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

Supreme Court brief1994

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No. 93-1935 — on

IN THE :

Supreme Court of the United States

OCTOBER TERM, 1994

CURTISS-WRIGHT CORPORATION,

Petitioner.

Vv.

FRANK C. SCHOONEJONGEN, ef ai..

Respondents.

ON WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE THIRD CIRCUIT

BRIEF OF AMICI CURIAE ERISA INDUSTRY

COMMITTEE; ASSOCIATION OF PRIVATE PENSION

AND WELFARE PLANS; ALLIED-SIGNAL, INC.;

DEL MONTE CORPORATION; HEUBLEIN, INC.;

INVESCO, INC.; PEPSICO, INC.; AND

RJR NABISCO, INC.

IN SUPPORT OF PETITIONER

STEVEN J. SACHER

Counsel of Record

SUSAN A. CAHOON

DAVID PICKLE

KILPATRICK & CODY

700 13th St., N.W.

Suite 800

Washington, D.C. 20005

(202) 508-5840

Counsel for Amici Curiae

~'BEST AVAILABLE COPY Simmman

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QUESTIONS PRESENTED

B Does section 402(b)(3) of ERISA, 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?

2. Does 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 section 402(b)(3) -- give rise to a

substantive remedy -- here, striking an amendment from the

plan document to invalidate a termination of non-vested

welfare benefits?

TABLE OF CONTENTS

TABLE OF AUTHORITIES................ ii

STATEMENT OF INTEREST ............... 1

~~ SEC ec cceeevcccecoscccccce 3

DT SES bGseesccccsccccccces 3

B. Summary Statement Of Facts And

CT os ccccccccccccccces 6

DETTE be sbccccescccccccccs 9

SUMMARY OF ARGUMENT .............. 12

PEPE CEE gece sccecccceccce 14

A. CW’s Reservation Of Rights Provided A

Statutorily Sufficient Procedure ......... 14

B. CW’s Procedure Identified The "Person"

With Authority To Amend The Plan ..... 18

C. Ab Initio Invalidation Of The 1983

Amendment Was A Wholly Inappropriate

Remedy And Contrary To Established

Principles Of Trust Law .............. 20

DEE SE cece ceccccocccecccccs 25

TABLE OF AUTHORITIES

Cases Page

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

(6th Cir.), cert. denied, 498 U.S. 984 (1990) .... 21

Albedyll v. Wisconsin Porcelain Co. Rev. Ret.

Plan, 947 F.2d 246 (7th Cir. 1991) ..........-. 22

Alday v. Container Corp. of America,

906 F.2d 660 (11th Cir. 1990),

cert. denied, 498 U.S. 1026 (1991) ..........-. 11

Arizona Governing Comm. v. Norris,

463 U.S. 1073 (1963) ow ccc ccccccccvcvcces 25

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

(Ate Cle. 1993) .ncccccccccccccscccees 20, 21

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

(36 Giz. TOBE) wc ccccccccseccccescecceess 19

Deibler v. United Food and Commercial Workers’

Local Union 23, 973 F.2d 206

(346 Cle. 199E) . nc ccccedcvcccesvoecess 21, 22

Firestone Tire and Rubber Co. v. Bruch,

409 UG. 101 CITED cccccccccsccccsccccecs 19

Florida v. Long, 487 U.S. 223 (1988) .........- 25

Cases Page

Frank v. Colt Industries, Inc., 910 F.2d 90

(3d Cir. 1990), reh’g and reh'g en banc

a a ee 22

Godwin v. Sun Life Assur. Co., 980 F.2d 323

ERG re 24

Harsch v. Eisenberg, 956 F.2d 651 (7th Cir.),

cert. denied, 113 S. Ct. 61 (1992) ............ 24

Howe v. Varity Corp., 896 F.2d 1107

i See ee iw es bese 566 006 ees 0s 11

Hozier v. Midwest Fasteners, Inc.,

908 F.2d 1155 (3d Cir. 1990) ............... 17

Huber v. Casablanca Indus., Inc., 916 F.2d 85

(3d Cir. 1990), cert. dismissed,

BU le ee POPUP EEED ccc cccccccccccccs 8, 14

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

(7th Cir. 1991), reh’g en banc denied,

1992 U.S. App. LEXIS 2092 (7th Cir. 1992) .... 24

Los Angeles Dept. of Water & Power v. Manhart,

MP PE -csudcbeecccececceces 25

) Lowen v. Tower Asset Mgmt., Inc., 829 F.2d 1209

SE SE ae ee 19

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

(Sth Cir. 1991), cert. denied,

ES re 3

Cases Page

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

UD. 6 6.0: Ween en Hele ees dale dibs cc eke ee 3

Moore v. Metropolitan Life Ins. Co.,

856 F.2d 488 (2d Cir. 1988) .............. 4, 11

Murphy v. Keystone Steel & Wire Co.,

850 F. Supp. 1367 (C.D. Ill. 1994) ...... 22, 23, 26

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

(6th Cir. 1988), cert. denied,

ee ee a as os kOe ew's wt 11, 17

Nachman Corp. v. PBGC, 446 U.S. 359 (1980) .... 3

Nationwide Mut. Ins. Co. v. Darden,

Bee Oe Ue PED o ccuc cd ccucbcoces cos 18

Phillips v. Amoco Oil Co., 799 F.2d 1464

(11th Cir. 1986), cert. denied,

Re 17

Plotkin v. Bearings, Lid., 777 F. Supp. 1105

IG TI et oh ie ea ak ee Bis we 24

Rodriguez-Abreu v. Chase Manhattan Bank,

N.A., 986 F.2d 580 (Ist Cir. 1993) ........... 24

Ryan v. Chromalloy American Corp.,

S77 F.26 Fe Gs Ge. TET) ccc cccccccccce 17

Cases Page

United Paperworkers Int’l Union, Local 14 v.

International Paper Co., 777 F. Supp. 1010

DEP Sc oes seb eeoceerescescceces 24

United States v. T.I.M.E.-D.C., Inc.,

381 F. Supp. 730 (W.D. Va. 1974) ........... 17

Wise v. El Paso Natural Gas Co.,

986 F.2d 929 (Sth Cir.), cert. denied,

Se Ce ED eS eeebscsccccccss 4,9, 11

Statutes

Employee Retirement Income Security Act of 1974,

as amended, 29 U.S.C. § 1001 ef seq.

