Amicus Curiae Brief — Philadelphia Electric Co. v. Fischer and Philadelphia Electric Co. v. Kurz

No. 93-631

IN THI

Supreme Court of the United States

OcTOBER TERM, 1993

THE PHILADELPHIA ELECTRIC COMPANY, et al..

: Petitioners.

HERBERT L. FISCHER. ef al..

Respondents.

THE PHILADELPHIA ELECTRIC COMPANY. ef al..

Petitioners,

DONALD R. KURZ. ef

Respondents.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Third Circuit

MOTION FOR LEAVE TO FILE BRIEF AW/CUS CURIAE

AND BRIEF AWICUS CURIAE OF THE

EQUAL EMPLOYMENT ADVISORY COUNCIL

IN SUPPORT OF PETITIONERS

DOUGLAS S. MCDOWELL

THOMAS W. REED

McCGUINESS & WILLIAMS

1015 Fifteenth Street, N.W.

Suite 1200

Washington, D.C. 20005

(202) 789-8600

Attorneys for Amicus Curia

Bqual Employment Advisory

Couneil

Counsel of Record

WILSON - EPES PRINTING C IN r39 7 NA t N 2 01

IN THE

Siypreme Court of the United States

OCTOBER TERM, 1933

No. 93-631

THE PHILADELPHIA E™.ECTRIC COMPANY, et al.,

. Petitioners,

HERBERT L. FISCHER, et al.,

Respondents.

THE PHILADELPHIA ELECTRIC COMPANY, et al.,

. Petitioners,

DONALD R. KURZ, et al.,

Respondents.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Third Circuit

MOTION OF THE EQUAL EMPLOYMENT ADVISORY

COUNCIL FOR LEAVE TO SUBMIT BRIEF AS

AMICUS CURIAE IN SUPPORT OF PETITIONERS

To the Honorable, the Chief Justice and the Associate

Justices of the United States Supreme Court:

Pursuant to Rule 37 of the Rules of this Court, the

Equal Employment Advisory Council (EAC) respect-

fully moves this Court for leave to file the accompanying

brief amicus curiae in support of Phiiadelphia Electric

Company, ef al., Petitioners, whose written consent has

been provided to the Clerk of the Court.

Counsel for Respondents Herbert L. Fischer, et al. and

Donald R. Kurz, et al., after being asked, indicated in

writing that they “neither refuse nor consent to the filing

of an amicus curiae brief but instead take no position on

this issue.” Because all parties have not consented, a

motion to file this brief is required.

In support of this motion, EEAC, by the following,

shows that its brief brings relevant matter to the attention

of this Court that has not been (or will not be) presented

by the parties.

1. The Equal Employment Advisory Council (“EEAC”

or “Council”’) is a voluntary association of employers

organized in 1976 to promote sound approaches to the

elimination of discriminatory employment practices. Its

membership includes over 280 major U.S. corporations,

as well as several associations which themselves have

hundreds of corporate members. EEAC’s directors and

officers include many of industry’s leading experts in the

field of equal employment opportunity. Their combined

experience gives the Council a unique depth of under-

standing of the practical, as well as legal, considerations

relevant to the proper interpretation and applicaiion of

equal employment policies and requirements. EEAC’s

members are firmly committed to the principles of non-

discrimination and equal employment opportunity.

2. All of EEAC’s members, and the constituents of its

trade association members, are employers subject to vari-

ous employment and labor laws, including the Employee

Retirement Income Security Act (ERISA), 29 U.S.C.

§ 1001 et seg. and the Age Discrimination in Employ-

ment Act of 1967 (ADEA), 29 U.S.C. §$ 621 ef seq.

As employers, virtually all of EEAC’s members and mem-

ber constituencies maintain employee benefits plans, in-

cluding early retirement incentive programs, over and

above normal wages and salaries. These plans either are

adopted at the employer’s option or are products of col-

lective bargaining with employee representatives.

3. Because of such involvement in ERISA and the

ADEA, EEAC members have a substantial interest in the

outcome of this case, which addresses the issue of whether

an employer must inform its employees of possible new

early retirement plans, or of potential changes to existing

pension benefit levels, before those plans or changes have

been put into effect.

4. Accordingly, the issue presented in the petition is

extremely important to EEAC’s nationwide constituency.

The Third Circuit below held that ERISA requires an

employer to inform employees when a new early retire-

ment plan is under “serious consideration.” This unde-

fined standard is causing considerable economic and prac-

tical problems for EEAC members attempting to imple-

ment early retirement incentive programs.

Under this amorphous standard, employers are faced

with the possibility of litigating what is and is not “serious

consideration.” Aware of potential lawsuits, employers

will be forced to provide employees with constant up-

dates on the status of highly sensitive, executive-level de-

liberations and variations on potential early-retirement

incentives and pension plan changes that may or may not

ever materialize.

In either case, employers face the potential for in-

creased litigation from employees who claim to have

relied to their detriment upon the presence or absence of

information about possible future plan changes that have

not yet been adopted. EEAC’s brief explains to the Court

that the decision below adopts an unworkable standard

that should be rejected by this Court.

5. The Third Circuit’s rule is contrary to decisions in

several other courts that have held that employers do not

have a fiduciary obligation under ERISA to inform em-

ployees about changes in non-vested benefit plans until

such changes have been adopted. See e.g., Stanton v.

