Amicus Curiae Brief — Curtiss-Wright Corp. v. Schoonejongen

4)

No. 93-1935

IN THE

Supreme Cunt of the United States

OCTOBER TERM, 1993

CURTISS-WRIGHT CORPORATION,

Petitioner,

Vv.

FRANK C. SCHOONEJONGEN, et al.,

Respondents.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Third Circuit

MOTION FOR LEAVE TO FILE BRIEF AMICUS CURIAE

AND BRIEF AMICUS CURIAE OF THE

NATIONAL UNION FIRE INSURANCE COMPANY

OF PITTSBURGH, PA

IN SUPPORT OF THE PETITIONER

ROBERT N. ECCLES

Counsel of Record

KAREN M. WAHLE

O’MELVENY & MYERS

555 13th Street, N.W.

Washington, D.C. 20004

(202) 383-5300

Attorneys for Amicus Curiae

WILSON - EPes PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001

IN THE

Supreme Court of the United States

OCTOBER TERM, 1993

No. 93-1935

CURTISS-WRIGHT CORPORATION,

” Petitioner,

FRANK C. SCHOONEJONGEN, et al.,

Respondents.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Third Circuit

MOTION FOR LEAVE TO FILE BRIEF AMICUS CURIAE

The National Union Fire Insurance Company of Pitts-

burgh, PA (“National Union”) respectfully moves this

Court, pursuant to Rule 36.3, for leave to file the attached

brief amicus curiae in support of the petition for certiorari

in this case. The consent of attorney for the petitioner

has been obtained. The consent of attorney for the re-

spondents has not been obtained.

National Union is one of the largest underwriters in

the United States of insurance covering certain liabilities

arising from claims under the Employee Retirement In-

come Security Act of 1974 (“ERISA”). National Union

has issued a policy which covers certain ERISA-related

liabilities of petitioner Curtiss-Wright Corporation. In

addition, National Union has issued similar policies to

well over a thousand other employee benefit plan sponsors

who may be exposed to liability if the decision below is

not reversed. National Union therefore has a substantial

interest in the outcome of this case. Moreover, the uncer-

tainty engendered by the decision below as to the validity

of current terms of employee benefit plans makes it more

difficult for National Union to underwrite policies of in-

surance that cover ERISA-related liabilities. Unless the

decision below is reversed, this difficulty will either in-

crease the cost or restrict the availability of such insur-

ance, thus harming the companies that sponsor employee

benefit plans and making it less likely that they will con-

tinue to provide such plans.

National Union therefore requests this Court to accept

the attached brief in support of the petition for certiorari

in this case.

Respectfully submitted,

ROBERT N. ECCLES

Counsel of Record

KAREN M. WAHLE

O’MELVENY & MYERS

555 18th Street, N.W.

Washington, D.C. 20004

(202) 383-5300

July 1, 1994 Attorneys for Amicus Curiae

QUESTIONS PRESENTED

1. Does ERISA § 402(b)(3), 29 U.S.C. § 1102(b)

(3), require an employee benefit plan to identify specific

individuals within the sponsoring organization who have

authority to amend the plan, or otherwise require an

amendment procedure more detailed than that contained

in a plan that expressly reserves the sponsor’s right to

amend the plan?

2. Does a procedural noncompliance with ERISA

causing no harm to plan participants—here, the Court of

Appeals held that a plan’s amendment provisions were

insufficiently specific under ERISA § 402(b)(3)—give

rise to a substantive remedy—here, striking an amend-

ment from the plan document to invalidate a termination

of nonvested welfare benefits?

(i)

TABLE OF CONTENTS

QUESTIONS PRESENTED ................------.--c-cc-eceeeeeseeees

TABLE OF AUTHORITIES ......-....-------------sce----seeeee+e0-

INTEREST OF AMICUS CURIAE .............-..--..-0--0--00-00-

SUMMARY OF ARGUMENT .................

A. The Decision Below Creates Conflicts in the

Circuits in Several Respects That Warrant Reso-

lution by This Court ...............