§ 3(1)-3(3), 29 U.S.C. § 1002(1)-1002(3) ......... 9

§ 3(9), 29 U.S.C. § 100219) ............0005- 18

§ 3(14)(B), 29 U.S.C. § 1002(14)(B) ........... 19

§ 3(16), 29 U.S.C. § 1002(16) ............... 20

ccc cc ees 8

§ 101(aX(1), 29 U.S.C. § 1021(aX(1) ............ 12

§ 104(b)(3), 29 U.S.C. § 1024(bY(3) ........... 12

§ 104(b)(4), 29 U.S.C. § 10244) ........... 12

§ 105(a) 29 U.S.C. § 1025(a) ................ 12

De UNIO MUUNEED 0... ccc ccc eees 9

os ccc ccccceccses 9

SE Me cece c cc cccccses 9

§ 204(g), 29 U.S.C. § 1054(g) ............... 26

§ 402(a), 29 U.S.C. § 1102(a) ..........--26-- 12

§ 402(b), 29 U.S.C. § 1102(6) .............-. 15

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

Statutes Page

§ 403(c)(1), 29 U.S.C. § 1103(c)(1) ............

§ 403(d)(2), 29 U.S.C. § 1103(d)(2) ...........

§ 406(a), 29 U.S.C. § 1106(a) ..............4...

§ 502(a)(3), 29 U.S.C. § 1132(ay(3) ............

§ 502(c)(1), 29 U.S.C. § 1132(cM1) ............

§ 4001-4071, 29 U.S.C. § 1301-1371 ............

§ 4021(a)(1), 29 U.S.C. § 1321(ay(l) ............

§ 4201-4402; 29 U.S.C. § 1381-1461 ............

Regulations and Administrative Authorities

BP Cia © Bees CUD Ce Se dewececccces

Letter from D.M. Kass, Asst. Sec’y.,

Dept. of Labor, to J.N. Erlenborn,

13 Pens. Rep. (BNA) 472 (March 17, 1986).....

Revised IRS List of Required Modifications,

20 Pens. Rep. (BNA) Special Supp. No. 13,

Ga GU > EE Sa Neb ebSeddbecccccs

IRS Defined Contribution Listing of Required

Modifications, 21 Pens. Rep. (BNA)

Special Supp. No. 14, S-43 (April 4, 1994) .....

IRS Regional Prototype, 21 Pens. Rep. (BNA)

Special Supp. No. 23, S-59 (June 6, 1994) ......

Legislative Materials

Omnibus Budget Reconciliation Act of 1993,

Pub. L. No. 103-66 § 13212(a)(1),

1993 U.S.C.C.A.N. (107 Stat.) 312,471 .....

H.R. Rep. No. 553, 93d Cong., Ist Sess. 11,

reprinted in 1974 U.S.C.C.AN. 4639 .......

Other Authority

Boris I. Bittker & Martin J. McMahon, Jr.,

Federal Taxation of Individuals,

WORE EEE ce cccccteeerevcccosveces

General Accounting Office, Employee Benefits:

Extent of Companies’ Retiree Health Coverage

PP SUED cots ccceeercecesveces

Joseph S. Piacentini & Jill D. Foley,

EBRI DATABOOK on Employee Benefits 188

MP PPETI TT TET

IN THE

Supreme Court of the United States

OCTOBER TERM, 1994

No. 93-1935

CURTISS-WRIGHT CORPORATION,

Petitioner,

Vv.

FRANK C, SCHOONEJONGEN, ef ai.,

Respondents.

ON WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE THIRD CIRCUIT

BRIEF OF AMICI CURIAE ERISA INDUSTRY

COMMITTEE; ASSOCIATION OF PRIVATE PENSION

AND WELFARE PLANS; ALLIED-SIGNAL, INC.;

DEL MONTE CORPORATION; HEUBLEIN, INC.;

INVESCO, INC.; PEPSICO, INC.; AND

RJR NABISCO, INC.

IN SUPPORT OF PETITIONER

STATEMENT OF INTEREST'

The ERISA Industry Committee ("ERIC") is a non-

profit association committed to the advancement of

employee retirement, health, and welfare benefit plans of

America’s largest employers. ERIC’s 125 members provide

comprehensive retirement, health care coverage and other

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

of consent were filed with the Clerk of the Court with this brief.

comprehensive retirement, health care coverage and other

economic security benefits directly to some 26 million

active and retired workers and their families. The

association has a strong interest in matters affecting its

members’ ability to deliver those benefits, their cost and

their effectiveness, as well as the role of those benefits in

the American economy. The Association of Private Pens or

and Welfare Plans is a broad-based trade association that

focuses on the preservation and growth of the voluntary,

private sector employee benefits system. Approximately

100 million participants and beneficiaries are covered by

plans maintained or serviced by its 240 members, which

include many Fortune 500 companies as well as leading

employee benefits service organizations. Both associations

routinely file briefs as amicus curiae in important employee

benefits litigation. Allied-Signal, Inc.; Del Monte

Corporation; Heublein, Inc.; INVESCO, Inc.; PepsiCo, Inc.;

and RJR Nabisco, Inc. are large corporations. Each

sponsors employee benefit plans in which aimost all of their

employees are participants.

The Third Circuit’s decision upsets the common

understanding of statutorily mandated plan language and

threatens sponsors of employee benefit plans with vexatious

litigation and massive liability. Plan amendments that met

all legal requirements at the time they were made will be

challenged if the ruling below is upheld. Members of the

amici associations, as well as the corporate amici, will be

adversely affected if the decision is affirmed.

BACKGROUND

A. Introduction.

The Employee Retirement Income Security Act of

1974, as amended, ("ERISA") is a "comprehensive and

reticulated statute," Nachman Corp. v. PBGC, 446 U.S. 359,

361 (1980), and embodies a complicated set of legislative

choices between competing values. Mertens v. Hewitt

Assocs., 113 S. Ct. 2063, 2071 (1993). Although tensions

inevitably result from these choices, courts should not

"attempt to adjust the [congressionally set] balance between

those competing goals," id at 2072, even for the most

sympathetic of reasons. See McGann v. H & H Music Co.,

946 F.2d 401 (Sth Cir. 1991), cert. denied, 113 S. Ct. 482

(1992).