Guif Oil Corp., 792 F.2d 432 (4th Cir. 1986); Young

v. Standard Oil (Indiana), 849 F.2d 1039 (7th Cir.),

cert. denied, 488 U.S. 981 (1988); and United Independ-

ent Flight Officers, Inc. v.-United Air Lines, Inc., 756

F.2d 1274 (7th Cir. 1985). Because EEAC’s members

are large, national employers with operations in many

federal judicial circuits, this split of authority is ex-

tremely problematic. Employers operating under varying

disclosure rules face significant legal risks depending

upon where employees are located.

6. Because of its interest in the application of the

nation’s civil rights laws, EEAC has, since its founding tn

1976, filed over 330 briefs as amicus curiae in cases be-

fore this Court, the United States Circuit Courts of Ap-

peals and various state supreme courts. As part of this

amicus activity. EEAC has participated as amicus curiae

In cases involving ERISA preemption of state law.’ Fur-

thermore, a number of other cases in which EEAC has

participated have involved the proper interpretation of

ERISA provisions in relation to the Age Discrimination

in Employment Act of 1967 (ADEA), 29 U.S.C. § 621

et seq. In addition. EEAC has briefed a number of other

employment issues in this Court.’

' Ingersoll-Rand Co, v. McClendon, 111 8. Ct. 478 (1990) ; General

Motors Corp. v. Wells, 881 F.2d 166 (5th Cir. 1989) cert. denied,

110 S.Ct. 1959 (1990); Shaw v. Delta Airlines, 463 U.S. 85 (1983):

Nolan v. Otis Elevator Co., 505 A.2d 580 (N.J. 1986); Brooklyn

Union Gas Co. and American Airlines v. N.Y. Human Rights Appeal

Board, 359 N.E.2d 393 (N.Y. 1976)

- Public Employees Retirement System of Ohio v. Betts, 109 S. Ct.

2854 (1989); FEOC v. Westinghouse Electric Corp., 869 F.2d 696

(3d Cir.), vacated and remanded, 110 S. Ct. 37 (1989), on remand

907 F.2d 1354 (3d Cir. 1990); EEOC v. Westinghouse Electric

Corp., 725 F.2d 211 (3d Cir. 1983), cert. denied, 469 U.S. 820

(1984); EEOC v. Borden’s Inc., 724 F.2d 1390 (9th Cir. 1984);

O'Shea v. Commercial Credit Corp., 950 F.2d 358 (4th Cir.), cert.

denied 112 S. Ct. 177 (1991); Forbus v. Sears, Roebuck & Co., 958

F.2d 1036, cert. denied 113 S. Ct. 412 (1992).

3 Int’l Bro, of Teamsters v. United States, 431 U.S. 324 (1977);

FHlazen Paper Co. v. Biggins, 113 S. Ct. 1701 (1993); and Harris v.

Forklift Systems, Inc., No. 91-1168, decided November 9, 1993.

7. EEAC also participated as amicus curiae in Ar-

thur v. Bell Atlantic Corp., No. 93-1483 (4th Cir.),

argues tober 27, 1993. That case raises-the same issue

as in wi. case. There, however, the district court applied

the Fourth Circuit’s Stanton decision, cited above, and

ruled that there is no fiduciary obligation under ERISA to

provide information regarding changes in employee ben-

efit plans until those changes are put into effect.

8. Thus, EEAC has an interest in, and a familiarity

with, the issues and policy concerns presented to the Court

in this case. Indeed, because of its significant experience

in these matters, EEAC is uniquely situated to brief this

Court on the importance of the issues beyond the 1im-

mediate concerns of the parties to the case, particularly

the practical effect that the decision will have on em-

ployers and potential beneficiaries of early retirement ben-

efit plans.

9. EEAC’s brief is timely as it is being filed within

the time allowed for filing a brief in opposition to the

petition. See Supreme Court Rule 37.2.

WHEREFORE. for the reasons stated, the Equal Em-

ployment Advisory Council, respectfully requests that the

Court grant it leave to file a brief as amicus curiae in this

case In support of Petitioners.

Respectfully submitted,

DOUGLAS S. MCDOWELL *

THOMAS W. REED

McGUINESS & WILLIAMS

1015 Fifteenth Street, N.W.

Suite 1200

Washington, D.C. 20005

(202) 789-8600

Attorneys for Amicus Curiae

Equal Employment Advisory

Council

November 19, 1993 * Counsel of Record

TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES a ill

INTEREST OF THE AMICUS CURIAE ee 2

STATEMENT OF THE CASE eS eR oe: 2

SUMMARY OF REASONS FOR GRANTING THE

WRIT a OR 4.0 OI ALY NA eh Manse MIS ; 5

REASONS FOR GRANTING THE WRIT 6

BY REQUIRING EMPLOYERS TO DISCLOSE

WHENEVER CHANGES IN BENEFIT PLANS

ARE UNDER “SERIOUS CONSIDERATION,”