B. The Decision Below Threatens Employers With

Enormous and Unforeseen Liabilities and Thus

Raises an Issue Warranting Review by This

RRS ERRANDS | Leis ee reser ers ab RST Ora

(iii)

Page

iv

iv

TABLE OF AUTHORITIES

Cases

Adams v. Avondale Indus., Inc., 905 F.2d 943 (6th

Cir.), cert. denied, 498 U.S. 984 (1990) ........0...

Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504

| ___* RRSP ESE: RPE OF FERS WOE BO

Berlin v. Michigan Bell Tel. Co., 858 F.2d 1154

SE Goa LD eisentsccnsncenditielisciclibiadensanttbhecisinitntadieins

Biggers v. Wittek Indus., Inc., 4 F.3d 291 (4th Cir.

SE cintiantedsiteicenmnenauntvtiinpaiinanminiale

Cefalu v. B.F. Goodrich Co., 871 F.2d 1290 (5th

cs

Central States v. Central Transport, Inc., 472 U.S.

gg ORE SENS, Sete Seber e OR Lt CAML LR

Central States v. Gerber Truck Serv., Inc., 870

Pe RG CU CR RIOD teccccnetcecennttecsenittrrcntice

Confer v. Custom Eng’g Co., 952 F.2d 34 (8rd Cir.

ERE TE Seaneme Corer ec 0 Se VR RE

Firestone Tire & Rubber Co. v. Bruch, 489 U.S.

101 (1989) ..........................

Harris v. Pullman Standard, Inc., 809 F.2d 1495

0 oS SESS eee

Kreutzer v. A.O. Smith Corp., 951 F.2d 739 (7th

| EER Se erent one ene ONC COO

Kwatcher v. Massachusetts Serv. Employees Pen-

sion Fund, 879 F.2d 957 (ist Cir. 1989) ............

McGann v. H & H Music Co., 946 F.2d 401 (5th

Cir. 1991), cert. denied, 113 S. Ct. 482 (1992) ....

Mertens v. Hewitt Assocs., 113 S. Ct. 2063

RARER et SEES ect ee Ae ETD NP

Moore v. Metropolitan Life Ins. Co., 856 F.2d 488

(2d Cir. 1988) ................

Musto v. American Gen. Corp., 861 F.2d 897 (6th

Cir. 1988), cert. denied, 490 U.S. 1020 (1989)...

Nachwalter v. Christie, 805 F.2d 956 (11th Cir.

BE scnchiinicionii tating

NLRB v. Amaz Coal Co., Div. of Amaz, Inc., 458

U.S. 322 (1981)

Phillips v. Amoco Oil Co., 799 F.2d 1464 (11th Cir.

1986), cert. denied, 481 U.S. 1016 (1987) -........

Page

6,7

5

Vv

TABLE OF AUTHORITIES—Continued

Page

Scarbrough v. Perez, 870 F.2d 1079 (6th Cir.

ID csesicsniiiniinciieiitninahinataethditilias tsiiatiktaitae icant 5

Wise v. El Paso Natural Gas Co., 986 F.2d 929

(5th Cir.), cert. denied, 114 S. Ct. 196 (1993) .... 12

Statutes

Employee Retirement Income Security Act of 1974,

29 U.S.C. §§ 1001 et seq.

§ 3(9), 29 U.S.C. § 1002(9) ............-. en

§ 102(b), 29 U.S.C. § 1022(b) ........................-...

§ 3(1), 29 U.S.C. § 1002(1) -.....2... ee

§ 3(2), 29 U.S.C. § 1002 (2) -_.............- 2.2...

§ 402(b) (3), 29 U.S.C. § 1102 (b) (3) -.........-..... passim

Internal Revenue Code of 1986, 26 U.S.C. §§ 1 et

seq.

§ 401 (a), 26 U.S.C. § 401 (a) ~....000

§ 501 (a), 26 U.S.C. § 501 (a) -...........

oos-

oo

Regulations

re ED dacetnccsienntnisgnenntiienningueeotensticaseiuss 7

Miscellaneous

Employee Benefits Law, A.B.A. Sec. of Labor &

Employment Law (Steven J. Sacher, et al., eds.

