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

No. 93-1935

ee

IN THE _

Supreme Court of the United States

OCTOBER TERM, 1994

CURTISS-WRIGHT CORPORATION,

Petitioner,

V.

FRANK C. SCHOONEJONGEN, ef ai.,

Respondents.

On Writ of Certiorari to the United States

Court of Appeals for the Third Circuit

BRIEF OF THE NATIONAL UNION FIRE INSURANCE

COMPANY OF PITTSBURGH, PA

AS AMICUS CURIAE IN SUPPORT OF 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

Counsel for Amicus Curiae

BEST AVAILABLE. COPY

TABLE OF CONTENTS

TABLE OF AUTHORITIES ................ il

INTEREST OF AMICUS CURIAE............ l

SUMMARY OF ARGUMENT ............... 2

EO ee eee 4

I. Curtiss-Wright Did Not Violate § 402(b)(3)

ES a

II. Assuming Arguendo That § 402(b)(3) Was

Violated, the Remedy Chosen by the Court

Below Was Not Warranted ............ 18

as dia bby 64-60 0:0 0a 06 00 46 6 25

TABLE OF AUTHORITIES

Cases Page

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

(6th Cir.), cert. denied, 498 U.S. 984 Se 19, 24

Albedyll v. Wisconsin Porcelain Co. Revised Retirement

Plan, 947 F.2d 246 (7 Cee. TIPE) ccecasescccens 24

Amato v. Western Union Int'l, Inc., 773 F.2d 1402

(2d Cir. 1985), cert. dismissed, 474 U.S. 1113

(3 re 12, 14

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

ke || 8

Biggers v. Wittek Indus., Inc., 4 F.3d 291 (4th Cir. 1993) .. 24

Bongiorno v. Associates in Adolescent Psychiatry,

17 Employee Benefits Cas. (BNA) 1847

GUD. Gh. GB) oc 00s cbseeeeen cee 15

Carroll v. Primerica Financial Servs. Ins. Marketing,

811 F. Supp. 1558 (N.D. Ga. 1992) .............. 15

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

(Si Cir. 1DGD) . .. . . os 0.0.0: 04h 8

Central States, Southeast & Southwest Areas Pension

Fund v. Gerber Truck Serv., Inc., 870 F.2d 1148

Ut SP er RE 8

Central States, Southeast & Southwest Areas Pension

Fund v. Central Transport, Inc., 472 U.S. 559

(ISGS) wc ccscecedeccescenees 16

iii

TABLE OF AUTHORITIES -- continued

Confer v. Custom Eng'g Co., 952 F.2d 34

ee ccc cece eccees 5

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

EE 15, 16, 22

Frank v. Colt Indus., Inc., 910 F.2d 90 (3d Cir. 1990) .... 24

Gable v. Sweetheart Cup Co., 1994 U.S. App. LEXIS

25008 (4th Cir. Sept. 13, 1994) .............000. 14

Gordon v. Barnes Pumps, Inc., 999 F.2d 133

PERSE GES sks ccccccccccccccces 14

Gulf Life Ins. Co. v. Arnold, 809 F.2d 1520

ee cece ccc ccccccccccccs 22

Hozier v. Midwest Fasteners, Inc., 908 F.2d 1155

EE 12, 21

In re Gulf Pension Litig., 764 F. Supp. 1149

(S.D. Tex. 1991), aff'd sub nom. Borst v.

Uhevron Corp., 1994 U.S. App. LEXIS 19473

OC ccc esc cece cess 15

In re Unisys Corp. Retiree Medical Benefits ERISA

Litig., 18 Employee Benefits Cas. (BNA) 1257

EES Dies sees ecccccccccs 14

In re White Farm Equipment Co., 788 F.2d 1186

Daa Lb dled acide ccccoccccs 14

Izzarelli v. Rexene Prods. Co., 24 F.3d 1506

EE ae binianan 12

iv

TABLE OF AUTHORITIES -- continued

Kleinhans v. Lisle Savings Profit Sharing Trust, 810

Funes CO GD SEED hv couveobvcivibetesees 19

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

Gran es GNU ar en bes scdebweweiecewe sk 642% 19

Kwatcher v. Massachusetts Serv. Employees Pension

Fund, 879 F.2d 957 (1st Cir. 1989) ............... 5

Lewandowski v. Occidental Chemical Corp., 986 F.2d

Soe GD GU ON be Voce deeberebiccecece 19

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

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

GD os0c vcdawebs deena duets oa 21

Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S.

