# Amicus Curiae Brief — Firestone Tire & Rubber Co. v. Bruch

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 1989
- **Citation:** 489 U.S. 101

## Text

In the Supreme Court of the

OCTOBER TERM, 1988

FIRESTONE TIRE AND RUBBER
COMPANY, ET AL., PETITIONERS

V.
RICHARD BRUCH, ET AL., ETC.

ON WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

BRIEF FOR THE UNITED STATES
AS AMICUS CURIAE SUPPORTING RESPONDENTS

CHARLES FRIED
Solicitor General

DONALD B. AYER
Deputy Solicitor General

CHRISTOPHER J, WRIGHT
Assistant to the Solicitor General
Department of Justice
Washington, D.C. 20530
(202) 633-2217

GEORGE R. SALEM
Solicitor of Labor

CHARLES I. HADDEN
Deputy Associate Solicitor

JEFFREY A. HENNEMUTH
Ailtorney
Department of Labor
Washington, D.C. 20210

ke

QUESTIONS PRESENTED

1. Whether the court of appeals correctly concluded
that in reviewing denials of benefits under Section
502(a)(1)(B) of the Employee Retirement Income Security
Act of 1974 (ERISA), 29 U.S.C. 1132(a)(1)(B), a court
should interpret the terms of the relevant employee benefit
plan without deference to the employer’s construction in
cases involving unfunded plans administered by
employers.

2. Whether former employees are entitled to obtain in-
formation about employee benefit plans maintained by
their former employer pursuant to Section 104(b)(4) of
ERISA, 29 U.S.C. 1024(b)(4).

(1)

TABLE OF CONTENTS

Page
Ee cece cess ee reccscecccons l
TE 2
ee oe weecseevceecees 6

Argument:
1. Benefit denials by employer-controlled administrators
of unfunded employee benefit plans should be reviewed
without deference to the administrator’s interpretation
as ones ache ps ttvssecscess 8
A. Congress’s purposes in enacting ERISA are ad-
vanced if unfunded, employer-controlled em-
ployee benefit plans are interpreted as contracts
bargained at arms’ length ..................... 8
B. Neither the common law of trusts nor experience
with LMRA trusts supports the use of the arbitrary
and capricious standard in this case............. 12
C. ERISA itself does not mandate deference to an
employer’s interpretation of the terms of an un-
funded employee benefit plan ................. 18
D. A “flexible” arbitrary and capricious standard is
not a viable alternative to de novo review of
benefit decisions made by biased administrators of

Te selec eeceesns 21

Il. Former employees who were plan participants are en-
titled to obtain copies of plan documents upon request . 23
EE 30

TABLE OF AUTHORITIES

Cases:
Adams v. New Jersey Brewery Employees’ Pension Trust
Fund, 670 F.2d 387 (3d Cir. 1982) .................. 17
Allied Chemical & Alkali Workers v. Pittsburgh Plate
BE 10
Anderson v. Ciba-Geigy Corp., 759 F.2d 1518 (11th Cir.),
cert. denied, 474 U.S. 995 (1985) ................... 13
Bayles v. Central States, Southeast & Southwest Areas
Pension Fund, 602 F.2d 97 (Sth Cir. 1979) ........... 13
Berry v. Ciba-Geigy Corp., 761 F.2d 1003 (4th Cir.
Te cc ccccceseese re:

IV

Cases — Continued:

Blau v. Del Monte Corp., 748 F.2d 1348 (9th Cir. 1984),
cert. denied, 474 U.S. 865 (1985) ...................
Brink v. DaLesio, 667 F.2d 420 (4th Cir. 1981) ..........
Brock v. Self, 632 F. Supp. 1509 (W.D. La. 1986) .......
Bueneman vy. Central States, Southeast & Southwest
Areas Pension Fund, 572 F.2d 1208 (8th Cir. 1978) ....
Calamia v. Spivey, 632 F.2d 1235 (Sth Cir. 1980) ........
Central Hardware Co. v. Central States, Southeast &
Southwest Areas Pension Fund, 770 F.2d 106 (8th Cir.
1985), cert. denied, 475 U.S. 1108 (1986) .............
Central States, Southeast & Southwest Areas Pension
Fund v. Central Transp., Inc., 472 U.S. 559 (1985) ....
Chevron U.S.A. Inc. v. NRDC, Inc., 467 U.S. 837
SE 5. h.cbk 40460 Kees Enea edeetné sacks
Dennard v. Richards Group, Inc., 681 F.2d 306 (Sth Cir.
RE . 2506-00-06 64 3400) The plaintiffs also asserted claims with respect to Firestone’s vaca-
tion, retirement, and stock purchase plans, which have been resolved
(Pet. App. AS-A6 n.2, A46).

3

of the named plaintiffs also alleged that Firestone’s ad-
ministrators unlawfully failed to disclose benefit plan in-
formation upon request (id. at A3, AS, A39, A46, A69).
The suits were brought pursuant to Section 502(a)(1) of
ERISA, 29 U.S.C. 1132(a){1), which provides that a par-
ticipant or beneficiary of an employee benefit plan may
bring a civil action “(A) for the relief provided for in
subsection (c) of this section,” which provides a penalty of
up to $100 a day for failure to provide requested informa-
tion, and “(B) to recover benefits due to him under the
terms of his plan.”

The district court granted Firestone’s motion for sum-
mary judgment (Pet. App. A45-A73). The court limited its
review of the denial of termination benefits “to determin-
ing whether the administrator’s actions were arbitrary and
capricious” (id. at A47), and concluded that Firestone’s
decision not te pay termination benefits satisfied this test
(id. at A56). The district court also denied the named
plaintiffs’ claims that Firestone had improperly refused to
provide the information they had requested (Pet. App.
A70-A72). It recognized that “Section 104(b)(4) of
ERISA, 29 U.S.C. § 1024(b)(4), imposes a duty on a plan
administrator to respond to written requests for informa-
tion about the plan” (id. A70). But, the court noted, under
Section 104(b)(4) the plaintiffs were entitled to informa-
tion only if they were participating in the plan, and a “par-
ticipant” is “any employee or former employee * * * who
is or may become eligible to receive a benefit of any type
from an employee benefit plan” (29 U.S.C. 1002(7)). The
court concluded that the three employees were not partici-
pants because they did not work for Firestone at the time
that they requested the information and were not entitled
to benefits (Pet. App. A71-A72).

3. The court of appeals reversed on both issues, and
remanded for further proceedings (Pet. App. Al-A44). It
concluded that Firestone’s decisions that the terms of its
termination pay plan did not require it to pay benefits to

4

its former employees should not be reviewed under the ar-
bitrary and capricious standard, but rather should be re-
viewed de novo by the court.* Acknowledging that most
courts have reviewed ERISA benefit determinations under
the limited arbitrary and capricious standard (id. at
A8-A9), the court noted that some courts actually applied a
more rigorous test (though retaining the “arbitrary and
capricious” label) when the plan administrator possessed an
interest adverse to the benefit claimants (id. at Al1-A13).

The court of appeals also observed that the arbitrary and
capricious review standard derived from cases involving
employee benefit trusts established under Section 302(c)(5)
of the Labor-Management Relations Act of 1947 (LMRA),
29 U.S.C. 186(c)(5), which in turn followed common-law
trust principles (Pet. App. Al4-A21). The court found
those precedents inapposite because trust law limits judicial
review of trustee actions only if no conflict of interest or
improper motive exists and because the LMRA more con-
cretely assures impartial administration by requiring equal
numbers of labor and management trustees to manage
employee benefit plans (id. at Al5, A21). By contrast, the
Firestone termination pay plan was both unfunded and
wholly controlled by company nominees (id. at A21), so
that “every dollar saved by the administrator on behalf of
his employer is a dollar in Firestone’s pocket” (id. at A22).
In those circumstances, the court concluded “that both
common sense and the principles of trust law” precluded
application of a “presumption that the plan administrator
was impartial” (id. at A24).