TO i aceite ciisiliaiibtali de dauteantetittiitiniaoienen 9

Human Resources Div., U.S. General Accounting

Office, Employer-Based Health Insurance: High

Costs, Wide Variation Threaten System (1992) .. 10, 11,

13

Pension and Profit Sharing 2d (R.1.A. 1992)........ 9

Pension Plan Guide (CCH) (1989) 9

Restatement (Second) of Trusts § 331 (1959) ........ 7,8

Gregory Parker Rogers, Rethinking Yard-Man: A

Return to Fundamental Contract Principles in

Retiree Benefit Litigation, 37 Emory L.J. 1033

(1988) ...... 11

Human Resources Div., U.S. General Accounting

Office, Retiree Health Plans: Health Benefits

Not Secure Under Employer-Based System..........11, 12

Z

be Da ns whl ah, i, sell Dy gl —_— ere —

IN THE

Supreme Court of the United States

OCTOBER TERM, 1993

No. 93-1935

CURTISS-WRIGHT CORPORATION,

y Petitioner,

FRANK C. SCHOONEJONGEN, et al.,

Respondents.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Third Circuit

BRIEF AMICUS CURIAE OF THE NATIONAL UNION

FIRE INSURANCE COMPANY OF PITTSBURGH, PA

IN SUPPORT OF THE PETITIONER

INTEREST OF AMICUS CURIAE

The interest of the amicus curiae is set forth in the

motion accompanying this brief.

SUMMARY OF ARGUMENT

On its surface, the decision below addresses only a

narrow, apparently obscure issue of statutory interpreta-

tion. What a surface look does not reveal, however, is

the sweeping impact of that decision in invalidating the

terms of corporate-sponsored employee benefit plans and

the wave of significant litigation that will be ushered in

by the decision. Because the decision creates a conflict

2

among the circuits and advances a rationale that exposes

corporations that sponsor employee benefit plans to mas-

sive and unforeseen liabilities, review by this Court is

warranted.

Petitioner Curtiss-Wright Corporation maintained a

plan subject to the Employee Retirement Income Security

Act of 1974 (“ERISA”), 29 U.S.C. §§ 1001, et seq., in

order to provide healthcare benefits to retired employees.

(Pet. at 4.) The lower court held that Curtiss-Wright had

properly reserved its right to amend or terminate these

benefits. (Pet. at 13a.) The court also concluded that

Curtiss-Wright had actually amended its plan to eliminate

benefits for retirees of a closed facility. (Pet. at 5a-6a.)

The lower court also held, however, that this plan

amendment was unenforceable because Curtiss-Wright’s

plan failed to satisfy the requirement of ERISA § 402

(b)(3) that a plan “provide a procedure for amending

such plan, and for identifying the persons who have au-

thority to amend the plan”. (Pet. at 7a, lla.) Thus,

despite the conclusion that Curtiss-Wright had exercised

its reserved power to amend, the amendment was invali-

dated, and Curtiss-Wright was held liable to pay over $2

million in benefits as provided under the pre-amendment

plan. (Pet. at 6, 10a-11a.)

The decision below conflicts with decisions from other

Courts of Appeals in several respects and should be re-

versed. Even assuming arguendo that the plan’s govern-

ing document failed to provide an amendment procedure

as required by ERISA § 402(b) (3), the remedy fashioned

by the lower court in this case—invalidation of the amend-

ment—is not one mandated or supported by ERISA’s

remedial scheme. Other circuits faced with similar cir-

cumstances have instead, consistent with established trust

law principles, enforced amendments where it was clear,

as here, that the plan’s sponsor had both the power and

intent to make the amendment.

Resolution of this circuit conflict is particularly impor-

tant in these circumstances because the decision below

3

will engender uncertainty and litigation over the current

validity of almost 20 years of post-ERISA plan amend-

ments and expose plan sponsors to massive liabilities for

benefits that they reasonably believed had been eliminated

or modified by plan amendments now called into question

by the decision. The plan provision authorizing amend-

ments that was found inadequate by the court below is

virtually identical to model language issued by the In-

ternal Revenue Service and contained in numerous form

books used by employee benefits practitioners. The con-

clusion of the court below that this commonplace formula-

tion does not allow enforceable plan amendments presents

an administrative nightmare for plan fiduciaries who must

determine whether plan terms that resulted from amend-

ments are valid and creates an open season for litigation

challenging such amendments.