THE COURT OF APPEALS ADOPTED AN UN-

WORKABLE STANDARD THAT IS CAUSING

EGREGIOUS ECONOMIC AND PRACTICAL

PROBLEMS FOR EMPLOYERS, PARTICU-

LARLY THOSE WHO ALSO OPERATE IN CIR-

CUITS WHOSE DECISIONS HAVE REJECTED

THE “SERIOUS CONSIDERATION” STAND-

ARD 6

A. Requiring Employers to Disclose the Possible

Creation of a Proposed Benefit Plan Before that

Plan is Implemented Imposes Egregious Eco-

nomic and Practica! Problems on Employers.... 7

1. The “Serious Consideration” Test is Not

Susceptible to a Workable Definition. More-

over, Employers Who Follow the Decision

Below Face The Likelihood Of Being Sued

Based Upon Information Disclosed Prior To

The Plan’s Final Adoption ..............022..222....... 7

2. The Third Circuit’s Decision is Out of Touch

with How Plans Actually Are Adopted by

Major Employers. Typically, There Is No

“Plan” Until The End of a Complicated De-

cision Making Process With Many Entities

Ilaving Input Into the Discussions ................ 8

(i)

il

TABLE OF CONTENTS—Continued

Page

3. The Policy Underlying the Fiduciary Duty

of Disclosure Would be Retarded, Not Ad-

vanced, by Requiring Premature Disclosure

Before a Plan is Put Into Effect ; 1]

B. The Decision Below Directly Contradicts Deci-

sions by Other Circuits, Causing Great Confu-

sion, Particularly for Employers With Opera-

tions In More Than One Circuit ...... pabiecenees 13

CONCLUSION 17

ili

TABLE OF AUTHORITIES

CASES Page -——~

Amato v. Western Union Intern. Inc., 773 F.2d

1402 (2d Cir. 1985) . PRI RALP TON PORE HN 3

Arthur v. Bell Atlantic Corp., No. 3-93-CV-854

(ED. Va. TOG Mar. 16, LEGG) ...cccccccssscsccececcescees 12

Barnes v. Lacy, 927 F.2d 539 (11th Cir.), cert.

Me he he yb ae eb. 2 } ee 15

Perlin v. Michigan Pell Tel. Co., 858 F.2d 1154

(6th Cir. 1988) es aoe A

Drennan v. General Motors Corp., 977 F.2d 246

(6th Cir. 1992), cert. denied, 113 S. Ct. 2416

| ea anne eM) Ae |

Fenton Industris v. National Shopmen Pension

Fund, 674 F.2d 1300 (9th Cir. 1982) ...... xed 3

Fine v. Steele, 699 F.2d 1091 (11th Cir. 1983) ........ 3

Fisher v. Philadelphia Eiec. Co., 994 F.2d 130 (3d

Cir. 1993) Seeeeieceteas ee ea ee ade de aires 2

Kurz v. Philadelphia Elec. Co., 994 F.2d 136 (3d

Cir. 1993) ... EOS ARNE TELS NE 2

Payvonk v. HMW Industries, Inc., 883 F.2d 221 (3d

Cir. 1989) ... renee ai oe meas ere ee iB OL 3, 6, 15

Porto v. Armco, Inc., 825 F.2d 1274 (8th Cir.

1987), cert. denied, 485 U.S. 9387 (1988) .............. 15

Sleichter v. Mensanto Co., 612 F. Supp. 856 (E.D.

ced ipp ncivientivaens 16

Stanton v. Gulf Oil Corp., 792 F.2d 432 (4th Cir.

1986) _. ae Wt a ees costae mh oh

Trenton v. Scott Paner Co., 832 F.2d 806 (3d Cir.

1987), cert. denied, 485 U.S. 1022 (1988) Bale 3 7

Trerel v. EI. DuPont De Nemours & Co., No. 85-

759 (D. Del. Sept. 9, 1987), aff'd mem--845 F.2d

pot Re Be |) Cee 3, 15

United Independent Flight Officers, Inc. v. United

Air Lines, Inc., 756 F.2d 1262 (7th Cir. 1985) .... 15

United Independent Flight Officers, Inc. v. United

Air Lines, Inc., 756 F.2d 1274 (7th Cir. 1985) __.. 15

Young v. Standard Oil (Indiana), 849 F.2d 1039

(7th Cir.), cert. denied, 488 U.S. 981 (1988) .... 12-14

iv

TABLE OF AUTHORITIES—Continued

STATUTES Page

Age Discrimination in Employment Act of 1967

(ADEA), 29 U.S.C. § 621 et sey. Miss N Petre Pete 10

Employee Retirement Income Security Act

(ERISA), 29 U.S.C.-§ 1001 et seq. ..... 3

Titles I and II of the Older Workers Benefit Pro-

tection Act, Public Law 101-433, 101st Congress,

October 16, 1990, 104 Stat. 978, 29 U.S.C. § 624

(f) and (1) ae 10

IN THE

Siuprenw Court of the United States

OCTOBER TERM, 1933

No. 93-631

THE PHILADELPHIA ELECTRIC COMPANY, et al.,

Petitioners,

Vv.

HERBERT L. FISCHER, et al.,

Respondents.

THE PHILADELPHIA ELECTRIC COMPANY, et al.,

Petitioners,

Vv.

