefit
plans. ERISA provides a private right of action to any partici-
pant or beneficiary to enforce his or her rights under either a
pension or a welfare benefit plan. 29 U.S.C. § 1132(a)(3)(B)
(ii). Although pension and welfare benefit plans serve differ-
A47
ent purposes, ERISA subjects them to common reporting and
disclosure requirements, 29 U.S.C. §§ 1021-31, and standards
of fiduciary conduct, 29 U.S.C. §§ 1101-14. Welfare benefit
plans, however, are not subject to ERISA’s vesting provisions
or minimum substantive provisions. Termination pay plans
are now generally classified as “employee welfare benefit
plans” within the meaning of 29 U.S.C. § 1002(1) and are,
therefore, governed by ERISA.
Summary judgment may b+ granted only when it has
been established that there is no genuine issue of material
fact and that the moving party is entitled to judgment as a
matter of law. Fed.R.Civ.P. 56(c); Small v. Seldows, 617 F.2d
992 (3d Cir. 1980). The court does not decide issues of fact,
but merely determines if there is an issue of fact to be tried.
Ettinger v. Johnson, 556 F.2d 692 (3d Cir. 1977). The facts
must be viewed in the light most favorable to the non-moving
party, and any reasonable doubt as to the existence of a
genuine issue of fact is to be resolved against the moving
party. Continental Ins. Co. v. Bodie, 682 F.2d 436 (3d Cir.
1982).
Firestone was the administrator of the three plans in-
volved in the claims raised by plaintiffs, and as such, is a
fiduciary under ERISA. In reviewing a decision by the admin-
istrator of a pension or welfare benefit plan, | am limited to
determining whether the administrator's actions were arbi-
trary and capricious. Unless the decision was arbitrary and
capricious, the administrator satisfied its fiduciary obligations
under 29 U.S.C. § 1104.! See Northeast Dep't. ILGWU Health
1. Plaintiffs suggest that courts have developed a three-pronged test
when applying the “arbitrary and capricious” standard, the three elements
of which are: whether the decision of the trustees is supported by substan.
tial evidence, whether the trustees have made an erroneous decision on a
question of law, or whether the trustees have acted in bad faith. In this
circuit, the courts have not articulated such a test; rather they have simply
focused on whether the decision was arbitrary and capricious without fur
ther defining that standard. The three elements to the test plainufts pro-
pose are certainly factors to be considered but they alone are not determin:
ative of whether defendants have breached their fiduciary duty
A48
and Welfare Fund v. Teamsters Local No. 229 Welfare Fund,
764 F.2d 147, 163 (3d Cir. 1985); Wolf v. National Shopman
Pension Fund, 728 F.2d 182, 187 (3d Cir. 1984).
Count One—Termination Pay
In count one, plaintiffs seek the recovery of severance or
termination pay benefits to which they claim they were en-
titled upon the sale of the Plastics Division. Upon divestiture
of the five plants, Firestone refused to pay severance benefits,
asserting that no event had occurred which gave rise to a right
to such benefits.
At the time of the sale, Firestone maintained a non-
funded, non-contributory severance pay benefit plan for its
employees. The terms of the plan were set forth in two per-
sonnel documents. First, the Salaried Employees Handbook,
which was in effect in 1980 and which was given to each
employee, provided in pertinent part:
If vour service is discontinued prior to the time you are
eligible for pension benefits, you will be given termina-
tion pay if released because of a reduction in work force
or if you become physically or mentally unable to perform
your job.
The amount of termination pay you will receive will de-
pend on your period of credited company service.
Plaintiffs contend that the sale constituted a reduction in
force. The Handbook, however, does not provide any defini-
tion of “reduction in force.”
Firestone’s termination pav policies were set forth in
greater detail in the Manual which was a confidential com-
pany document not generally circulated to employees, but
which was, according to defendants, available for an em-
plovee to review upen request. A reduction in force (RIF) is
defined generally in the Manual as “termination by the Com-
pany, without prejudice to the employee” Section 1.5.4. Sec-
tion 2.11.3 further states:
Despite the objectives of Firestone to provide stable em-
ployment, continued earnings and benefit coverages to
Ad9
its emplovees, there may be economic conditions that
develop which make it necessary for the Company to
temporarily or permanently terminate the employment of
some of its work force.
In the event such release must be made, the following
reduction in force policies have been established with the
goal of minimizing the economic and mental stress of
terminated employees during the period of time between
release from Firestone and securing other employ-
ment ...
Plaintiffs contend that defendants may not properly rely
on the provisions of the Manual because the language in
section 2.11.3 which defendants cite in their motion for sum-
mary judgment was added to the Manual only one month
before the November 30, 1989 sale. Plaintiffs also argue that
this Manual was not made available to the emplovees. | note
that plaintiffs, in their second amended complaint, specifi-
cally relied on provisions in the Manual to support their claim
for termination benefits; it would be rather anomalous to
permit plaintiffs to rely on a document while prohibiting
defendants from using it to support their defense. Neverthe-
less, at oral argument, defense counsel stated that defendants
did not consider reliance on the Manual essential to their
position. Because I find sufficient grounds for rejecting plain-
tiffs’ termination pay claim without reference to the Manval, |
need not decide whether reliance on the Manual is appropri-
ate.
There is no dispute that Firestone’s termination pay plan
was an “employee welfare benefit plan” and as such is subject
to the fiduciary and reporting and disclosure requirements of
ERISA. See 29 C.F-R. § 2510.3-1(3). Emplovee welfare benefit
plans, however, are not subject to the vesting and minimum
substantive content provisions of ERISA. The issue that
arises, therefore, is whether, in the absence of a statutory
guarantee or right in an employer's termination pay plan, an
employer, who has offered such a plan, may later terminate
the plan without incurring liability for the previous|y prom-
ASO
ised benefits. Plaintiffs contend that the employer may not;
employees acquire a contractual interest in welfare benefit
plans enforceable under federal common law.
The court in Adcock v. The Firestone Tire & Rubber Co.,
616 F. Supp. 409, 414-419 (1985), facing precisely the same
claim raised by plaintiffs here, held that the plaintiffs, sal-
aried non-union employees, possessed a contractual right to
benefits under the Firestone severance pay plan, a deferred
and contingent right.2 “The plan is subject to the procedural
protections contained in ERISA, that is, reporting and dis-
closure requirements and fiduciary standards, but with sub-
stantive rights governed by common law contract principles.”
Adcock at 419.
I reach the same conclusion in this action. ERISA is
silent as to the rights an employee has in welfare benefit
plans; therefore, it is necessary to look to another source to
determine what rights, if any, an employee has in welfare
benefits. The source is federal common law: “Congress
intended that a body of Federal substantive law ... be devel-
2. In Adcock v. Firestone, 616 F. Supp. 409 (1985), Judge Wiseman
relied heavily on the district court's decision in Hansen v. White Farm
Equipment Corp., 42 B.R. 1005, 5 EBC 2130 (N.D. Ohio 1984), in which the
court held that under contract principles, welfare benefit plans “vest upon
retirement” and cannot be terminated even in the face of plan language
which unequivocally authorizes such action. Defendants submitted for my
conside. ition a copy of the Sixth Circuit's slip opinion in Hansen in which
the court reversed the district court's holding. See Hansen v. White Motor
Corp., 768 F.2d 1186 (6th Cir. 1986). Defendants argue that the Sixth Cir-
cuit, in Hansen, rejected a federal common law, contractual analysis. How-
ever, in Hansen, the Sixth Circuit merely held that contract principles do
not result in the absolute vesting of employee welfare benefits and no
federal policy mandates a federal common law rule limiting the right of an
emplover to exercise after retirement a reserved right of termination of em-
plovee welfare benefits. The Hansen court accepted the notion that an em-
plovee may have a contractual right in his or her welfare benefits; the court
rejected the concept that federal common law should define the substantive
content of the contract. “It is the district court's further conclusion that a
federal rule of decision should be created barring termination of welfare
benefit plans, regardless of any clear, express contractual provision, which
gives us pause.” Hansen. slip op. |sic| at 1192.
a a im
AS]
oped by the court to deal with issues involving rights and
obligations under private welfare and pension plans.” 120
Cong. Rec. 29942 (1974) (remarks of Senator Javits). As the
court in Adcock emphasized, the employer-employee rela-
tionship is contractual. Benefits are part of the package for
which an employee exchanges his labor. The issue here is
whether the termination pay benefits are contractual rights.