While the rationale of the decision below applies equally

to all types of ERISA-covered plans, the litigation it is

certain to engender unless reversed would have its greatest

impact on welfare plans, including those that provide

retiree medical benefits of the type at issue in this case.

The efforts of American corporations in recent years to

restrain their employee healthcare expenditures and espe-

cially to rein in their liabilities for retiree medical benefits

have already led to a substantial amount of litigation.

While adopting differing approaches to interpretation of

plan documents, the circuit courts have uniformly held

that welfare benefits—unlike pension benefits which are

required by ERISA to vest according to a fixed schedule

—do not vest but may be terminated or modified by a

plan sponsor that has reserved its right to do so.

The decision below provides a roadmap to litigate

around this non-vesting principle by making it impossible

to have amended a plan to reduce benefits where there

was not technical compliance with the lower court’s inter-

pretation of ERISA § 402(b)(3). While employers may

be able to adapt to this rule on a prospective basis, they

cannot fix the past. Even if a plan’s amendment procedure

4,

te he SR cil

—

,

4

is immediately brought into conformance with the lower

court’s interpretation of ERISA § 402(b)(3) and a plan

is immediately restated to ratify all past amendments, ben-

efit claims arising from events prior to such restatement

would be determined under the pre-restated plan. Thus,

the enforceability of many existing plan terms is placed in

doubt by the decision and can only be resolved through

the litigation which, given that billions of dollars of bene-

fits are potentially at stake, will inevitably ensue. The

predictable result of exposing corporations to massive and

unforeseen liabilities is that corporations will seek to offset

these liabilities by reducing benefit costs in other ways,

thus ultimately harming the plan participants whom

ERISA was intended to protect. To resolve the questions

presented by the petition and avoid this wasteful flood of

litigation, review by this Court should be granted.

ARGUMENT

A. The Decision Below Creates Conflicts in the Circuits in

Several Respects That Warrant Resolution by This Court

Curtiss-Wright promulgated an umbrella plan docu-

ment, labeled the Constitution, which incorporated such

“plan or plans” as Curtiss-Wright “might from time-

to-time adopt.” The Constitution provided that “the Com-

pany” (i.e., Curtiss-Wright) reserved the right to termi-

nate the plan “for any reason at any time” and “at any

time and from time to time to modify or amend, in whole

or in part, any or all of the provisions of the Plan”. (Pet.

at 4a.) Likewise, the Summary Plan Description issued

in 1983, shortly before the challenged amendment in this

case, also expressly preserved Curtiss-Wright’s ability to

modify or terminate the plan “at any time.” (Pet. at Sa-

6a. )

The Court of Appeals, while ruling that Curtiss-Wright

had thus preserved its right to amend the plan’s benefits,

held that the amendment was unenforceable because the

plan did not comply with ERISA § 402(b)(3) and thus

5

could not be validly amended. (Pet. at lla.) The ration-

ale for this conclusion was that reservation of the right

to amend on the part of “the Company” did not provide

adequate identification of either an amendment procedure

or of the “persons who have authority to amend the plan.”

(Pet. at 7a-8a.)*

Assuming arguendo that Curtiss-Wright failed to com-

ply with § 402(b)(3), the holding of the court below

conflicts with holdings of other circuits. As a general

principle, courts have insisted that plan participants’ bene-

fit entitlements be determined solely under the written

terms of the plan.* In that way, all parties affected by

the plan, employers as well as participants, will be able

to rely on the written plan as the definitive statement of

benefits. But the decision below turns this principle on

1 The court’s conclusion that Curtiss-Wright’s reservation of an

amendment right to “the Company” was legally insufficient is

dubious on its face. Since §3(9) of ERISA expressly defines the

term “person” to include a “corporation” and other entities besides

an “individual”, Curtiss-Wright’s designation of itself as, to use

§ 402(b) (3)’s phrasing, the “person” with “authority to amend

the plan” was in compliance with § 402(b)(3). In a variety of

other contexts, courts have recognized what §3(9)’s language

makes plain, i.e., that a “person” need not be an “individual.” See,

e.g., Confer v. Custom Eng’g Co., 952 F.2d 34, 36 (8rd Cir. 1991)

