# Amicus Curiae Brief — Hughes Aircraft Co. v. Jacobson

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 1999
- **Citation:** 525 U.S. 432

## Text

WOTION FILED

MAR 24 1998 No. 97-1287 _
! In The
Supreme Court of the United States

OCTOBER TERM, 1997

HUGHES AIRCRAFT COMPANY, et ai.

= Petitioners,

STANLEY I. JACOBSON, et ai.
Respondents.

ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

MOTION OF THE ERISA INDUSTRY COMMITTEE
FOR LEAVE TO FILE AMICUS CURIAE BRIEF
AND BRIEF AMICUS CURIAE IN SUPPORT
OF PETITION FOR WRIT OF CERTIORARI

Michael S. Horne

Counsel of Record
John M. Vine
Rebecca Stack Campbell
COVINGTON & BURLING
1201 Pennsylvania Avenue, N.W.
P.O. Box 7566
Washington, D.C. 20044-7566
(202) 662-6000

Counsel for Amicus Curiae
March 24, 1998 The ERISA Industry Committee

. a

oe er ee

In The
Supreme Court of the United States

OCTOBER TERM, 1997

No. 97 -1287

HUGHES AIRCRAFT, et al.

. Petitioners,

STANLEY I. JACOBSON, et ai.
Respondents.

ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

MOTION OF THE ERISA INDUSTRY COMMITTEE
FOR LEAVE TO FILE AMICUS CURIAE BRIEF
IN SUPPORT OF
PETITION FOR WRIT OF CERTIORARI

The ERISA Industry Committee ("ERIC") hereby moves,
pursuant to Rule 37.2.(b), for leave to file the attached brief
amicus curiae in support of the Petition for Writ of Certiorari.
Petitioners have consented to the filing of the attached brief.
A letter evidencing petitioners’ consent has been lodged with
the Clerk. Respondents, however, have declined to consent.

ERIC is a nonprofit organization representing over 130
major employers. It frequently participates as amicus curiae

2

in cases with the potential for far-reaching effects on employee
benefit plan design or administration. '

Virtually all of ERIC’s members maintain one or more
defined-benefit pension plans governed by the Employee
Retirement Income Security Act of 1974 ("ERISA"), 29
U.S.C. § 1001 et seg. A substantial number of those plans,
including some of the very largest pension plans in the United
States, accept or require employee contributions or have done
so in the past. The opinion of the court of appeals has
potential far-reaching effects for virtually all defined-benefit
pension plans that have or have had an employee contribution
feature, and quite possibly for many other employee benefit
plans with contributory features.

The court of appeals held that plan amendments that add
an early retirement feature and that create a new benefit
formula for plan participants who do not contribute to the plan
are subject to attack as breaches of fiduciary duties owed to
other plan participants. This conclusion is of great interest
and concern to the members of ERIC and numerous other
employers who maintain defined-benefit and other plans.

The conclusion by the court of appeals that a plan
amendment that adds a new benefit formula for some
participants can be found to constitute a “constructive
termination" of the plan for purposes of ERISA also is of
great concern to ERIC and its members. Since plan
amendments of this sort are quite common, and since the
termination of a plan has enormous consequences for both

' For example, ERIC participated as an amicus before this Court in
Lockheed Corp. v. Spink, 116 S. Ct. 1783 (1996), rev'g 60 F.3d 616 (9th
Cir. 1995). See also Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101
(1989); Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58 (1987).

3

employers and employees, the members of ERIC have a vital
interest in the appropriate resolution of this issue.

Because it represents numerous employers, ERIC is in a
position to provide a broader perspective than any party to this
litigation can provide. Because the issues posed by the court
of appeals’ decision are so far-reaching and significant, the
Court may benefit from having that broader perspective before
it when it considers whether to grant the Petition for Writ of
Certiorari. Accordingly, ERIC respectfully requests that its
motion for leave to file a brief amicus curiae in support of
that petition be granted.

