entitled to pension benefits due to their years of service with Anchor Post Building Products ("Anchor") and pursuant to Anchor's collective bargaining agreement with the Shopmen's local union. Mr. Stewart was an employee at Anchor from 1940 until 1972, when he retired. Mr. Warren worked at Anchor's Maryland plant from 1959 until 1979 when Anchor closed that plant.
Anchor joined the defendant Fund and began making contributions on behalf of its employees in 1969. At that time, Anchor's employees were granted pension credits for their years of service with their employer before joining the Fund. Thus, at the time of his retirement Stewart had 2.7 years of contributory service (service during years in which Anchor contributed to the Fund on his behalf) and 23 years of precontributory service (service before Anchor joined the Fund). Warren had 10.6 years of precontributory service and 10.4 years of contributory service.
In 1979, when Anchor closed its Maryland plant, it ceased to contribute to the Fund. As was the usual procedure when an employer withdrew from the Fund, the Trustees ordered that an actuarial study be performed to determine the effect of the withdrawal upon the Fund. The study disclosed that Anchor's withdrawal "dumped" $750,000 of liability on the Fund. The study suggested that the Fund cancel all precontributory service credit given to Anchor employees in order to decrease this liability. The cancellation would not completely deprive any recipient of vested pension rights but it would decrease the amount of the pensions due to employees who had precontributory credit. The Trustees adopted the study's suggestion and cancelled all precontributory credit. They did so pursuant to § 2.09 of the National Shopmen Pension Plan.
As a result of the Fund's decision, Mr. Stewart's pension was reduced from $80/month to $9/month. Mr. Warren's pension suffered a reduction from $89.50/month to $45/month. Plaintiffs both appealed the decisions regarding their pensions to the Trustees of the Fund, but both appeals were denied. Consequently, plaintiffs filed this suit challenging the decision of the Fund's Trustees to cancel precontributory credit. Plaintiffs allege that the Trustees decision: 1) violated the vesting and nonforfeiture provisions of § 203 of ERISA; 2) violated § 203(c)(1)(B) of ERISA which provides that vesting schedule amendments trigger the right to choose to have benefits calculated under a Fund's pre-amendment plan;
3) constituted a decrease in their accrued benefits in violation of § 204(g) of ERISA; 4) was arbitrary and capricious in violation of ERISA's "sole and exclusive benefit" requirement; and 5) conflicted with the Plan's general vesting and nonforfeiture rules. Because the Court agrees with the second and third of plaintiffs' arguments, it need not reach the remainder of plaintiffs' contentions.
THE TRUSTEES' CANCELLATION OF THE PRECONTRIBUTORY CREDITS OF POST-ERISA PARTICIPANTS IS INVALID BECAUSE IT VIOLATES THE REQUIREMENTS OF ERISA § 203(c)(1)(B).
Under ERISA § 203(c)(1)(B), 29 U.S.C. § 1053(c)(1)(B), if a plan is amended so as to change its vesting schedule, participants with at least five years of service must be permitted to elect to have their benefits calculated under the pre-amendment plan. It has been stipulated that the Trustees did not view their application of § 2.09 to cancel precontributory credits as a plan amendment changing the vesting schedule and therefore did not allow plan participants to exercise the option mandated by § 203(c)(1)(B). Thus, the only question is whether the Trustees' action constituted such an amendment. If the Court finds that the Trustees' action did constitute such an amendment, § 203(c)(1)(B) will clearly render their action invalid.
A plan's vesting schedule delineates the timetable by which a participant's benefits will become vested i.e. nonforfeitable. The vesting schedule in the National Shopmen Pension Plan provided that benefits were to be nonforfeitable after 10 years of service. The Trustees contend that because they did not officially change this schedule, the action they took pursuant to § 2.09 was not a vesting schedule amendment. However, because the effect of defendants' actions was to alter the vested benefits of the plaintiffs, the Court holds that these actions do constitute a change in vesting schedule.
This issue was addressed by the Ninth Circuit in Fentron Industries v. National Shopmen Pension Fund, 674 F.2d 1300 (9th Cir. 1982).
Dealing with the same plan at issue here and similar actions by the Trustees, the Circuit Court concluded that it was irrelevant "that the trustees' cancellation [did] not directly change the 1969 Plan vesting schedule . . . [so long as the cancellation] did change class members' vested rights." Id. at 1306. As stated by the Fentron court: "The Fund and its trustees cannot be permitted to do indirectly what would be prohibited if done directly by changing the vesting schedule without changing the vesting provisions of the plan." Id.