Since the benefits were part of the bargain in return for
which employees provided their services to Firestone, the
court concluded that Firestone’s decision not to pay termi-

* The court also rejected the former employees’ contention that am-
biguous plan terms should be construed strictly against the employer
and in favor of plan beneficiaries (id. at A3, A24-A25). It thus con-
cluded that “there should be deference to neither the plan
administrator’s nor the participants’ construction of plan terminology”
(id. at A3).

5

nation benefits should be reviewed under “the principles
governing construction of contracts between parties
bargaining at arms’ length” (id. at A25). Under that ap-
proach, the court explained, a reviewing court should
utilize the traditional rules of contract interpretation to
determine, from common trade usage, past practice under
the benefit plan at issue, and other relevant evidence, the
contracting parties’ intention as to the issue at hand and, if
that intention is not discernible, “the court should adopt
the most reasonable understanding of the term’ (id. at
A28-A31 (footnote omitted)). Because the district court
had not approached the question in that way,’ but had in-
stead deferred to Firestone’s interpretation, the court of
appeals remanded.

The Third Circuit also rejected the district court’s con-
clusion that respondents were not “participants” entitled
to request benefit plan information and recover damages
for nondisclosure (Pet. App. A39-A43). The court ob-
served that limiting participant status to persons presently
covered by a plan or actually entitled to benefits equates
Standing to claim benefits with ultimate entitlement to
receive those benefits (id. at A41). Such an interpretation,
in the court’s opinion, conflicts with Congress’s intent to
provide claimants with enough information “to make their
own decisions on how best to enforce their rights” (id. at
A43). The court therefore concluded that the right to re-
quest anc receive information about an employee benefit
plan “most sensibly extend[s}] 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” (id. at A42).

* The court of appeals noted, in particular, that it was not clear
whether common trade practice favored Firestone’s interpretation or
that of its former employees, that the parties disputed what Firestone’s
past practice had been and what it had previously told employees, and
that the district court had not determined whether there was a signifi-
cant difference in the employees’ compensation from Occidental (Pet.
App. A30).

a

6

SUMMARY OF ARGUMENT

I. Congress in ERISA did not specify the standard of
review in benefit claims disputes, but instead directed the
federal courts to develop a body of federal common law
governing those claims. In a case involving an unfunded
employee benefit plan administered by the employer, the
objectives of the statute are best served by resolving ques-
tions of plan interpretation under established principles of
contract interpretation, rather than by affirming decisions
of the employer-administrator unless arbitrary and
capricious. That approach comports with two of ERISA’s
primary objectives —insulating benefit decisions from the
self-interest of employers and ensuring that employees
who qualify for benefits actually receive them.

Where benefits are paid out of the employer’s general
assets, it is unfair to employees to defer to the employer’s
interpretation of the terms of the plan. Firestone, like the
courts that have reviewed employers’ decisions under the
arbitrary and capricious standard, nevertheless contends
that it is appropriate to borrow common law trust rules, as
was done in cases involving LMRA trusts, and defer to its
interpretation even though it is biased. Trust analogies are
plainly inapposite here, however, since Firestone estab-
lished no separate body of trust assets to pay severance
benefits, and the common law of trusts does not support
application of the arbitrary and capricious standard to ad-
ministrators’ decisions in that instance. ERISA’s own
reliance on trust principles is selective, and in no way sug-
gests that Congress intended that a highly deferential
standard be applied here. Cases arising under Section
302(c)(S) of the LMRA are doubly inapposite, since,
besides the presence of a trust in those cases, the LMRA
mandates impartial administrators.

Firestone’s arguments that ERISA itself compels review
under the arbitrary and capricious standard are wholly
without merit. Nothing in ERISA grants administrators

;

complete discretion in making benefits decisions. Further-
more, review under the arbitrary and capricious standard
in cases involving unfunded plans administered by
employers would be ironic in that employees would be
worse off than they were before ERISA was enacted.

Nor is it appropriate to apply a “flexible” arbitrary and
capricious standard, whose rigor varies on an ad hoc basis
with the appearance of bias on the part of the ad-
ministrator. That approach would only create confusion
as to the proper standard of review. Since there is no good
reason to defer to an employer’s construction of the terms
of an employee benefit plan when it is paying benefits out
of its own pocket, this Court should not endorse the ar-
bitrary and capricious standard at all in cases involving
unfunded plans administered by employers.

Il. The court of appeals also correctly concluded that
Firestone should have given the three named plaintiffs the
information they requested, since Section 104(b)(4) states
that information about employee benefit plans must be
provided “upon written request of any participant.” The
Statutory definition of “participant,” 29 U.S.C. 1002(7), as
including present and former employees who are or may
become eligible for benefits, is broadly encompassing. We
agree with the court of appeals that it makes sense to read
Section 104(b)(4) to allow any employee or former
employee who “claims to be” entitled to benefits to obtain
information upon request. That construction fulfills Con-
gress’s intent in enacting ERISA’s disclosure provisions,
which are meant to provide access to complete informa-
tion about the terms of employee benefit plans. In con-
trast, Firestone’s construction—which allows plan ad-
ministrators to deny access to information based solely on
the administrator’s determination that the individual is not
entitled to benefits—plainly undermines Congress’s pur-
pose in enacting the disclosure provisions.

There is no basis for Firestone’s contention that a broad
construction of “participant” will impose costly burdens

8

on employee benefit plans. Section 104(b)(4) expressly
provides that plan administrators may make a “reasonable
charge” for providing information. In addition, the
Secretary of Labor has by regulation distinguished be-
tween Section 104(b)(4) and ERISA’s provisions requiring
automatic disclosure of information about employee
benefit plans without charge and without request. The
Secretary has reasonably determined that plan ad-
ministrators need not provide such automatic disclosure to
former employees whom plan administrators determine to
have no vested right to benefits, while also concluding that
former employees are entitled under Section 104(b)(4) to
certain information upon request.

ARGUMENT

I. BENEFIT DENIALS BY EMPLOYER-CONTROLLED AD-
MINISTRATORS OF UNFUNDED EMPLOYEE BENEFIT
PLANS SHOULD BE REVIEWED WITHOUT DEFERENCE
TO THE ADMINISTRATOR'S INTERPRETATION OF THE
TERMS OF THE PLAN

A. Congress’s Purposes In Enacting ERISA Are Advanced If
Unfurded, Employer-Controlled Employee Benefit Plans

Are Interpreted As Contracts Bargained At Arms’ Length

Section 502(a)(1)(B) of ERISA, 29 U.S.C.
1132(a)(1)(B), authorizes any particpant in or beneficiary
of an employee benefit plan covered by the Act to bring a
civil action “to recover benefits due to him under the terms
of his plan.” Although the statute does not specify the ap-
plicable standard of review or otherwise set substantive
standards for the resolution of disputes over benefits, the
Conference Report explained that “{a]ll such actions * * *
are to the regarded as arising under the laws of the United
States in similar fashion to those brought under section
301 of the Labor-Management Relations Act of 1947.”
H.R. Conf. Rep. 93-1280, 93d Cong., 2d Sess. 327 (1974).
This Court, in Textile Workers Union v. Lincoln Mills,
353 U.S. 448, 456 (1957), construed Section 301 to require

—

9

the federal courts to “fashion from the policy of our na-
tional labor laws” a federal common law governing the in-
terpretation of collective bargaining agreements. We sub-
mit, therefore, that the Report’s reference to Section 301
of the LMRA, 29 U.S.C. 185, was a direction to the courts
to fashion a body of federal common law to govern review
of benefit claim denials. Other portions of “ERISA’s
legislative history indicate[{] that * * * ‘a body of Federal
substantive law will be developed by the courts to deal
with issues involving rights and obligations under private
welfare and pension plans’ ” (Franchise Tax Bd. v. Con-
struction Laborers Vacation Trust, 463 U.S. 1, 24 n.26
(1983), quoting 120 Cong. Rec. 29942 (1974) (remarks of
Sen. Javits)), and this Court has recognized that federal
courts are to develop a “federal common law of rights and
obligations under ERISA-regulated plans” (Pilot Life Ins.
Co. v. Dedeaux, No. 85-1043 (Apr. 6, 1987), slip op. 15).
Thus, the task of determining the appropriate standard of
review in benefit actions under Section 502(a)(1)(B) has
been assigned to the courts. This Court’s decision should
be determined “by looking at the policy of the legislation
and fashioning a [standard] that will effectuate that
policy” (Textile Workers Union v. Lincoln Mills, 353 U.S.
at 457).