DONALD R. KuRzZ, et al.,

Respondents.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Third Circuit

BRIEF AMICUS CURIAE OF THE

EQAUL EMPLOYMENT ADVISORY COUNCIL

IN SUPPORT OF PETITIONERS

The Equal Employment Advisory Council (EEAC)

respectfully submits this brief amicus curiae, contingent

on the granting of the accompanying motion for leave.

The brief supports the petition for a writ of certiorari.

5

INTEREST OF THE AMICUS CURIAE

The interest of the amicus curiae is set forth fully in

the preceding motion.

STATEMENT OF THE CASE

1. The Underlying Facts. The respondents are former

employees of the Philadelphia Electric Company (PECo).

Pet. App. A-22 and A-36.' In Fischer, PECo was consid-

ering the possibility of a costcutting plan that would in-

volve a reduction in the number of employees. Pet. App.

A-25. It had hired an outside consultant to develop a

long-range Strategic plan for cost-reduction. PECo’s deci-

sion on early retirement modifications would depend, in

part, on whether it received an electric utility rate increase

from the Public Utility Commission. /d.

In Kurz, PECo was looking into possible amendments

to its pension benefits formula for an existing plan. The

employer considered alternative benefit formulas, includ-

ing surveys comparing PECo’s benefits to those of other

utility companies. Pet. App. A-37 to A-39.

During this period of uncertainty, respondents made

inquiries about whether PECo had any plans to adopt

an early retirement incentive program (Fischer) or might

be planning to increase the level of its carly retirement

benefits (Kurz). PECo’s employee benefits counselors

responded that they were unaware of any changes being

considered and had no knowledge of any new plan. Pet.

App. A-34 to A-35 and A-46 to A-47.

Respondents allege that PECo in fact was considering

making such changes and that they were not so informed.

1 Citations to the Appendix to the Petition for a Writ of Cer-

tiorari are noted as Pet. App. —-——. The opinions of the Court of

Appeals for the Third Circuit below, reported at 994 F.2d 130 and

994 F.2d 136 are reproduced as Pet. App. A-1 to A-20. The un-

reported opinion of the district court is reproduced as Pet. App.

A-21 to A-61.

3

As a result of the employer’s statements, they allege, they

accepted benefits that were less than they would have

received had they continued working until the new pro-

grams were put into effect. Thus, respondents allege that

PECo violated its obligations under the Employee Re-

tirement Income Security Act (ERISA), 29 U.S.C. § 1001

et seg. by not informing employees of possible early re-

tirement plans or of possible changes to an existing pen-

sion benefits plan. Pet. App. A-48.

2. The District Court's Decision. The district court

held that ERISA does not require an employer to disclose

information on benefit plan changes before the plan or

change is put into effect. Pet. App. A-49 to A-50. Spe-

cifically, the district court stated:

It has been held that when an employer acts in

the capacity of a corporate decision maker, no fidu-

ciary duties attach. See Trenton v. Scott Paper Co.,

832 F.2d 806 (3d Cir. 1987), cert. denied, 485 U.S.

1022 (1988). Where employers wear two hats, as

employers and plan administrators, fiduciary status

is only assumed when and to the extent that they

function in their capacity as plan administrators.

Payonk v. HMW_ Industries, Inc., 883 F.2d 221,

225 (3d Cir. 1989), guoting, Amato v. Western

Union Intern. Inc., 773 F.2d 1402, 1416-17 (2d Cir.

1985).

Nothing in the statutory language of ERISA indi-

cates there is a duty to disclose information on bene-

fits plans before they take effect. See Payonk, 883

F.2d at 221; Trexel v. E.J. DuPont De Nemours &

Co., No. 85-759 (D. Del. Sept. 9, 1987), aff'd mem.

845 F.2d 1016 (3d Cir. 1988). Courts in other cir-

cuits have also held that a duty to disclose informa-

tion on benefits before they take effect does not exist.

See Stanton v. Gulf Oil Corp., 792 F.2d 32. A35

(4th Cir. 1986): Fine v. Steele, 699 F.2d 1091,

1094 (11th Cir. 1983); Fenton Industries v. Na-

tonal Shopmen Pension Fund, 674 F.2d 1300, 1306

(19th Cir. 1982).

4

Pet. App. A-49 to A-50. The disirict court also found

that, on the record, there was “no evidence of affirmative

material misrepresentations made by any fiduciary er non-

fiduciary employee of PECo.” Pet. App. A-52. Further,

the district court held that the potential changes were not

under “serious consideration” until they were presented

to the corporation’s Board, which had the final authority

to implement the changes. Pet. App. A-51.

3. The Third Circuit’s Decision. The court of appeals

below, however, reversed the district court. The Third

Circuit adopted the view of the Sixth Circuit that ERISA

requires an employer to inform employees when a new

early retirement plan is under “serious consideration.”

Berlin v. Michigan Bell Tel. Co., 858 F.2d 1154, 1163

(6th Cir. 1988); and Drennan v. General Motors Corp.,

977 F.2d 246 (6th Cir. 1992), cert. denied, 113 S. Ct.

2416 (1993).

The court thus held that a plan administrator may not

make affirmative material misrepresentations about possi-

ble plan changes. It also stated that a misrepresentation 1s

“material” if there 1s a “substantial tikelihood that it would

mislead a reasonable employee in making an adequately

informed decision about if and when te retire.” Pet. App.