i TE ee ee ne nw ee re 21

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

PT eer ee re ae 14, 21

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

(6th Cir. 1988), cert. denied, 490 U.S. 1020

Ge ves. 2veeveunaa eéeeetesecacee< 12, 14

Nachwalter v. Christie, 805 F.2d 956 (11th Cir. ae 8

Reynolds v. Stahr, 758 F. Supp. 1276 (W.D. Wis. 1991) ... 22

Scarbrough v. Perez, 870 F.2d 1079 (6th Cir. 1989) ....... 5

Shaw v. Delta Air Lines, Inc., 463 U.S. 85 (1983) ....... 10

Simmons v. Diamond Shamrock Corp , 844 F.2d 517

Gs GR. GE 6. 0k ons Kn cene decdctietiensciel 19

Vv

TABLE OF AUTHORITIES -- continued

Transamerica Occidental Life Ins. Co. v. DiGregorio,

811 F.2d 1249 (9th Cir. 1987) ......... 20.0.0. 22

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

| (Sth Cir.), cert. denied, 114 S. Ct. 196 (1993) ....... 14

Statutes

Employee Retirement Income Security Act of 1974,

29 U.S.C. §§ 1001 ef seq.

§ 3(9), 29 U.S.C. § 100219)... 2... eee eee eee 5

§ 102(aX(1), 29 U.S.C. § 1022(aX1) ... 2... 0.000. 9, 10

§ 102(b), 29 U.S.C. § 1022(b) ..........0. 000 9, 13

§ 104(a\1)B), 29 U.S.C. § 1024(aX1X(B) ......... 13

§ 104(aX1XC), 29 U.S.C. § 1024(aX1KC) ......... 13

§ 104(b), 29 U.S.C. § 1024(b) .... 0.2... eee eee 13

§ 104(b(1), 29 U.S.C. § 1024(bX1) ..... 2.0.0. 10, 13

§ 104(b(2), 29 U.S.C. § 1024(bX2) ... 2.2... 11, 12

§ 104(b\(4), 29 U.S.C. § 1024(bM4) ... 0.0.0. 1

§ 201(1), 29 U.S.C. § 1051(1) .. 22.2... cece eee. 20

§ 402(a), 29 U.S.C. § 1102(a) ............... passim

§ 402(b), 29 U.S.C. § 1102(b) ... 1... ee eee eee 18

vi

TABLE OF AUTHORITIES -- continued

§ 402(b\(1), 29 U.S.C. § 1102001) .............. 18

§ 402(b(2), 29 U.S.C. § 1102(bx2) .............. 18

§ 402(b\3), 29 U.S.C. § 1102(bX3) ........... passim

§ 402(b\(4), 29 U.S.C. § 1102(bK4) .... 0.0... 18

§ 404(a(1), 29 U.S.C. § 1104(aX1) .............. 21

§ 404(aX1(D), 29 U.S.C. § 1104(aX1\D) ....... 11, 21

§ 502(a(1)(B), 29 U.S.C. § 1132(aX1XB) ......... 22

§ 502(c\(1), 29 U.S.C. § 1132(cX1) ..... 2.6... i

Legislative History

H.R. 2 (as passed in House), 93d Cong., 2d Sess. (1974)

GR site ick Gia) wares bie i ace 16

H.R. Conf. Rep. No. 1280, reprinted in 1974 U.S. Code

Cong. & Admin. News 5038 ................. 8, 12

H.R. Rep. No. 93-807, reprinted in 1974 U.S. Code Cong.

© AR TE ii 9.5 60 ks Da wekidsdadds oi 21

H.R. Rep. No. 93-533, reprinted in 1974 U.S. Code Cong.

Rsv kd chbid vacanvocets 10

Regulations

a CER. 6 RU MBG...0 0 0 i'sidae edinesei see & 13

* ypu Been es Yelk wats ails pete,

vii

TABLE OF AUTHORITIES -- continued

eee 13

Miscellaneous

American Heritage Dictionary of the English Language

eee cree eS dno ak us Gkcé sce caves 6

ERISA: The Law and the Code (Paul F. Albergo ed., 1994). 16

Human Resources Div., U.S. General Accounting Office,

Employer-Based Health Insurance: High Costs, Wide

Variation Threaten System (92-125) (1992) ......... 17

Human Resources Div., U.S. General Accounting Office,

Retiree Health Plans: Health Benefits Not Secure Under

Employer-Based System (93-125) (1993) ...... 16, 17, 22

Restatement (Second) of Trusts § 331 (1959) ..... 16, 23, 24

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1994

No. 93-1935

CURTISS-WRIGHT CORPORATION,

Petitioner,

V.

FRANK C. SCHOONEJONGEN, ef al.,

Respondents.

On Writ of Certiorari to the United States

Court of Appeals for the Third Circuit

BRIEF OF THE NATIONAL UNION FIRE INSURANCE

COMPANY OF PITTSBURGH, PA

AS AMICUS CURIAE IN SUPPORT OF PETITIONER

INTEREST OF AMICUS CURIAE

The National Union Fire Insurance Company of Pitts-

burgh, PA ("National Union") is one of the largest underwrit-

ers in the United States of insurance covering certain liabili-

ties arising from claims under the Employee Retirement

Income Security Act of 1974 ("ERISA"). National Union has

issued a policy which covers certain ERISA-related liabilities

of petitioner Curtiss-Wright Corporation ("Curtiss-Wright").

In addition, National Union has issued similar policies to well

over a thousand other employee benefit plan sponsors which

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 uncertainty

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 insurance that cover

ERISA-related liabilities. Unless the decision below is

reversed, this difficulty will either increase the cost or restrict

the availability of such insurance, thus harming the compa-

nies that sponsor employee benefit plans and making it less

likely that they will continue to provide such plans.'

SUMMARY OF ARGUMENT

The Court of Appeals held that Curtiss-Wright had

expressly reserved its power to make amendments to its

employee welfare benefit plan. The court also held, however,

that a plan amendment eliminating plaintiffs’ retiree health

benefits was invalid because, in the court’s view, the plan

lacked an amendment procedure which satisfied § 402(b)(3)

of ERISA, 29 U.S.C. § 1102(b)(3).

Section 402(b)(3) does not require the detailed amend-

ment procedure envisioned by the Couri of Appeals. To the

contrary, all § 402(b)(3) requires is that plan sponsors which

want to maintain their power to amend rlans reserve the

' This brief is filed with the consent of the parties. Their

letters of consent have been filed with the Clerk of the Court with

this brief.

power to do so, thus alerting plan participants that future

amendments could modify their current benefits. The

statutory purpose identified by the Court of Appeals of

ensuring that all parties involved with an employee benefit

plan be able to determine the plan’s terms with certainty is

already amply served by § 402(a)’s requirement that the plan

be maintained in writing and is frustrated by the court’s

holding invalidating the written terms of an amended plan.