(corporation is a “person” for purposes of ERISA under § 3(9));

Kwatcher v. Massachusetts Serv. Employees Pension Fund, 379

F.2d 957, 960 (1st Cir. 1989) ; Scarbrough v. Perez, 870 F.2d 1079,

1082 (6th Cir. 1989).

2 See, e.g., Cefalu v. B.F. Goodrich Co., 871 F.2d 1290, 1295-97

(5th Cir. 1989); Central States v. Gerber Truck Serv., Inc., 870

F.2d 1148, 1149 (7th Cir. 1989); Nachwalter v. Christie, 805 F.2d

956, 960 (11th Cir. 1986).

8 The sole exception recognized by some courts is where a partici-

pant has reasonably relied to his or her detriment on some au-

thoritative statement not contained in the written plan terms.

See, e.g., Berlin v. Michigan Bell Tel. Co., 858 F.2d 1154, 1158

(6th Cir. 1988) (affirmative misstatements made by corporate

sponsor and relied upon by participants may entitle participants

to those benefits).

6

its head. Although plaintiffs were not entitled to benefits

under the terms of the written post-amendment plan and

made no claim that they had ever been led to believe

otherwise, the lower court nonetheless awarded them

benefits.*

The decision of the court below to award a substantive

remedy, i.e., the pre-amendment benefits, for a violation

of § 402(b)(3) also conflicts with decisions from several

other circuits that a sponsor’s or fiduciary’s procedural

violation of ERISA, absent a showing of bad faith, should

not entitle a participant or beneficiary to an award of

benefits not provided by a plan’s terms.° Indeed, at least

two other Courts of Appeals have resolved the remedy

question presented by the petition directly contrary to the

decision below. Thus, in Adams v. Avondale Industries,

Inc., 905 F.2d 943, 949 (6th Cir.), cert. denied, 498

U.S. 984 (1990), and Biggers v. Wittek Industries, Inc.,

4 F.3d 291, 296 (4th Cir. 1993), the courts declined to

award a substantive remedy for violations of § 402(b) (3)

even where there was no reservation of amendment power

4 Indeed, the problems that the decision causes for plan admin-

istrators are aggravated by the court’s attempt to limit its holding

to amendments “advantageous to the sponsor’s interest”. (Pet. at

lla.) All plan amendments, even ones that increase benefits, are

presumably “advantageous” to the sponsor, or the sponsor would

not make the amendment. Moreover, it is typical for plan amend-

ments both to simultaneously improve and restrict benefits and to

affect different participants differently. For example, an amend-

ment implementing a preferred provider network may provide

greater benefits to participants who use network providers while

lowering benefits to other participants.

5 See, e.g., Kreutzer v. A.O. Smith Corp., 951 F.2d 739, 743

(7th Cir. 1991) (“[{a]n employer’s procedural violations of ERISA

entitle employees to monetary relief only in exceptional cases”) ;

Harris v. Pullman Standard, Inc., 809 F.2d 1495, 1499 (11th Cir.

1987) (“ordinarily, violations of ERISA’s procedural requirements

do not entitle a claimant to substantive relief”).

7

whatsoever. By holding that Curtiss-Wright could not

enforce its amended plan, even though it had expressly

reserved its amendment power in writing, the court below

reached a result that is both ironic and obviously incon-

sistent with the results in Adams and Biggers.