Respectfully submitted,

Michael S. Horne

Counsel of Record
John M. Vine
Rebecca Stack Campbell
COVINGTON & BURLING
1201 Pennsylvania Ave., N.W.
P.O. Box 7566
Washington, D.C. 20044-7566
(202) 662-6000

Counsel for Amicus Curiae
March 24, 1998 The ERISA Industry Committee

TABLE OF CONTENTS

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

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

I.

UNTIL IT IS REVERSED OR OVERRULED, THE
DECISION BELOW ON THE BREACH OF
FIDUCIARY DUTIES ISSUE WILL BE A SOURCE
OF CONSIDERABLE UNCERTAINTY AMONG
SPONSORS OF ERISA PLANS AND A
SUBSTANTIAL DETERRENT TO THE
ADOPTION OF PLAN AMENDMENTS
OFFERING NEW OR ENHANCED BENEFITS TO
EE 6 Chia Cie eo is.

THE HOLDING OF THE COURT OF APPEALS
THAT PARTICIPANTS IN A CONTRIBUTORY
DEFINED-BENEFIT PLAN HAVE A BROAD
BENEFICIAL OWNERSHIP INTEREST IN THE
PLAN’S SO-CALLED "SURPLUS" IS CONTRARY
TO THE HOLDINGS OF AT LEAST THREE
OTHER CIRCUITS AND IS BASED ON AN
ERRONEOUS EXTRAPOLATION FROM TWO
NARROWLY-FOCUSED STATUTORY
EEE + bide Mave 665-6 OA ob bs O'ck er

Iii. THE HOLDING OF THE COURT OF APPEALS,
THAT PLANS MAY BE DEEMED TO BE
TERMINATED WHENEVER A DISTRICT COURT
CONCLUDES AS A MATTER OF FACT, BASED
ON COMMON LAW TRUST CONCEPTS, THAT
TERMINATION HAS OCCURRED, IS ALSO
INCONSISTENT WITH THE RULINGS OF
OTHER CIRCUIT COURTS AND THREATENS
SERIOUSLY TO DISRUPT THE MANAGEMENT
OF NUMEROUS PENSION PLANS .........

TE Ty Pee

TABLE OF AUTHORITIES
Cases
Page
American Flint Glass Workers Union v. Beaumont
Glass Co., 62 F.3d 574 (3d Cir. 1995) ....... 11
Baum v. Nolan, 853 F.2d 1071 (2d Cir. 1988),
cert. denied, 489 U.S. 1053 (1989) .......... 12
Brillinger v. General Elec. Co., 130 F.3d 61
SPS SCL EG eer eee elie ck 6
Chait v. Bernstein, 835 F.2d 1017 (3d Cir. 1987) .... 12
Chiles v. Ceridian Corp., 95 F.3d 1505 (10th Cir.
DE SMe £0 Creat Ga et oe aa it ot 12
In re Esco Mfg. Co., 50 F.3d 315 (Sth Cir. ee
Fort Halifax Packing Co. v. Coyne, 482 U.S. 1
eR Se a Ae ee er 5
Hughes Salaried Retirees Action Committee v.
Administrator of Hughes Non-Bargaining
Retirement Plan, 72 F.3d 686 (9th Cir.
1995), cert. denied, 116 S. Ct. 1676 (1996) .... 10
Johnson v. Georgia-Pacific Corp., 19 F.3d 1184
oo ee oo ee 3, 6
Lockheed Corp. v. Spink, 116 S. Ct. 1783 (1996),
rev’g 60 F.3d 616 (9th Cir. 1995) ....... 2, 3,4
Malia v. General Elec. Co. , 23 F.3d 828
(3d Cir.), cert. denied, 513 U.S. 956 (1994) ... 3,6
Mertens v. Hewitt Assoc., 508 U.S. 248 (1993),
aff’g 948 F.2d 607 (9th Cir. 1991) .......... 14
Musto v. American Gen. Corp., 861 F.2d 897 (6th
Cir. 1988), cert. denied, 490 U.S. 1020 (1989) ... 3
Phillips v. Bebber, 914 F.2d 31 (4th Cir. 1990) ..... 11

Rodriguez v. United States, 480 U.S. 522 (1987) .... 14

iV

Salazar v. Sandia Corp., 656 F.2d 578 (10th Cir.