A-11 and A-19.

The issue before the Court is whether an employer

has a fiduciary responsibility under ERISA to communi-

cate with its employees regarding a possible business deci-

sion to change a benefit plan either before that plan is

put into effect, or at least before the change has been pre-

sented to the employer's Board of Directors or other entity

with final authority to implement the changes.

5

SUMMARY OF REASONS FOR GRANTING THE WRIT

The court below adopted the improper view of the

Sixth Circuit that ERISA requires an employer to inform

employees when a new early retirement plan is under

“serious consideration.” Berlin v. Michigan Bell Tel. Co.,

858 F.2d 1154, 1163 (6th Cir. 1988); and Drennan v.

General Motors Corp., 977 F.2d 246 (6th Cir. 1992),

cert. denied, 113 S. Ct. 2416 (1993). These cases hold

that when an employer “seriously considers” a_ possible

future benefits plan, that employer has a fiduciary duty

to disclose “the progress of its serious deliberations to

make the plan availabie.” The decisions of the Sixth Cir-

cuit are contrary to decisions in several other courts,

which hold for example, that “it is not a violation of

ERISA to fail to furnish information regarding amend-

ments before those amendments are put into effect.” Sran-

ton v. Gulf Oil Corp., 792 F.2d 432 (4th Cir. 1986). The

decision below is causing extreme confusion for employ-

ers’ benefits’ counsel and officers responsible for employee

benefit plans.

Additionally, the “serious consideration” rule is im-

practical and impossible to apply. It places employers in

the dilemma of being sued if they do not adopt prelim-

inary plans they were considering, and also of being sued

if they withhold information from employees who may

retire while final decisions are being made. Indeed. the

typical plan goes through many drafts before final adop-

tion or rejection. Premature disclosure could lock em-

ployers into ill-conceived plans or gull employees into

accepting early retirement based on possible benefits that

are not forthcoming.

6

REASONS FOR GRANTING THE WRIT

BY REQUIRING EMPLOYERS TO DISCLOSE WHEN-

EVER CHANGES IN BENEFIT PLANS ARE UNDER

“SERIOUS CONSIDERATION,” THE COURT OF AP-

PEALS ADOPTED AN UNWORKABLE STANDARD

THAT IS CAUSING EGREGIOUS ECONOMIC AND

PRACTICAL PROBLEMS FOR EMPLOYERS, PAR-

TICULARLY THOSE WHO ALSO OPERATE IN CIR-

CUITS WHOSE DECISIONS HAVE REJECTED THE

“SERIOUS CONSIDERATION” STANDARD.

The Third Circuit’s decision requires employers to dis-

close changes in benefit plans before those changes have

been adopted, when they are only under “serious consid-

eration.” The Third Circuit began its analysis by stating

s an employer, neither PECo nor its

correctly, that “[a

business decision to offer an early retirement program

were subject to ERISA’s fiduciary duties. See e.g., Pavonk

v. HMW Indus., Inc., 883 F.2d 221, 225 (3d Cir. 1989).”

Pet. App. A-6. Relying on this principle, the district court

below dismissed the suit because the benefits decisions in-

volved in this case were business decisions that did not

implicate ERiSA’ fiduciary obligations.

[he Third Circuit, however, then went astray by em-

bracing the approach of the Sixth Circuit that confuses the

employer's business decisions with its fiduciary obliga-

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

(6th Cir. 1988); and Drennan v. General Motors Corp..,

977 F.2d 246 (6th Cir. 1992), cert. denied, 113 S. Ct.

2416 (1993). Those decisions state that if an employee

asks about possible changes in early retirement plans, the

employer must “disclose[] the progress of its serious con-

siderations to make a plan available to affected employees.

Berlin, 858 F.2d at 1164.” Drennan, 977 F.2d at 251.

As now shown, the decision below conflicts with other

court holdings and misinterprets ERISA. Further, -the

“serious consideration” approach is causing practical prob-

lems for employers attempting to balance the need to

5

consider various benefit options with the strong likelihood

of being sued by employees who make decisions based

upon information whose status is very likely to change

before a final corporate decision is made.

A. Requiring Employers to Disclose the Possible Creation

of a Proposed Benefit Plan Before that Plan is Imple=-

mented Imposes Egregious Economic and Practical

Problems on Employers.

As noted, the decision below imposes on employers a

fiduciary duty to disclose the possible creation of a pro-

posed benefit plan before that plan is implemented and

before there is any certainty that it ever will be adopted.

This decision is creating egregious economic and practical!

problems on employers. Indeed, the Third and Sixth Cir-

cuit decisions have been subjected to unremitting criti-

cism from benefits counsel and officers because of the

practical and legal problems they have created.

l. The “Serious Consideration” Test is Not Sus-

ceptible to a Workable Definition. Moreover,

Employers Who Follow the Decision Below Face

The Likelihood Of Being Sued Based Upon In-

formation Disclosed Prior To The Plan’s Final

Adoption.

The decision below purportedly would require dis-

closure only when the decision whether to adopt a new

plan or modify an existing one is under “serious consider-

ation.” This formulation, however. is extremely broad

and could encompass any internal discussion that could

lead to a change in benefit plans. In reality, the rule will

require employers to disclose the mere possibility of a

new plan or a changed plan.