One of Congress’s primary goals in enacting ERISA was
to assure that every employee who becomes eligible for a
benefit under an employee benefit plan “actually will
receive it.” Nachman Corp. v. Pension Benefit Guaranty
Corp., 446 U.S. 359, 375 (1980). To that end, the Act

* While Nachman Corp. involved a pension plan, ERISA’s rules on
reporting, disclosure, and fiduciary responsibility, which are designed
to ensure that participants receive the benefits they have earned, apply
to all “employee benetit plans,” including welfare plans as well as pen-
sion plans. Central States, Southeast & Southwest Areas Pension
Fundy. Central Transp. Inc., 472 U.S. 559, 569 n.9 (1985): 29 U.S.C.
(& Supp. [V) 1002(3), 1021-1031, 1101-1114. And Section 502(a)(1)(B)
does not distinguish between pension plans and welfare plans in
authorizing suits “to recover benefits” due to employees.

10

imposes on benefit plan fiduciaries, who “control and
manage” the plan (29 U.S.C. 1102(a)(1)), strict standards
of loyalty and care. Central States, Southeast & Southwest
Areas Pension Fund v. Central Transp., Inc., 472 U.S.
559, 570 (1985). These fiduciary standards include, most
notably, a duty to act “solely in the interest of the par-
ticipants and beneficiaries” for the “exclusive purpose” of
paying benefits and defraying administrative costs “in ac-
cordance with the documents and instruments governing
the plan” (29 U.S.C. 1104(a)(1)). They are intended to
“specifically insulate the [plan] from the employer’s in-
terest.” NLRB v. Amax Coal Co., 453 U.S. 322, 333
(1981).

As the court of appeals concluded, in the context of an
unfunded benefit plan administered by the employer, a
standard of review that focuses de novo on the terms of
the plan best achieves the statutory goals of insulating
employee benefit plans from employers’ interests and en-
suring that employees who become eligible for benefits
receive them. Testing the issue in this manner, as one
would any matter of contractual interpretation, is also
consistent with federal labor policy, under which
employee benefits are viewed as “ ‘wages * * * or other
conditions of employment’ ” to be negotiated in a labor-
management contract. See Inland Steel Co. v. NLRB, 170
F.2d 247, 253-254 (7th Cir. 1948) (citation omitted), cert.
denied, 336 U.S. 960 (1949) (holding that such benefits are
a mandatory subject of collective bargaining under the
National Labor Relations Act); see generally Allied
Chemical & Alkali Workers v. Pittsburgh Plate Glass Co.,
404 U.S. 157 (1971).’

’ Before ERISA was passed in 1974, employee benefit plans, other
than those administered as trusts at common law or under the LMRA,
were generally treated as contract obligations on the part of the
employer. See, e.g., Phelps Dodge Corp. v. Brown, 112 Ariz. 179, 540
P.2d 651 (1975); Frietzsche v. First Western Bank & Trust Co.,

It is illogical to assume that the administrator of an un-
funded plan whose benefits are paid from the employer’s
assets will function with the same impartiality as a neutral
trustee of a funded plan, since the administrator’s
employer will sustain a financial loss with every award of

168 Cal. App. 2d 705, 336 P.2d 589 (1959); Ellis v. Emhart Mfg., 150
Conn. 50, 191 A.2d 546 (1963); Sigman v. Rudolph Wurlitzer Co., 57
Ohio App. 4, 11 N.E.2d 878 (1937); Strickland vy. American Bakery &
Confectionery Workers Union, 527 P.2d 10 (Okla. 1974); Rose City
Transit Co. v. City of Portland, 271 Or. 588, 533 P.2d 339 (1975);
Jacoby v. Grays Harbor Chair & Mfg., 77 Wash. 2d 911, 468 P.2d 666
(1970). Accord Erich v. GAF Corp., 110 N.J. 230, 540 A.2d 518, 522
(1988) (observing that the “ ‘principles of contractual construction’ ”
applied by the Third Circuit in this case are “similar to the standard of
review that would be applicable under state law” (citation omitted)).
See also Note, Pension Plans and the Rights of the Retired Worker, 70
Colum. L. Rev. 909, 910, 916-922 (1970). In such cases, the reviewing
court examined the employee’s benefit claim as it would any other
contract allegation, looking to the terms of the plan and other
manifestations of the parties’ intent and deciding whether benefits
were payable without deferring to either party’s construction of the
terms of the contract.

Firestone maintains (Br. 25 n.22) that pre-ERISA decisions applied
an arbitrary and capricious standard, but many of the cases they cite
involved trusts and are therefore inapposite. See Van Pelt v. Berefco,
Inc., 60 Ill. App. 2d 415, 208 N.E.2d 858 (1965); Reese v. Ad-
ministrative Comm. of the Profit Sharing Trust, 218 Cal. App. 2d
646, 32 Cal. Rptr. 818 (1963); Going v. Southern Mill Employees’
Trust, 281 P.2d 762 (Okla. 1955); Kloman v. Doctors Hospital, Inc.,
76 A.2d 782 (D.C. 1950). While the other cited decisions concerned
unfunded plans, the terms of the plans that the courts sought to en-
force gave the employers or their handpicked administrators “sole and
exclusive” power to determine benefit eligibility; there is no such pro-
vision in Firestone’s plan, and such a provision would not be en-
forceable under ERISA (see note 11, infra). Moreover, to avoid un-
conscionable results courts sometimes construed the plans in cases
where administrators had unbounded discretionary authority to per-
mit claims that particular benefit denials were unreasonable or in bad
faith. See, e.g., Gitelson vy. Du Pont, 17 N.Y.2d 46, 215 N.E.2d 336,
268 N_Y.S.2d 11 (1966); Garner v. Girard Trust Bank, 442 Pa. 166,
275 A.2d 359 (1971).

12

benefits. Despite Firestone’s insistence (Br. 31) that self-
interest played no role in its denial of respondents’ claims,
and whether or not it did in this case, the members of this
Court need not “close [their] eyes as judges to what [they]
must perceive as men.” People ex rel. Alpha Portland Ce-
ment Co. v. Knapp, 230 N.Y. 48, 63, 129 N.E. 202, 208
(1920), cert. denied, 256 U.S. 702 (1921). Accordingly, the
Court should decide, in exercising its federal common law
powers under Section 502(a), to require courts to resolve
questions about the meaning of the terms of employee
benefit plans without deferring to the employer’s construc-
tion in such cases. ®

B. Neither The Common Law Of Trusts Nor Experience With
LMRA Trusts Supports The Use Of The Arbitrary And
Capricious Standard In This Case

In applying the arbitrary and capricious standard in
ERISA benefits cases,® the federal courts of appeals have

* Firestone argues (Br. 29) that there should be evidence that a par-
ticular decision in fact resulted from bias before the courts question an
administrator’s interpretation of the terms of a plan. But instances of
biased intent may not always be subject to proof. Moreover, the
standard of review is the means by which the employer’s decision is to
be evaluated, not the conclusion to be drawn upon determining that
the employer acted improperly.