_— PERT Sk ee ree

Spink v. Lockheed Corp., 60 F.3d 616 (9th Cir.

enna oie ree 8. > eee nn ae aaa

United Steelworkers of America v. Harris & Sons
Steel Co., 706 F.2d 1289 (3d Cir. 1983)

Statutes

Employee Retirement Income Security Act of 1974

("ERISA"), 29 U.S.C. § 1001 ef seq. ......
ERISA §§ 203-04, 29 U.S.C. §§ 1053-54 (1994) ..

ERISA § 204(c)(2)(B)-(C), 29 U.S.C. § 1054(c)(2)

PD 6 bib sek + ae Cae be oe
ERISA § 502(e)(2), 29 U.S.C. § 1132(e)(2) .....
ERISA §§ 4041-48, 29 U.S.C. §§ 1341-48 (1994) _..

ERISA § 4041(a)(1), 29 U.S.C. § 1341(a)(1)(1994)

ERISA § 4043(c)(4), 29 U.S.C. § 1343(c)(4) (1994) : |

ERISA § 4044(d)(3)(A), 29 U.S.C. § 1344(d)(3)(A)

GD 3 oF WO ees bee tins ae

ries SEP hl eee Tee rere.
ao Ca § ERED ove 60a ob aso ees

Miscellaneous

Rev. Rul. 89-87, 1989-2 C.B.81............

U.S. Dep’t of Labor, Funding Status of Defined
Benefit Plans, Private Pension Plan Bulletin

umber © (Winter 1997)... ....0ccceees

In The

Supreme Court of the United States

OCTOBER TERM, 1997

No. 97 -1287

HUGHES AIRCRAFT COMPANY, et al

‘ Petitioners,

STANLEY I. JACOBSON, et ai. i
Respondents.

ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

BRIEF OF THE ERISA INDUSTRY COMMITTEE
AS AMICUS CURIAE IN SUPPORT OF
THE PETITION FOR WRIT OF CERTIORARI

The ERISA Industry Committee ("ERIC") submits this
brief amicus curiae in support of the Petition for Writ of
Certiorari.

INTEREST OF AMICUS CURL .£

ERIC’s interest is set forth in the foregoing Motion for
Leave to File.

SUMMARY OF ARGUMENT

The Court should grant the petition for the following
reasons:

2

The conflict on the breach of fiduciary duties issue
between the court of appeals’ decision and this Court’s
decision in Lockheed Corp. v. Spink, 116 S. Ct. 1783 (1996),
and between the court of appeals’ decision and the decisions
of other circuits, is particularly acute. As matters now stand,
a plan amendment that would be held to be clearly lawful in
several circuits could be held unlawful in the Ninth Circuit, so
that the legality of a plan amendment could turn on the
fortuitous circumstance of which of many possible
jurisdictions the litigation is filed in. The uncertainty
engendered by the court of appeals’ decision thus creates a
substantial deterrent to the adoption of plan amendments
offering new or enhanced benefits for participants.

The holding of the court of appeals that participants in a
contributory defined-benefit plan have a broad beneficial
ownership interest in the plan’s so-called "surplus" is contrary
to the holdings of at least three other circuits, is based on an
erroneous extrapolation from two narrowly-focused statutory
provisions, and is likely to have (until reversed) a serious
unsettling effect en the development and administration of
employee benefit plans.

The holding by the court of appeals that the question
whether a plan has been terminated, constructively or
otherwise, presents an issue of fact is inconsistent with the
holdings of other circuit courts to the effect that the Employee
Retirement Income Security Act of 1974 ("ERISA"), 29
U.S.C. § 1001 et seg. provides the exclusive means of
terminating a defined-benefit plan.

Pursuant to Supreme Court Rule 37.6,
ERIC states that this brief was not
prepared, written, funded or produced by any
person or entity other than ERIC or its
counsel.