Private sector employee benefit plans exist and are

regulated in a voluntary setting, involving a delicate balance

under which marketplace forces determine the establishment

and continued maintenance of pension and welfare plans

within a regulatory system imposed by ERISA and, for tax-

qualified plans, the Internal Revenue Code ("Code"). When

economic circumstances permit expansions of plan coverage

and improvements in benefits, employers respond favorably

because, due to competitive pressures, it is in their interest

to do so. Adverse economic circumstances lead to

contractions of coverage and curtailment of benefits, even

termination of plans. In 1974, Congress could have

mandated coverage and it could have mandated certain

types or levels of benefits. It did neither, opting instead to

foster plan formation and maintenance by continuing the

voluntary system, encouraging flexibility in plan design and

operation, and making a series of fine value judgments

respecting conditions and safeguards to be applied to these

voluntarily maintained plans.

In pension plans, these judgments are reflected in,

inter alia, favorable tax tieatment, minimum standards for

participation, vesting and accrual, funding rules, and a

limited guaranty program for plans that terminate with

insufficient assets. Fiduciary responsibility rules, reporting

to the government agencies and disclosure to plan

participants and beneficiaries round out the regulatory

regime. These latter rules apply to welfare plans, but in

recognition of the difficulty of predicting costs in such

plans, especially health care plans, Congress did not impose

minimum vesting and similar rules, because their imposition

would tilt the delicate balance too much against the

voluntary maintenance of such plans. Wise v. El Paso

Natural Gas Co., 986 F.2d 929, 935 (Sth Cir.), cert. denied,

114 S. Ct. 196 (1993) (quoting Moore v. Metropolitan Life

Ins. Co., 856 F.2d 488 (2d Cir. 1988)).

The opinion below has dimensions that transcend

the Curtiss-Wright facts. It opens to attack on procedural

grounds in costly litigation the validity of many

amendments that adversely modify benefits provided by

private sector employee benefit plans. In health care plans,

for example, increased deductibles and co-payments, even

those imposed years ago, may be rendered invalid ab initio

if a plan did not state an amendment procedure that was

sufficiently elaborated to meet the Third Circuit’s standard.

Even legally required benefit reductions under pension plans

may be invalid under the decision, casting a shadow on

such plans’ continued tax qualification.’

Although the Third Circuit purported to narrow its

ruling to modifications that are "advantageous to the

sponsor’s interest," Pet. App. at lla n.5, this disclaimer

offers cold comfort. Amendments that are advantageous to

participants are virtually never challenged.’ Further,

amendments frequently consist of a group of modifications,

some adverse to participants and some that improve

benefits. Litigation about how to characterize a

modification will assume a life of its own. The decision, in

short, is a wildcard that portends widespread uncertainty

and unanticipated cost for plan sponsors and instability for

plans and plan participants. It is in no one’s best interest.°

2 __ E.g., most qualified pension plans had to be amended in order

to satisfy congressionally mandated reduced limits on compensation that

may be taken into account in calculating benefits. See Omnibus Budget

Reconciliation Act of 1993, Pub. L. Ne 103-66 § 13212(a)(1), 1993

U.S.C.C.A.N. (107 Stat.) 312, 471 (amending I.R.C. § 401(aX17)).

> See note 8 below for an illuminating exception.

* — Additionally, even a single modification may affect different

classes of participants in different ways, advantageous to some and

disadvantageous to others.

* The plan sponsor action that gave rise to this case, a

modification of retiree health benefits adverse to the retirees’ interest,

is not unusual. Adverse modifications to welfare plan benefits have

been occurring regularly for a number of years. General Accounting

Office, Employee Benefits: Extent of Companies’ Retiree Health

Coverage 8-9 (March 1990). These modifications, in turn, result

largely from adverse economic circufiistances, chiefly marketplace

dislocations arising from, inter alia, global competition, and health care

B. Summary Statement Of Facts And

Proceedings Below.

In 1966, Curtiss-Wright ("CW") began to provide

health benefits to retirees formerly employed at its Wood-

Ridge facility. Ten years lat.s, CW amended its employee

welfare benefit plans, including the plan under which health

benefits were provided to retirees ("Plan"), tc conform to

ERISA. An umbrella "Constitution" was adoped, applying

to all CW plans. At all times relevant to this action, the

Constitution contained a reservation of CW’s right to amend

the Plan.° Numerous documents, including summary plan

descriptions ("SPDs") provided to participants from 1973

on, also contained reservations of rights. See Pet. App. at

4a-Sa. A new SPD issued in 1983 contained the following

language:

Coverage under this Plan will cease for

retirees and their dependents upon

termination of business operations of the

facility from which they retired.

J.A. at 44,

cost inflation. Health care costs more than doubled to 12.2 percent of

gross national product from 1965 to 1990. Joseph S. Piacentini & Jill

D. Foley, EBRI DATABOOK wn Employee Benefits 188 (2d ed. 1992).

* The Constitution provided: "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.” J. Ex. No. 64, Art. 6.1,

J.A. at 36.

;

Although the Company expects this Plan to

continue in its present form for an

indeterminable period, this Plan is not a

vested Plan and as such is subject to

modification or termination by the Company

at any time.

Id. at 49. Later in 1983, CW’s Wood-Ridge plant was

closed and benefits of retirees who had been employed

there ceased in accordance with this language.

A class consisting of these retirees brought this

action in 1984. On the eve of trial, plaintiffs’ sole

remaining claim was that their pre-1983 benefits had vested

contractually. Pet. App. at 102a-103a. The court found

that CW’s intent as expressed in the Plan and SPD was

ambiguous, and allowed plaintiffs to present evidence

extrinsic to those documents. /d at 104a. At trial, the

court characterized the 1983 coverage cessation change in

Plan language as an amendment. Finding that CW’s

reservation of the right to amend was not itself an

amendment procedure that complied with ERISA section

402(b)(3), it invalidated the amendment. /d at 37a.