Defendants' primary defense to plaintiffs allegations is that their decision to cancel precontributory service credits is specifically authorized by ERISA and therefore could not possibly be in violation of that Act. Defendants find this authorization in § 203(a)(3)(E) which provides that:
A right to an accrued benefit derived from employer contributions under a multiemployer plan shall not be treated as forfeitable solely because the plan provides that benefits accrued as a result of service with the participant's employers before the employer had an obligation to contribute under the plan may not be payable if the employer ceases contributions to the multiemployer plan.
However, this provision does not do what defendants claim that it does -- it does not validate all cancellations of precontributory credits. Rather, this section merely states that such cancellation will not violate the nonforfeitability provisions of ERISA. Accordingly, § 203(a)(3)(E) has no bearing on the Court's conclusion that the Trustees' action constituted a vesting schedule amendment that triggers the right of participants to have their benefits calculated under the pre-amendment plan.
The Court's holding that Fund participants have the right to have their benefits calculated under the pre-amendment plan is not, however, applicable to all members of the plaintiff class. It has been widely held that § 203 of ERISA only applies to those individuals who were employees on January 1, 1976, the effective date of that section. See, e.g., Cohen v. Martin's 694 F.2d 296 (2d Cir. 1982); Fremont v. McGraw-Edison Co., 606 F.2d 752, 755 (7th Cir. 1979), cert. denied, 445 U.S. 951, 63 L. Ed. 2d 786, 100 S. Ct. 1599 (1980). The plaintiff class here consists of some individuals whose benefits were fully vested or who were actually receiving benefits, but who were not actively employed on the relevant date. Although the Court's ruling relying on § 203(c)(1)(B) cannot apply to these employees, there is an additional provision entitling these pre-ERISA beneficiaries to relief.
THE TRUSTEES' CANCELLATION OF PRECONTRIBUTORY CREDITS FOR ALL PARTICIPANTS IS INVALID BECAUSE IT VIOLATES THE REQUIREMENTS OF ERISA § 204(g).
ERISA § 204(g) provides that "the accrued benefit of a participant under a plan may not be decreased by an amendment to the plan [unless the plan administrator files a notice with the Secretary of Labor and the Secretary approves such amendment]." 29 U.S.C. §§ 1054(g) & 1082(c)(8). The parties have stipulated that the Trustees did not believe their actions were governed by § 204 and therefore did not seek the approval of the Secretary. However, the Court finds the Trustees' disregard of § 204 to be improper.
It is indisputable that the Trustees' action here decreased the accrued benefits of all members of the plaintiff class.
Further, the Court holds, pursuant to the same reasoning employed to find an amendment in the vesting schedule, that this reduction in benefits was the result of a plan "amendment." The Trustees cannot be allowed to do indirectly -- by applying § 2.09 to decrease benefits -- what they are forbidden to do directly -- by passing an amendment accomplishing the same end. See Fentron Industries v. National Shopmen Pension Fund, 674 F.2d 1300, 1306 (9th Cir. 1982).
Moreover, the Court holds that § 204 of ERISA, unlike § 203, applies to both pre-ERISA and post-ERISA plan participants. It appears that the question of whether § 204 should apply to pre-ERISA employees is one of first impression. While there are several cases holding that ERISA should not be applied retroactively, these decisions have generally confined their holdings to § 203 (ERISA's vesting requirements) and have relied upon the distinction in the Act between "participants" and "employees."
See, e.g., Cohen v. Martin's, 694 F.2d 296 (2d Cir. 1982); Fremont v. McGraw-Edison Co., 606 F.2d 752, 755 (7th Cir. 1979) cert. denied, 445 U.S. 951, 63 L. Ed. 2d 786, 100 S. Ct. 1599 (1980). However, this distinction leads to a contrary interpretation of § 204.
In assessing the applicability of ERISA's provisions, it is important to recognize the Act's distinction between "employees" and "participants." ERISA defines the term "participant" as "any employee or former employee . . . who is or may become eligible to receive a benefit of any type from an employee benefit plan." 29 U.S.C. § 1002(7). By contrast, an "employee" is defined as "any individual employed by an employer." 29 U.S.C. § 1002(6). Thus, plaintiff Stewart and all class members who were receiving benefits but were no longer employed by their contributing employer at the effective date of ERISA qualify as participants under the Act but not as employees.
The section of ERISA at issue here, § 204, specifically addresses the benefits of participants. This is in direct contrast to § 203 which speaks to the rights of employees. The Court concludes, relying upon this distinction, that § 204 applies to both pre-ERISA and post-ERISA retirees and thus to the entire plaintiff class, even though § 203 does not.
An Order in accordance with the foregoing will be issued of even date herewith.