BEST AVAILABLE COPY

ARGUMENT

I. UNTIL IT IS REVERSED OR OVERRULED, THE
DECISION BELOW ON THE BREACH OF
FIDUCIARY DUTIES ISSUE WILL BE A SOURCE
OF CONSIDERABLE UNCERTAINTY AMONG
SPONSORS OF ERISA PLANS AND A
SUBSTANTIAL DETERRENT TO THE ADOPTION
OF PLAN AMENDMENTS OFFERING NEW OR
ENHANCED BENEFITS TO PARTICIPANTS.

Less than four years ago, a unanimous panel of the
Seventh Circuit held that retiree-participants in a contributory
defined-benefit pension plan had no claim for breach of
fiduciary duty under ERISA with respect to a plan amendment
that eliminated the plan’s "surplus" by greatly increasing the
benefit obligations to existing employees (but not to retirees)
in the event of a hostile takeover. Johnson v. Georgia-Pacific
Corp., 19 F.3d 1184, 1188-90 (7th Cir. 1994) (Easterbrook.
J).!

Less than two years ago, this Court held, inter alia. that
plan amendments creating new benefit opportunities for
employees who, among other things, are willing to release all
their existing legal claims against the employer are not
“prohibited transaction{s]" and do not implicate any of the
fiduciary duties imposed by ERISA. Lockheed Corp. vy.
Spink, 116 S. Ct. 1783, 1790, 1792 (1996).

' Other circuits also have concluded that employer amendments to
ERISA plans do not implicate ERISA’s fiduciary duties. See, e. g., Malia
v. General Elec. Co., 23 F.3d 828, 833 (3d Cir.), cert. denied, 513 U.S.
956 (1994); Musto v. American Gen. Corp., 861 F.2d 897, 912 (6th Cir.
1988), cert. denied, 490 U.S. 1020 (1989); Salazar v. Sandia Corp. , 656
F.2d 578, 580 (10th Cir. 1981).

4

Now a two-member panel majority in the Ninth Circuit
has rendered perilous any reliance on Johnson and its
progeny,’ and any reliance on Lockheed if the plan has
accepted employee contributions. The panel majority's
decision squarely conflicts with Johnson and its progeny, and
purports to distinguish Lockheed in ways that are quite at odds
with the language and rationale of this Court.’

Today, employers that have added early retirement and
other benefit improvements to their contributory plans in
recent years, possibly in reliance on Lockheed, Johnson, and
similar decisions, face the prospect of defending costly
litigation predicated on the court of appeals’ decision.
Literally thousands of plans with cumulatively millions of

> The panel majority attempted to reconcile its decision with Johnson
on the ground that Johnson involved only an increase in benefits for active
employees who already were plan participants, while the plaintiffs in this
case alleged a transfer of plan assets for the benefit of yet-to-be hired
employees. See Pet'r App. 17a. However, the panel majority held that
petitioners may be liable for a breach of fiduciary duty because they used
plan assets to provide eligible employees with a new early retirement
opportunity. /d. at 25a. Since only current active employees can possibly
qualify for early retirement benefits, the court of appeals’ effort to
distinguish Johnson is baseless.

> The Ninth Circuit in Lockheed held that the addition of an early
retirement feature to a plan, at least where participation in that benefit was
conditioned on the employee executing a release of various legal claims
against the company, constituted an impermissible use of plan assets for the
benefit of the employer and thus a breach of the employer's fiduciary duty.
Spink v. Lockheed Corp., 60 F.3d 616, 622-24 (9th Cir. 1995). This
Court reversed, not as the Ninth Circuit now contends because Lockheed
employees made no contributions to the plan, but because the addition of
new benefits to a pension plan is a settlor function that does not implicate
ERISA’s fiduciary duties. Lockheed Corp. v. Spink, 116 S. Ct. 1783,
1790 (1996). That rationale does not support the distinction the Ninth
Circuit now seeks to draw between contributory and noncontributory plans.