* See, e.g., Jestings v. New England Tel. & Tel. Co., 757 F.2d 8 (ist
Cir. 1985); Miles v. New York State Teamsters Conference Pension &
Retirement Fund, 698 F.2d 593 (2d Cir.), cert. denied, 464 U.S. 829
(1983); Rosen v. Hotel & Restaurant Employees & Bartenders Union,
637 F.2d 592 (3d Cir.), cert. denied, 454 U.S. 898 (1981); Berry v.
Ciba-Geigy Corp., 761 F.2d 1003 (4th Cir. 1985); Dennard v.
Richards Group, Inc., 681 F.2d 306 (Sth Cir. 1982); Moore v.
Reynolds Metals Co. Retirement Program for Salaried Employees, 740
F.2d 454 (6th Cir. 1984), cert. denied, 469 U.S. 1109 (1985); Pokrarz
v. Jones Dairy Farm, 771 F.2d 206 (7th Cir. 1985); Central Hardware
Co. v. Central States, Southeast & Southwest Areas Pension Fund,
770 F.2d 106 (8th Cir. 1985), cert. denied, 475 U.S. 1108 (1986);
Dockray vy. Phelps Dodge Corp., 801 F.2d 1149 (9th Cir. 1986);

13

typically relied uncritically on standards developed for
reviewing trustee action at common law or in connection
with employee benefit funds established under Section
302(c)(5) of the LMRA.!'° By contrast, the court of appeals

Peckham vy. Board of Trustees, 653 F.2d 424 (10th Cir. 1981); Ander-
son v. Ciba-Geigy Corp., 759 F.2d 1518 (11th Cir.), cert. denied, 474
U.S. 995 (1985); Maggard v. O’Conneli, 671 F.2d 568 (D.C. Cir.
1982).

¢

'© See, e.g., Music v. Western Conference of Teamsters Pension
Trust Fund, 712 F.2d 413, 418 (9th Cir. 1983); Dennard v. Richards
Group, Inc., 681 F.2d 306, 313 (Sth Cir. 1982); Wardle v. Central
Staies, Southeast & Southwest Areas Pension Fund, 627 F.2d 820, 824
(7th Cir. 1980), cert. denied, 449 U.S. 1112 (1981); Bayles v. Central
States, Southeast & Southwest Areas Pension Fund, 602 F.2d 97,
99-100 (Sth Cir. 1979); Bueneman v. Central States, Southeast &
Southwest Areas Pension Fund, 572 F.2d 1208, 1209 (8th Cir. 1978);
Riley v. MEBA Pension Trust, 570 F.2d 406, 410 (2d Cir. 1977).

Some recent decisions from other circuits have called into question
the appropriateness of the “arbitrary and capricious” standard under
ERISA. See, e.g., Van Boxel v. Journal Co. Employees’ Pension
Trust, 836 F.2d 1048, 1052 (7th Cir. 1987) (noting that the courts bor-
rowed rules developed in cases involving LMRA trusts “apparently
without the courts’ noticing that employers often held the whip hand
in ERISA trusts,” and that “[t}ransposed to the ERISA setting, the ar-
bitrary and capricious standard may be inapt, a historical mistake, or
a mechanical application from different settings”); Shul/ v. State
Machinery Co. Employees Profit Sharing Plan, 836 F.2d 306, 307 (7th
Cir. 1987) (noting “a growing restiveness in cases where the trustees
seem not to be true neutrals in the disputes they are called on to
resolve”); Varhola v. Doe, 820 F.2d 809, 813 (6th Cir. 1987) (“[w]ere
we writing On a clean slate, we might well be persuaded that [a] stricter
standard of review should apply”). And at least one appellate decision
has left open the possibility of a different standard of review when an
administrator’s overall actions display hostility to the statutory
scheme. Blau v. Del Monte Corp., 748 F.2d 1348, 1353 (9th Cir. 1984)
(“[w]e do not decide that [the arbitrary and capricious standard] is the
only applicable standard of review when ERISA’s provisions ave
been flouted in such a wholesale and flagrant manner”), cert. denied,
474 U.S. 865 (1985). Notwithstanding this questioning, none of these
courts has actually abandoned the arbitrary and capricious standard,

A

14

in this case, for the first time, evaluated the theoretical and
practical underpinnings of the arbitrary and capricious
standard in light of the statutory objectives. As the court
concluded, that standard has no place in actions brought
to recover benefits under unfunded, employer-
administered plans. Neither the rationales of earlier courts
nor petitioners’ arguments justify a standard according
deference to the employer’s construction of the terms of a
plan in such circumstances.

The trust analogies on which other courts and Firestone
so heavily rely (Br. 11-12) are wholly inapt to an unfunded
benefit plan.'' To begin with, there is no historical reason

finding the issue too “well-settled” in precedent. See, e.g., Varhola,
820 F.2d at 813; Jung v. FMC Corp., 755 F.2d 708, 711i (9th Cir.
1985).

'! Petitioners’ basic assumption (Br. 12, 28-29) that traditional trust
law principles always require judicial deference to a trustee’s inter-
pretation of trust terms is not well founded. While trust principles
make a deferential standard appropriate for review of a trustee’s exer-
cise of discretionary powers (Restatement (Second) of Trusts (1959)
§ 187; G. Bogert & G. Bogert, The Law of Trusts and Trustees § 560
at 193-208 (rev. 2d ed. 1980) [hereinafter Bogert]), the trustee has only
those powers, discretionary or otherwise, that the trust instrument or
operation of law confers (Restatement §§ 186, 187 comment a; Bogert
§ 551). Ordinarily, the courts interpret trust instruments “in the light
of all the circumstances and such other evidence of the intention of the
settlor * * * as is not inadmissible” (Restatement § 4 comment d;
Bogert § 182 at 255). Although a particular trustee may be granted
power to construe disputed or doubtful terms, and such interpreta-
tions will not be disturbed if reasonable (Bogert § 559 at 169-171), a
trustee lacking such authority may be obliged to seek judicial instruc-
tions to avoid committing a breach of trust (id. at 162-168; Restate-
ment § 201 comment b). And, as the court of appeals noted (Pet.
App. AIS, citing Restatement § 187, comment g), even where a matter
has been committed to a trusteé’s discretion, a court will not defer to
the trustee’s judgment if it appears that the trustee’s decision resulted
from bias.

In any event, language in a plan document purporting to give biased
administrators unbounded discretion to decide what the terms of a
plan mean (and there appears to be no such language in Firestone’s

ee Om oe

to apply a trust-law standard to a plan like Firestone’s
because it is Obviously nor a trust since no source of
benefit payments exists separately from the employer’s
own Operating funds. See, e.g., Dependahl v. Falstaff
Brewing Corp., 653 F.2d 1208, 1214 (8th Cir.) (“[f]unding
implies the existence of a res separate from the ordinary
assets of the corporation”), cert. denied, 454 U.S. 968 and
1084 (1981). As a result, there is no identifiable and
segregated trust property and, perforce, no trustee with
both legal title and an equitable duty to deal with such
property for the benefit of others. Without these incidents,
a trust relationship does not exist. Restatement (Second) of
Trusts (1959) § 2; Bogert, supra note 11, §§ 1, 111. The
unfunded plan sponsor has only a contractual obligation
to pay benefits from any available source. See Restate-
ment §§ 13, 74 comment a; Bogert § 17.'? An employer

termination pay plan) would not be enforceable under ERISA. Ex-
culpatory language in plan documents “purport{ing}] to relieve a
fiduciary from responsibility or liability” is expressly “void as against
public policy” (29 U.S.C. 1110(a)). Similarly, language granting
biased administrators unfettered discretion to determine who would
receive benefits would be in tension with ERISA’s judicial review and
disclosure provisions. The disclosure provisions are designed so that a
plan participant will know “exactly where he stands” (S. Rep. 93-127,
93d Cong., Ist Sess. 27 (1973); H.R. Rep. 93-533, 93d Cong., Ist Sess.
11 (1973)), and participants cannot really know where they stand if
biased administrators have discretionary authority, to which courts
must defer, to construe plan terms.

'2 Firestone’s reliance (Br. 12 & n.9) on Section 403(a) of ERISA, 29
U.S.C. 1103(a), to blur the distinction between funded and unfunded
plans is misplaced. Although that section provides that the assets of
employee benefit plans “shall be held in trust by one or more trustees,”
the provision assumes that a particular plan Aas assets. Where the plan
benefits are payable (as in the case of Firestone’s severance pay plan)
from the sponsoring employer’s own general assets, no “plan assets”
exist. See 44 Fed. Reg. 50363, 50365 (1979) (preamble to proposed
regulations relating to definition of plan assets and to establishment of
trust). Accordingly, ERISA has imposed no “trust” on the source of
Firestone’s severance pay benefits.