The reason advanced by the court below for iat

a substantive remedy was that this was necessaiy to ef-

fectuate ERISA’s goal of ensuring that participants know

the details of the plan amendment process so that they

may “determine with certainty at any given time exactly

what the plan provides.” (Pet. at 8a.) To the contrary,

however, the way in which participants can determine

what the plan provides is to look at the plan terms, or at

the summary of those terms contained in the Summary

Plan Description (“SPD”), which is the document re-

quired under § 102(b) of ERISA, 29 U.S.C. § 1022(b),

to be distributed to participants. Notably, neither § 102

(b) nor the implementing agency regulations require that

the SPD describe any of the details of the amendment

process that were deemed so critical by the court below.

See 29 C.F.R. § 2520.102-3. Thus, the policy rationale

advanced by the court below for requiring a substantive

remedy is actually inconsistent with, not in furtherance

of, the express disclosure requirements of ERISA.

Moreover, as noted in Biggers, the result reached by

the court below is contrary to principles of trust law. 4

F.3d at 291. This Court has frequently noted that

ERISA’s fiduciary duty provisions derive from trust law

and has referred to trust law in interpreting those provi-

sions (see, e.g., NLRB v. Amax Coal Co., Div. of Amax,

Inc., 453 U.S. 322, 332-34 (1981); Central States v.

Central Transport, Inc., 472 U.S. 559, 570 (1985)),

even as to plans not maintained in trust form. See, e.g.,

Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101,

110-11 (1989). Section 331(1) of the Restatement

—

8

(Second) of Trusts (1959) provides that a “settlor has

power to modify the trust if and to the extent that by the

terms of the trust he reserved such a power.” Comment c

to § 331 is even more explicit as to the situation pre-

sented in this case and states:

Where no method of modification specified. If the

settlor reserves a power to modify the trust but does

not specify any method of modification, the power

may be exercised by any method which sufficiently

manifests his intention to modify the trust.

It is difficult to envision a clearer manifestation of a

plan sponsor’s intent to amend a plan than Curtiss-Wright’s

promulgation and distribution of amended plan terms.

Accordingly, under the trust law principles embodied in

the Restatement, Curtiss-Wright’s amendment should have

been enforced. Because the decision below disregards

these principles which have been properly applied by other

circuits and also conflicts with decisions from other cir-

cuits in other respects, review by this Court should be

granted.

B. The Decision Below Threatens Employers With Enormous

and Unforeseen Liabilities and Thus Raises an Issue

Warranting Review by This Court

The significance of the circuit split is accentuated in

this case because the decision below is likely to lead to a

flood of litigation, especially involving, although by no

means limited to, health benefit provisions of welfare

plans. By exposing employers to the enormous costs and

potential liabilities of such litigation, the decision will

ultimately lead these employers to restrain their benefit

costs in other ways, to the detriment of plan participants.

Employee benefit plans under ERISA are categorized

as pension plans or welfare plans. ERISA § 3(1),(2),

29 U.S.C. § 1002(1), (2). With limited exceptions, pen-

sion plans pay their benefits from trusts established to

9

qualify for the favorable tax treatment afforded by sec-

tions 401(a) and 501(a) of the Internal Revenue Code,

26 U.S.C. §§ 401(a), 501(a), and major plan amend-

ments are routinely submitted to the Internal Revenue

Service for advance determinations that the plan, as

drafted, will qualify for this treatment. Employee Bene-

fits Law, A.B.A. Sec. of Labor & Employment Law 462

(Steven J. Sacher, et al., eds. 1991). Given the need for

formality in drafting pension plan and trust documents

and the routine practice of requesting governmental re-

view, pension plan documents are typically drafted and

reviewed by counsel or other benefits professionals and

are thus more likely to comply with all of ERISA’s for-

mal requirements.

Even as to carefully drafted pension plans, however,

there is good reason to doubt whether many plans have

complied with the interpretation of § 402(b)(3) adopted

by the court below. Prototype plan documents approved

by the Internal Revenue Service for use by institutional

designers of tax-qualified pension plans, such as banks

and insurance companies, contain amendment language

essentially identical to that found inadequate by the court

below. 7 Pension and Profit Sharing 2d (R.1.A. 1992)

at 140,569. Likewise, model plan documents offered by

major commercial services also offer language no more

specific than that used by Curtiss-Wright. See, e.g., Pens.