5

participants and combined assets of billions of dollars are put
at risk by the court of appeals’ decision.‘ Moreover, because
ERISA contains very permissive jurisdiction and venue
provisions, see ERISA Section 502(e)(2), 29 U.S.C.
§ 1132(e)(2), it is often difficult if not impossible to predict
the circuit in which litigation will occur. For employers that
are contemplating adding new benefits to their contributory
plans and that could be sued in the Ninth Circuit, as would be
true for many larger employers, the prudent course may be to
defer adoption of any improvements in plan benefits until the
uncertainty caused by the decision below is clarified. While
such a wait-and-see approach might be a sound business
decision, it is contrary to one of the primary purposes of
ERISA: the creation of a uniform body of law that encourages
employers to adopt and upgrade employee benefits. See, e.g.,
Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 8-11 (1987).
Thus, prompt review and resolution of the conflict by this
Court is highly desirable from the standpoint of millions of

employees throughout the country.

* In 1993, the latest year for which full data have been published,
there were 83,596 single-employer defined-benefit plans in the United
States, of which 59,372 reported complete actuarial data. U.S. Dep’t of
Labor, Funding Status of Defined Benefit Plans, Private Pension Plan
Bulletin Number 6 at 63-64 (Winter 1997). Among those reporting
complete actuarial data, 47,023 were “fully funded” plans, with total assets
of $827 billion, with “net excess assets" — or “surplus” — of nearly
$235 billion and with nearly 26 million participants. Jd. While it is
probable that substantially less than half of these plans accept or once
accepted employee contributions, clearly the court of appeals’ opinion has
potentially very serious far-reaching effects.

6

il. THE HOLDING OF THE COURT OF APPEALS
THAT PARTICIPANTS IN A CONTRIBUTORY
DEFINED-BENEFIT PLAN HAVE A BROAD
BENEFICIAL OWNERSHIP INTEREST IN THE
PLAN’S SO-CALLED "SURPLUS" IS CONTRARY
TO THE HOLDINGS OF AT LEAST THREE
OTHER CIRCUITS AND IS BASED ON AN
ERRONEOUS EXTRAPOLATION FROM TWO
NARROWLY-FOCUSED STATUTORY
PROVISIONS.

In rejecting the conclusions of at least three other circuit
courts,° the panel majority reasoned that the so-called
"surplus" in a defined-benefit plan that is attributable to
employee contributions is a distinct asset in which plan
participants enjoy something akin to an ownership interest.
"By statutory definition," the panel majority concluded,
“employees are vested in their own contributions and the
income generated therefrom." Pet’r App. 21a.

This is a serious misapprehension predicated on a
misreading of the statute. The essential difference between
defined-contribution plans, such as the popular 401(k) plans
offered by many private employers, and defined-benefit plans,
such as the pension plan at issue here, is that in the former
case all the risks and rewards of the investment of the funds
fall on the employee-participant. In defined-benefit plans,
these roles are reversed. If the investments go sour, the
employer must contribute whatever is required to deliver the
promised benefit to the employee at retirement. Conversely,

> See Johnson v. Georgia-Pacific Corp., 19 F.3d 1184, 1189-90 (7th
Cir. 1994); Brillinger v. General Elec. Co., 130 F.3d 61, 64 (2d Cir.
1997); Malia v. General Elec. Co., 23 F.3d 828, 831-33 (3d Cir.), cert.
denied, 513 U.S. 956 (1994).

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:
:

7

a successful investment strategy might lighten and even
eliminate for varying periods of time the need for employer
contributions. As Judge Easterbrook explained in Johnson:

. . . the retirees do not own the assets of a defined-benefit
pension plan. Their contributions purchased not a pool of
assets (as would be the case with a defined-contribution
plan) but a promise of benefits. 29 U.S.C. § 1002(34).
Employees who contribute to a defined-benefit plan are in
this respect like persons who purchase annuity contracts
from insurance companies. They obtain a guaranteed
stream of payments; the insurer (or, with pension plans,
the employer) bears the investment risk.

19 F.3d at 1186.

Thus, when a retiree receiving benefits under a defined-
benefit plan dies, the retiree’s estate receives nothing from the
plan, unless the plan itself promises a death benefit. This
result cannot be reconciled with the court of appeals’ notion
of a “vested interest" in all the earnings generated within a
defined-benefit plan from an employee’s contributions.