Even if the Court of Appeals were correct in its reading

of § 402(b)(3), the remedy it upheld -- an award of the very

benefits intended to be eliminated by the plan amendment --

is unwarranted. Regardless of how the perceived violation of

§ 402(b)(3) is characterized, it did not, by itself, detrimental-

ly affect participants whose benefits would still have been

eliminated even if the plan had fully complied with the

court’s reading of § 402(b)(3). The appropriate result when

a procedural violation relating to an amendment has occurred

is, as trust law principles provide, to give effect to the

amendment where, as here, the sponsor’s intent to amend has

been clearly manifested and the amendment is not prohibited

by the plan instrument.

Because the Court of Appeals erred both in finding a

violation of § 402(b)(3) and in awarding a substantive

remedy for such a violation, its judgment to that effect should

be reversed.

ARGUMENT

I. Curtiss-Wright Did Not Violate § 402(b)(3) of ERISA

This litigation arose from Curtiss-Wright’s decision, an-

nounced in November 1983, to close a plant in Wood-Ridge,

New Jersey. (Pet. App. 34.) Consistent with the terms of its

health benefit plan for retirees, as set out in a 1983 Summary

Plan Description ("SPD"), health benefits for non-bargaining

unit employees who had retired from the Wood-Ridge plant

were discontinued once the plant closed. (Pet: App. 4a-6a.)

This lawsuit followed.

The District Court held that the 1983 SPD constituted an

amendment to Curtiss-Wright’s plan (Pet. App. 36a) and this

issue was not presented to the Court of Appeals. Although

the Court of Appeals held that Curtiss-Wright had reserved

the power to make such an amendment and it was undisputed

that this amendment was in writing, the court held that the

amendment was unenforceable because the Curtiss-Wright

plan lacked an amendment procedure as required by § 402

(b)(3) of ERISA. (Pet. App. 10a, 13a-14a.)

Section 402(b)(3) states:

(b) Every employee benefit plan shall . . .

(3) provide a procedure for amending such plan, and

for identifying the persons who have authority to

amend the plan.

The Court of Appeals held that Curtiss-Wright had expressly

reserved its power to amend the plan by stating in various

documents, including the Constitution that served as an

umbrella document for all of Curtiss-Wright’s benefit plans,

that "the Company reserves the right 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. App. 4a.) The court

held, however, that the Curtiss-Wright plan lacked the

amendment procedure required by § 402(b)(3), thus rendering

the 1983 amendment unenforceable. (Pet. App. lla.) The

court concluded that the reservation clause in the Constitution

satisfied neither of the two requirements of § 402(b)(3), i.e.,

that the plan provide an amendment procedure and a proce-

dure for identifying the persons with authority to make

amendments. (Pet. App. 7a-8a.)

As to the second of these requirements, the court clearly

erred by holding that identification of the "Company" was not

a sufficient identification of "persons" with amendment

authority. (Pet. App. 8a.) Section 3(9) of ERISA, 29 U.S.C.

§ 1002(9), expressly defines the term "person" to include a

"corporation" and other entities in addition to an "individual."

Thus, Curtiss-Wright was not, as the court suggested,

required by § 402(b)(3) to identify the actual "individuals or

bodies within the Company" (Pet. App. at 8a) who would

make the amendment decision for the "Company."’ Its

designation of the "Company" was sufficient to comply with

the statute.

2 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 (3d Cir. 1991) (corporation is a "person" for purposes of

ERISA under § 3(9)); Kwatcher v. Massachusetts Serv. Employees

Pension Fund, 879 F.2d 957, 960 (ist Cir. 1989); Scarbrough v.

Perez, 870 F.2d 1079, 1082 (6th Cir. 1989).

As to the first requirement of § 402(b)(3) -- that the plan

"provide a procedure for amending such plan" -- the reserva-

tion of amendment power in the Constitution was also

sufficient. Placing the amendment power in the "Company"

by itself creates an amendment procedure, i.e., that the "Com-

pany" would take whatever corporate actions were necessary

in order to exercise its amendment authority. While an

amendment procedure may spell out those steps if the plan’s

sponsor so desires, nothing in ERISA suggests a reason why

§ 402(b)(3) must or should be read to require such detail.

A procedure is "[a] manner of proceeding; a way of

performing or effecting something." American Heritage

Dictionary of the English Language 1444 (3d ed. 1992).

Without question, Curtiss-Wright had a "procedure" in this

sense for amending its plan. Curtiss-Wright "proceeded" to

amend its plan by having the amendment approved by

company officials and inserted in the written document

governing the plan. This procedure was based on and

bounded by two different sets of legal requirements: the state

corporate law requirement that the "Company" act in an

authorized manner sufficient to bind the corporation and

ERISA’s requirement, contained in § 402(a), that amended

plan terms, like all other plan terms, be incorporated in the

written instrument pursuant to which the plan is established

and maintained. By authorizing the "Company" to amend the

plan, the plan Constitution necessarily required that the

Company act in an authorized fashion and effect its amend-

ments in writing.

The Court of Appeals rejected this construction of

§ 402(b)(3) on the grounds that it would render the "require-

ments of § 402(b)(3) essentially meaningless."’ (Pet. App.

8a.) That conclusion, however, rested entirely on the court’s

assumption that "[a] primary purpose of § 402(b)(3) is to

ensure that all interested parties will know how a plan may

be altered. . . . Only if they know this information will they

be able to determine with certainty at any given time exactly

what the plan provides." /d.

In divining this "primary purpose" of § 402(b)(3), the

court cited to no authority in the statute, legislative history,

or elsewhere evidencing such a purpose. Obviously, the

written plan requirement of § 402(a) serves the statutory pur-

pose associated by the court with § 402(b)(3) of letting "all

interested parties . . . determine with certainty at any given

time exactly what the plan provides." (See Pet. App. 8a.)