To create a binding contract, there must be an offer and
an acceptance of the offer; both acts must be supported by
sufficient consideration. As in Adcock, in this case, the em-
ployee’s Handbook states that:
If your service is discontinued prior to the time you are
eligible for pension benefits, you will be given termina-
tion pay if released because of a reduction in work force
or if you become physically or mentally unable to perform
your job.
This provision constitutes an offer by Firestone to pay termi-
nation benefits in the event of a reduction in work force or a
mental or physical disability by the employee. Plaintiffs ac-
cepted this offer by performing their jobs, at ail times subject
to the terms of the Handbook. Plaintiffs, therefore, acquired a
contractual interest in the termination benefits which interest
is subject to the procedural protections of ERISA. However,
where the terms of the policy are susceptible to more than one
reasonable interpretation, ERISA mandates that the court not
substitute its judgment for that of the administrator.’ There-
fore, Firestone’s interpretation of plaintiffs’ rights will prevail
unless it is arbitrary and capricious.
Relying on the court’s analysis in Blau v. Del Monte Cor-
poration, 748 F.2d 1348 (9th Cir. 1985), plaintiffs argue that
they are entitled to termination pay because defendants’ ad-
ministration of the plan was so flawed by ERISA violations
3. Plaintiffs argue that where there is an ambiguity in the plan, the
contractual ambiguity must be resolved against the author of the contract.
This standard conflicts directly with the deference due the administrator
and the arbitrary and capricious test of ERISA and is, therefore, pre-empted
by ERISA.
A52
that it was per se arbitrary and capricious to deny termination
pay. In Blau, the court held that where defendant’ adminis-
tration of the plan was characterized by many ERISA vio-
lations, the lower court could not determine as a matter of law
that the denial of severance pay was not arbitrary and ca-
pricious. The court found that Del Monte had not only made
no attempt to comply with any of the duties imposed on a plan
administrator by ERISA but also actually concealed the sever-
ance allowance policy. Moreover, in Blau, the termination pay
plan provided that termination pay would be granted upon job
elimination whenever “alternative employment opportunities
are unavailable within the corporation.” Del Monte neverthe-
less failed to apply this standard.
Although Firestone could have taken additional steps to
advise plaintiffs of its policies, there is no evidence that it
actively concealed its policies in the manner Del Monte had.
The Handbook was available to all salaried employees, and it
clearly stated that termination pay was available only in the
event of a reduction in force or physical or mental disability.
Moreover, prior to the sale, Firestone employees who inquired
as to termination pay were told that termination pay would not
be awarded at the time of the sale; management also appar-
ently made several statements to this effect at the public
meetings held for employees prior to the sale.
As the court in Adcock noted, Blau establishes a very high
threshold for determining arbitrary and capricious conduct
vis-a-vis noncompliance with ERISA’s procedural require-
ments. Even if I accept all of plaintiffs’ allegations as true, I do
not believe that Firestone’s conduct rises to the level of
culpability necessary to cross the threshold set in Blau.
Defendant Firestone contends that under its termination
pay policy, it had no obligation to pay termination pay benefits
upon the sale of an ongoing operation when its former em-
ployees were immediately employed by the successor corpora-
tion without any significant loss in earnings or benefits. After
a careful review of the facts of this case, existing case law, and
Firestone’s own past practices, | conclude that Firestone’s
decision to deny plaintiffs termination pay benefits was not
A53
arbitrary and capricious and therefore not a breach of its
fiduciary obligations under ERISA.
Plaintiffs’ claim for termination pay is based on the the-
ory that a reduction in force occurred when Firestone sold the
five plants. No precise definition of reduction in force has
been developed; therefore, the issue is whether Firestone’s
decision that the sale of the five plants did not constitute a
reduction in force was arbitrary and capricious. In reviewing
this situation, I must give deference to Firestone’s decision.
However, because Firestone avoided the outlay of a substan-
tial amount of money by denying the plaintiffs termination
pay, the deference I owe to that decision is reduced, and I may
scrutinize the decision more closely. Nevertheless, I conclude
that the decision to deny termination pay benefits was not
arbitrary and capricious.
As noted, the Handbook merely states that termination
pay will be available in the event of a reduction in force. The
Manual defines a “reduction in force” broadly as “termination
by the company, without prejudice to the employee.” From
this language, plaintiffs argue that they were entitled to re-
ceive termination benefits unless they left the employ of Fire-
stone as a result of their own misconduct. I do not believe that
this conclusion results from the limited language included in
the Handbook or the Manual.
Although these two documents provide little guidance in
defining the term “reduction in force,” it is noteworthy that
nothing in these documents suggests that a reduction in force
would occur at the time of the sale of an operation as an
ongoing business. General common usage of severance pay
comports with the conclusion that termination pay would not
be paid to employees who remain in the same job and con-
tinue to draw the same wage after the sale of a plant as an
ongoing business. These employees suffered none of the
hardships normally associated with a termination or reduc-
tion in force; they had no period of unemployment without
income. Plaintiffs were immediately rehired by Occidential
without missing a day of work. .
The case law supports Firestone’s interpretation of the
A54
Termination Pay Plan. Holding that the administrators of the
Plan acted in a rational and reasonable manner and in good
faith in denying the plaintiffs termination pay upon the sale
of a division as a going business, the court in Sly v. PR.
Mallory & Co., Inc., 712 F.2d 1209, 1211 (7th Cir. 1983),
affirmed the lower court's conclusion that “severance pay is
generally intended to tide an employee over while seeking a
new job and should be considered an unemployment benefit.”
Similarly, the court in Jung v. FMC, 755 F.2d 708 (9th Cir.
1985), distinguishing its earlier decision in Blau v. Del Monte
Corp., 748 F.2d 1348 (9th Cir. 1984), held that FMC’s inter-
pretation of the plan as not providing for severance benefits
upon divestiture and transfer of employment was not arbitrary
and capricious. The court also noted that to allow plaintiffs to
recover severance pay would, in effect, allow a windfall to
them when they retained their positions with the new owner.
Addressing Firestone’s termination policy, Judge Wise-
man in Adcock v. The Firestone Tire & Rubber Co., 616
F. Supp. 409 (M.D. Tenn. 1985), held that “continued employ-
ment with a successor corporation following the transfer of
ownership, although characterized by a termination of em-
ployment with the predecessor corporation, does not con-
stitute an involuntary reduction in work force by the prede-
cessor corporation thereby entitling the employee to
severance pay benefits.” Recently, Judge Todd reached the
same conclusion in Davidson v. Firestone Tire & Rubber Co.,
No. 84-1215, slip op. (W.D. Tenn. April 21, 1986) [Available
on WESTLAW, DCTU database}.
Just as an employee who is rehired no longer has a need
for termination pay, an employee who never leaves his job
when a Firestone division is sold as a going concern has
no reasonable expectation of receiving termination pay-
ments. Put simply, the termination pay program was
intended to help those employees defendant Firestone
believed needed the help, and not to give windfalls to
former emplovees who did not need the help.
Davidson, slip op. at 6.
EM Ny ea NE Oe en ae a aa «
Firestone’s past practices have been consistent with the
position it adopted in this case. Before the sale of the Plastics
Division, Firestone sold plans |sic| as ongoing businesses on
at least three occasions. In 1984, Firestone sold two adhesive
plants, one in Detroit, Michigan and one in Trenton, New
Jersey. The purchaser of the plant, in each case, agreed to hire
the existing employees, and on that basis, Firestone decided
not to award termination pay. Similarly, in March 1975, Fire-
stone sold its World Bestos plant in New Castle, Indiana.
Again the purchaser agreed to hire all employees, and the
employees were not paid termination pay by Firestone.