However, the court held that because of the 1976

reservation of rights, plaintiffs’ benefits were not vested,

and could be modified or even terminated if a statutorily

sufficient amendment procedure were first adopted. /d. at

39a-40a.

The Third Circuit affirmed.’ Comparing CW’s

reservation of rights to the statute, which requires benefit

plans to "provide a procedure for amending such plan, and

for identifying the persons who have authority to amend the

plan,” ERISA § 402(b)(3), 29 U.S.C. § 1102(b)(3), the

court concluded without analysis that a reservation of a

right to amend is not the same as a procedure to amend.

Pet. App. at 7a.*

’ The Third Circuit issued two opinions. The first, vacated

opinion incorrectly stated that CW could not have terminated the Plan

unless it complied with 29 U.S.C. § 1341(b), Pet. App. at 24a, which

applies only to pension plans. ERISA § 4021(ayX(1), 29 U.S.C.

§ 1321(a){1). The second opinion rejected . W’s termination argument

on the factual ground that there was no evidence that anyone at CW

considered the discontinuation of benefits to Wood-Ridge retirees to be

a termination of the plan. Pet. App. at 12a.

* In an earlier Third Circuit case, Huber v. Casablanca Indus.,

Inc., 916 F.2d 85 (3d Cir. 1990), cert. dismissed, 113 S. Ct. 1070

(1993), an almost identical reservation of rights was found to be a

statutorily sufficient amendment procedure. See note 11, below. There,

however, the plan sponsor was the board of trustees of a multiemployer

pension plan seeking to recover withdrawal liability from a former

contributing employer that, among other defenses and counterclaims,

challenged a plan amendment. See ERISA §§ 3(37) and 4201-4402, 29

U.S.C. §§ 1002(37) and 1381-1461. The amendment, increasing

benefits under the plan and changing the withdrawal liability allocation

formula, had the effect of increasing the employer’s withdrawal

liability, id at 105-06, thereby benefiting the plan’s participants. The

distinction drawn by the court below between the reservation of rights

in Huber and CW’s reservation of rights is analytically suspect, but is

readily explicable in terms of the result achieved in each case, ie., the

Huber reservation sufficed as a statutorily sufficient procedure where

it advantaged the participants, but CW’s reservation did not suffice

where it disadvantaged the participants.

The court held that the absence of an amendment

procedure invalidated the 1983 amendment. /d. at lla. It

reasoned that invalidation ab initio was necessary, alluding

to cases holding that challenged amendments should be

stricken when a plan has, but does not follow, an

amendment procedure. /d. at 10a-lla. Finally, the court

affirmed the district court’s holding that the reservation of

rights was valid, id. at 14a, noting that the Plan could be

amended to terminate the Wood-Ridge retirees’ benefits, but

only if CW’s Board first adopted an amendment procedure.

Id. at lla.

od Legal Setting.

Employee benefit plans under ERISA are either

pension plans, which provide retirement income, or welfare

plans, which provide health care benefits, severance pay,

and a host of other non-pension benefits. ERISA §§ 3(1)-

3(3), 29 U.S.C. §§ 1002(1)-1002(3). Pension plans are

regulated more extensively than welfare plans. Only

pension plans are subject to ERISA’s vesting and accrual

standards. ERISA §§ 201(1), 203 and 204, 29 U.S.C.

§§ 1051(1), 1053 and 1054. Unlike welfare plans, pension

plans also are subject to rules that limit a sponsor’s ability

to terminate if the plan is insufficiently funded. ERISA

§§ 4001-4071, 29 U.S.C. §§ 1301-1371. These differences

are “not accidental," and they allow welfare plan sponsors

"to amend or terminate coverage at any time." Wise v. El

Paso Natural Gas Co., 986 F.2d 929, 935 (Sth Cir.), cert.

denied, 114 S. Ct. 196 (1993). Pension plans also can be

amended and, if tax-qualified, frequently must be amended

to comply with changes in the Code and regulatory

guidance issued by the Internal Revenue Service ("IRS").

Indeed, the amendment procedure included in model

qualified plans provided by the IRS is similar to CW’s

reservation of rights and merely states that the sponsor may

amend any part of the plan. See IRS Regional Prototype,

21 Pens. Rep. (BNA) Special Supp. No. 23, S-59 (June 6,

1994); IRS Defined Contribution Listing of Required

Modifications, 21 Pens. Rep. (BNA) Special Supp. No. 14,

S-43 (April 4, 1994); Revised IRS List of Required

Modifications, 20 Pens. Rep. (BNA) Special Supp. No. 13,

S-128 (March 29, 1993). Qualified plans that follow this

model language face possible disqualification, with its

accompanying hardship to participants and sponsors alike,

if the decision below is affirmed.’

Because section 402(b)(3) applies to all plans,

whether pension or welfare, the decision below applies with

equal vigor to all ERISA plans. It raises the specter of

massive disruption to tax-qualified plans if amendments

made to ensure a plan’s continued qualification now are

invalidated because the plan’s amendment procedure is

inadequate under the Third Circuit’s reasoning. However,

amici focus here on the non-statutory vesting concept that

courts have adopted respecting welfare plans because the

subject of this action is a welfare plan and because an

* In a tax-qualified plan, employers may deduct contributions,

contributions are not taxable as current income to participants, and the

plan’s earnings are not currently taxed. This preferential treatment is

not available if a plan loses its qualified status. Boris I. Bittker &

Martin J. McMahon, Jr., Federal Taxation of Individuals, ¥ 37.1 (1988).

understanding of how benefits may vest in a welfare plan

illuminates the flaws in the reasoning of the decision below.

The non-vested, amendable, and terminable nature

of welfare benefits reflects congressional concern over plan

sponsors’ inability to control the cost of these benefits.

"Automatic vesting was rejected because the costs of

{health} plans are subject to fluctuating and unpredictable

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

488, 492 (2d Cir. 1988). Because welfare plan benefits do

not statutorily vest, retirees whose benefits are modified

adversely, such as the Wood-Ridge retirees, must prove that

their benefits vested, if at all, by contract. /d. at 491.