Indeed, the court’s phrasing of this statutory purpose tracks

closely the legislative history’s description of § 402(a), not

§ 402(b)(3), as permitting an employee to "determine exactly

> The court’s conclusion dealt inconsistently with the two

requirements of § 402(b\(3). As to the second of these require-

ments -- that the plan "provide a procedure . . . for identifying the

persons who have authority to amend the plan" -- the court appar-

ently concluded that it would have been sufficient to specifically

identify the persons with amendment authority without also setting

forth separately a written "procedure" for such identification. As

to the first requirement, however, the court found it insufficient

that Curtiss-Wright actually engaged in a process that produced a

written amendment and required that this process be described in

a written "procedure".

what his rights and obligations are under the plan."* Recog-

nizing the importance of certainty to all "interested parties"

-- i.€., to plan sponsors and administrators as well as plan

participants and beneficiaries -- the lower courts have

consistently held that plan benefit entitlements must be deter-

mined solely under the terms of the plan.°

The lower court’s interpretation of § 402(b)(3), however,

disserves, not advances, this statutory purpose of certainty as

it casts doubt on the reliability of the written plan instrument.

Rather than looking solely at the plan’s provisions, interested

parties would have to investigate further to determine which

provisions had resulted from amendments and whether each

amendment had been promulgated in compliance with the

plan’s amendment procedure. As to any amendments

* H.R. Conf. Rep. No. 1280, 93d Cong., 2d Sess. 297

(1973) (hereinafter "Conference Report"), reprinted in 3 Senate

Subcomm. on Labor, Legislative History of ERISA 4518, 4564

(Comm. Print 1976) (hereinafter "Legislative History") and in 1974

U.S. Code Cong. & Admin. News 5038, 5077-78.

* See, e.g., Cefalu v. B.F. Goodrich Co., 871 F.2d 1290,

1295-97 (Sth Cir. 1989); Central States, Southeast & Southwest

Areas Pension Fund v. Gerber Truck Serv., Inc., 870 F.2d 1148,

1149 (7th Cir. 1989); Nachwalter v. Christie, 805 F.2d 956, 960

(11th Cir. 1986). The sole exception recognized by some courts

is where a participant has reasonably relied to his or her detriment

on some authoritative statement not contained in the written plan.

See, e.g., Berlin v. Michigan Bell Tel. Co., 858 F.2d 1154, 1163-

64 (6th Cir. 1988) (affirmative misstatements made by corporate

sponsor and relied upon by participants may entitle participants to

those benefits). This Court need not address any of these grounds,

which are not at issue before the Court.

revealed to be the product of a defective procedure, the

question would then have to be resolved whether the amend-

ment was, in the phrase used by the court below, "advanta-

geous to the sponsor’s interest" (Pet. App. | la, n.5), and thus

unenforceable, or whether it fell into some other category that

perhaps rendered it enforceable despite its procedural

deficiency.® Thus, the court’s reading of § 402(b)(3) actual-

ly undermines the certainty purpose embodied in § 402(a).

The importance of § 402(a)’s requirement that a plan be

maintained in writing is confirmed by ERISA’s provisions

requiring disclosure to plan participants. While Curtiss-

Wright followed the not uncommon practice of letting a

single document do double duty as both an SPD and a plan

document, many plans publish SPDs that are separate from,

and merely summarize, the more detailed terms of the plan

instrument created in compliance with § 402(a).’ Only the

® The Court of Appeals’ attempt to limit its holding to

amendments "advantageous to the sponsor’s interest" has no basis

in the statute and is itself meaningless. All plan amendments, even

ones that increase benefits, are presumably "advantageous" to the

sponsor, or the sponsor would not make the amendment. More-

over, it is common for plan amendments both to simultaneously

improve and restrict benefits and to affect different participants

differently. For example, an amendment implementing a preferred

provider network may provide greater benefits to participants who

use network providers while increasing deductibles and copayments

for other participants who choose not to use the network.

? — Although §§ 102(aX1) and (b) contemplate that the SPD

will be a readable summary of the plan’s provisions, nothing in

ERISA precludes a plan from combining the plan instrument and

SPD into a single document.

10

SPD, not a separate plan document, is required to be distrib-

uted to participants. See § 104(b)(1), 29 U.S.C.

§ 1024(b)(1). Moreover, although plan administrators are

required to distribute updated SPDs every five years to reflect

plan amendments and summaries of material modification

("SMMs") more frequently to reflect material plan changes

(see §§ 102(a)(1), 104(b)(1)), the required distribution need

not be made simultaneously with the plan modifications. To

the contrary, balancing the participants’ need for disclosure

with the cost burdens on plan sponsors, Congress enacted

§ 104 of ERISA which requires only that SMMs be distribut-

ed within 210 days after the end of the plan year in which

the modification was made. See § 104(b)(1).* Thus, to take

the extreme case, a plan amendment made effective at the

beginning of one plan year need not be disclosed in an SMM

until nineteen months later; even for a year-end amendment,

a seven-month delay could ensue.

* Because ERISA does not require employers to provide any

benefit plans, Congress balanced its desire to regulate plans exten-

sively against the danger that increased regulation would deter

employers from creating plans in the first place. Although ERISA

was Clearly "designed to promote the interests of employees and

their beneficiaries in employee benefit plans," Shaw v. Delta Air

Lines, Inc., 463 U.S. 85, 90 (1983), the statute was also drafted to

“minimize[ }" the "adverse impact" of "cost increases" imposed on

employers by the tougher regulation. H.R. Rep. No. 93-533, 93d

Cong., Ist Sess. 1, reprinted in 2 Legislative History 2348 and in

1974 U.S. Code Cong. & Admin. News 4639. Thus, Congress

analyzed "all of the provisions in [ERISA] . . . on the basis of their

Projected costs in relation to the anticipated benefit to the employ-

ee participant." Jd. at 4639-40.

ll

Most employers, of course, do not operate their business-

es by keeping employees in the dark about significant

changes affecting their benefits. ERISA’s provisions, in any

event, protect against such conduct. The statutory provisions

which primarily ensure that participants have access to

contemporaneous information about plan terms without any

gap resulting from delayed distribution of an SPD or SMM

are § 104(b)(2) and § 402(a). Section 104(b)(2) requires that

the plan administrator make available for inspection by

participants certain specific documents, including "instru-

ments under which the plan was established or is operated."”