Employees who were terminated at the time of the
closure of the Pottstown, Pennsylvania tire plant received
termination pay, but as defendants note, these employees lost
their jobs. There was no new owner to take over the plant; it
ceased to operate. Therefore, plaintiffs’ reliance on this epi-
sode is misplaced. Plaintiffs also rely on the fact that Fire-
stone made payments to former employees who had worked at
the Newport, Tennessee industrial products facility before
Firestone sold it as a going concern. The new owner of the
Newport, Tennessee plant offered benefits which were sub-
stantially less than Firestone’s benefits; for example, the suc-
cessor company had no pension plan at all and provided a
much lower level of health insurance and other benefits.
Although Firestone concluded that these employees were not
entitled to termination pay, to provide partial relief from this
special hardship, Firestone adopted a one-time policy applica-
ble to the Newport plant and granted the employees a Service
Recognition Award. Robinson Affidavit at © 12.
As the court in Davidson concluded, the fact that Fire-
stone made payments to the Newport employees does not
support the argument that the refusal to pay termination
benefits to plaintiffs was arbitrary and capricious. Firestone
made the payments to its former Newport employees to com-
pensate them for the significant reduction in benefits. There-
fore, these employees did not receive a windfall. Although
there are some differences in the benefits packages offered by
Occidental and Firestone, counsel for plaintiffs was unable to
A56
elaborate on these differences at oral argument; the differ-
ences which have been identified do not strike me as signifi-
cant and certainly not as great as the differences which war-
ranted the payment of the Service Recognition Award to the
Newport employees.
For all these reasons, I conclude that Firestone’s decision
not to pay plaintiffs and the employees they represent termi-
nation pay was not arbitrary and capricious, and defendants
are entitled to summary judgment on this count.
Count three—Retirement Benefits
Count three states a claim for redress for the difference
under Firestone’s Retirement Plan for Salaried Employees
between an early retirement benefit and a deferred vested
retirement benefit. Under the Retirement Plan, employees
who had ten years of service and had reached age 55 or had
thirty years of service, qualified for early retirement; the early
retirement benefit consisted of the annual retirement income
reduced by .4% for each month by which the employee's
retirement age was less than age 62 and .2% for each month
the retirement age was less than age 50. The early retirement
benefit was not a vested benefit. Defendants, therefore, con-
cluded that any employees who had not qualified for this
benefit by the time of the sale lost their right to it and could
receive only a deferred vested retirement benefit.
A deferred vested retirement benefit entitles an em-
ployee, who is terminated before he or she is eligible for the
early retirement benefit but who has ten or more years of
credited service, to receive a pension before age 65 in an
amount which will be actuarially equivalent to the amount
that would otherwise have been payable at the normal retire-
ment age 65. In other words, the deferred benefit is reduced
from the amount available at age 65 at an actuarial rate. The
early retirement is, therefore, more favorable for employees.
Plaintiffs claim that they are entitled to an early retire-
ment benefit rather than a deferred vested retirement benefit,
and as a result of the sale of the Plastics Division by Firestone,
the early retirement benefits to which they were entitled
under the Retirement Plan were improperly reduced. Plain-
ee eed
A57
tiffs now agree that they did not qualify for the early retire-
ment benefits under the terms of Firestone’s Retirement Plan,
but they contend that they should receive the early retirement
benefit because (1) the summary plan description of the rele-
vant Retirement Plan provisions was misleading and in-
comprehensible to the average plan participant, in violation of
section 101(a) of ERISA, 29 U.S.C. § 1021(a), which sets
forth disclosure requirements and Firestone is therefore
“equitably estopped” from reducing plaintiffs’ retirement ben-
efits, and (2) plaintiffs are entitled to the early retirement
benefits because they “reasonably anticipated” receiving the
greater benefit and are therefore entitled to it.
The early retirement plan is set forth in detail in the May
1, 1979 Summary Plan Description.4 Numerical examples are
4. Page 7 of the May 1, 1979 Summary Plan Description states the
early retirement benefit in detail as follows:
How much do you get at early retirement?
You may retire from the Company before your normal retirement date if
you are at least age 55 and have ten or more years’ service, or if you
have 30 or more years’ service regardless of your age.
If you are age 62 or over
Your early retirement benefit will be calculated under the Basic Benefit
Formula and the Final Average Earnings Formula—the same manner
as the age 65 normal retirement benefit—based on your service and
earnings to early retirement. You will receive 100% of the greater of the
two amounts. There is no reduction for the commencement of this re-
tirement benefit between age 62 and age 65.
If you are under 62
Your benefit amount is calculated in the same manner as described
above then multiplied by a percentage from this table:
If your pension This is
begins at: your percentage:
Age 62 100.0%
Age 61 95.2
Age 60 90.4
Age 59 85.6
Age 58 80.8
Age 57 76.0
Age 56 71.2
Age 55 66.4
A58
provided which illustrate how the benefit is reduced if the
retiring employee is under 62. For instance, if the employee is
55 at the time he or she retires, the employee will receive
66.4% of his or her normal retirement pension.
For ages less than 55, the table is appropriately extended.
‘EXAMPLE: Age 60, monthly retirement benefit before reduction is
$548. $548 «x 90.4% = $495.39)
The reduction for the commencement of this retirement benefit before
age 62 is “io of 1% for each month (4.8% for each year) your age at
retirement is under 62. The percentage of reduction for ages under 55
continues at “io of 1% to age 50. Then the percentage becomes “io of
1% for each month (2.4% for each year) your age at retirement is under
age 50. The reduction takes into account the longer period of time over
which you would be receiving benefits.
Page 11 of the May 1, 1979 Summary Plan Description deals with the
deterred vested benefit and states as follows:
How much do you get if you should leave before retirement?
Your Retirement Plan can provide benefits if your service with the
Company terminates before you are eligible for retirement.
If vou have 10 or more vears of credited service upon your termination:
You mav receive a deferred vested pension calculated in the same man-
ner as the normal retirement benefit based on your service and earn-
ings to the date of your termination of employment. Your deterred
vested pension will become payable when you reach your normal re-
tirement age 65, or in a reduced amount before age 65.
You may request a refund of your contributions made before July 1,
1977 with interest at your termination of employment or at any time
prior to payment of vour deferred vested pension. However, if you do
request a refund of your contributions, you will forfeit that portion of
vour retirement benefits attributable to vour contributions with inter-
est. The reduced benefit will not be less than that which would have
accrued had you made no contributions
You mav elect that vour deferred vested pension begin prior to your age
65—on the first day of anv month which is after you attain age 55.
However, the amount pavable monthly will be reduced and will be ac-
tuarially equivalent to the amount that would otherwise have been pav-
able at vour normal retirement age 65
if vou have less than 10 vears of service upon your termination: you
will receive a lump sum equal to vour total contributions with interest
Pn i i enh als
iis
AS9
On page 11 of the May 1, 1979 Summary Plan Descrip-
tion, there is a section captioned: “How much do you get if
you should leave before retirement?” In setting forth the
conditions under which an employee may receive a retire-
ment pension if he or she leaves Firestone before becoming
eligible, the Summary provides that an employee who has ten
years credit upon leaving will, at the age of 55, be able to start
receiving a pension. If the employee elects to start receiving
the deferred vested pension before turning 65, the Summary
provides that “the amount payable monthly will be reduced
and will be actuarially equivalent to the amount that would
otherwise have been payable at your normal retirement age
65.” May 1, 1979 Summary Plan Description p. 11.
Pursuant to section 102(a) of ERISA, a summary plan
description must be “written in a manner calculated to be
understood by the average plan participant,” i.e. written in
layman's language, and it must be “sufficiently accurate and
comprehensive to reasonably apprise such participants and
beneficiaries of their rights and obligations under the plan.”
29 U.S.C. § 1022 (a)(1). Plaintiffs contend that the May 1,
1979 Summary Plan Description which outlines the two re-
tirement benefits failed to meet these ERISA standards.