In cases not involving collectively bargained

benefits, courts have looked first to the plan to determine

whether retirees had a contractual right to vested post-

retirement benefits. See, e.g., Wise, 986 F.2d at 929; Alday

v. Container Corp. of America, 906 F.2d 660 (11th Cir.

1990), cert. denied, 498 U.S. 1026 (1991); Howe v. Varity

Corp., 896 F.2d 1107 (8th Cir. 1990); Musto v. American

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

490 U.S. 1020 (1989); Moore, 856 F.2d at 488. Where a

plan sponsor has unambiguously reserved the right to

amend in the plan and SPDs ("plan documents") before the

challenged modification occurs, extrinsic evidence -- ¢.g.,

letters, memoranda, and parole evidence outside the four

corners of the plan documents -- has been ignored. See

Wise, 986 F.2d at 937-38; Moore, 856 F.2d at 492.

Although included in Part 4 of Title I of ERISA

("Fiduciary Responsibility"), ERISA section 402 is

essentially a disclosure requirement. It requires that a plan

be written and contain certain information. The plan

instrument must list the named fiduciaries who have

authority over the plan, ERISA § 402(a), 29 U.S.C.

§ 1102(a), and must, inter alia, provide an amendment

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

Significantly, the plan instrument itself need not be

furnished to plan participants automatically, but merely

must be made available upon request. ERISA § 104(b)(4),

29 U.S.C. § 1024(b)(4).

SUMMARY OF ARGUMENT

CW’s reservation of rights was an amendment

procedure that satisfied the requirements of ERISA section

402(b)(3). Comparing paragraph (3) to the rest of

subsection (b) and to other, far more detailed disclosure

rules’ demonstrates Congress’s intent that paragraph (3)

not be interpreted to require more than a simple statement

that a plan may be amended by the plan sponsor.

‘© Very detailed disclosure to a plan’s participants and

beneficiaries is required regarding plan substance and their rights under

the plan and ERISA, e.g. what benefits their plan provides, the plan’s

annual financial status, their accrued benefits, their right to continued

health coverage at group rates if their employment ceases. ERISA

§§ 101(aX1), 104(bX3), 105(a) and 606, 29 U.S.C. §§ 1021(aX1),

1024(b)(3), 1025(a) and 1166. Participants may bring an action against

an administrator who fails to provide this information upon request and

can recover up to $100 for each day of the violation. ERISA

§ 502(cX1), 29 U.S.C. § 1132(¢X1).

Congress’s intent respecting the minimal degree of

detail for an amendment procedure is further reflected by its

omission of a "procedure" requirement for plan termination.

If a plan may be terminated, ending both coverage and

benefits, without following a procedure, no statutory

purpose is served by requiring an amendment procedure that

is any more deta’ d than a reservation of rights.

A more detailed amendment procedure would not

have told the retirees anything more useful to them than

what they knew from the reservation of rights. Because

ERISA does not require a particular type of amendment

procedure, a corporate plan sponsor may amend in any way

that it normally can act, including through action of an

authorized employee. A "company" is a person within the

meaning of ERISA, and identification of "the Company” as

the person who can amend the plan satisfies section

402(b)(3).

Even if the CW reservation did not satisfy section

402(b)(3), the violation was a procedural one and did not

prejudice or harm the plaintiffs. Nor did CW act in bad

faith or mislead the retirees. The appropriate remedy for

such a violation is, at most, an injunction directing CW to

adopt a statutorily sufficient amendment procedure. The

remedy imposed by the court below -- invalidation of the

amendment ab initio -- was drastically disproportionate to

the severity or effects of the violation, and unwarranted. In

leaping from the violation to the remedy of ab initio

invalidation, the Third Circuit ignored both sound principles

of trust law and its own precedent.

The decision below should be reversed, except

insofar as it recognized the validity of the reservation of

rights to amend or terminate the Plan.

ARGUMENT

A. CW’s Reservation Of Rights Provided A

Statutorily Sufficient Procedure.

CW’s reservation of rights both provides an

amendment "procedure" and identifies the "person"

authorized to amend. The plan instrument -- the

Constitution -- states that the Plan may be changed by "the

Company." The language of the statute requires no more

and, before this case, no court had required more. A

comparison with the amendment procedure endorsed by the

Third Circuit panel in Huber is useful. That procedure is

also a reservation of rights, nearly identical to CW’s and no

more elaborated than CW’s.'' Although plans are, and

often must be, written in technical language, both

reservation clauses are clear and to the point. As explained

above, note 8 and accompanying text, the Huber court held

that the reservation there provided a statutorily sufficient

procedure. Huber at 106.

There is a strong inference in section 402(b)(3) that

its drafter contemplated an amendment procedure no more

elaborate than the CW or Huber reservations. By contrast,

'' “At any time and from time to time ‘he Trustees may amend

or modify this plan in whole or in part," Huber, 916 F.2d at 105 n.43.

{

each of the other paragraphs of section 402(b) demands

more detail. The most exacting is paragraph (4), which

requires the plan to "specify the basis on which payments

are made to and from the plan" (emphasis added).

Paragraph (2) requires the plan to "describe any procedure

. . . for the allocation of responsibilities for the operation

and administration of the plan" (emphasis added). Even

paragraph (1), which also begins with the phrase "provide

a procedure," ultimately demands more: the procedure for

establishing and carrying out a funding policy and method

must be "consistent with the objectives of the plan and the

requirements of this title." ERISA § 402(b), 29 U.S.C.

§ 1102(b). The degree of elaboration called for by each of

the other paragraphs of section 402(b) demonstrates that

Congress knew how to require something more than a

simple statement when it wished to do so.

The inference that the disclosure required by section

402(b)(3) of ERISA is satisfied by a declaration that the

plan can be amended by the sponsor is strengthened upon

review of other ERISA disclosure provisions. The statute

contains a multitude of requirements intended to advise

participants and beneficiaries about the substance of their

plans and their rights thereunder. These provisions are very

detailed and specific. See note 10, above. Section

402(b)(3), by contrast, deals with procedure. Its purpose is

not to explain what the plan provides to participants and

beneficiaries but rather, the manner in which it can be

changed and by whom. CW’s reservation satisfied this

purpose.