“Serious consideration” is not susceptible to a fixed

definition, and there is not a standard under which an

employer could determine when the requirement would

mandate disclosure. Thus, because significant liability

8

may attach. cautious employers might feel compelled to

disclose any suggestion that an employee benefit plan be

modified.

However, as we show below, premature disclosure be-

fore a plan is finally adopted may not resolve the problems

facing employers and employees, but rather increase them.

Employers who consider proposals to create new benefit

plans will be faced with an impossible choice: they can

disclose their internal deliberations and risk liability if

the plan is not adopted, or they can delay announcement

of the plan until the formal plan is adopted and face

liability, as in this case.

This impossible burden can be resolved by reversing

the decision below and holding that an employer who is

considering the business decision of whether to change a

benefit plan does not have a fiduciary obligation to dis-

close the change until it is adopted.

2. The Third Circuit’s Decision is Out of Touch

with How Plans Actually Are Adopted by Major

Employers. Typically, There Is No “Plan” Until

The End of a Complicated Decision Making

Process With Many Entities Having Input Into

the Discussions.

It would be naive, at best, to think that when employers

are considering early retirement incentive plans, there

usually is some “plan” that is sitting on the shelf waiting

to be announced. In the typical situation, many different

decision makers will be involved in a complicated “proc-

ess” in which many alternatives and options will be dis-

cussed, modified, rejected, or adopted.

Many companies establish their post-employment retire-

ment and severance policies in response to unforeseen but

ongoing economic exigencies. Indeed, early retirement

plans often are offered in the face of business difficulties

and economic uncertainty. Economic circumstances and

employees’ reactions to employer policies, often make it

9

difficult to predict, much less guarantee, what these extra

benefit packages will look like. Economic decisions may

be made in series over time, and often it is impossible for

employers to predict economic conditions over several

months, much less over several years.

When an employer decides to downsize, it has to pre-

dict how many employees it ultimately will need. as well

as how many eligible employees or retirees will opt to

take an early retirement offering. If the plan is too gen-

erous, it may be oversubscribed and the employer may

have to hire new employees or rehire those who chose to

retire under the plan. On the other hand, it is possible

that not enough employees will subscribe to the plan, and

a subsequent early retirement offering may be required.

In this time period, economic conditions. may change

and previous assumptions about work force needs and the

amount of funds available for retirement incentives may

need to be modified, particularly when the employer

begins to learn how many and which employees have

opted into the first early retirement offering. Thus, em-

ployers have to balance these realities and often are

unable to settle on the terms of a second offering until

the first has run its course.

In addition to economic uncertainties, it would be ex-

tremely difficult to pinpoint any particular decision maker

who could speak authoritatively on whether a plan will

be offered, or what it would contain. For example, par-

ticipants in these discussions typically include benefits ex-

perts, labor and benefits counsel, human relations special-

ists, plant managers. line managers, actuaries, outside con-

sultants and ultimately, the company’s management com-

mittee and Board of Directors.

These entities will have to balance and consider mul-

tiple changing factors such as predicted headcount, ben-

efit costs, and the availability of present assets for lump

sum payments versus payments over time. Along the way,

10

various options will be proposed, examined, revised, re-

jected, or possibly reinstated or accepted with modifica-

tions.

During this period, the available information will be

spread out among several individuals and departments and

often it would be extremely diflicult to give complete,

accurate information on the status of the plan being con-

sidered. Indeed, during this period there may be substan-

tial internal negotiations regarding the terms of any po-

tential offering.

Coupled with these internal practical and economic

problems, unionized employers, such as in Drennan, will

have to negotiate with the union before announcing any

new benefits. The union, of course, serves many con-

Stituencies and will have its own members’ interests to

balance, particularly those of its remaining incumbent

members and the benefits to be received by potential re-

tirees. Indeed, some employers have had to face lawsuits

from unions and cities challenging the employer's deci-

sion to close or downsize a plant. As a result, the size

and shape of an early retirement package can be chang-

ing constantly.

In addition, recent amendments to the Age Discrimina-

tion in Employment Act (ADEA), 29 U.S.C. § 621 ef

seq. have raised potential new legal liabilities regarding

early retirement enhancements, severance pay offsets for

retirement eligible individuals and information disclosure

regarding eligible employees. See Titles I and II of the

Older Workers Benefit Protection Act, Public Law 10I-

433, 101st Congress, October 16,.1990, 104 Stat. 978,

29 U.S.C. § 624(f) and (1).

Particular ADEA concern must be given to the retiree

health benefit and the early retirement incentive offsets

to severance pay. The 1990 amendments require careful

actuarial calculations so that retirees receive the full

amount due them in severance pay plus existing retire-

1]

ment benefits under the ADEA’s requirements. Typically,

the employers’ labor counsel spend extensive time with the

employers’ benefits experts analyzing the costs of pro-

posed benefits alternatives when considered in light of

the requirements of the ADEA and ERISA.

In all of these examples, an early retirement offering

may be under “serious consideration.” But in most of

these examples it would be an extreme hardship to require

an employer to disclose the possibility in terms of the

potential plan until it is finally adopted. For these

reasons, the “serious consideration” rule is completely

impractical.