The court of appeals’ conception of "plan surplus" is
irreconcilably in conflict with the view of other circuit courts.
Again, Johnson is instructive:

.. . the "surplus" of a defined-benefit plan is . . . not a
pile of assets stacked in the corner. It is instead an
accounting construct. The plan determines the value of
its assets ——- stocks, bonds, real property, cash, and so
on. It also estimates the cost of fulfilling all of the
promises to pay vested benefits. The former computation
yields the asset side of the balance sheet, the latter
computation the liability side. The difference between
these is the "surplus" or "deficit" (depending on whether

8

the number is positive or negative), which appears on the
debit side of the balance sheet to make the two columns
tally. Section 1002(21)(A)(i),_ in conjunction with
§§ 1104 and 1106, requires trustees and other persons to
deal with the assets of the plan in circumspect and
prudent ways. It has nothing at all to say about the debit
column on the balance sheet. . ..

Id. at 1189.°

The Ninth Circuit’s contrary conclusion rests on two
narrow statutory provisions that do not alter the general rule
that participants in defined-benefit plans have no protected
interest in plan assets beyond the right to receive payment of
their vested benefits.

The first of these exceptions is the minimum vesting or
nonforfeiture provisions of ERISA Sections 203-04, 29 U.S.C.
§§ 1053-54 (1994). Far from giving participants a vested
interest in all of the earnings attributable to their
contributions, these provisions provide only for
nonforfeitability of the benefits derived from the contributions
themselves plus specified levels of imputed annual interest on
employee contributions. See 29 U.S.C. § 1054(c)(2)(B)-
(C)(1994). The amount of interest imputed to the
contributions is fixed by law, and is wholly unrelated to the
successes or the failures of the plan’s investment strategies.
Thus, the minimum vesting requirements do not create a
vested interest in the earnings attributable to employee
contributions, but merely result in an increase in accrued plan

* Among other variables driving plan “surplus” is the accuracy of the
actuarial projections. If plan assets appreciate more rapidly than the
actuary predicted, “surplus” grows; if assets grow less quickly or shrink
more rapidly than predicted, “surplus” declines.

9

liabilities — what the Johnson court refers to as “the debit
column on the balance sheet" — and a corresponding
reduction in plan “surplus.”

The court of appeals also relied on ERISA
Section 4044(d)(3)(A), 29 U.S.C. § 1344(d)(3)(A)(1994),
which provides that, upon plan termination, if there are assets
that are attributable to employee contributions remaining after
satisfaction of all plan liabilities, those assets shall be
“equitably distributed" to the contributing participants or their
beneficiaries.

This highly contingent remainder interest was
bootstrapped by the panel majority into a general ownership
or beneficial interest in “surplus” no matter whether any
termination of the plan has occurred or is contemplated. See
Pet’r App. 9a. However, plan "surplus" may shrink to as
little as zero or become a deficit for any number of reasons,
including an unexpected increase in early retirements, retirees
living longer than the actuaries predicted, interest rate
fluctuations, and stock market corrections. When these events
occur, as the court of appeals conceded, the employer has no
obligation to make contributions in order to perpetuate the
plan's “surplus.” Jd. at 6a (citing Fetcher v. HMW Indus.,
Inc., 879 F.2d 1111, 1113 (3d Cir. 1989)). In short,
participants in a defined-benefit plan have no right under
ERISA to insist on perpetuation of a "surplus," even when
their contributions account in some measure for that "surplus."
That being so, reducing "surplus" by means of plan
amendments that provide additional benefits, whether to
existing or new participants, or that reduce employee funding
obligations, cannot violate ERISA.

Many retirees would no doubt like to have plan "surplus"
perpetuated, whether attributable to employee or employer
contributions, as that would give them an extra margin of

ee EE

10

protection against the possibility of the employer becoming
unable to fund the plan. Many other retirees, however, might
favor amending the plan to increase payments to retirees,
thereby reducing “surplus.” But many active employees
would no doubt regard a new benefit, such as a special early
retirement “window,” as a better use of plan assets.
Employers would prefer the freedom to add new benefits or
to increase existing benefits in whatever manner best serves
the employer's interests. An employer might be inclined, for
example, to eliminate required contributions by employees if
the employer thought that such a step would make the
company a more attractive place to work in the eyes of
prospective new employees.

