The opinion of the court was delivered by: COLLEEN KOTELLY, District Judge
The present dispute involves proceeds derived from the
privatization of Prudential Life Insurance Company
("Prudential"). Currently before the Court is a Motion to Dismiss
by Defendants National Education Association ("NEA") and National
Education Members Insurance Trust ("NEA Trust") for failure to
state a claim under Rule 12(b)(6) of the Federal Rules of Civil
Procedure. Defendants administer a group life insurance contract
("Group Contract") through its Members' NEA Insurance Plan
("Plan"). The Plan is underwritten by Prudential. Plaintiffs
Michael Stewart and Irene Bergenfeld are trustees of the Philip
A. Stewart Irrevocable Trust, which is the owner of a Group Life
Insurance Contract ("Group Contract") administered through the
Plan.*fn1 Plaintiffs contend that they were denied money
they were entitled to from the privatization of Prudential.
The Group Contract is an "employee welfare benefit plan" under
the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et.
seq. Plaintiffs filed an eleven count amended complaint seeking
damages and/or restitution against Defendants for the loss of
conversion privileges and demutualization consideration received
by the NEA Trust after Prudential converted from a participating
mutual insurance company to a non-participating stock company in
December 2001. Defendants maintain that Plaintiffs' rights under
the contract were not violated and that no special rights were
created when the conversion took place.
After reviewing Defendants' Motion ("Defs.' Mot."), Plaintiff's
Opposition ("Pls.' Opp'n"), Defendant's Reply ("Defs.'
Reply"),*fn2 and the applicable law, the Court finds that
Defendant's Motion to Dismiss must be granted.
The Employee Retirement Income Security Act ("ERISA"),
29 U.S.C. § 1001 et. seq., was enacted as a comprehensive
regulation of private employee benefit plans for the purpose of
protecting their participants and beneficiaries. See Aetna
Health Inc. v. Davila, 542 U.S. 200, 124 S. Ct. 2488 (2004);
Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987). ERISA
regulates employee welfare benefit plans ("welfare plans") that
"through purchase of insurance or otherwise, provide medical,
surgical, or hospital care, or benefits in the event of sickness,
accident, disability, or death. Id. (quoting
29 U.S.C. § 1002(1) (internal quotations omitted)). ERISA applies to all
employee benefit plans established or maintained by an employer
engaged in, or affecting, commerce. 29 U.S.C. § 1003(a)(1). An
employee benefit plan is defined as "an employee welfare benefit
plan or an employee pension benefit plan or a plan which is
both. . . ." 29 U.S.C. § 1002(3).
There are regulations that cover both the fiduciary
responsibilities of welfare plans, 29 U.S.C. §§ 1101-1104, and
the disclosure of information to plan participants and
beneficiaries. 29 U.S.C. §§ 1021-1022. Under ERISA, participants
or beneficiaries of welfare plans can enforce their rights under
the terms of their plan in a civil suit. See
29 U.S.C. § 1132(a). Should a welfare plan terminate, ERISA dictates that the
assets of the plan shall be distributed "in accordance with the
terms of the plan. . . ." 29 U.S.C. § 1103(d). ERISA also has an
"anti-inurement" provision that prevents the assets of a plan
from inuring to "the benefit of any employer," and requires
benefits be held "for the exclusive purposes of providing
benefits to participants in the plan and their beneficiaries and
defraying reasonable expense of administering the plan."
29 U.S.C. § 1103(c)(1).
Congress intended for ERISA to be expansive. With minor
exceptions, state law relating to employee benefit plans is
pre-empted by ERISA. Pilot Life Ins. Co., 481 U.S. at 54. ERISA
section 514(a) explicitly states that "[e]xcept as provided in
subsection (b) of this section, the provisions of this subchapter
and subchapter III of this chapter shall supersede any and all
State laws insofar as they may now or hereafter relate to any
employee benefit plan. . . ." 29 U.S.C. § 1144(a). The Supreme
Court strictly construes the preemption provision in ERISA,
opining that the "federal scheme would be completely undermined
if ERISA-plan participants and beneficiaries were free to obtain
remedies under state law that Congress rejected in ERISA." Aetna
Health Inc., 124 S. Ct. at 2500 (quoting Pilot Life Ins. Co.,
481 U.S. at 54). Any state-law cause of action that "duplicates,
supplements, or supplants the ERISA civil enforcement remedy" is
preempted. Id. at 2495. II. Factual Background
Plaintiffs and other members of the NEA ("Member-Insureds")
enrolled in the Group Contract, originally as "participants,"
before Prudential changed its ownership structure in 2001 from a
mutual insurance company to a publicly owned, stock-based
insurance company. Am. Compl. ¶ 12. The life insurance benefit
under the Group Contract was one of several programs the NEA
established under its Members' NEA Insurance Plan ("Plan"). Id.