The interpretation of section 402(b)(3) in the

decision below is particularly problematic in light of

ERISA’s treatment of a welfare plan termination. ERISA

requires no procedure to terminate welfare plans.'"> CW

clearly reserved the right to terminate, J.A. at 36 and 49,

and the Third Circuit upheld the validity of that reservation.

If a plan sponsor may terminate an entire plan,

ending all benefits for all participants, without following

any statutorily-mandated "procedure," no statutory purpose

is served by importing elaborate procedural content into

section 402(b)(3) through judicial fiat. Such an

interpretation would make it easier to terminate a plan than

to amend it."

A more detailed procedure, identifying CW’s Board

of Directors as suggested in the decision below, would not

have provided the retirees with information any more useful

to them than what they were advised by the reservation of

rights. It most certainly would not have enabled them "to

determine with certainty at any given time what the plan

'? The only ERISA provisions bearing on welfare plan terminations

are §§ 403(cX1) and 403(dX(2), 29 U.S.C. §§ 1103(cX1) and

1103(d)(2). However, they do not restrict the right to terminate, but

rather address the disposition of plan assets upon termination.

') Nothing in ERISA prohibits the termination of a welfare plan

followed immediately by the establishment of a new plan with different

benefits or covering a different group of participants. However,

termination and reestablishment is cumbersome and needlessly

expensive as a substitute for an amendment.

provides." Pet. App. at 8a. Consistent with its

Congressional goal of fostering voluntary plan establishment

and maintenance by employers, ERISA does not require a

role for participants in plan amendments... CW’s

reservation of rights therefore provided Plan participants

with all knowledge they could use about how their Plan

could be amended. It alerted them to the possibility that a

change could be made at any time, that it could be a total

or partial change, and that CW would decide whether,

when, and how to change the Plan.

Because section 402(b)(3) does not specify any

particular procedure, a company may amend in any way it

could normally accomplish corporate objectives, including

but not limited to action by the board of directors or action

by an authorized employee pursuant to general corporate or

agency law principles. See United States v. T.I.M.E.-D.C.,

Inc., 381 F. Supp. 730, 738 (W.D. Va. 1974) ("A

corporation can only act through its employees and,

consequently, the acts of its employees, within the scope of

'* — Even an extremely detailed amendment procedure would not

inform participants of a plan’s substantive provisions, nor would it

assure participants that any particular “amendment” complied with the

procedure.

'S Amending a plan is a function of the plan sponsor acting as

a settlor. See, e.g., Hozier v. Midwest Fasteners, Inc., 908 F.2d 1155,

1160-62 (3d Cir. 1990); Ryan v. Chromalloy American Corp. 877 F.2d

598 (7th Cir. 1989); Musto v. American General Corp., 861 F.2d 897,

911-12 (6th Cir. 1988), cert. denied, 490 U.S. 1020 (1989); Phillips v.

Amoco Oil Co., 799 F.2d 1464, 1471 (11th Cir. 1986), cert. denied, 481

U.S. 1016 (1987); Letter from D.M. Kass, Asst. Sec’y., Dept. of Labor,

to J.N. Erlenborn, 13 Pens. Rep. (BNA) 472 (March 17, 1986).

their employment, constitute the acts of the corporation.");

Nationwide Mut. Ins. Co. v. Darden, 112 S. Ct. 1344, 1348

(1992) (deeming traditional agency law principles relevant

to understanding a poorly defined term -- "employee" --

where ERISA contained no indication that applying such

principles thwarted congressional design).

B. CW’s Procedure Identified The "Person"

With Authority To Amend The Plan.

CW’s identification of "the Company" in its

amendment procedure more than satisfied section 402(b)(3).

In this regard, CW’s procedure was more extensive than

required. Read literally, paragraph (3) does not demand

identification in the plan of persons with authority to amend

but only that a "procedure . . . for identifying [them]" be

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

"Person" is a term expressly defined in ERISA.

Section 3(9) defines a "person" as:

an individual, partnership, joint venture,

corporation, mutual company, joint-stock

company, trust, estate, unincorporated

organization, association, or employee

organization.

ERISA § 3(9), 29 U.S.C. § 1002(9) (emphasis added).

ee ae ee er yp eee Se eee

The conclusion of the court below that "the

Company" does not identify a person ignored section 3(9)."°

It is widely understood and accepted that a company is a

"person" for the purposes of ERISA. For example, ERISA

section 3(21) defines a fiduciary as a "person" who has or

exercises the authority listed in that section. Both courts

and the Department of Labor recognize that a corporation

is a "person" and can thus be a "named fiduciary" for the

purpose of ERISA section 402(a)(1). Confer v. Custom

Eng'g. Co., 952 F.2d 34, 36 (3d Cir. 1991); 29 C.F.R.

§ 2509.75-5, FR-3.'”

The distinction drawn by the Third Circuit between

"the Company," which CW used, and "the Trustees," which

that court deemed sufficient in Huber,'* is legally and

factually meaningless. Neither word is expressly found in

ERISA section 3(9). The words "corporation" and "trust"

117 (1989) ("There is, however, a more fundamental problem with the

Court of Appeals’ interpretation of the term ‘participant’: it strays far

from the statutory language.").

'7 The broad definition of "person," including corporations and

other entities, also applies in other ERISA contexts. For example,

ERISA prohibits certain transactions between plans and a “party in

interest." Among such parties is "a person providing services to [a]

plan." ERISA §§ 3(14)(B) and 406(a), 29 U.S.C. §§ 1002(14)(B) and

1106(a). Many such “persons” are companies, typically corporations,

and have been sued as such for engaging in prohibited transactions.

See, e.g., Lowen v. Tower Asset Mgmt., Inc., 829 F.2d 1209 (2d Cir.