As Lockheed teaches, on these issues Congress concluded
that employers acting in their capacities as plan settlors, not
as fiduciaries, can make the decision. And, as an en banc
Ninth Circuit decision in another case points out, resolution of
conflicting policies and interests is

best left to Congress — particularly when the conflicting
concerns and imterests arise in an area of the law
Congress has chosen to regulate with painstaking detail.
See Nachman Corp. v. Pension Benefit Guaranty Corp.,
446 U.S. 359, 361, 100 S. Ct. 1723, 1726, 64 L. Ed. 2d
354 (1980) (ERISA is a "comprehensive and reticulated
statute").

Hughes Salaried Retirees Action Comm. v. Administrator of
Hughes Non-Bargaining Retirement Plan, 72 F.3d 686, 695
(9th Cir. 1995), cert. denied, 116 S.Ct. 1676 (1996).
Because the opinion of the court of appeals ignored this
admonition, and created duties and obligations that are not
found in ERISA, certiorari should be granted.

oa

ll

Ill. THE HOLDING OF THE COURT OF APPEALS,
THAT PLANS MAY BE DEEMED TO BE
TERMINATED WHENEVER A_ DISTRICT
COURT CONCLUDES AS A MATTER OF
FACT, BASED ON COMMON LAW TRUST
CONCEPTS, THAT TERMINATION HAS
OCCURRED, IS ALSO INCONSISTENT WITH
THE RULINGS OF OTHER CIRCUIT COURTS
AND THREATENS SERIOUSLY TO DISRUPT
THE MANAGEMENT OF NUMEROUS
PENSION PLANS.

The court of appeals held that the district court could
conclude as a matter of fact, based on the common law of
trusts, that Hughes’ amendments to the plan had caused a
“termination” of the plan. See Pet’r App. 10a-12a, 22a-23a.
This holding is contrary to the law of the Third, Fourth, and
Fifth Circuits, where the concept that pension plans can be
terminated outside ERISA’s statutory framework has been
squarely rejected. See American Flint Glass Workers Union
v. Beaumont Glass Co., 62 F.3d 574, 579 (3d Cir. 1995);
Phillips v. Bebber, 914 F.2d 31, 34 (4th Cir. 1990); Jn re
Esco Mfg. Co., 50 F.3d 315, 316 (5th Cir. 1995) (citation
omitted).

Plan termination is a topic that Congress has addressed in
painstaking detail in ERISA. See ERISA Sections 4041-48,
29 U.S.C. §§ 1341-48 (1994). The key termination provision
in this highly detailed regulatory scheme reads:

(1) Exclusive means of plan termination

Except in the case of a termination for which proceedings

are otherwise instituted by the [Pension Benefit Guaranty

Corporation as provided in section 4042 of this title, a

single-employer plan may be terminated only in a

.

12

standard termination under subsection (b) of this section
Or a distress termination under subsection (c) of this
section.

ERISA Section 4041(a)(1), 29 U.S.C. § 1341(a)(1)(1994).

Ignoring all but section 4044 of the statutory scheme, and
relying on (1) a superseded tax regulation,’ see Pet’r App.
lla n.3, and (2) an aberrant district court decision from the
Fifth Circuit (which in turn relied on common law trust
principles), see id. at 9a, the court of appeals held that
Hughes may have "in effect, terminated" the plan or that its
conduct may have amounted to a “constructive termination" of
the plan, see id. at 10a, 1lan.3. As the court of appeals saw
it, whether amending a retirement plan to add a new benefit
formula amounts to “constructive” termination is a factual
issue to be resolved only after discovery. See id. at lla n.3,
22a-23a.