Plan Guide (CCH) (1989) at 4 30,070 (sample amend-

ment provision of model defined benefit pension plan).

Although pension plans that incorporated any of these

model provisions may now be vulnerable to suit as to past

amendments, the problem is even more widespread for

welfare plans. Benefits under the vast majority of welfare

plans are not funded through trusts but are typically paid

directly from corporate assets or insurance policies. Thus,

welfare plans as a rule are much more casually and less

formally documented than pension plans and are less

likely to be drafted by benefits professionals. Moreover,

10

the terms of some welfare plans, such as health plans,

typically change annually as companies negotiate new ar-

rangements in an attempt to stretch their benefit dollars.

Given the relative informality of welfare plan documenta-

tion and the frequency with which amendments occur in

such plans, these plans are especially susceptible to suit

under the rationale of the decision below.°

In recent years, the normal practice of frequent amend-

ments to corporate welfare benefit plans has accelerated

due to the national surge in healthcare costs.’ A 1992

study by the General Accounting Office (“GAO”) showed

that health expenditures “have been the most rapidly

growing component of employee compensation” and “es-

calated at more than twice the general inflation rate dur-

ing the late 1980’s”. See Human Resources Div., U.S.

General Accounting Office, Employer-Based Health In-

surance: High Costs, Wide Variation Threaten System 4

(1992) (“1992 GAO Report”). In order to control their

healthcare spending, employers have, according to the

GAO, focused on “benefit plan design” as “the first fac-

tor a firm will alter to control rising costs.” Jd. at 10.

Among the numerous design changes most frequently im-

plemented by plan sponsors to control costs are the shift-

ing of costs to employees through increased deductibles,

copayments, and employees’ share of premiums; cost-

sharing incentives, including managed care arrangements

that give financial incentives to participants to use net-

® Indeed, the facts of this case reflect a sequence and documenta-

tion typical of corporate health plans. Curtiss-Wright successively

contracted with different insurance carriers. Each insurance carrier

provided somewhat different coverage, which resulted in a new

SPD being issued to describe each plan change. (Pet. at 3a.)

7 Although healthcare benefit plans are the most widespread type

of welfare plan, other types of welfare benefits—including sever-

ance, disability, and life insurance—are also commonly provided by

ERISA-covered plans. Plans providing these types of benefits also

tend to be informally documented and to be amended frequently

and are thus also heavily impacted by the decision below.

11

works of preferred providers; and cutbacks or elimination

of coverage, including coverage for retired employees. /d.

at 10-11.

These healthcare plan design changes can only be ac-

complished by plan amendments now called into question

by the decision below. The enormous magnitude of the

financial exposure to plan sponsors from the decision be-

low can be seen by focusing on the type of change at is-

sue in this case, cutbacks in retiree health benefits, which

is only one of the numerous plan design changes identi-

fied by the 1992 GAO Report.

In a 1993 study, the GAO estimated the liability of

American corporations to pay health benefits to retired

former employees and their dependents at a staggering

$412 billion. Human Resources Div., U.S. General Ac-

counting Office, Retiree Health Plans: Health Benefits Not

Secure Under Employer-Based System 2 (1993) (“1993

GAO Report”). Numerous private studies have estimated

this liability to be much higher, even as high as $2 tril-

lion. See Gregory Parker Rogers, Rethinking Yard-Man:

A Return to Fundamental Contract Principles in Retiree

Benefits Litigation, 37 Emory L.J. 1033, 1036 n.10 (1988)

(collecting studies). Plan sponsors’ recognition of the

magnitude of these liabilities has been accentuated by the

issuance of Financial Accounting Standard No. 106:

Employers’ Accounting for Postretirement Benefits Other

Than Pensions (1990) (“FAS 106”), which, effective

December 15, 1992, required companies that are sub-

ject to financial reporting requirements to recognize these

liabilities on their balance sheets on an accrual basis,

rather than the then-prevalent pay-as-you-go (cash) basis

method.