3. The Policy Underlying the Fiduciary Duty of

Disclosure Would be Retarded, Not Advanced,

by Requiring Premature Disclosure Before a

Plan is Put Into Effect.

The policy underlying the fiduciary duty of disclosure—

to ensure that beneficiaries make informed and rational

decisions—would be retarded, not advanced, by requiring

premature disclosure before a plan is put into effect.

Many, indeed most, proposals that are eventually adopted

evolve as they are developed so that their ultimate form

is likely to be substantially different from the one that is

“seriously considered” in a preliminary version.

Under the “serious consideration” approach, therefore,

employees who act upon a preliminary version of a plan

may find that its terms have changed and their expecta-

tions have been thwarted. Indeed, requiring disclosure

of plans that are under “serious consideration” would be

an impossible burden on employers and a disservice for

potential beneficiaries.

The Third Circuit’s approach shows a lack of under-

standing of employee benefits practices and many factors

that come into play in adopting an early retirement plan.

First, it should be noted that early retirement incentive

plans are not vested, and thus the employer has broad dis-

12

cretion in the benefits it offers. Such plans go beyond

any legally-required benefit and provide an extra post-

retirement flow of income to eligible employees. Indeed,

even with existing plans, an employer may change, re-

Strict or withdraw entirely an existing plan, subject only

to guarantees in the plan. Young v. Standard Oil (Indi-

ana), 849 F.2d 1039, 1045 (7th Cir.), cert. denied, 488

U.S. 981 (1988).

It is evident that the courts adopting the “serious con-

sideration” test have not considered the harm that this

amorphous standard could cause to potential beneficiaries.

In almost all instances when an early retirement plan ts

offered, it is a nonmandatory plan intended to assist

departing workers after they leave the company. Under

the Third Circuit’s rule, however, many of these systems

could be jeopardized.

Employers would be encouraged either to eliminate

early retirement plans altogether, or to cut their liability

by reducing the benefit levels in plans offered at a late!

time. Indeed, several EEAC members have informed us

that the decisions below have had precisely this effect.

The problems created by the approach of the Third

and Sixth Circuits were summarized succinctly by the dis-

trict court in Arthur v. Bell Atlantic, No. 3-93-CV-854

(E.D. Va. filed Mar. 18, 1993) at 5:

Employees undoubtedly benefit when their employers

upgrade severance packages and implement more

generous pension benefit plans for their workers.

Recognition of plaintiffs’ cause of action would have

a chilling effect on such activities, as employers would

be frightened even to put proposed new packages on

the drawing board for fear that they might get sued

for failing to disclose plans that are not yet, and

may never be, formally adopted.

Thus, the decision below could well have the effect of

depressing the overall availability of retirement benefits

and discouraging employers from even considering a bene-

fit plan that is more generous than an earlier plan.

13

B. The Decision Below Directly Contradicts Decisions

by Other Circuits, Causing Great Confusion, Par-

ticularly for Employers With Operations In More

Than One Circuit.

The decision below cannot be reconciled with the deci-

sions of other courts that have rejected similar claims

under ERISA. Numerous other courts have held that

changes in plans need not be disclosed until they become

effective. The Fourth and Seventh Circuits, for example,

have held that employers have no fiduciary duty under

ERISA to disclose their intentions until the terms of the

plan are put into effect. Stanton v. Gulf Oil Corp., 792

F.2d 432 (4th Cir. 1986): and Young v. Standard Oil

(Indiana), 849 F.2d 1039 (7th Cir.), cert. denied, 448

U.S. 981 (1988),

In Stanton, the plaintiff chose to retire early and receive

benefits under an existing severance plan. Shortly before

the plaintiff retired, Gulf considered and approved a new

employee welfare plan providing for enhanced severance

benefits. The new plan was instituted on the same day

that the plaintiff retired.

Before accepting his plan, Stanton specifically asked

Gulf representatives whether a more attractiv. plan was

in the works. Gu'f representatives did not inform him

that the new (and more attractive) plan had been ap-

proved. The plaintiff sued, claiming that he was entitled

to the benefits of the new plan because Gulf had violated

its fiduciary duty under ERISA by not disclosing its con-

sideration of that plan. 792 F.2d at 433.

The court rejected the plaintiff's claim and held that

the fiduciary duties that arise under ERISA are owed

only to “participants” in an ERISA plan, and that an

employee is not a “participant” in an ERISA plan until

the terms actually are adopted in the plan.

Although ERISA does mandate fiduciary duties with

respect to employee benefits plans, such duties are

solely with respect to participants. The duties do

14

not begin until the terms at issue are incorporated

Into a plan.

Id. at 435.

Additionally. the court noted that the statements made

to Stanton by Gulf representatives did not constitute

“misrepresentations,” because all that Stanton had asked

for was information “about the possibility of changes

which could be made” at some future point. 7d. The

court held that Gulf was under no duty to disclose such

a possibility, stating that:

it is not a violation of ERISA to fail to furnish in-

formation regarding amendments before those amend-

ments are put into effect... . This is so because

the legislative intent of ERISA was not to assure the

sanctity of carly retirement expectations, but to safe-

guard accrued retirement benefits.

ld.