1987). Liability to the Pension Benefit Guaranty Corporation for

unfunded pension plans is also imposed on “persons.” ERISA § 4062,

29 U.S.C. § 1362.

‘8 See notes 8 and 11, above.

are used. Corporate employers and trustees are treated

equally elsewhere in the statute. If a written plan does not

identify the administrator, ERISA states that the sponsor is

the administrator. Sponsor, in turn, is defined as the

employer in a single-employer plan, and the board of

trustees in a multiemployer plan. ERISA § 3(16), 29

U.S.C. § 1002(16). There is no statutory basis for

validating an amendment by "the Trustees" of a

multiemployer plan and not validating one by "the

Company" in a single-employer plan."

C. Ab Initio Invalidation Of The 1983

Amendment Was A Wholly Inappropriate

Remedy And Contrary To Established

Principles Of Trust Law.

Assuming arguendo that the reservation of rights

did not satisfy the requirements of section 492(b)(3),

invalidation of the amendment ab initio was the wrong

remedy. Under established principles of trust law, if a

settlor has reserved power to amend but has not specified

the manner of amendment, the "settlor may exercise the

power in any manner that ‘sufficiently manifests his

intention to modify the trust."" Biggers v. Wittek Indus.,

Inc., 4 F.3d 291, 295 (4th Cir. 1993) (quoting Restatement

'8 Additionally, the reasoning of the court below raises the

specter of other courts interpreting section 402(b\(3) to require

identification of individuals by name in the plan document. Yet each

time an identified individual left his or her position and was no longer

empowered to amend the plan, the plan document itself would have to

be amended to reflect their departure and replacement. This would be

confusing and wasteful, and would further no statutory purpose.

——

(Second) of Trusts, § 331 cmt. e.). Relying on the trust law

analogy, the Fourth Circuit held "that in the absence of . .

. procedures for amendment, a writing amends a plan...

when accompanied by a clear manifestation of an intent to

alter the ... plan.... A [contrary] rule would expose

companies to unpredictable consequences whenever they

undertook a review of existing policies." Id. at 296

(emphasis added).””

Deibler v. United Food and Commercial Workers’

Local Union 23, 973 F.2d 206 (3d Cir. 1992), also applied

this principle. Deibler involved a long-standing severance

plan for local union officers that was terminated by

resolution adopted by a trustee appointed by the parent

national union after the local encountered financial

difficulties. The plan had no reservation of rights and no

amendment procedure. Plaintiff Deibler was dismissed

from his position shortly after the resolution and his

demand for severance benefits was denied. The Third

Circuit held that the resolution manifested a clear intent to

amend the severance pay plan and upheld the denial of

benefits. Jd at 210.

F.2d 943 (6th Cir.), cert. denied, 498 U.S. 984 (1990), for the

proposition that lack of an amendment procedure does not render a plan

unamendable. The Adams court, in a case involving severance benefits,

equated a reservation of rights with an amendment procedure and

validated a written amendment reducing benefits where plaintiff plan

par icipants failed to show detrimental reliance based on the lack of a

procedure. /d at 949.

The Third Circuit in Curtiss-Wright ignored this

body of law and did not inquire whether intent to amend

the plan was manifested, but rather relied on inapposite case

law, where a procedure was in the plan but the plan sponsor

failed to follow it in making an amendment. Pet. App. at

10a-lla (citing Albedyll v. Wisconsin Porcelain Co. Rev.

Ret. Plan, 947 F.2d 246 (7th Cir. 1991), and Frank v. Colt

Industries, Inc., 910 F.2d 90 (3d Cir. 1990) reh’g and reh'g

en banc denied).

Juxtaposing Murphy v. Keystone Steel & Wire Co.,

850 F. Supp. 1367 (C.D. Ill. 1994), with the decision below

provides an instructive contrast. In Murphy, Keystone had

maintained health benefits for retirees pursuant to a series

of collective bargaining agreements. Keystone then

unilaterally announced prospective adverse modifications

affecting certain retirees. The plan had no amendment

procedure. Ruling on cross-motions for summary judgment,

the district court followed the trust law analogy, inquiring

whether Keystone had manifested a clear intent to amend.

Finding that it had”' and that the plaintiff class could not

demonstrate detrimental reliance, the court refused to

invalidate the amendment and granted Keystone’s summary

judgment motion.” /d. at 1378-82.

21 Murphy's explicit linkage of retiree health benefits to the

duration clause of the collective bargaining agreement arguably was less

clear than CW’s reservation of rights, which unmistakably advised

retirees that their plan might be amended.

2 The court noted that plaintiffs were not foreclosed from

forcing Keystone to comply prospec: ‘vely with section 402(b)(3). See

ERISA § 502(aX3), 29 U.S.C. § 1132(a\3).

CW’s reservation of rights, even if not sufficient

under section 402(b)(3), manifested intent even more clearly

than in Murphy. Further, CW’s amendment, like the

announcement given to the Murphy retirees, gave the

Wood-Ridge retirees "the same ‘warning’ that compliance

with an amendment procedure satisfying ERISA would have

given them." /d. at 1382. Also, as in Murphy, one cannot

"perceive any substantive harm to [the retirees] which exists

by reason of [CW’s] failure to comply with [402(b)(3)] as

distinct from the harm resulting from the amendment itself,"

id.; that is, the CW retirees did not detrimentally rely on the

absence of an amendment procedure.

Here, both the Plan and the SPD advised

participants, including the plaintiff class, that CW ("the

Company") could at any time amend or terminate the plan.

The reservation of rights, even if not an amendment

procedure within the meaning of section 402(b)(3), put

them fully on notice that their benefits were not permanent

and immutable. An amendment procedure that, in the eyes

of the Third Circuit, passes muster under section 402(b)(3),

i.e., one that reserved the right to amend to the "Board of

Directors” of the company, would not have given them any

material information they did not have by virtue of the

actual reservation.”

» It strains even credulity to imply, as does the court below, that

from the perspective of an employee or retiree of a large company there

is any functional distinction between identification of "the Company”

and identification of the “Board of Directors" of the company.

ee ee |

As noted above, the requirements of section 402(b)

are properly viewed as part of ERISA’s disclosure regime.

Although lodged in the portion of the statute that regulates

the conduct of fiduciaries, they have little to do with

fiduciary responsibility, but rather with disclosure

obligations relating to plan structure.“ They speak to

provisions that must be part of a plan, and paragraph (3) in

particular, addresses a settlor function -- plan amendments.