16

who has set up a segregated fund devoted exclusively to
the payment of benefits feels no direct effect from each
specific benefit payment decision, whereas unfunded plans
draw their benefits, dollar for dollar, from the employer’s
funds.'? Only the existence of a distinct trust fund tangibly
insulates the benefits decisions of a plan administrator
who is controlled by the employer from the employer’s or-
dinary business decisions. '4

___— The loose standard of review is also inappropriate

because the absence of a separate, identified source of
benefits fundamentally alters the trustee’s task under a
funded plan of “provid{ing] benefits to as many intended
employees as is economically possible while protecting the
financial stability of the [plan].” See Elser v. IAM Na-
tional Pension Fund, 684 F.2d 648, 656 (9th Cir. 1982),
cert. denied, 464 U.S. 813 (1983). Unlike a funded plan’s
trustee, whose decision must “balance[] the interests of
present claimants against the interests of future claimants”
(see Struble v. New Jersey Brewery Employees’ Welfare

'’ Establishment of a trust also imposes on the plan administrator a
duty to preserve and protect that benefit fund for the special purposes
of the trust. See Restatement § 176; Bogert § 582. ERISA’s require-
ment that all plan administrators act “solely in the interest of the par-
ticipants and beneficiaries” (29 U.S.C. 1104(a)(1)) does not require the
administrator of an unfunded plan to devote any part of the
employer's moneys exclusively to the payment of benefits. Also, the
statute's prohibition against inurement of plan assets to the employer’s
benefit (29 U.S.C. 1103(c)(1)), and the prohibitions against certain
conflict-of-interest transactions involving the plan and its assets (29
U.S.C. 1106, 1107), have no meaning if a plan does not acquire or
hold any assets.

‘* If an employer has seriously underfunded a benefit trust, or a
particular interpretation of the plan could require the employer to
make additional contributions, a trustee subject to control by the
employer might not have adequate insulation from the employer's
financial interest. The proper standard of review in such a situation is
not presented by this case, however.

17

Trust Fund, 732 F.2d 325, 333 (3d Cir. 1984)),'* the ad-
ministrator of an unfunded plan necessarily chooses be-
tween the interests of individual plan beneficiaries on the
one hand and the employer’s desire to hold down business
expenses on the other. This latter choice has little in com-
mon with an unbiased trustee’s making of tradeoffs be-
tween various interests of different plan beneficiaries.'®
Although Congress in enacting ERISA manifested an
intent to “codif[y] and make[] applicable * * * certain
principles developed in the evolution of the law of trusts”
(emphasis added), ERISA’s drafters also understood that
ordinary trust principles are often “insufficient to ade-
quately protect the interests of plan participants and
beneficiaries.” S. Rep. 93-127, 93d Cong., Ist Sess. 29
(1973); H.R. Rep. 93-533, 93d Cong., Ist Sess. 11-12
(1973).'’ Recognizing that employee benefit plans,

'S See also Adams v. New Jersey Brewery Employees’ Pension Trust
Fund, 670 F.2d 387, 397 (3d Cir. 1982) (“[p]artly because of these con-
flicting obligations, trustees are given broad discretion to act”); Rueda
v. Seafarers International Union, 576 F.2d 939, 942 (ist Cir. 1978)
(“we review for arbitrariness in light of the trustees’ responsibility to
all potential beneficiaries”).

'© In cases challenging the apparently self-serving decisions of
employer-fiduciaries on non-benefit issues, the courts have accorded
those decisions no deference, considering de novo whether the
fiduciaries’ actions violated ERISA’s strict standard of fiduciary loyal-
ty to plan participants and beneficiaries. E.g., Struble v. New Jersey
Brewery Employees’ Welfare Trust Fund, 732 F.2d at 333 (employer-
appointed trustees vote to give refunded health insurance premiums to
the employers so as to reduce their future contributions to the plan);
Donovan v. Cunningham, 716 F.2d 1455 (Sth Cir. 1983), cert. denied,
467 U.S. 1251 (1984) (corporate directors serving as plan ad-
ministrators purchase corporation stock for more than adequate con-
sideration); Donovan v. Bierwirth, 680 F.2d 263 (2d Cir.), cert.
denied, 459 U.S. 1069 (1982) (corporate officers serving as plan
trustees reject, during a takeover bid, a tender offer for corporation
stock held by the plan but instead purchase more stock).

'’ Firestone also notes (Br. 17-19) that the legislative histories of the
LMRA and the Welfare and Pension Plans Disclosure Act (WPPDA)
exhibit congressional reliance on traditional fiduciary principles to

18

covering hundreds or thousands of participants, are “quite
different from the [customary private] trust both in pur-
pose and in nature,” the drafters expected the courts to in-
terpret fiduciary principles “bearing in mind the special
nature and purposes of employee benefit plans intended to
be effectuated by the Act” (ibid.). Thus, Congress con-
templated only selective adoption of trust rules “with
modifications appropriate for employee benefit plans” (id.
at 13).

Judicial experience with employee benefit trusts under
Section 302(c)(S) of the LMRA is also totally inapposite.
First, LMRA plans are necessarily cast in “trust” form,
thus insulating sponsoring employers from the cost of
each benefit payment. Second, such trusts are managed
not by employer nominees, but by a board consisting of
equal numbers of labor and management representatives
with an impartial umpire to decide matters when the two
trustee groups are deadlocked. See NLRB v. Amax Coal
Co., 453 U.S. at 328-329. These structural arrangements
provide participants in LMRA plans with tangible and
realistic guarantees against biased decisionmaking that are
totally absent in the case of an unfunded, employer-
administered ERISA plan.

C. ERISA Itself Does Not Mandate Deference To An
Employer’s Interpretation Of The Terms Of An Unfunded

Employee Benefit Plan
Firestone claims (Br. 9-11, 15-17) that the conferral of
decision-making authority on plan fiduciaries, and Con-

safeguard employee benefit plans. This is irrelevant, however, because
ERISA’s drafters thought those statutes inadequate in important re-
spects. See S. Rep. 93-127 at 4 (the LMRA was “not intended to estab-
lish nor does it provide standards for * * * fiduciary conduct,” and the
WPPDA was “wholly lacking in substantive fiduciary standards”);
H.R. Rep. 93-533 at 4 (same). Indeed, ERISA’s drafters viewed the
Act as a “major departure” from existing law. H.R. Rep. 93-533 at 3;
see also S. Rep. 93-127 at 35 (ERISA “remove{s] jurisdictional and
procedural obstacles which in the past appear to have hampered effec-
tive enforcement of fiduciary responsibilities”); H.R. Rep. 93-533 at
17 (same).

_s_

19

gress’s rejection of proposals to impose federal agency
review and arbitration procedures as limits on that
authority, require deferential judicial review of the mean-
ing of employee benefit plans in reviewing benefit denials
pursuant to Section 502(a)(1)(B).'* Firestone argues from
Section 402(a) of ERISA, 29 U.S.C. 1102(a), Stating that a
plan must list “one or more named fiduciaries who * * *
shall have authority to control and manage the operation
and administration of the plan,” and from 29 U.S.C.
1002(21), stating that “a person is a fiduciary with respect
to a plan to the extent * * * he exercises any discretionary
authority,” for the proposition that administrators of
employee benefit plans have discretionary authority to
make benefit decisions. It does not follow, however, that
because persons exercising discretionary authority are
fiduciaries, fiduciaries always exercise discretion. ERISA
did not grant administrators unbounded discretionary
authority over benefits decisions, but rather sought to
make them substantially accountable for their decisions.