In Young v. Standard Oil, the Seventh Circuit drew the

proper distinction between a business decision and “ad-

ministering a benefit plan... . 849 F.2d at 1044

(emphasis in the original). The court agreed with the

employers arguments that “there is no fiduciary duty in

implementing, altering or abolishing a benefit plan involv-

ing nenvested benefits:” and that “defendants were free to

create the special F&P severance plan without notice to

the plaintiffs.” /d. (emphasis added).

The Seventh Circuit held that an employer may amend

a nonvested severance plan “without violating ERISA.”

849 F.2d at 1045. The Seventh Circuit recognized that

a duty to disclose deliberaiions about plan changes did

not arise “just because Amoco administered its employ-

ees severance plan.” /d. Indeed, the court stated un-

equivocally that “Amoco owed no legal duty to reveal

that it intended to create a special severance plan for the

divestiture of the F&P Division.” /d.

The Seventh Circuit came out the same way in a

unionized setting, thus taking a position directly at odds

15

with the Sixth Cireuit’s Drennan decision. In United In-

dependent Flight Officers, Inc. v. United Air Lines, Inc.,

756 F.2d 1274, 1280 (7th Cir. 1985). the court rejected

the plaintiffs’ ERISA claims that the employer and union

Were fiduciaries with respect to negotiated changes in the

airline pilots’ benefit plans. The Court stated:

neither a union nor an employer is an ERISA “fi-

duciary while, or merely because, it is negotiating

the terms and conditions of future pension benefits,

at least where these benefits are not protected under

ERISA’s vesting and nonforfeitability provisions.”

Citing United Independent Flight Officers, Inc. y.

United Air Lines, Inc., 756 F.2d 1262. 1268 (7th

Cir. 1985).

The court. therefore, concluded that United was not

a fiduciary because of its status as a Negotiator over the

terms of the plan and “could not have breached any fiduci-

ary duties with respect to the terms of the plan until those

ferms were incorporated into the plan at the conclusion

of negotiations.” 756 F.2d at 1280 (emphasis added).

Other decisions also conflict with the decision below.

See Barnes v. Lacy, 927 F.2d 539, 543-44 (11th Cir,

1991) (court refused to adopt the position that an em-

ployer had “a duty to announce its intention to reserve

the right” to make changes to existing plans or to offer

new ones), cert, denied, H2 S. Ct. 372 (1991): Payonk

v. HMW Industries, Inc., 883 F.2d 221, 224-6 (3d Cir.

1989) (there is no duty to disclose preliminary termina-

tion discussions until a final decision is made): cf. Porto

v. Armco, Inc., 825 F.2d 1274, 1276 (8th Cir. 1987)

(per curiam) (rejects the argument that fiduciary has the

duty to disclose plan changes prior to the notification

mandated by ERISA’s disclosure provisions), cert. de-

nied, 485 U.S. 937 (1988): Trexel v. E.l. du Pont de

Nemours & Co., No. 85-759 (D. Del. Sept. 9, 1987),

aff'd mem. 845 F.2d 1016 (3d Cir. 1988) (court held

employer had no obligation under ERISA to provide the

plaintiff with information on an upcoming benefit plan

errr re |

16

before the plan was put into effect); and Sleichter v. Mon-

santo Co., 612 F. Supp. 856 (E.D. Mo. 1985) (holding

that ERISA did not require disclosure of an early retire-

ment program in its formative stages even though plaintiff

inquired ).

These decisions are in direct conflict with the position

of the Third and Sixth Circuits, which require an em-

ployer to “fairly disclose[] the progress of its serious con-

siderations to make a plan available to affected employ-

ees.” Drennan, 977 F.2d at 251.

To make matters worse, the Third and Sixth Circuit

decisions are so disingenuous that they are internally

inconsistent. On one hand, for example, the decision be-

low cites Drennan for the proposition that its holding

“*does not require the fiduciary to disclose its internal

deliberations nor interfere with the substantive aspects of

the collective bargaining processes.’” Pet. App. A-10.

On the other hand, Drennan states that an employer must

“fairly disclose[] the progress of its serious considera-

tions.” 977 F.2d at 251. There is no way, however, that

an employer can “disclose the progress of its serious con-

siderations” (Drennan) without “disclosing its internal

deliberations” (Fischer). This sleight of hand may be

necessary so that these courts can mask the confusion

they have generated, but such inconsistency creates un-

workable and oppressive public policy.

Because of these conflicting approaches, employers in

different circuits find themselves under different obliga-

tions with respect to disclosing information about poten-

tial benefit plans. EEAC’s members thus urge the Court

to grant the petition, reverse the decision below, and hold

that an employer’s fiduciary obligation to disclose infor-

mation about benefit plans does not commence until a

plan is adopted.

17

CONCLUSION

For the foregoing reasons, EEAC respectfully submiis

that the petition for a writ of certiorari should be granted.

November 19, 1993

Respectfully submitted,

DOUGLAS S. MCDOWELL *

THOMAS W. REED

MCGUINESS & WILLIAMS

1015 Fifteenth Street, N.W.

Suite 1200

Washington, D.C. 20005

(202) 789-8600

Attorneys for Amicus Curiae

Equal Employment Advisory

Council

* Counsel of Record