Because § 402(a) requires that the plan terms be reflected in

a written instrument, those terms are available to participants

for contemporaneous inspection under § 104(b)(2)."° The

purpose identified by the Court of Appeals as "a primary

purpose" of § 402(b)(3) is instead fully served by the

combination of § 402(a) and § 104(b)(2). Or, as the legisla-

tive history of § 402(a) phrases it: "A written plan is to be

* In addition, § 104(b)(4) requires a plan administrator, upon

written request of any participant or beneficiary, to furnish a copy

of these same documents or else risk penalties for noncompliance

in an action brought under § 502(c\1).

© Despite § 402(a)’s singular reference to a plan "instru-

ment," § 104(b)(2) makes clear that there may be multiple

"documents" and "instruments" governing a plan. See also

§ 404(aX 1D), 29 U.S.C. § 1104(aX 1D) ("a fiduciary shall

discharge his duties . . . in accordance with the documents and

instruments governing the plan"). Once a written plan amendment

is effected it becomes such a governing document; even if it has

not yet been incorporated into a restated plan document, it is

available for inspection under § 104(b)(2).

_ li ——

12

required in order that every employee may, on examining the

plan documents, determine exactly what his rights and obliga-

tions are under the plan." Conference Report at 297.

Section 402(b)(3) does not add significantly to the

protection afforded participants under § 402(a). To be sure,

some disclosure function may be served by spelling out in the

plan instrument exactly what steps a sponsor must follow in

order to amend a plan and alerting participants who are

searching for amendments that have not yet been incorporated

into written plan instruments, SPDs or SMMs exactly what

form the. written amendment took. The benefit of such

disclosure is slight, if any, since under § 104(b)(2) the

participant can already examine the written plan terms,

including the amendment. Moreover, the details of how a

corporation goes about amending a plan is not information

which participants are likely to find useful. The lower courts

have consistently held that employers, even if they otherwise

occupy fiduciary positions in the administration of plans, do

not act as fiduciaries when they amend a plan; rather, like the

settlor of a trust, they are free to design and amend plans in

their own interests as long as the terms do not violate any

other provisions of ERISA or other federal jaw.'' Given the

'' See, e.g., Izzarelli v. Rexene Prods. Co., 24 F.3d 1506,

1524 (Sth Cir. 1994) ("an employer that decides to terminate,

amend, or renegotiate a plan does not act as a fiduciary, and thus

cannot violate its fiduciary duty, provided that . . . the amendment

does not otherwise violate ERISA or the express terms of the

plan,” citing Hozier v. Midwest Fasteners, Inc., 908 F.2d 1155,

1160-61 (3d Cir. 1990) (emphasis omitted)); Musto v. American

Gen. Corp., 861 F.2d 897, 912 (6th Cir. 1988), cert. denied, 490

U.S. 1020 (1989); Amato v. Western Union Int'l, Inc., 773 F.2d

13

lack of a fiduciary-beneficiary relationship arising from the

plan amendment process, there is no obvious reason why plan

participants would want to know the details of an amendment

procedure in which they play no part, as long as they know

the result.

Indeed, the conclusion that participants do not need to

know the details of a plan’s amendment process was shared

by the drafters of the statutory and regulatory disclosure

requirements. Section 104(b) imposes a requirement on a

plan administrator to prepare and distribute both a plan

description and an SPD." Notably, none of the information

required by the statute to be disclosed in these documents

relates to a plan’s amendment procedure. Likewise, although

the implementing regulation promulgated by the Department

of Labor provides for even greater and more detailed types

of disclosure, the information described in § 402(b)(3)

relating to the plan amendment procedure is not among the

items required to be disclosed. See 29 C.F.R. § 2520.102-3.

1402, 1416-17 (2d Cir. 1985), cert. dismissed, 474 U.S. 1113

(1986).

'2 Section 102(b) contemplates the preparation of a plan

description and a summary plan description containing identical

information. Both documents are required to be filed with the

Secretary of Labor (see §§ 104(aX1)(B), (C)), but only the SPD is

distributed to participants (see § 104(b\(1)). Recognizing the sub-

stantial duplication between the plan description and SPD, the

Department of Labor has granted regulatory relief which permits

both requirements to be satisfied by a single document, which is

generally referred to as an SPD. See 29 C.F.R. § 2520.104a-2.

14

Given the absence of express disclosure requirements

relating to § 402(b)(3), it is not surprising that model plan

documents widely used by employee benefit practitioners,

including prototype plan documents published by the Internal

Revenue Service, contain amendment language essentially

identical to that in the Curtiss-Wright plan Constitution."

'S See Pet. at 8-9; Amicus Brief of the National Union Fire

Insurance Company of Pittsburgh, PA in Support of the Petitioner

at 9. Likewise, numerous judicial decisions have involved

amendments of plans which contain similar language without

suggesting that this language did not satisfy § 402(b\(3). See, e.g.,

Gable v. Sweetheart Cup Co., 1994 U.S. App. LEXIS 25008, *5

(4th Cir. Sept. 13, 1994) ("Maryland Cup Corporation reserves the

right to modify, change or terminate the medical coverage for

retirees at any time in the future"); Gordon v. Barnes Pumps, Inc.,

999 F.2d 133, 135 (6th Cir. 1993) ("the Company reserves the

right to modify, suspend or terminate the Plan, at any time and for

any reason"); Wise v. El Paso Natural Gas Co., 986 F.2d 929, 933

(Sth Cir.) ("[t]he Company reserves the right to alter, amend,

delete, cancel or otherwise changes the plan or any of the provi-

sions of the plan at anytime [sic]"), cert. denied, 114 S. Ct. 196

(1993); Musto v. American Gen. Corp., 861 F.2d at 903 ("the

Company does, as it always has, reserve the right to change the

Plan and, if necessary, discontinue it"); Moore v. Metropolitan Life

Ins. Co., 856 F.2d 488, 490 (2d Cir. 1988) ("[t]he Company

reserves the right at any time to change or discontinue this

[plan]"); Jn re White Farm Equipment Co., 788 F.2d 1186, 1189

(6th Cir. 1986) ("the Company does reserve the right to change the

plans, and, if necessary, discontinue them"); Amato v. Western

Union Int'l, Inc., 773 F.2d at 1418 ("the Company does reserve the

right to change or even terminate the Plan"); Jn re Unisys Corp.