Not surprisingly, then, companies’ attempts to limit,

modify, or terminate these benefit plans have occurred

with increasing frequency. Five studies reviewed by GAO

reported that from 42 percent to 93 percent of the em-

ployers surveyed had changed their retiree health benefit

12

plans over the past few years to contain costs or to de-

crease FAS 106 liability, and three of these studies re-

ported that 33, 35, and 100 percent of the employers

were considering future changes. The most frequent

changes made by employers are to raise retiree premium

contributions, deductibles and copayments, tighten eligi-

bility requirements, eliminate certain covered services, and

shift to managed care programs. See 1993 GAO Report

at 3 & App. Il.

Equally unsurprisingly, these corporate attempts to

control or eliminate retiree healthcare costs have fre-

quently resulted in litigation. The circuit courts, although

differing somewhat in their interpretive approaches, have

consistently held that these benefits—because they are

welfare, not pension, benefits—do not vest as a matter of

law but may be amended if the sponsor has reserved the

amendment power.* Indeed, many of the decisions that

have upheld amendments to such benefits have involved

amendment clauses with wording very close to that used by

Curtiss-Wright. See, e.g., Wise v. El Paso Natural Gas Co.,

986 F.2d 929, 933 (Sth Cir.) (“Company reserves the

right to alter, amend, delete, cancel or otherwise change the

plan or any of the provisions of the plan at anytime

[sic]”), cert. denied, 114 S. Ct. 196 (1993); Musto v.

American Gen. Corp., 861 F.2d 897, 903 (6th Cir.

1988) (“[I]nsurance coverage . . . may be amended or

discontinued at any time”), cert. denied, 490 U.S. 1020

(1989); Moore v. Metropolitan Life Ins. Co., 856 F.2d

488, 490, 492 n.1 (2d Cir. 1988) (“[t]he Company re-

serves the right at any time to change or discontinue this

[plan]”).

8 See, e.g., McGann v. H & H Music Co., 946 F.2d 401, 405-07

(5th Cir. 1991), cert. denied, 118 S. Ct. 482 (1992); Phillips v.

Amoco Oil Co., 799 F.2d 1464, 1471 (11th Cir. 1986) (“ERISA

simply does not prohibit a company from eliminating previously

offered benefits that are neither vested nor accrued”), cert. denied,

481 U.S. 1016 (1987).

13

By holding that Curtiss-Wright’s amendment language

is inadequate to support an amendment of retiree benefits,

the decision below provides an obvious litigation route

for plaintiffs around the non-vesting principle established

by the circuit courts in these retiree health cases and in

numerous other cases involving other types of welfare

benefit plans. In the short run, the liabilities arising from

the decision, unless it is reversed, will fall on the corpora-

tions which sponsor these plans and which now find them-

selves liable under plan provisions they thought had been

amended. The ultimate cost, however, would be borne

by other plan beneficiaries as corporations eliminate or

otherwise curtail other benefits to compensate for these

increased liabilities.’ As this Court has previously recog-

nized, the costs of unanticipated liabilities under ERISA

frequently fall “upon ERISA plans themselves” thus de-

feating the statutory goal of promoting and expanding

plan coverage. Mertens v. Hewitt Assocs., 113 S. Ct.

2063, 2072 (1993), citing Alessi v. Raybestos-Manhat-

tan, Inc., 451 U.S. 504, 515 (1981). To avoid this re-

sult and to protect plan sponsors from liabilitics they

could not have foreseen prior to the decision below, re-

view should be granted.

* This reduction of benefits by plan sponsors in response to in-

creased plan cost is not theoretical but has been empirically ob-

served. See 1992 GAO Report at 10. In an attempt to control

overall health spending, plans have tended to first eliminate or limit

family coverage, retiree coverage, or covered services and to limit

coverage for specific conditions. Jd. at 10-11.

a

14

CONCLUSION

For the foregoing reasons, the Court should grant the

petition and review the decision below.

Respectfully submitted,

ROBERT N. ECCLES

Counsel of Record

KAREN M. WAHLE

O’MELVENY & MYERS

555 13th Street, N.W.

Washington, D.C. 20004

(202) 383-5300

July 1, 1994 Attorneys for Amicus Curiae