At oral argument, plaintitfs’ counsel suggested that the
alleged defects in the May 1, 1979 Summary Plan Description
could have been remedied by the addition of a single sentence
to the effect that actuarial reduction is different from the
reduction for the early retirement benefit. Plaintiffs attempt
to illustrate the misleading effect of the Summary Plan De-
scription by including excerpts from the depositions of the
class representative to the effect that they had thought that
they would be entitled to the greater retirement benefit at
66.4% rather than the deferred vested retirement benefit at
40.7%. Plaintiffs also contend that the Summary should have
provided examples or hypothetical questions and answers to
explain the nature of or the amount of the reduction applica-
ble to a deferred vested pension. Failure to include an explan-
atory sentence or otherwise to make clear the difference be-
tween the early retirement benefit and the deterred vested
A60
retirement benefit, plaintiffs contend, resulted in a misrepre-
sentation and a violation of the disclosure requirements of
ERISA and estops defendants from denying plaintiffs and the
employees they represent the early retirement benefits.
In order to invoke the doctrine of equitable estoppel,
plaintiffs must establish three elements: a misrepresentation
or omission of a material fact by one party, reasonable reliance
on that misrepresentation by the other party, and detriment to
the other party. Community Health Services v. Califano, 698
F.2d 615, 620 (3d Cir. 1983), rev’d on other grounds, 467 U.S.
51, 104 S. Ct. 2218, 81 L.Ed.2d 42 (1984).
In their motion for summary judgment, defendants con-
tend that the plan descriptions fully comport with the require-
ments of ERISA. Defendants first note that the distinction
between early retirement benefits and the deferred vested
retirement benefits is specifically provided for in ERISA. Sec-
tion 206(a) of ERISA provides:
In the case of a plan which provides for the payment of an
early retirement benefit, such plan shall provide that a
participant who satisfied the service requirements for
such early retirement benefit but separated from ser-
vice... before satisfying the age requirement...is en-
titled upon satisfaction of such age requirement to re-
ceive a benefit not less than the benefit to which he
would be entitled at the normal retirement age, actu-
arially reduced under regulations prescribed by the Sec-
retary of the Treasury.
29 U.S.C. § 1056(a). This is exactly what defendants provided
in the Summary.
In response to plaintiffs’ argument that there has been a
misrepresentation giving rise to equitable estoppel, defen-
dants persuasively argue that there has been no misrepresen-
tation. I agree. The Summary was written in a “manner
calculated to be understood by the average plan participant,”
and it is sufficiently “accurate and comprehensive to reason-
ably apprise such participants and beneficiaries of their rights
and obligations under the plan.” 29 U.S.C. § 1022(a) (1). The
—y
i a i ad
ee ee ee ee
A6]
Summary specifically set forth the terms under which an
employee would be entitled to early retirement; if he or she
did not satisfy these requirements, he or she would not re-
ceive the benefit.
Furthermore, plaintiffs and the employees they represent
should have been alerted to the fact that the deferred vested
retirement benefit differed from the early retirement benefit
even if they did not understand the concept of actuarial reduc-
tion. First, the Summary stated in clear and simple terms that
an employee was eligible for early retirement only if he or she
either completed thirty years of service or completed ten years
of service and reached age 55 while working for Firestone.
Second, the section addressing deferred vested benefits was
separate from the section addressing the early retirement and
was captioned “How much do you get if you should leave
before retirement?”; this should have suggested to an em-
ployee that if he or she left the employ of Firestone before
qualifying for an early retirement benefit, he or she would be
subject to different rules. Finally, the Summary clearly pro-
vides that the deferred vested retirement benefit would be
actuarially reduced from age 65 while the early retirement
benefit, on the other hand, was reduced from age 62. The
references to the different ages from which reductions would
be made should have alerted any employee that there was a
difference between the benefits. Moreover, the reduction for
those less than 62 would be .4% up to age 50 while an
employee, under the deferred vested benefit, could not start
receiving the benefit until age 55. There is simply no basis for
the argument that the May 1, 1979 Summary Plan Descrip-
tion did not put plaintiffs on notice that the two reductions
would be different.
Similarly, | cannot accept plaintiffs’ argument that the
Summary was flawed because it did not include numerical
examples illustrating the actuarial reduction under the de-
ferred vested plan. Actuarial tables do change and application
of the tables vary among different persons. Therefore, it may
well be more misleading to include actuarial examples than to
exclude them. Because | conclude as a matter of Jaw that
A62
there was no misrepresentation, I need not reach the issues of
reliance and damages.
Plaintiffs also argue that they are entitled to the early
retirement benefits because they reasonably anticipated
them. In support of this contention, plaintiffs rely on North-
east Dep’t. ILGWU Health and Welfare Fund v. Teamsters
Local Union No. 229, 764 F.2d 147, 163 (3d Cir. 1985), in
which the court struck down an escape clause in a benefit
plan and noted that “one very important policy underlying
ERISA is that employees enrolled in a benefit plan should not
be deprived of compensation that they reasonably antici-
pate...” Plaintiffs would have me conclude, in effect, that if
their interpretation of the retirement plan is reasonable and it
differs from defendants’, plaintiffs’ interpretation should
govern. I reject this analysis on two grounds. First, for the
same reasons that I concluded that there was no misrepresen-
tation in the Summary, there is no basis for plaintiffs to
expect that the early retirement and deferred vested benefits
would be equivalent. Second, plaintiffs’ theory is inconsistent
with the standard of review under which | must approach this
case, i.e. the arbitrary and capricious standard. Northeast
Dep’t. ILGWU, 764 F.2d at 163. Defendants’ decision must be
sustained unless that decision was arbitrary and capricious. |
cannot defer to plaintiffs’ interpretation although it is one
factor to be considered.
For all these reasons I conclude that defendants are en-
titled to summary judgment as to count three.
Count five—Stock Plan
Count five pertains to the Stock Purchase and Savings
Plan (“Stock Plan”). Plaintiffs seek the vesting of their un-
vested interests in Firestone’s contributions to the Stock Plan;
they contend that they improperly suffered the forfeiture of
certain stock credited to their accounts at the time of the sale
of the Plastics Division. Under the terms of the Stock Plan, for
every dollar an employee invested in his account, Firestone
would contribute fifty cents. There was an annual accounting
system whereby the money invested by Firestone would be
A63
treated as a unit, and each unit would gradually become
vested starting in year two, with full vesting occurring in year
five.
If an employee was terminated, he or she was entitled to
a distribution of the vested portion of his or her stock account.
If termination occurred before the fifth year, the employee
forfeited his or her unvested stock unless there was a termi-
nation or “partial termination” of the Stock Plan. Plaintiffs
contend that the sale and closing of the Plastics Division by
Firestone constituted a partial termination of the Stock Plan
resulting in their shares becoming nonforfeitable. Plaintiffs
also contend that the failure of the trustees of the Plan to
make a specific determination that the Stock Plan would or
would not be partially terminated by the sale was a breach of
their fiduciary duties and arbitrary and capricious.
ERISA provides that upon complete or partial termina-
tion of a plan, “benefits accrued to the date of such... termi-
nation...are nonforfeitable” 29 U.S.C. § 411(d) (3). The
Stock Plan itself provides in section 12.02:
If the Plan is terminated, or partially terminated, or upon
complete discontinuance of contributions under the
Plan, the rights of all affected employees to the amounts
credited to such employees’ accounts at the date of termi-
nation, partial termination or discontinuance, are nonfor-
feitable.
Plaintiffs argue first that a partial termination of the
Stock Plan occurred on November 30, 1980 making their
unvested interests nonforfeitable. ERISA provides no guid-
ance as to what constitutes “partial termination” of a plan:
similarly, the Stock Plan sets forth no definition of “partial
termination.” Most courts when addressing this issue have
looked to the IRS regulations and rulings for guidance. The
Treasury regulations also do not provide a precise definition of
“partial termination,” but the reguiations do state that
whether or not a “partial termination” has occurred “will be
determined on the basis of all the facts and circumstances.”
Treas. Reg. § 1.201-6(b) (2) (1963).
A64
When applying these regulations, the Secretary of the
Treasury has focused on whether a significant percentage of
the employees covered by the plan are excluded after the
event in issue. See Rev. Rul. 81-27, 1981-1 C.B. 228. See also
Babb v. Olney Paint Co., 764 F.2d 240, 242 (4th Cir. 1985):
Ehm v. Phillips Petroleum Co., 583 F. Supp. 1113, 1115 (D.