Retiree Medical Benefits ERISA Litig., 18 Employee Benefits Cas.

(BNA) 1257, 1274 (E.D. Pa. 1994) ("[t]he Company reserves the

right to amend or terminate this Plan at any time in its sole discre-

ee, ee | hfe

15

Thus, the language used by Curtiss-Wright does not represent

some unique instance of careless plan drafting but is instead

a formulation of the amendment power that is commonly in

use throughout the country.

The fact that plan amendments are so common itself

suggests two other purposes for § 402(b)(3), both of which

were served by Curtiss-Wright’s language. First, the pres-

ence of such language in a plan document at least alerts

participants to the possibility that an amendment can be made

by "the Company," thus simultaneously warning them, in the

case of welfare benefits, that those benefits are not vested and

alerting them that they may wish to examine all plan docu-

ments in order to determine their current rights with certain-

ty. Second, it ensures that the plan sponsor has retained,

unless it chooses not to do so, the power to make amend-

ments to the plan.

As this Court has noted, ERISA "abounds with the

language and terminology of trust law," Firestone Tire &

Rubber Co. v. Bruch, 489 U.S. 101, 110 (1989), and many

tion"); Bongiorno v. Associates in Adolescent Psychiatry, \7

Employee Benefits Cas. (BNA) 1847, 1848 (N.D. III. 1993) ("[t]he

corporation reserves the right to change any policy or benefit");

Carroll v. Primerica Financial Servs. Ins. Marketing, 811 F. Supp.

1558, 1560-61 (N.D. Ga. 1992) ("[t]he Corporation reserves the

right to modify, revoke, suspend, terminate, or change any or all

policies and procedures, in whole or in part, at any time, with or

without notice"); Jn re Gulf Pension Litig., 764 F. Supp. 1149,

1187 (S.D. Tex. 1991) ("[t]he Company reserves the right to

modify or amend the Plan, in whole or in part"), aff'd sub nom.

Borst v. Chevron Corp., 1994 U.S. App. LEXIS 19473 (Sth Cir.

Oct. 21, 1994).

re aw . . z ‘ > = es eee ee

16

ERISA provisions are drawn from trust law concepts. /d.;

see also Central States, Southeast & Southwest Areas Pension

Fund v. Central Transport, Inc., 472 U.S. 559, 570-71

(1985). Section 402(b)(3) is one of those provisions. At

trust law, a settlor of a trust has power to modify the trust

only to the extent that power is reserved in the trust instru-

ment. See Restatement (Second) of Trusts § 331(1) (1959).

Section 402(b)(3) requires a specification of that amendment

power and of any limits placed on that power.'* The twenty

years since ERISA’s enactment have demonstrated the

wisdom of retaining amendment flexibility as employers have

scrambled to amend their plans to comply with waves of new

legislation'’ and to adjust to economic forces such as the

'* Indeed, although the legislative history of § 402(b)(3) is

scant, it also suggests a Congressional concern that flexibility to

amend be preserved. The House version of the bill that went into

Conference and became ERISA gave a plan administrator authority

to amend a plan "(except with respect to contribution rates) where

such an amendment is necessary to meet the requirements of this

title or where such an amendment is necessary to protect the inter-

ests of the participants." H.R. 2 (as passed in House), 93d Cong.,

2d Sess. § 111(a)(1) reprinted in 3 Legislative History 3898, 3947-

48. Although the concept of having a fiduciary make amendments

disappeared in the final bill, § 402(b\(3) evidences the concern to

preserve amendment power.

'* See Human Resources Div., U.S. General Accounting

Office, Retiree Health Plans: Health Benefits Not Secure Under

Employer-Based System 5 (93-125) (1993) (hereinafter "1993 GAO

Report"); see also ERISA: The Law and the Code v-ix (Paul F.

Albergo ed., 1994).

: Le i ded See ae a kN

ra %

——- ee. Wee ait tan Sell

i

17

national explosion in health care costs." A principal pur-

pose served by § 402(b)(3) under these circumstances has

been the inclusion in plans of provisions reserving amend-

ment rights on behalf of plan sponsors and disclosing to

participants that amendments may occur."

In short, a holding that Curtiss-Wright’s amendment

language was in compliance with § 402(b)(3) would give

meaning to the provision by recognizing the purposes it

serves, not render it meaningless. The conclusion reached by

the court below, in contrast, is not required by the language

of § 402(b)(3), does not serve the certainty purpose identified

by the court, and renders unlawful plan provisions that have

been widely used and endorsed by the Internal Revenue

Service and treated as effective by numerous other courts

since the enactment of ERISA in 1974. Accordingly, it

should be reversed by this Court.

'© See 1993 GAO Report at 12-16; see also Human Resourc-

es Div., U.S. General Accounting Office, Employer-Based Health

Insurance: High Costs, Wide Variation Threaten System 4 (92-125)

(1992).

17 "In general, employers may make changes in their plans

as long as they have reserved the right to do so. According to the

benefit consultants we contacted, virtually all employers have re-

served their right, in some fashion, to change their health benefit

plans." 1993 GAO Report at 6.