'* Firestone further contends (Br. 19-20) that Congress’s failure, in
1982, to enact legislation to require de novo review in all ERISA
benefit cases somehow demonstrates its adherence to the arbitrary and
capricious standard. This overlooks the well-established rule that
“ ‘the views of a subsequent Congress form a hazardous basis for in-
ferring the intent of an earlier one.’ ” Mackey v. Lanier Collections
Agency & Service, Inc., No. 86-1387 (June 17, 1988), slip op. 13 (cita-
tion omitted); United States v. Price, 361 U.S. 304, 313 (1960). See
also Pierce v. Underwood, No. 86-1512 (June 27, 1988), slip op. 13
(“it is the function of the courts and not the Legislature * * * to say
what an enacted statute means”). Indeed, since the bill in question was
never even reported from the committee, its failure is an even less
reliable indicator of Congress’s views. See Red Lion Broadcasting Co.
v. FCC, 395 U.S. 367, 381-382 n.11 (1969); Fogarty v. United States,
340 U.S. 8, 13-14 (1950).

To whatever extent the failure to enact an across-the-board de novo
review standard may be deemed relevant, it does not Suggest that Con-
gress then viewed such a standard as always inappropriate. It is just as
plausible to assume that Congress was not persuaded to impose a
single standard of review applicable in all cases, but instead left the
matter for common law development by the courts, and that the com-
mittee failed to report the bill for that reason.

20

Section 402(a)(1) provides: “Every employee benefit plan
shall be established and maintained pursuant to a written
instrument. Such instrument shall provide for one or more
named fiduciaries who jointly or severally shall have
authority to control and manage the operation and admini-
stration of the plan.” The Conference Report explained the
purpose of Section 402(a) by stating that “[a] written plan is
to be required in order that every employee may, On ex-
amining the plan documents, determine exactly what his
rights and obligations are under the plan” and that fidu-
ciaries must be named “so the employees may know who is
responsible for operating the plan” (H.R. Conf. Rep.
93-1280 at 297).

As noted above (note 7, supra), pre-ERISA courts gener-
ally reviewed benefit decisions under contract principles.
Given ERISA’s fundamental goal of correcting “the abuses
and shortcomings * * * found to exist in the private [em-
ployee benefit] system” (120 Cong. Rec. 29928 (1974) (re-
marks of Sen. Williams)), it would be ironic indeed to con-
Sstrue its adoption of fiduciary standards to somehow
diminish the accountability that already existed for employ-
ers Operating unfunded employee benefit plans. Thus, the
overall purposes of the Act are better served by permitting
reviewing courts to apply contract principles in determin-
ing, under Section 502(a)(1)(B), whether “benefits are due
* * * under the terms of the plan.”!9

'? We would caution, however, against applying contract principles
that might undermine other statutory objectives. For example, the
plaintiffs have argued that employer-drafted benefit plans should be
treated as contracts of adhesion, with ambiguities construed strictly
against the drafter. Although this rule finds some support in pre-ERISA
case law (see, e.g., Frietzsche, 168 Cal. App. 2d at 706-707, 336 P.2d at
590; Sigman, 57 Ohio App. at 5-7, 11 N.E.2d at 879), the Third
Circuit’s treatment of the unfunded plan as a contract negotiated at
arms’ length adequately protects benefit rights, while at the same time
avoiding an incentive to litigation that could exhaust plan resources
and, indeed, defeat ERISA’s intent to encourage the establishment of
employee benefit plans. That approach is also consistent with national
labor policy, which, as noted (page 10, supra), views employee benefits

21

D. A “Flexible” Arbitrary And Capricious Standard Is Not A Viable
Alternative To De Novo Review Of Benefit Decisions Made By
Biased Administrators Of Unfunded Plans

Firestone contends (Br. 30-32) that a “flexible” arbitrary

and capricious standard provides adequate protection
against improprieties in plan administration. They rely on
Seventh and Ninth Circuit decisions in which those courts,
while adhering to the arbitrary and capricious rubric, have
permitted more searching review when there is reason to
Suspect partiality in plan benefit determinations.2° These
cases suggest “[t]he existence of a sliding scale in judicial
review of ERISA trustees’ decisions * * * [that] give[s] less
deference to a decision the more the trustees’ impartiality can
fairly be questioned” (Van Boxel v. Journal Co. Employees’
Pension Trust, 836 F.2d 1048, 1053 (7th Cir. 1987)). By ex-
panding the judicial inquiry in the face of obvious “danger
signals,” this more elastic standard seeks to avoid the more
absurd results that may occur if the decisions of blatantly
biased administrators are examined under the arbitrary and
capricious standard. See, e.g., Blau v. Del Monte Corp., 748
F.2d 1348, 1353 (9th Cir. 1984), cert. denied, 474 U.S. 865
(1985) (employer’s denial of benefits “made in the course of :
and could have been infected by,” its flagrant and wholesale
violations of ERISA).

At the outset, it is unclear what is meant by a “flexible”

arbitrary and capricious standard, if it is not the imposi-

as mandatory subjects of collective bargaining and establishes a frame-
work for arms’-length negotiation between employers and employees.

2° See, e.g., Van Boxel, 836 F.2d at 1053 (“careful judicial scrutiny”
appropriate when company-appointed trustees denied a pension claim
that was predicated on the claimant’s years of work for an adversary
union); Dockray v. Phelps Dodge Corp., 801 F.2d at 1152 (less deference
due to a company administrator’s denial of benefits to employees in-
volved in a long and unusually bitter strike against the company); Jung v.
FMC Corp., 755 F.2d at 711-712 (employer’s denial of severance pay to
the salaried employees of a former division is entitled to “less deference”
because it “avoids a very substantial Outlay”). See also Maggard v.
O'Connell, 671 F.2d 568, 571-572 (D.C. Cir. 1982) (judicial review of
benefit denial requires a “stern hand and flinty eye” when there are
“ ‘danger signals’ rebutting ‘the presumption of agency regularity’ ”).

22

tion of a more rigorous standard of review —in the manner
of the court below — based on existing conflicts of interest.
The Seventh Circuit’s formulation allows the reviewing
court to eliminate deference altogether in some cases. Van
Boxel v. Journal Co. Employees’ Pension Trust, 836 F.2d
at 1052-1053 (when trustees “have a serious conflict of in-
terest, the proper deference to give their decisions may be
slight, even zero,” and the court will interpret the plan
documents for itself). The Ninth Circuit accords “less
deference” when the circumstances of the benefit decision
impose a significant conflict of interest on the plan admin-
istrator. Dockray v. Phelps Dodge Corp., 801 F.2d 1149,
1152 (1986); Jung v. FMC Corp., 755 F.2d 708, 711-712
(1985). Since the propriety of the decision is the issue to
which the standard of review must be applied, it must be
the appearance of such a conflict of interest rather than the
conclusion that a decision resulted from bias that triggers
closer judicial scrutiny. And any presumption of correct-
ness to benefit decisions made in the face of a disincentive
to paying benefits runs the risk of upholding decisions in
which the interests of plan participants and beneficiaries
were sacrificed to the employer’s self-interest.

The inherent nature of the conflict faced by the employ-
er-administrators of unfunded plans entails an unqualified
rule of no deference in cases involving unfunded plans ad-
ministered by employers. Any alternative would sow confu-
sion in the courts and foster inconsistent enforcement of
benefit rights under these plans; principles of contract inter-
pretation are a well-established and clearly-developed body
of law.?!