¶ 6. Defendant NEA Trust is a trust established by the NEA for
the purposes of holding the assets of the Plan. Id. ¶ 7.
Member-Insureds made monetary contributions to the NEA Trust or
the National Education Association Members Benefit Corporation
("NEA MBC"), a wholly owned subsidiary of the NEA, for the
purposes of obtaining the benefits of the Group Contract. Id. ¶
9. The NEA Trust in turn paid the premiums to Prudential from the
fund. Id. ¶ 18. This arrangement was stipulated for in the
Plan. Id. Defendant NEA established the Plan in or around
September 1978. Id. ¶ 6. Designated Trustees have served the
Plan since it became effective. Id. ¶ 7.
The Plan provides group insurance to participants from its
membership of approximately 2.7 million school teachers
nationwide. Id. ¶ 6. The Plan's purpose is to
establish, maintain, and operate, on a voluntary and
self-sustaining basis, one or more programs to
provide benefits in the event of death, accident,
sickness, disability, or other occurrence affecting
participants and their family either on a self-funded
basis or through one or more insurance policies
acquired and maintained by the Trustees.
Id. Ex. D at 6.
The ERISA statute supplies a definition of an "employee benefit
plan" that includes an "employee welfare benefit plan," which is
an employee benefit plan "established or maintained by an employer or by an employee organization, or by both, to the
extent that such plan . . . was established or is maintained for
the purpose of providing for its participants or their
beneficiaries, through the purchase of insurance or otherwise . . .
benefits in the event of sickness, accident, disability, death
[or other occurrences]." 29 U.S.C. §§ 1002(1), 1002(3).
The Amended Complaint makes it clear that the NEA Members
Insurance Plan is covered by ERISA. The NEA is an "employee
organization" under 29 U.S.C. § 1002(4). See Am. Compl. ¶ 6
(stating that the "NEA is a national organization of school
teachers"). The Plan was established or maintained by that
organization. See id. ¶¶ 6, 42 (stating that "the NEA
established the Members Insurance Plan"). Finally, the Plan's
language, quoted infra, conforms to the definition of an
"employee welfare benefit plan" under ERISA.*fn3 Plaintiffs
are participants and/or beneficiaries under
29 U.S.C. § 1002(B)(7) & (8). As participants and beneficiaries in the Plan,
Member-Insureds were entitled to certain rights under ERISA. Am.
Compl. Ex. B. at 20.
Pursuant to the Plan, the NEA offered a life insurance benefit
to its members through the Group Contract, underwritten by
Prudential. Id. ¶ 8. Since the Group Contract is a Plan
document, it is also covered by ERISA. See id. Ex. B at 20
("The terms of the Plan are currently contained in a Trust agreement and operating document governing
the Plan, in the insurance policies issued to the Trust . . .").
The Group Contract consists of (1) the group contract itself,
along with any attachments and endorsements, Am. Comp. Ex. A; (2)
a Group Insurance Certificate, Am. Compl. Ex. B; and (3) the
individual applications of Member-Insureds, Compl. Ex. C. The
group contract contains a provision integrating these documents
as the applicable contract:
The entire group contract consists of: (1) the Group
Insurance Certificate(s) listed in the Schedule of
Plans, a copy of which is attached to the Group
Contract; (2) all modifications and endorsements to
such Group Insurance Certificates which are attached
to and made a part of the Group Contract by amendment
to the Group Contract; (3) the forms shown in the
Table of Contents as of the Contract Date; (4) the
Contract Holder's application, a copy of which is
attached to the Group Contract; (5) any endorsements
or amendments to the Group Contract; and (6) the
individual applications, if any, of the persons
Id. ¶ 14 (citing Ex. A, `General Rules' at (7-1)C).