Kan. 1984). No specific percentage has been established as
the magical figure at which a partial termination occurs, and
the court in Babb held that what constituted a significant
percentage is preeminently a matter of fact. Babb, 764 F.2d at
242. Defendants contend, however, that a general rule has
emerged that a partial termination will be found if more than
thirty percent (30%) of a plan’s participants are terminated
Defendants further argue that no partial termination reswlied
from the sale of the Plastics Division because only 228 of the
10,590 participants, or 2%, were terminated.
Detendants position is supported by Babb in which the
court held that no partial termination occurred when 12.4%
of the employees were terminated from the plan. The court
noted that the decision to sell a division and to terminate the
employees was made as a business decision in light of hard
economic times and not as a means to curtail benefits to
emplovees.
In their motion for summary judgment, plaintiffs con-
tend that | should not look solely to the percentage of emplov-
ees affected; rather, | should focus on the “hard numbers” and
the other facts and circumstances particular to the case.
Plaintifts rely heavily on Weil v. Retirement Plan Admin-
istrative Comm., 750 F.2d 10, 12 (2d Cir. 1984), in which the
court gave “great weight” to the Secretary of the Treasurv’s
interpretation of “partial termination” but stated that the Sec-
retarvs standard was whether there had been “the dismissal
of a ‘significant number of emplovees’ in connection with a
major corporate event.” Id. at 12.
In Weil, the court held that the lower court erred in
concluding as a matter of law that there had been no partial
termination and remanded for further developrnent of the
factual record. Although only 27% of the participating em-
A65
ployees were terminated, the Weil court noted that when only
the employees in New York City were considered, the percent-
age increased to 62%. Moreover, the court focused on
whether a substantial number of employees were terminated
rather than a substantial percentage. It is interesting to note
that the plaintiffs in Weil were left unemployed whereas the
plaintiffs in this case continued employment with the new
owner.
Plaintiffs emphasize the major corporate event language
in Weil, and argue that emphasis should be placed on the fact
that there was a major corporate event in this case; an entire
division, the Plastics Division, was sold. Moreover, in Weil,
the court looked at what happened within the single market,
New York City. Plaintiffs argue that such an approach in this
case reveals that 100% of the employees with unvestea stock
contributions in the Plastics Division were terminated, sup-
porting the view that a partial termination occurred.
Although I agree with plaintiffs that the issue of partial
termination cannot be addressed by the purely mechanical
application of a substantial percentage or number test, i.e.,
that the significant percentage or number tests are not per se
determinative, I conclude that no partial termination of the
Stock Plan occurred in this case. This is not a close case like
that facing the court in Weil where 27% of all participants in
the relevant plan were dismissed; here, only 2% of the partici-
pants in the Stock Plan were affected by the sale.
In Weil, the court remanded for the further development
of the factual record; the court suggested that the district
court consider not only the percentage of employees affected
but also the absolute number affected as well as the circum-
stances surrounding the termination, i.e., the corporate
event. Termination of 27% of all participants or 104 employ-
ees taken in conjunction with the closing of the entire New
York City operation could make the 27% significant and con-
stitute a partial termination. Although Firestone’s sale of the
Plastics Division could be termed a major corporate event,
nothing in Weil suggests that a major corporate event without
the termination of a substantial number or percentage of the
A66
employees will constitute a partial termination. Termination
of only 2% or 228 of the plan participants will simply not give
rise to a partial termination. | also reject plaintiffs’ suggestion
that I should consider only the employees employed in the
Plastics Division.
Plaintiffs also argue that defendants’ action with regard
to the Stock Plan was arbitrary and capricious because the
Committee charged with administering the Stock Plan never
considered the question of whether the sale of the Plastics
Division would constitute a partial termination. Plaintiffs
contend that the Committee was under an obligation to de-
velop an evidentiary record and then make a “decision” re-
garding the issue of partial termination. Plaintiffs rely heavily
on Toland v. McCarthy, 499 F. Supp. 1183 (D. Mass. 1980), in
which the court reviewed the decision of the pension plan
trustees denying an employee’s application for a normal pen-
sion upon early retirement.
Plaintiffs’ reliance on Toland is misplaced. Toland arose
from a complex factual situation in which issues of plaintiff's
employment history, plaintiff's coverage by a collective bar-
gaining agreement, and inferences about his job classification
were raised. In this case, the issue was much simpler and
more straightforward. Only two percent of all of the Plan
participants were affected by the sale. Therefore, although
the sale constituted the divestment of an entire division, it
was Clear that no partial termination had occurred. There was
no decision to be made by the Committee, and therefore, it
would have been pointless for them to meet to make a “deci-
sion,” let alone to develop an evidentiary record. My com-
ments are limited to the facts of this case. Under different
circumstances, e.g. a greater percentage of affected employ-
ees, the Committee might well be under an obligation to meet
and make a reasoned decision. This, however, is not that case.
Accordingly, I conclude that defendants are entitled to sum-
mary judgment as to count five.
Count Six—Vacation Credit
In count six, plaintiffs seek vesting credit for purposes of
the Retirement Plan and the Stock Plan for accrued vacation
A67
time which they had not yet taken at the time of the sale.
Under the Firestone system, an employee accrued vacation
time during one year which could be taken during the next
fiscal year. Therefore, on October 31 of each year, an em-
ployee was notified of the amount of vacation time he or she
had accrued which he or she could take during the twelve
months starting November 1. The sale of the Plastics Division
occurred on November 30, 1980 so many employees had
accrued vacation time which they had not yet taken. Under
the terms of the sale, Firestone reimbursed Occidental for the
vacation pay due to the employees so they actually received
the vacation time during the eleven months following the
sale, but they forfeited the vacation credit for purposes of the
Retirement and Stock Plans. Plaintiffs claim that Firestone
violated section 202 (a) (3) (C) of ERISA, 29 U.S.C. § 1052(a)
(3) (C), and 29 C.F.R. § 2530.200b-2 (a) (2) by not counting
plaintiffs’ accrued vacation time for purposes of computing
their vested interests under the Retirement and Stock Plans.
Plaintiffs contend that the regulations require that they
be credited for each hour for which they were paid by Fire-
stone on account of a period of time during which no duties
were performed for a reason such as vacation.® Because Fire-
5. §2530.200b-2 Hour of service.
(a) General rule. An hour of service which must, as a minimum, be
counted for the purposes of determining a year of service, a year of
participation for benefit accrual, a break in service and employment
commencement date (or reemplovment commencement date) under
sections 202, 203 and 204 of the Act and sections 410 and 411 of the
Code, is an hour of service as defined in paragraphs (a) (1 ), (2) and (3)
of this section. The employer may round up hours at the end of a com-
putation period or more frequently.
(1) An hour of service is each hour for which an employee is paid,
or entitled to payment, for the performance of duties for the employer
during the applicable computation period.
(2) An hour of service is each hour for which an employee is paid,
or entitled to payment, by the employer on account of a period of time
during which no duties are performed (irrespective of whether the em-
ployment relationship has terminated) due to vacation, holiday, illness,
incapacity (including disability), layoff, jury duty, military duty or leave
A68
stone admits that it paid Occidental to provide plaintiffs with
the vacation they accrued before the sale, plaintiffs contend
that they are also entitled to the credit for these vacations.
Plaintiffs contend that the regulations expressly state that the
fact that the employment relationship has terminated makes
no difference to the application of the credit regulation.
In their motion for summary judgment, defendants con-
tend that they were justified in denying the credit on the basis
of the elapsed time method of calculating credit; use of this
method, defendants argue, was not arbitrary or capricious.
Defendants argue that ERISA has approved two methods of
calculating employee service for purposes of vesting. The first
method is that upon which plaintiffs rely, hours of service.
The second method is the elapsed time method under which
an employee receives credit for the entire period of time that
the employment relationship exists. Under this method, the
starting point for crediting service is the “employment com-
mencement date,” and the end point is the date on which the
employee retires, dies, quits or is discharged.
For both the Retirement Plan and the Stock Plan, Fire-
stone uses the hours of service method to determine eligibil-
ity or participation in the Plan and the elapsed time method
for determining vesting. Under the latter, plaintiffs are not
entitled to credit for the vacation time they had accrued but
not taken for vesting purposes under the Retirement and
Stock Plans.