2! Firestone suggests (Br. 27 n.26) that use of a contract standard of
review would conflict with appellate decisions holding that a jury trial is
not available in ERISA benefit actions. The two issues, however, are
not directly linked. While some courts have observed that a jury trial
may be incompatible with the application of trust principles under
ERISA, and with the arbitrary and capricious standard in particular
(see Berry v. Ciba-Geigy Corp., 761 F.2d at 1006-1007 (4th Cir.); /n re
Vorpahl, 695 F.2d 318, 321 (8th Cir. 1982); Calamia v. Spivey, 632 F.2d
1235, 1237 (Sth Cir. 1980); Wardle, 627 F.2d at 829-830 (7th Cir.)), the

ee oe eee

3
3
4
’
4

Il. FORMER EMPLOYEES WHO WERE PLAN PARTICI-
PANTS ARE ENTITLED TO OBTAIN COPIES OF PLAN
DOCUMENTS UPON REQUEST

The court of appeals also reached the correct result when
it held that Firestone should have provided information
about its employee benefit plans to the three named plain-
tiffs upon request, pursuant to Section 104(b)(4) of ERISA,
29 U.S.C. 1024(b)(4). That provision states that “upon
written request of any participant,” the plan administrator
shall furnish various specified information, including,
among other items, the plan description, the latest annual
report, and “instruments under which the plan is estab-
lished or operated.” 2? Firestone refused to provide infor-
mation about its termination pay plan to two of the named
plaintiffs, Smolinski and Schade, on the ground that they
were no longer Firestone employees when they requested
the information and hence were not “participants” in that
plan. Similarly, Firestone denied Bruch’s request for infor-
mation about its stock purchase plan on the ground that it

principal focus of the jury trial decisions has been on the equitable
nature of the relief sought, not the standard of review involved (see,
e.g., Katsaros v. Cody, 744 F.2d 270, 278 (2d Cir.), cert. denied, 469
U.S. 1072 (1984) (“plaintiffs seek equitable relief in the form of removal
and restitution as distinguished from damages for wrongdoing or non-
payment of benefits”)). In addition, some courts have suggested that a
legal remedy (with a right to jury trial) may exist even under trust law
when the trustee has an immediate and unconditional obligation to pay
all the claimed benefits. See Jn re Vorpahl, 695 F.2d at 322 n.6; Wardle,
627 F.2d at 829 (both citing Restatement (Second) of Trusts § 198(1)).
Whether a jury trial is available in a benefit denial case is not a question
presented here.

?? Section 104(b)(4) provides: “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 an-
nual report, any terminal report, the bargaining agreement, trust agree-
ment, 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.”

24

had paid him his vested interest in the plan and his unvested
interests were forfeited when Occidental purchased the
Plastics Division and he went to work for it. Pet. App.
A71-A72.

Section 3(7), 29 U.S.C. 1002(7), broadly defines “partici-
pant” as “any employee or former employee * * * who is or
may become eligible to receive a benefi: of any type from
an employee benefit plan which covers employees of such
employer.” Contrary to Firestone (Br. 34-37), this language
does not limit participant status to individuals who have a
vested interest in the plan or whose employment status
assures them of future benefits. Firestone confuses partici-
pation in a plan with entitlement to benefits. Moreover, the
Statutory definition specifically includes individuals who
“may become eligible” for benefits. And employees present-
ly covered by a plan are plainly participants even if they
have no legal right to benefits until their interest vests or the
specified contingency for benefit payment actually occurs.

Congress’s inclusion of present and former employees
who are or may become eligible for benefits?} was an effort

?3 There is no basis in the language of Section 3(7) for the Fifth Cir-
cuit’s conclusion that “the ‘may become eligible’ language was intended
to apply only to current employees” (Nugent v. Jesuit High School, 625
F.2d 1285, 1287 (1980); see Jackson v. Sears, Roebuck & Co., 648 F.2d
225, 228 (1981)), a position Firestone endorses (Br. 33 n.30). Since the
Statute provides that “any employee or former employee of an
employer, or any member or former member of an employee organiza-
tion, who is or may become eligible to receive a benefit” is a “partici-
pant,” it is plain that the phrase “may become eligible,” which is
separated by 19 words (including “former employee”) from the word
“employee,” does not relate only to the word “employee.”

The Second and Ninth Circuits have taken the position that a former
employee remains a “participant” if he “may become eligible” for bene-
fits as a result of returning to covered employment in the future. See
Kuntz v. Reese, 785 F.2d 1410, 1411 (9th Cir.), cert. denied, 479 U.S.
916 (1986); Saladino v. ILGWU National Retirement Fund, 754 F.2d
473, 476 (2d Cir. 1985); Weiss v. Sheet Metal Workers Local No. 544
Pension Trust, 719 F.2d 302, 304 (9th Cir. 1983), cert. denied, 466 U.S.
972 (1984). Those courts, however, require that the former employee
demonstrate a “reasonable expectation” or “significant probability” of
returning to work under the plan. That additional burden is not sensible

ss

ge ee

25

to be broadly encompassing in defining the class of plan
“participants.” As a comprehensive remedial statute en-
acted to protect employee benefit rights, ERISA should be
construed liberally to effectuate its purposes. Brink v.
DaLesio, 667 F.2d 420, 427 (4th Cir. 1981); Brock v. Self,
632 F. Supp. 1509, 1520 (W.D. La. 1986); Eaton v.
D’Amato, 581 F. Supp. 743, 746 (D.D.C. 1980). See Ten-
nessee Coal, Iron & R.R. Co. v. Muscoda Local No. 123,
321 U.S. 590, 597 (1944) (legislation protecting the rights of
working people “must not be interpreted or applied in a
narrow, grudging manner”). Thus, we agree with the court
of appeals that the definition of “participant” should be
construed to encompass those who claim eligibility for pres-
ent or future benefits. Any former employee who requests
information about an employee benefit plan in which he
participated because he thinks he might be entitled to bene-
fits must be given the information even if a return to work
for the former employer is not possible.24 As the court of
appeals stated (Pet. App. A41-A42), that is how “partici-
pant” must be read in other provisions of ERISA, such as
Section 502(a)(1)(B), which authorizes participants to bring
suit claiming entitlement to benefits. It is undisputed that
the plaintiffs were authorized to bring suit under Section
502(a)(1)(B) seeking benefits under Firestone’s termination
pay plan because they claimed to be entitled to benefits,
even though the provision authorizes “participants” to

since a former employee may not be able to determine whether it is in
his economic interest to resume his former employment unless he knows
the extent of his rights under the plan. Therefore, in the absence of in-
formation about the plan, it would be impossible to know whether there
was a significant probability that he would attempt to return to his
former employer.

*4 There may be former employees whose claimed entitlements to
benefits have no connection with their past employment. For example,
a former employee who had never participated in a stock plan might re-
quest information about that plan because he thought he might be owed
benefits. None of the present plaintiffs fall in that category, however,
and the Court need not here determine what obligations, if any, would
be owed to such a person.

26

bring suit rather than persons who “claim to be par-
ticipants.”

ERISA’s drafters considered effective communication of
plan contents to affected employees an “important issue” to
be addressed in the Act (S. Rep. 93-127 at 11; H.R. Rep.
93-533 at 8). The drafters found the “generalized” disclo-
sure requirements of the predecessor Welfare and Pension
Plans Disclosure Act (WPPDA) to be “insufficient” and
that “[c]hanges * * * in scope and detail” would be needed
(S. Rep. 93-127 at 27; H.R. Rep. 93-533 at 11).25 The
resulting legislation established “a more particularized form
of reporting” that would enable an individual to know “ex-
actly where he stands with respect to the plan—what
benefits he may be entitled to, what circumstances may
preclude him from obtaining benefits, what procedures he
must follow to obtain benefits, and who are the persons to
whom the management and investment of his plan funds
have been entrusted” (ibid.). Thus, by design, ERISA’s
disclosure requirements supplement the statute’s fiduciary
standards by arming individuals “with enough information
to enforce their own rights as well as the obligations owed
by the fiduciary to the plan in general” (ibid.).