The NEA Trust's published "Summary Plan Description," Am.
Compl. Ex. B, makes it clear that the Group Contract was
administered through the Plan:
Plan Name. The plan is generally known as the NEA
Member Insurance Plan.
Trust Name. The Trust is generally known as the NEA
Member Insurance Trust.
Program Name. The Program is generally known as the
NEA Life Insurance Plan.
. . .
Termination and Amendment of Plan or Trust. The NEA
and the Trustees reserve the right to modify or
terminate the Plan, any Program, or the Trust at any
Am. Compl. Ex. B. at 20 (emphasis in original). The Summary Plan
Description also alerts members of their rights regarding
programs within the Plan under ERISA. Id. at 22. B. Prudential Conversion
Members of a mutual insurance company own "participating life
insurance contracts" and have a beneficial right to participate
in the insurer's surplus. Id. ¶ 21. Should the expected value
of the premium payments charged by the mutual insurer exceed
costs, the mutual company's board may return a portion of the
members' premiums in the form of dividends. Id. ¶ 23. This
ownership structure allows policy owners to obtain insurance
protection at cost. Id. In contrast, the price of a
"non-participating policy" is set, and policy holders are not
entitled to any surplus created by their premiums. Id. ¶ 22.
Plaintiffs allege that the Member-Insureds were "members" of
the insurance company with a proportional beneficial interest in
Prudential's surplus as a result of the Group Contract, which was
a "participating" policy. Id. ¶ 28. In support of their
position, Plaintiffs point to the fact that Prudential directly
determined the premiums for each Member-Insured and that the NEA
did not pay any portion of the premiums. Id. ¶ 25. Furthermore,
Plaintiffs claim that they are the beneficiaries of the Group
Contract and that they specifically allocated their surplus
dividends toward reducing the cost of their insurance. Id. ¶
26. Plaintiffs claim, however, that in contrast to the provision
for dividends there is no affirmative agreement in the Group
Contract that would allow the NEA Trust to take or use the
Member-Insureds membership interest for anyone other than the
Member-Insureds. Id. at ¶ 27.
In December 2001, the Prudential ownership structure changed
and the company was converted into a stock-based life insurance
company. Id. ¶ 8. The process of conversion from a mutual
insurance company to a stock company is referred to as
demutualization. By reason of the conversion, the Group Contract
was terminated and replaced by a "non-participating" policy underwritten by Prudential Financial Inc. ("PFI"). Id. ¶ 32,
35. The old Group Contract provided a "Conversion Privilege":
Prudential will give an individual certificate to
each insured Member. It will describe the Member's
coverage under the Group Contract. It will include
(1) to whom Prudential pays benefits, (2) any
protection and rights when the insurance ends, and
(3) claim rights and requirements.
Id. ¶ 35 (citing Ex. A, p. 5) (emphasis omitted). The
Conversion Privilege also provided the Member-Insureds the right
to convert their Group Contract rights to individual contracts
for insurance. Id. ¶ 36.
For the conversion to take place, the company had to terminate
its existing "participating" policies. Id. ¶ 29. Prudential's
parent company, Prudential Financial Inc. ("PFI"), underwent its
initial public offering on December 13, 2001, and on that date
the "participating" contracts were dissolved. Id. ¶ 31.
Prudential compensated members for the loss of their membership
interests with cash, insurance policy credits or stock in the
newly created PFI. The resulting compensation is known as
"demutualization interest" or consideration. The consideration
was paid to the NEA Trust, which Plaintiffs assert was required
by the New Jersey Conversion Law and given on behalf of the
Member-Insureds as the beneficiaries of the Group Contract. Id.
On September 1, 2002, after receiving the demutualization
consideration, the NEA Trust and the Trustees amended the Plan to
redefine "Trust Fund" in section 1.9 of the Plan and "Surplus
Fund" in section 12.2 of the Plan. Id. ¶ 44. Plaintiffs claim
the new definitions, which include "any equity shares or proceeds
from insurance company demutualization," are an attempt to
retroactively redefine the terms in the Plan to give NEA and the
NEA Trust control and ownership of the consideration. Id.
(quoting Ex. D-1, p. 15). Plaintiffs claim that Article Thirteen (13) of the Plan prohibits retroactive amendments that