Yet there is nothing in the complaint or in the court of
appeals’ opinion to suggest that the Hughes amendment was
any different from the type of plan amendment that thousands
of employers routinely have adopted to alter, and typically to
improve, plan benefits for participants. There appears to be

* Compare 26 C.F.R. § 1.411(d)-2(c) with 26 C.F.R. § 1.401-6(b)(1);
see also Rev. Rul. 89-87, 1989-2 C.B. 81. The court of appeals’ reliance
on the tax-law concept of a “partial termination” is likewise badly
mistaken. Events or developments that will amount to a termination or a
“partial termination” for tax law purposes do not by themselves constitute
or require a termination for purposes of ERISA. See, e.g., ERISA Section
4043(c)(4), 29 U.S.C. § 1343(c)(4) (1994); Chiles v. Ceridian Corp., 95
F.3d 1505, 1516 (10th Cir. 1996); Chait v. Bernstein, 835 F.2d 1017,
1020-21 (3d Cir. 1987); United Steelworkers of America v. Harris & Sons
Stee! Co. , 706 F.2d 1289, 1299 (3d Cir. 1983); Baum v. Nolan, 853 F.2d
1071, 1076-77 (2d Cir. 1988), cert. denied, 489 U.S. 1053 (1989).

13

no dispute that many active employees elected to continue
making contributions in order to qualify for the older and
more generous benefit formula. There are only conclusory
allegations that "in effect" two plans were created and that the
amendment was “equivalent” to a termination. Such
allegations are simply artful pleading tactics designed to mask
as a factual issue what in reality is a legal claim.

Employers commonly improve pension benefits for their
employees by adding a separate benefit formula to the plan.
In many cases, benefits are calculated separately for each
employee under the several formulas in the plan, with the
employee receiving benefits under the formula that produces
the greatest benefit for that individual. But it is also a
common practice, as was done here, to extend to new or
future employees only the newly adopted benefit formula. If
employers must run the risk on a case-by-case basis of having
a court find as a factual matter that adoption of a new benefit
formula somehow terminates a plan, possibly with very
serious adverse tax consequences for both the employer and its
employees, a very substantial and quite unnecessary obstacle
will be placed in the path of improved employee benefits.

The court of appeals’ suggestion that when a plan
amendment limits a pre-existing benefit formula to current
participants and applies a new formula to future participants,
the amendment may amount to a "constructive termination" of
the plan, see Pet’r App. lla n.3, has very troubling
implications that extend well beyond the immediate context of
contributory defined-benefit plans. The notion that "freezing"
or limiting an existing benefit formula to current participants
is a “constructive” termination could mean, for example, that
the Pension Benefit Guaranty Corporation would be required
to assume many billions of dollars in additional termination
liabilities for underfunded plans. Cf. United Steelworkers of
America v. Harris & Sons Steel Co., 706 F.2d 1289 (3d Cir.

is

1983). These uncertainties and potential serious consequences
for plan beneficiaries, employers and the public generally are
the result of the court of appeals’ disregarding the specifics of
the statutory scheme and "borrowing" from tax and from
common law concepts to find support for its holdings.

This Coust repeatedly has cautioned that "(t]he authority
of the courts to develop a ‘federal common law’ under ERISA
. . . iS not the authority to revise the iext of the statute," and
that, particularly in the context of a very detailed and highly
complex statute such as ERISA, “vague notions of a statute’s
‘basic purpose’ are . . . inadequate to overcome the words of
its text. . ..". Mertens v. Hewitt Assoc., 508 U.S. 248, 259,
261 (1993), aff’g 948 F.2d 607 (9th Cir. 1991); see also
Rodriguez v. United States, 480 U.S. 522, 525-26 (1987).

Unfortunately, by its reliance on just such vague notions,
the court of appeals has reached a result that can only produce
great confusion and uncertainty unless and until it is
overturned.

15

CONCLUSION

For the foregoing reasons, ERIC urges the Court to grant
the Petition for Writ of Certiorari.

Respectfully submitted,

Michael S. Horne

Counsel of Record
John M. Vine
Rebecca Stack Campbell
COVINGTON & BURLING
1201 Pennsylvania Ave., N.W.
P.O. Box 7566
Washington, D.C. 20044-7566
(202) 662-6000

Counsel for Amicus Curiae
March 24, 1998 The ERISA Industry Committee

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0162%3A07. Public record. Not legal advice.