Access to information is at least as important to a former
employee who is unclear about the impact of his change in
employment on current or future benefit rights as it is for
either a current employee or an individual whose rights
have vested. If mandatory disclosure of plan terms and con-

2’ While “participant” was defined by the WPPDA in virtually the
same terms as in ERISA (see Welfare and Pension Plans Disclosure
Act, Pub. L. No. 85-836, § 3(a)(6), 72 Stat. 998 (1958)), the WPPDA’s
disclosure requirements and enforcement provisions applied only to
participants and beneficiaries “covered under the plan” (§§ 5(a), 9(b),
72 Stat. at 999, 1002), thereby providing a limitation not found in Sec-
tions 104(b)(4) and 502(c), the corresponding provisions of ERISA. The
Fifth Circuit based its limited view of ERISA disclosure rights (see note
23, supra)) on its prior decision in Golden v. Kentile Floors, Inc., 512
F.2d 838, 849-850 (1975), which arose under the WPPDA, without
noting the difference in the language or that Congress had found the
WPPDA’s disclosure provisions deficient.

ae iia

27

ditions is as limited as Firestone contends, a Significant
number of workers who have participated in employee bene-
fit plans may forever remain in the dark about their
“stand[ing] with respect to the plan” (S. Rep. 93-127 at 27;
H.R. Rep. 93-533 at 11) solely because of their change in em-
ployment status. Most importantly, those individuals will be
left at the mercy of the plan administrators who, by refusing
to provide requested information based on the administra-
tors’ view of former employees’ rights, can effectively
deprive them of the means of ascertaining for themselves the
extent of their rights and, if necessary, pursuing enforcement
action in the courts. Nothing could be farther from Con-
gress’s intent in enacting ERISA’s disclosure requirements. *°

Firestone contends (Br. 40-42) that a broad reading of
“participant” will impose costly burdens on employee bene-
fit plans. That fear is not justified. In providing that former
employees may obtain information upon request, Section
104(b)(4) expressly provides that administrators may make
a “reasonable charge.” 2’ As to the requirements of Sec-
tions 104(b)(1) and (3), 29 U.S.C. 1024(b)(1) and (3), that
there be periodic distribution of various sorts of informa-
tion, without charge and without request,?* those “auto-

*© Firestone’s contention that there is no need for employers to re-
spond to former employees’ requests for information about employee
benefit plans because they may “obtain a far broader range of informa-
tion in the course of any ensuing litigation” (Br. 42) obviously misses
the mark. Congress enacted Section 104(b) so that an employee would
know “where he stands” (S. Rep. 93-127 at 27: H.R. Rep. 93-533 at 11)
without filing suit.

*’ The Secretary has promulgated a regulation providing that a
charge “is reasonable if it is equal to the actual cost per page to the plan
for she least expensive means of acceptable reproduction, but in no
event "ay such charge exceed 25 cents per page” (29 C.F.R.
2520.104b-30(b)).

?® Section 104(b)(1) requires administrators to provide participants
with a copy of the summary plan description and a summary of any
material modification of the plan terms. Section 104(b)(3) requires ad-
ministrators to send copies of annual statements describing the pian’s
assets and liabilities, along with a summary of the plan’s receipts and
disbursements from the prior plan year.

28

matic” disclosure requirements have been construed by the
Secretary of Labor not to apply to every person defined as a
“participant” by Section 3(7) of the Act.?® By June 1975,
less than a year after ERISA was enacted, the Secretary had
promulgated proposed disclosure regulations and received
comments on them.3® The Secretary noted fears that ad-
ministrators would be required to provide information
“without charge and without written request” to many per-
sons, such as “former employees who had no vested bene-
fits when they left the employment.” 40 Fed. Reg. 24649
(1975). Observing that the language of Section 101(a), 29
U.S.C. 1021(a), which governs the Section 104(b) auto-
matic disclosure requirements, refers not to “participants”
but to “participants covered under the plan,” the Secretary
concluded that “Congress provided a ground for distin-
guishing between the .class of all participants included
within the meaning of section 3(7) of the Act and the class
of participants who are entitled to receive copies of plan
documents without charge and without request” (40 Fed.
Reg. 24649 (1975)).3! The Secretary drew such a distinction
in the regulations. Under 29 C.F.R. 2520.104b-1(c), distri-
bution of plan documents without charge and without re-
quest need only be made to a narrower group of “partici-
pants covered under the plan.” As defined in 29 C.F.R.

29 Moreover, an annual summary report as required by Section
104(b)(3) need not be distributed to participants in a “totally unfunded
welfare plan” such as Firestone’s termination pay plan (29 C.F.R.
2520.104b-10(g)(1)).

30 The Secretary of Labor has authority to prescribe regulations that
“Is}he finds necessary or appropriate to carry out the provisions of [Ti-
tle | of ERISA],” including its reporting and disclosure requirements. 29
1J.S.C. 1135.

3! In Section 502(c\(1), 29 U.S.C. 1132(c)(1), Congress authorized a
penalty of up to $100 per day for failure “to comply with a request tor
any information which such administrator is required by this sub-
chapter to furnish to a participant.” It thus created a penalty for viola-
tions of Section 104(b)(4), involved here, but not for failure to comply
with Section 104(b)’s automatic disclosure provisions, although it pro-
vides for equitable relief (see 29 U.S.C. 1132(a)(3)).

29

2510.3-3(d)(2)(i), an individual ceases to be a participant
covered by a welfare benefit plan when he becomes “ineli-
gible to receive any benefit under the plan even if the con-
tingency for which such benefit is provided should occur”
and he is “not designated by the plan as a participant.”
Thus, plan administrators need not automatically provide
plan documents to former employees whom plan ad-
ministrators determine not to be eligible for benefits.

At the same time that the Secretary narrowed the class of
participants who must be provided information without
charge and without request, he noted that other partici-
pants would be entitled to inspect plan documents pursuant
to Section 104(b)(2), 29 U.S.C. 1024(b)(2), and obtain doc-
uments “upon written request at a reasonable charge under
section 104(b)(4) of the Act and proposed § 2520.104b-30”
(40 Fed. Reg. 24649 (1975)). Indeed, anticipating this case,
the Secretary noted that the broader class of participants —
which he had just noted included former employees like the
three named plaintiffs — would be able to obtain informa-
tion about the plan “in the event of a dispute between an
employee of an employer maintaining the plan and plan of-
ficials as to the employee’s status as a participant covered
under the plan” (ibid.).

The statutory interpretations contained in the Secretary
of Labor’s regulations, adopted contemporaneously with
the legislation, are entitled to “controlling weight” so long
as they are reasonable and not inconsistent with the plain
language of the statute. Chevron U.S.A. Inc. v. NRDC,

*? Firestone misunderstands the regulations when it cites (Br. 35-36)
the definition in Section 2510.3-3(d)(2)(i) in support of its contention
that it did not have to provide information to the three named plain-
tiffs. Under the distinction drawn by the regulations, Firestone was not
required to send them the information described in Section 104(b)(1)
and (3), such as any material change in the terms of the plan, because
they are not “participants covered under the plan.” However, they are
“participants” and are entitled to information upon request pursuant to
Section 104(b)(4) and may enforce that right under Section 502(a)(1)(A)
and obtain the penalty (up to $100 per day) provided in Section
502(c\(1).

30

Inc., 467 U.S. 837, 843-844 (1984); see NLRB v. United
Food & Commercial Workers Union, No. 86-594 (Dec. 14,
1987), slip op. 10 n.20, 12; Udallv. Tallman, 380 U.S. 1, 16
(1965). The narrower regulatory definition of “participants
covered under the plan” to whom automatic disclosure is
required, which the Secretary adopted soon after ERISA
went into effect, is a reasonable accommodation of
ERISA’s competing interests in providing access to infor-
mation, on the one hand, and avoiding excessively burden-
some administrative requirements, on the other. Therefore,
the Third Circuit’s approach to respondents’ requests for
plan information, which is consistent with the Secretary’s
authoritative interpretation of the Act, should be upheld.

CONCLUSION

The judgment of the court of appeals should be af-
firmed.

Respectfully submitted.

CHARLES FRIED
Solicitor General
DONALD B. AYER
Deputy Solicitor General
CHRISTOPHER J. WRIGHT
Assistant to the Solicitor General
GEORGE R. SALEM
Solicitor of Labor
CHARLES |. HADDEN
Deputy Associate Solicitor
JEFFREY A. HENNEMUTH
Altorney
Department of Labor

AUGUST 1988

wy U.S. GOVERNMENT PRINTING OFFICE: 1988— 202-037/60605

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385012_0622%3A11. Public record. Not legal advice.