The elapsed time method was authorized originally by
regulations promulgated by the Department of Labor and later
revised and promulgated by the Treasury Department (26
C.F.R. § 1.410(a)-7) and approved by the court in Swaida v.
1.B.M. Retirement Plan, 570 F. Supp. 482, 488 (S.D. N.Y.),
aff'd, 728 F.2d 159 (2d Cir. 1984), cert. denied, 469 U.S. 874,
105 S. Ct. 232, 83 L.Ed.2d 161 (1984). In Swaida, plaintiff
sought a judgment declaring IBM's use of the elapsed time
method for computing service for vesting credit under its
retirement plan, a violation of the vesting standards of ERISA.
of absence. Notwithstanding the preceding sentence. {sic}
29 C.ER. § 2530.200b-2
A69
The court, holding that the elapsed time regulations promul-
gated by the Department of the Treasury were a product of a
proper exercise of its delegated authority, declined to issue
such a judgment.
Similarly, | conclude that Firestone’s use of the elapsed
time method to determine vesting of plaintiffs’ retirement
benefits and stock plan accounts was neither arbitrary nor
capricious. Use of this method is supported both by the legis-
lative history and the applicable Labor and Treasury regula-
tions. I, therefore, conclude that defendants are entitled to
summary judgment as to count six.
Count Seven—Disclosure.
In count seven of the second amended complaint, several
individual plaintiffs seek monetary relief pursuant to section
502(c) of ERISA, 29 U.S.C. § 1132(c), for violations by defen-
dants of ERISA’s disclosure requirements. Plaintiffs claim
(1) that Firestone failed to comply with certain disclosure and
filing obligations set forth in section 104 of ERISA, 29 U.S.C.
§ 1024, with regard to its Termination Pay Plan, Retirement
Plan, and Stock Plan (Complaint { 87-90), and (2) that they
are entitled to discretionary damages under section 502(c) of
ERISA because of Firestone’s alleged failure to respond prop-
erly to their written requests for information concerning the
Retirement Plan and the Stock Plan (Complaint §§ 91-93). In
their motion for summary judgment, plaintiffs add a claim
based on Firestone’s alleged failure to respond properly to
written requests for information about the Termination Pay
Plans; this claim had not previously been raised. I will address
plaintiffs’ claims seriatim.
First, with respect to plaintiffs’ claim pursuant to section
104, 29 U.S.C. § 1024, and the so-called “automatic” dis-
closure and filing requirements, ERISA provides no private
cause of action for monetary damages for violation of these
provisions.® Section 502(c), 29 U.S.C. § 1132(c), sets forth the
6. Section 104(b)(4) of ERISA, 29 U.S.C. §1024(b)(4), provides:
(4) The administrator shall, upon written request of any partici-
pant or beneficiary, furnish a copy of the latest updated summary plan
description, plan description, and the latest annual report, any termi-
A70
limited remedies available to private plaintiffs for violation of
ERISA’ disclosure and filing requirements, and this section
applies only when and if a plan administrator refuses to
comply with a written request for information.’ Accordingly,
plaintiffs do not have a cause of action for damages for Fire-
stone’s alleged failure to comply with the automatic provi-
sions. Plaintiffs apparently recognized this fact as they
dropped reference to this claim in their motion for summary
judgment.
The next issue is whether plaintiffs are entitled to
damages pursuant to section 502(c) for Firestone’s alleged
failure to respond to information requests. As I noted at the
outset, plaintiffs had not previously claimed that defendants
had failed to comply with requests for information regarding
the termination pay plans. However, because | believe that
there are other grounds for denying plaintiffs’ claims, I will
not rely on this procedural basis for the denial.
Section 104(b)(4) of ERISA, 29 U.S.C. § 1024(b)(4), im-
poses a duty on a plan administrator to respond to written
requests for information about the plan. However, pursuant to
section 104(b)(4), the plan administrator is obligated to re-
nal report, the bargaining agreement, trust agreement, contract, or
other instruments under which the plan is established or operated. The
administrator may make a reasonable charge to cover the cost of fur-
nishing such complete copies. The Secretary may by regulation pre-
scribe the maximum amount which will constitute a reasonable charge
under the preceding sentence.
7. Section 502(c) of ERISA, 29 U.S.C. §1132(c), provides:
(c) Administrator's refusal to supply requested information.
Any adminisvator who fails or refuses to comply with a request for
any information which such administrator is required by this sub-
chapter to furnish to a participant or beneficiary (unless such failure or
refusal results from matters reasonably beyond the control of the ad-
ministrator) by mailing the material requested to the last known ad-
dress of the requesting participant or beneficiary within 30 days after
such request may in the court’s discretion be personally liable to such
participant or beneficiary in the amount of up to $100 a day from the
date of such failure or refusal, and the court may in its discretion order
such other relief as it deems proper.
A7]
spond only to requests from a plan participant or beneficiary.
Defendants contend that the three plaintiffs who have been
identified as having made requests to which there were al-
legedly no adequate responses ever made, Smolinski, Schade,
and Bruch, were not participants in or beneficiaries of the
relevant plans at the times they made their respective re-
quests, and therefore, were owed no responses under section
104(b)(4). Moreover, defendants contend that Smolinski,
Schade, and Bruch have not established that they were
harmed by the lack of response to their inquiries.
A “participant” under ERISA is “any employee or former
employee ... who is or may become eligible to receive a
benefit of any type from an employee benefit plan” while a
“beneficiary” is “a person designated by a participant, or by
the terms of an employee benefit plan, who is or may become
entitled to a benefit thereunder” 29 U.S.C. § 1002(7) and (8).
Smolinski and Schade were at one time participants in
the Termination Pay Plan; they could potentially have become
eli »ble for termination pay if they were “terminated” as that
term was defined for purposes of the Plan. However, because
they were no longer associated with Firestone, in 1981, when
they made their requests, Smolinski and Schade, would not
become eligible in the future for termination pay. Similarly, as
I have ruled above, plaintiffs were not presently eligible for
termination pay at the time of the sale because the sale of the
plants as ongoing operations did not constitute a reduction in
force. In addition, both Smolinski and Schade received letters
in response to their letters in which they were advised that
they were not eligible for termination because they had con-
tinued employment with Occidental. I also note that plaintiff
Smolinski received four detailed letters with various en-
closures in response to his request for information about the
Retirement Plan.
Plaintiff Bruch contends that he never received a re-
sponse to his written request for information about the Stock
Purchase Plan. Bruch made his request, on May 4, 1981, five
months after the sale and five months after he ceased work-
ing for Firestone. Although plaintiff continued to be a partici-
A72
pant in the Retirement Plan because of his vested retirement
interest, he ceased to be a participant in the Stock Plan at the
time of the sale. He received distribution of his vested interest
and his unvested interests were forfeited. Thus, he did not
have a contingent right to “receive a benefit” from the Stock
Plan after November 30, 1980.8
Finally, although it has not been clearly established that a
plaintiff, to prevail on a claim under § 502(c) of ERISA, must
establish prejudice, | believe it is relevant that plaintiffs have
not presented any evidence to show that they have sustained
any harm from defendants’ alleged failure to respond to their
requests for information. For all these reasons I do not believe
that plaintiffs are entitled to an award of discretionary
damages pursuant to section 502(c), and I shall enter judg-
ment for defendants on count seven.
An appropriate order follows.
8. Even if | had concluded that plaintiffs were entitled to have their
unvested shares in the Stock Plan vested because there had been a partial
termination of the Stock Plan, my conclusion with respect to Bruch’s dis-
closure claim would not change. Bruch’s rights in the Stock Plan were de-
termined as of the date of the sale; he had no remaining interest in the Plan
thereafter.
A73
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
RICHARD BRUCH., et al. - CIVIL ACTION
¥. - NO, 82-3286
FIRESTONE TIRE & RUBBER
COMPANY, et al.
ORDER
NOW, June 9, 1986, upon consideration of the cross-
motions for summary judgment, the memoranda of law sub-
mitted by the parties, the oral arguments made by counsel,
and for the reasons stated in the accompanying memoran-
dum, IT IS ORDERED that plaintiffs’ motion for summary
judgment is DENIED and defendants motion for summary
judgment is GRANTED. Judgment is entered in favor of de-
fendants and against plaintiffs as to counts one, three, five,
six, and seven.