18

II. Assuming Arguendo That § 402(b)(3) Was Violated,

the Remedy Chosen by the Court Below Was Not

Warranted

Assuming arguendo that the Court of Appeals was correct

in determining that a violation of § 402(b)(3) occurred, the

remedy awarded -- a declaration that the plan amendment

promulgated by Curtiss-Wright was unenforceable and,

consequently, that plaintiffs were entitled to benefits under

the pre-amendment plan -- was unwarranted for several

reasons.

First, as discussed supra at p. 7, the real criticism made

by the Court of Appeals was not that Curtiss-Wright lacked

some "procedure", i.e., "manner of proceeding" to amend its

plan document; a method did exist by which the amendment

was accomplished. Rather, the perceived defect was that this

procedure was not spelled out to the court’s satisfaction in

the written instrument required under § 402(a). It is difficult

to imagine that an award of benefits would be the appropriate

remedy for the failure of a plan to comply with any of the

other provisions required or permitted by other subsections of

§ 402(b), i.e., a funding policy (§ 402(b)(1)), an allocation of

fiduciary responsibilities (§ 402(b)(2)), or a specification of

the basis of payments made to a plan (§ 402(b)(4)). The

same should be true as to a violation of the remaining

subsection, § 402(b)(3).

Even if the violation of § 402(b)(3) is characterized as

the failure to have a "procedure," not merely to set forth the

procedure in writing, an award of benefits is still not the

appropriate remedy. Courts have consistently refused to

award substantive remedies for "procedural" violations,

‘ 19

especially where no substantive harm or detrimental reliance

had resulted from the procedural failure.'* Here, there is no

claim that a failure to have an amendment procedure itself

caused any harm to participants; if the procedure had fully

complied with the court’s conception of § 402(b)(3), the

participants would have been in no better, or even different,

situation than resulted from the actual amendment process

used by Curtiss-Wright. The 1983 amendment would still

have eliminated their benefits.

Moreover, the award of a substantive remedy cannot be

justified by the statutory purpose of § 402(b)(3) as identified

by the Court of Appeals. Far from producing certainty, the

lower court’s remedy would presage a litigator’s dream and

a practical nightmare for all of the parties connected to

employee benefit plans. Participants and beneficiaries could

never rely on a plan’s terms as describing their benefit

entitlements. Given the frequency with which employee

benefit plans have been amended in response to statutory

changes and other concerns (see supra notes 15, 16), they

would be foolish to do so.

Plan sponsors could presumably deal prospectively with

the decision below by formalizing and particularizing their

‘8 See, e.g., Lewandowski v. Occidental Chemical Corp., 986

F.2d 1006, 1008-09 (6th Cir. 1993); Kreutzer v. A.O. Smith Corp.,

951 F.2d 739, 743 (7th Cir. 1992); Adams v. Avondale Indus., Inc.,

905 F.2d 943, 949 (6th Cir.), cert. denied, 498 U.S. 984 (1990);

Simmons v. Diamond Shamrock Corp., 844 F.2d 517, 524-25 (8th

Cir. 1988); Kleinhans v. Lisle Savings Profit Sharing Trust, 810

F.2d 618, 621-22 (7th Cir. 1987).

20

plan amendment procedures.'? They could not, however, fix

the past; even if a plan’s amendment procedure were immedi-

ately brought into conformance with the lower court’s

interpretation of § 402(b)(3) and a plan were immediately

restated to ratify all past amendments, benefit 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 below

and can only be resolved through the litigation which, given

that billions of dollars of benefits are potentially at stake,

would inevitably ensue. The unanticipated costs of providing

past benefits which employers thought had been modified or

eliminated by plan amendments now deemed to be ineffective

under the decision below would be staggering, not to mention

the concomitant legal and administrative expenses to be

suffered by corporations, large and small.

Moreover, by holding that Curtiss-Wright’s amendment

language was inadequate to effect an amendment, the

decision below provides an obvious litigation route to avoid

Congress’ intent that welfare benefits do not vest. See

§ 201(1), 29 U.S.C. § 1051(1) (ERISA’s vesting require-

ments do not apply to employee welfare benefit plans).

Congress declined to require vesting of welfare benefits,

19

A large portion of the employee benefit plan universe,

however, involves insured plans in which the plan sponsor’s role

in amending the plan is usually limited. Typically, the insurance

policy itself as issued by the insurer is the only plan instrument,

and the plan is amended via a written policy endorsement from the

insurer which is accepted by the employer’s payment of a premi-

um. Exactly how these plans would cope with the decision below

is another mystery that would only be resolvable through litigation.

vee te eh ee Pe Te ae iene eet gt ede gn

ae

21

recognizing that this requirement "would seriously complicate

the administration and increase the cost of plans whose

primary function is to provide retirement income." H.R. Rep.

No. 93-807, 93d Cong., 2d Sess. 60, reprinted in 2 Legisla-

tive History 3180 and in 1974 U.S. Code Cong. & Admin.

News 4670, 4726. Instead, Congress intended employers to

be free to create, modify, or terminate the terms and condi-

tions of welfare benefit plans as inflation, changes in medical

practice and technology, and the costs of treatment dictate.

Moore v. Metropolitan Life Ins. Co., 856 F.2d at 492; see

also Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S.

724, 732 (1985) (ERISA "does not regulate the substantive

content of welfare-benefit plans"). Lower courts have

uniformly recognized this principle, refusing to vest welfare

benefits in the absence of an intent to do so. McGann v. H.

& H. Music Co., 946 F.2d 401, 405-07 (Sth Cir. 1991), cert.

denied, 113 S. Ct. 482 (1992); Hozier v. Midwest Fasteners,

Inc., 908 F.2d at 1160.