See note 15, above.

The weight of recent authority holds that a plan

sponsor’s failure to satisfy an ERISA disclosure requirement

does not warrant damages, absent a showing of bad faith,

active concealment, or prejudice to participants. See

Rodriguez-Abreu v. Chase Manhattan Bank, N.A., 986 F.2d

580, 588-89 (ist Cir. 1993); Godwin v. Sun Life Assur. Co.,

980 F.2d 323, 328 (Sth Cir. 1992); Harsch v. Eisenberg,

956 F.2d 651, 662 (7th Cir.), cert. denied, 113 S. Ct. 61

(1992); Kreutzer v. A.O. Smith Corp., 951 F.2d 739, 744-45

(7th Cir. 1991), reh’g en banc denied, 1992 U.S. App.

LEXIS 2092 (7th Cir. 1992); Plotkin v. Bearings, Lid., 777

F. Supp. 1105, 1108 (E.D.N.Y. 1991); United Paperworkers

Int'l Union, Local 14 v. International Paper Co., 777 F.

Supp. 1010, 1021 (D. Me. 1991).

* See H.R. Rep. No. 553, 93d Cong., Ist Sess. 11, reprinted in

1974 U.S.C.C.A.N. 4639, 4649 (purpose of ERISA disclosure rules:

“that the individual participant knows exactly where he stands wi

Additionally, three decisions of this Court recognize

that "[rjetroactive liability could be devastating for a

[plan]." Los Angeles Dept. of Water & Power v. Manhart,

435 U.S. 702, 722 and n.42 (1978); Florida v. Long, 487

U.S. 223, 235-36 (1988); Arizona Governing Comm. y.

Norris, 463 U.S. 1073, 1105-08 (1983). Even where the

law is clear to this Court, it has acknowledged that

"conscientious and intelligent administrators . . . , who did

not have the benefit of the extensive briefs and arguments

presented to us, may well have assumed that [the challenged

plan] was entirely lawful." Manhart at 720. Retroactive

application of the decision below will, at a minimum, foster

expensive, court-clogging litigation and threatens massive

liability for "conscientious and intelligent" plan sponsors.

Should the Court find for the retirees, equitable

considerations strongly support prospective application only.

Given the Third Circuit’s recognition that CW’s

reservation of rights trumped plaintiffs’ claim that they had

a vested right to their benefits, this is a "no harm, no foul"

case, pure and simple. No retiree was _ misled,

disadvantaged, or otherwise harmed in any way by CW’s

failure to provide a more elaborated amendment procedure.

The "remedy" provided below is punitive and drastically out

of proportion to the severity of the violation.

CONCLUSION

For many years before the early ’80s, economic

conditions allowed plan sponsors to extend health care

benefits to retirees and to improve those benefits

successively.”°

By the late 70s, health care costs had begun to

escalate dramatically, coinciding with major economic

dislocations caused by foreign competition and other

factors. Relying on reservations of rights clauses, many

plan sponsors during the past 15 years have responded to

these phenomena by, inter alia, amending health plans to

institute or increase deductibles and co-payments, adopt

managed-care mechanisms, eliminate or curtail benefits, or

even terminate plans.”

If the Third Circuit’s holding respecting the remedy

is affirmed, all of these adverse modifications may be

challenged, leading to a flood of federal court litigation and

potential liability for plan sponsors of hundreds of millions

of dollars in the aggregate.

7 None of those improvements, most of which were

accomplished by plan amendment, was ever challenged, of course, nor

was it ever suggested that the plan sponsor’s reservation of rights was

a statutorily insufficient amendment procedure to support such

amendments. See Murphy, 850 F. Supp. at 1375: “In fact, Plaintiffs’

counsel admitted during argument that their legal theory allowed them

to accept the benefits of any favorable changes . . . over the years .. .

but not unfavorable changes, a position made easier by the fact that he

could not recall any unfavorable changes prior to the action by

Keystone giving rise to the controversy at issue.”

%* Similarly, pension plans have been amended to modify

benefits adversely. As part of its balancing of competing objectives,

Congress in ERISA prohibited cutbacks of accrued benefits, see ERISA

§ 204(g), 29 U.S.C. § 1054(g), but pension plans may be amended to

provide less generous benefit formulas prospectively.

There is a final point to be made. Absent bad faith,

no court heretofore has held that active employees covered

by a health care plan that is amended to modify benefits

adversely may insist on maintenance of the pre-amendment,

higher level of benefits. The reservation of rights in non-

bargained plan documents has uniformly been understood

to prevent a claim of contractual vesting before retirement,

while in collectively bargained plans adverse modifications

made pursuant to bargaining are upheld with respect to

active employees. However, if an amendment adversely

modifying active participants’ benefits can be challenged on

the grounds that the plan did not provide a statutorily

sufficient amendment procedure, active employees will be

able to side-step sound doctrine and challenge even

modifications made many years ago.

Amici believe they have presented compelling

arguments that CW’s reservation of rights was a statutorily

sufficient procedure and, even if it was not sufficient, that

the remedy provided by the court below was improper.

CW’s reservation of rights is a formulation commonly

incorporated in private sector employee benefit plans and,

at least before the decision below, was understood by plan

sponsors as satisfying ERISA’s amendment procedure

requirement. Consequently, CW should not incur liability

for following what was accepted industry practice,

particularly where no retiree was harmed.

However, if this Court should determine both that

CW’s reservation of rights did not provide a statutorily

sufficient amendment procedure and that invalidation ab

initio of the 1983 amendment is an appropriate remedy in

this case, it should limit the effect of its holding to this

case. Plan sponsors then would have to review their

reservations of right/amendment procedures and revise

them, if necessary in light of this Court’s ruling. However,

they will not be exposed to retroactive liability merely by

virtue of having followed settled practice endorsed by the

federal government in its recommended forms for plan

documents.

Respectfully submitted,

STEVEN J. SACHER

Counsel of Record

SUSAN A. CAHOON

DAVID PICKLE

KILPATRICK & CODY

700 13th St., N.W.

Suite 800

Washington, D.C. 20005

(202) 508-5840

Counsel for Amici Curiae

November 7, 1994

ero

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