/s/ Daniel H. Huyett, 3rd, Judge
A74
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
RICHARD BRUCH, et al. > CIVIL ACTION
v. ,
FIRESTONE TIRE & RUBBER ) NO. 82-3286
COMPANY, et al.
CIVIL JUDGMENT
Before HUYETT, J.
AND NOW, this 9th day of June, 1986, in accordance
with the order dated June 9, 1986,
Il IS ORDERED that Judgment be and the same is
hereby entered in favor of the defendants and against the
plaintiffs as to counts one, three, five, six and seven.
BY THE COURT:
ATTEST. /s/ Francis E. DeVine
Deputy Clerk
A75
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
NO. 86-1448
BRUCH, Richard, CHUBB, John R. and
SCHADE, Albert and SCHOLLENBERGER, Richard and
SMITH, Ronald R. and SMOLINSKI, Leonard A.
In their individual capacities and as
representatives of the class of former,
salaried, non-union employees of the Firestone
Plastics Division which wes sold to the
Hooker Chemical Division of the Occidental
Petroleum Corporation,
Appellants
v.
FIRESTONE TIRE AND RUBBER COMPANY and
FIRESTONE TIRE & RUBBER COMPANY RETIREMENT
PLAN FOR SALARIED EMPLOYEES and FIRESTONE
TIRE & RUBBER COMPANY STOCK PURCHASE AND
SAVINGS PLAN,
Appellees
(D.C. Civil NO. 82-3286)
SUR PETITION FOR PANEL REHEARING
AND REHEARING IN BANC
PRESENT: GIBBONS, Chief Judge, SEITZ, WEIS,
HIGGINBOTHAM, SLOVITER, BECKER,
STAPLETON, MANSMANN, GREENBERG,
A76
and SCIRICA, Circuit Judges, and DUMBAULD,
District Judge. '
The petition for rehearing filed by appellees in the above-
entitled case having been submitted to the judges who par-
ticipated in the decision of this Court and to all the other
available circuit judges of the circuit in regular active service,
and no judge who concurred in the decision having asked for
rehearing, and a majority of the circuit judges of the circuit in
regular active service not having voted for rehearing by the
court in banc, the petition for rehearing is denied.
BY THE COURT,
/s/ Edward R. Becker
Circuit Judge
DATED: Sep 25, 1987
1. The Honorable Edward Dumbauld, United States District Judge for
the Western District of Pennsylvania, as to panel rehearing only.
A77
STATUTES AND REGULATIONS
EMPLOYEE RETIREMENT INCOME SECURITY ACT
OF 1974 (“ERISA”)
29 U.S.C. §§ 1001 et seq.
Section 3, 29 U.S.C. § 1002
§ 1002. Definitions
For purposes of this subchapter:
(7) The term “participant” means ary employee or for-
mer employee of an employer, or any member or former
member of an employee organization, who is or may become
eligible to receive a benefit of any type from an employee
benefit plan which covers employees of such employer or
members of such organization, or whose beneficiaries may be
eligible to receive any such benefit.
(16)(A) The term “administrator” means—
(i) the person specifically so designated by the terms of
the instrument under which the plan is operated;
(ii) if an administrator is not so designated, the plan
Sponsor; ...
(B) The term “plan sponsor” means (i) the employer
in the case of an employee benefit pian established
or maintained by a single employer, . . .
(21)(A) Except as otherwise provided in subparagraph
(B), a person is a fiduciary with respect to a plan to the extent
(i) he exercises any discretionary authority or discretionary
control respecting management of such plan or exercises any
authority or control respecting management or disposition of
its assets, (ii) he renders investment advice for a fee or other
A78
compensation, direct or indirect, with respect to any moneys
or other property of such plan, or has any authority or respon-
sibility to do so, or (iii) he has any discretionary authority or
discretionary responsibility in the administration of such
plan. Such term includes any person designated under sec-
tion 1105(c)(1)(B) of this title.
Section 4, 29 U.S.C. § 1003
§ 1003. Coverage
(a) Except as provided in subsection (b) of this section
and in sections 1051, 1081, and 1101 of this title, this sub-
chapter shall apply to any employee benefit plan if it is estab-
lished or maintained—
(1) by any employer engaged in commerce or in any
industry or activity affecting commerce; or
(2) by any employee organization or organizations
representing employees engaged in commerce or in any
industry or activity affecting commerce: or .
(3) by both.
Section 104(b), 29 U.S.C. § 1024(b)
(b) Publication of summary plan description and an-
= report to participants and beneficiaries of
plan
Publication of the summary plan descriptions and annual
reports shall be made to participants and beneficiaries of the
particular plan as follows:
(1) The administrator shall furnish to each participant,
and each beneficiary receiving benefits under the plan, a COpy
of the summary, plan description, and all modifications and
changes referred to in section 1022(a)(1) of this title—
| (A) within 90 days after he becomes a participant, or
(in the case of a beneficiary) within 90 days after he first
receives benefits, or
(B) if later, within 120 days after the plan becomes
subject to this part.
A79
The administrator shall furnish to each participant, and each
beneficiary receiving benefits under the plan, every fifth year
after the plan becomes subject to this part, an updated sum-
mary plan description described in section 1022 of this title
which integrates all plan amendments made within such five-
year period, except that in a case where no amendments have
been made to a plan during such five-year period, this sen-
tence shall not apply. Notwithstanding the foregoing, the ad-
ministrator shall furnish to each participant, and to each
beneficiary receiving benefits under the plan, the summary
plan description described in section 1022 of this title every
tenth year after the plan becomes subject to this part. If there
is a modification or change described in section 1022(a)(1) of
this title, a summary description of such modification or
change shall be furnished not later than 210 days after the
end of the plan year in which the change is adopted to each
participant, and to each beneficiary who is receiving benefits
under the plan.
(2) The administrator shall make copies of the plan de-
scription and the latest annual report and the bargaining
agreement, trust agreement, contract, or other instruments
under which the plan was established or is operated available
for examination by any plan participant or beneficiary in the
principal office of the administrator and in such other places
as may be necessary to make available all pertinent informa-
tion to all participants (including such places as the Secretary
may prescribe by regulations).
(3) Within 210 days after the close of the fiscal year of the
plan, the administrator shall furnish to each participant, and
to each beneficiary receiving benefits under the plan, a copy
of the statements and schedules, for such fiscal year, de-
scribed in subparagraphs (A) and (B) of section 1023(b)(3) of
this title and such other material as is necessary to fairly
summarize the latest annual report.
(4) The administrator shall, upon written request of any
participant or beneficiary, furnish a copy of the latest updated
summary plan description, plan description, and the latest
annual report, any terminal report, the bargaining agreement,
A80
trust agreement, contract, or other instruments under which
the plan is established or operated. The administrator may
make a reasonable charge to cover the cost of furnishing such
complete copies. The Secretary may by regulation prescribe
the maximum amount which will constitute a reasonable
charge under the preceding sentence.
Part 4—Fipuctary RESPONSIBILITY
Section 401(a), 29 U.S.C. § 1101(a)
§ 1101. Coverage
(a) This part shall apply to any employee benefit plan
described in section 1003(a) of this title (and not exempted
under section 1003(b) of this title), other than —
(1) a plan which is unfunded and is maintained by
an employer primarily for the purpose of providing de-
ferred compensation for a select group of management or
highly compensated employees; or
(2) any agreement described in section 736 of title
26, which provides payments to a retired partner or de-
ceased partner or a deceased partner's successor in inter-
est.