Also at risk from the decision below, but for different

reasons, would be the fiduciaries charged with plan adminis-

tration who owe statutory duties to act in accordance with

plan terms (see § 404(a)(1)(D)) but also to act "solely in the

interest" of plan participants and beneficiaries (see

§ 404(a)(1)). Like the other interested parties, they too

would need to examine more closely the procedural propriety

of past plan amendments and perhaps take affirmative steps

22

to establish the validity of plan provisions through actions for

declaratory relief.”

These effects on plan parties are not the product of a

doomsday scenario but are readily predictable. As litigation

explodes and benefit costs surge, employers would, as they

have in the past, react by cutting benefits and their attendant

costs in other respects.”' Thus, while past participants and

beneficiaries might gain unanticipated benefits from the

decision below, future participants and beneficiaries would

pay for those benefits, as well as their attendant litigation and

other expenses. Certainty in plan administration and elimina-

tion of unnecessary expenses that discourage employers from

maintaining plans -- two recognized objectives of the

Congress that enacted ERISA -- would be among the

casualties.

20 This course of action itself is not without uncertainty.

Although, as this Court noted in Firestone Tire & Rubber Co. v.

Bruch, 489 U.S. 101, 108 (1989), § 502(aX1)(B) of ERISA allows

a participant or beneficiary to sue "to obtain a declaratory judg-

ment of future entitlement to benefits under the provisions of the

plan contract," a number of lower courts have held that ERISA

does not authorize a cause of action by a fiduciary for such relief.

See Transamerica Occidental Life Ins. Co. v. DiGregorio, 811 F.2d

1249, 1252-53 (9th Cir. 1987); Gulf Life Ins. Co. v. Arnold, 809 .

F.2d 1520, 1523 (11th Cir. 1987) ("Gulf Life’s declaratory judg-

ment action simply is unnecessary to further the statute’s pur-

pose"); Reynolds v. Stahr, 758 F. Supp. 1276, 1280-81 (W.D. Wis.

1991).

21 See 1993 GAO Report at 3 & App. II.

23

The court below also justified its remedy by a perceived

need to deter violations of § 402(b)(3). Thus, the court

stated that not to award a substantive remedy "would place

those who violate § 402(b)(3) by including no procedure for

amendment in a plan in a better position than those who

comply with that requirement and would thereby discourage

employers from complying with § 402(b)(3)." (Pet. App.

lla.) If, however, deterrence is the remedial goal, it is ill-

served by an award of benefits in this case since there is no

need to deter an employer which adopted a plan amendment

provision endorsed by the IRS and commonly used by other

employers.

Moreover, the court’s distinction between non-complying

employers who require a deterrence remedy and complying

employers who do not is a misleading one. Rather, as the

court’s discussion makes clear, its comparison is between

employers which do not have an amendment procedure that

satisfies § 402(b)(3) and employers which have a satisfactory

procedure but then fail to comply with it. These latter

employers have not violated § 402(b)(3) but instead have

violated the terms of the plan. Thus, the distinction in

remedy identified by the Court of Appeals relates to non-

complying employers in two different circumstances. As

discussed below, however, that distinction is a logical one,

well-recognized in trust law.

Under trust law, a settlor has the power to modify the

trust if and to the extent that he reserved such a power by the

terms of the trust. If the settlor does not by the terms of the

trust reserve a power to alter or amend or modify it, he has

no power to do so. Restatement (Second) of Trusts § 331.

ee Oe a es ee ee =_ rar” yr” = - -” _——- 2

24

The settlor may reserve a power to alter the trust in any

way he sees fit, or he may reserve a power to modify it only

in some particular way. If the settlor reserved the power to

modify the trust using only a particular method, or placed

any other limitation on the right to amend, those restrictions

must be obeyed; any attempt to modify the trust which

exceeds the limitations placed on the amendment power by

the terms of the trust will be deemed a nullity. See id. cmt.

d. This rule has been carried over into ERISA by decisions

holding that amendments made in violation of plan terms are

ineffective. See Albedyll v. Wisconsin Porcelain Co. Revised

Retirement Plan, 947 F.2d 246, 255 (7th Cir. 1991); Frank

v. Colt Indus., Inc., 910 F.2d 90, 98 (3d Cir. 1990).

This case, however, does not involve a violation of limits

placed on a plan’s amendment procedure by the terms of the

plan itself. At trust law, where the settlor reserved a power

to amend and placed no limits on that power, the power is

considered unlimited and may be exercised by any method

which sufficiently manifests an intention to modify the trust.

See Restatement (Second) of Trusts § 331 cmt. c. This rule

too has been recognized in ERISA cases in which courts have

upheld amendments clearly intended by a plan sponsor but

made to plans which, much more clearly than in this case,

did not comply with § 402(b)(3) because they contained no

reservation of an amendment power whatsoever. See Adams

v. Avondale Indus., Inc., 905 F.2d 943, 949 (6th Cir.), cert.

denied, 498 U.S. 984 (1990); Biggers v. Wittek Indus., Inc.,

4 F.3d 291, 296 (4th Cir. 1993).

The rules established by trust law and the decisions in

Adams and Biggers, which conflict with the decision of the

25

Court of Appeals in this case, make sense. A plan provision

that places limits on the amendment power must be followed.

Where a plan contains no such limits, however, the sponsor’s

intent to amend should be given effect, especially where any

procedural violation of § 402(b)(3) had not caused substan-

tive harm to participants. The sponsor in that case is not

receiving "better" treatment than in the former case; different

remedies are merely being tailored to different situations. By

ignoring these differences and invalidating the Curtiss-Wright

amendment, the Court of Appeals erred, and its decision

should be reversed.

CONCLUSION

For the foregoing reasons, this Court should reverse the

judgment of the Court of Appeals to the extent it holds

Curtiss-Wright liable for plaintiffs’ benefits.

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

Counsel for Amicus Curiae

November 8, 1994