Section 404(a)(1), 29 U.S.C. § 1104(a)(1)
§ 1104. Fiduciary duties
(a) Prudent man standard of care
(1) Subject to sections 1103(c) and (d), 1342, and 1344 of
this title, a fiduciary shall discharge his duties with respect to
a plan solely in the interest of the participants and benefici-
aries and—
(A) for the exclusive purpose of:
(1) providing benefits to participants and their
beneficiaries; and
(ii) defraying reasonable expenses of admin-
istering the plan;
A8]
(B) with the care, skill, prudence, and diligence un-
der the circumstances then prevailing that a prudent
man acting in a like capacity and familiar with such
matters would use in the conduct of an enterprise of a
like character and with like aims;
(C) by diversifying the investments of the plan so as
to minimize the risk of large losses, unless under the
circumstances, it is clearly prudent not to do so; and
(D) in accordance with the documents and instru-
ments governing the plan insofar as such documents and
instruments are consistent with the provisions of this
subchapter or subchapter III of this chapter.
Section 406(b), 29 U.S.C. § 1106(b)
§ 1106. Prohibited transactions
(b) Transactions between plan and fiduciary
A fiduciary with respect to a plan shall not—
(1) deal with the assets of the plan in his own inter-
est or for his own account,
(2) in his individual or in any other capacity act in
any transaction involving the plan on behalf of a party (or
represent a party) whose interests are adverse to the
interests of the plan or the interests of its participants or
beneficiaries, or
(3) receive any consideration for his own personal
account from any party dealing with such plan in con-
nection with a transaction involving the assets of the
plan.
A82
Section 408(c), 29 U.S.C. § 1108(c)
§ 1108. Exemptions from prohibited transactions
(c) Fiduciary benefits and compensation not prohib-
ited by section 1106
Nothing in section 1106 of this title shall be construed to
prohibit any fiduciary from—
(1) receiving any benefit to which he may be entitled
as a participant or beneficiary in the plan, so long as the
benefit is computed and paid on a basis which is consis-
tent with the terms of the plan as applied to all other
participants and beneficiaries;
(2) receiving any reasonable compensation for ser-
vices rendered, or for the reimbursement of expenses
properly and actually incurred, in the performance of his
duties with the plan; except that no person so serving
who already receives full-time pay from an employer or
an association of employers, whose employees are partici-
pants in the plan, or from an employee organization
whose members are participants in such plan shall re-
ceive compensation from such plan, except for reim-
bursement of expenses properly and actually incurred; or
(3) serving as a fiduciary in addition to being an
officer, employee, agent, or other representative of a party
in interest.
Section 502(c), 29 U.S.C. § 1132(c)
(c) Administrator's refusal to supply requested informa-
tion
Any administrator who fails or refuses to comply with a
request for any information which such administrator is re-
quired by this subchapter to furnish to a participant or benefi-
ciary (unless such failure or refusal results from matters
ae tee eet eS
A83
reasonably beyond the control of the administrator) by mail-
ing the material requested to the last known address oi the
requesting participant or beneficiary within 30 days after
such request may in the court's discretion be personally liable
to such participant or beneficiary in the amount of up to $100
a day from the date of such failure or refusal, and the court
may in its discretion order such other relief as it deems
proper.
LABOR MANAGEMENT RELATIONS ACT (“LMRA”)
29 U.S.C. §§ 141 et seq.
Section 302, 29 U.S.C. § 186
§ 186. Restrictions on financial transactions
(a) Payment or lending, etc., of money by employer or
agent to employees, representatives, or labor organi-
zations
It shall be unlawful for any employer or association of
employers or any person who acts as a labor relations expert,
adviser, or consultant to an employer or who acts in the
interest of an employer to pay, lend, or deliver, or agree to pay,
lend, or deliver, any money or other thing of value—
(1) to any representative of any of his employees who
are employed in an industry affecting commerce; or
(2) to any labor organization, or any officer or em-
ployee thereof, which represents, seeks to represent, or
would admit to membership, any of the employees of
such employer who are employed in an industry affecting
commerce; .. .
(c) Exceptions
The provisions of this section shall not be applicable . . .
(5) with respect to money or other thing of value paid to a
A84
trust fund established by such representative, for the sole
and exclusive benefit of the employees of such employer,
and their families and dependents (or of such empioyees,
families, and dependents jointly with the employees of
other employers making similar payments, and their fam-
ilies and dependents): Provided, That (A) such payments
are held in trust for the purpose of paying, either from
principal or income or both, for the benefit of employees,
their families and dependents, for medical or hospital
care, pensions on retirement or death of employees,
compensation for injuries or illness resulting from oc-
cupational activity or insurance to provide any of the
foregoing, or unemployment benefits or life insurance,
disability and sickness insurance, or accident insurance;
(B) the detailed basis on which such payments are to be
made is specified in a written agreement with the em-
ployer, and employees and employers are equally repre-
sented in the administration of such fund, together with
such neutral persons as the representatives of the em-
ployers and the representatives of employees may agree
upon and in the event the employer and employee groups
deadlock on the administration of such fund and there
are no neutral persons empowered to break such dead-
lock, such agreement provides that the two groups shall
agree on an impartial umpire to decide such dispute, or
in event of their failure to agree within a reasonable
length of time, an impartial umpire to decide such dis-
pute shall, on petition of either group, be appointed by
_ the district court of the United States for the district
where the trust fund has its principal office, and shall
also contain provisions for an annual audit of the trust
fund, a statement of the results of which shall be avail-
able for inspection by interested persons at the principal
office of the trust fund and at such other places as may be
designated in such written agreement; and (C) such pay-
ments as are intended to be used for the purpose of
providing pensions or annuities for employees are made
to a separate trust which provides that the funds held
A85
therein cannot be used for any purpose other than paying
such pensions or annuities.
LABOR DEPARTMENT REGULATION
29 C.F.R. § 2510.3-3(d)
(d) Participant covered under the plan.
(1)(i) An individual becomes a participant covered under
an employee welfare benefit plan on the earlier of —
(A) the date designated by the plan as the date on
which the individual begins participation in the
lan;
(B) the date on which the individual becomes eligi-
ble under the plan for a benefit subject only to occur-
rence of the contingency for which the benefit is
provided; or |
(C) the date on which the individual makes a contri-
bution to the plan, whether voluntary or mandatory.
(ii) An individual becomes a participant covered under
an employee pension plan—
(A) in the case of a plan which provides for employee
contributions or defines participation to include em-
ployees who have not yet retired, on the earlier of—
(1) the date on which the individual makes a
contribution, whether voluntary or mandatory,
or
(2) the date designated by the plan as the date
on which the individual has satisfied the plan's
age and service requirements for participation,
and
(B) in the case of a plan which does not provide for
employee contribution and does not define participa-
tion to include employees who have not yet retired,
the date on which the individual completes the first
year of employment which may be taken into ac-
count in determining—
(1) whether the individual is entitled to benefits
under the plan, or
A86
(2) the amount of benefits to which the indi-
vidual is entitled, whichever results in earlier
participation.
(2)(i) An individual is not a participant covered under an
employee welfare plain on the earliest date on which
the individual—
(A) is ineligible to receive any benefit under the plan
even if the contingency for which such benefit is
provided should occur, and
(B) is not designated by the plan as a participant.
(ii) An individual is not a participant covered under an
employee pension plan or a beneficiary receiving bene-
fits under an employee pension plan if—
(A) the entire benefit rights of the individual—
(1) are fully guaranteed by an insurance com-
pany, insurance service or insurance organiza-
tion licensed to do business in a State, and are
legally enforceable by the sole choice of the indi-
vidual against the insurance company, insur-
ance service or insurance organization; and
(2) a contract, policy or certificate describing the
benefits to which the individual is entitled un-
der the plan has been issued to the individual;
or
(B) the individual has received from the plan a
lump-sum distribution or a series of distributions of
cash or other property which represents the balance
of his or her credit under the plan.
(3)(i) In the case of an employee pension benefit plan, an
individual who, under the terms of the plan, has in-
curred a one-year break in service after having be-
come a participant covered under the plan, and who
has acquired no vested right to a benefit before such
break in service, is not a participant covered under the
plan until the individual has completed a year of ser-
vice after returning to employment covered by the
plan.
(ii) For purposes of paragraph (d)(3)(i) of this section,
A87
in the case of an employee pension benefit plan which
is subject to section 203 of the Act the term “year of
service” shall have the same meaning as in section
203(b)(2)(A) of the Act and any regulations issued
under the Act and the term “one-year break in
service” shall have the
This text is long and has been trimmed here. Open the source document for the complete record.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.