Emma Siles v. Ilgwu National Retirement Fund Dennis Slipkoff Alvin Kaplan

Citations: 783 F.2d 923; 4 Fed. R. Serv. 3d 193; 1986 U.S. App. LEXIS 22561Docket: 85-1728

Court: Court of Appeals for the Ninth Circuit; February 25, 1986; Federal Appellate Court

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Emma Siles appeals the district court's summary judgment favoring the International Lady Garment Workers Union (ILGWU) National Retirement Fund (Fund). She argues that the Fund's requirement of 435 hours of covered employment in 1974 and 1975 for pension eligibility violates the transitional rules of the Employee Retirement Income Security Act (ERISA), specifically 29 U.S.C. Sec. 1061(e). Additionally, she claims that certain provisions of the Plan breach the fiduciary duties of the Fund trustees. Siles also contests the court's refusal to certify the case as a class action.

Established in 1951, the Fund provides retirement benefits funded through employer contributions. The pre-ERISA plan required employees to have worked at least twenty credited years in covered employment, with additional stipulations regarding the last ten years worked prior to retirement, without vesting benefits. The Fund's trustees could excuse up to three years of service breaks under certain circumstances. 

Following the enactment of ERISA in 1974, the Fund amended its plan to comply with more favorable eligibility rules. A key point of contention in this appeal is section 3.2 of the amended ERISA plan, which outlines requirements for vested pension eligibility, including attaining age 62, having 10 years of Vesting Service, and being credited with at least 435 hours in covered employment in both 1974 and 1975.

Siles worked under the Fund's pension plan from late 1957 until May 1974 and, despite being laid off, continued to pay union dues and seek job referrals. In 1975, she received minimal hours credited and has not worked in covered employment since 1976.

To qualify for a pension under the plan, an employee must complete 870 hours of covered employment in a year. Siles, who turned 62 in July 1978, applied for early retirement but was denied in February 1979 due to insufficient years of covered employment and hours worked in 1975 and 1976. The appeals committee informed her that she needed one additional year of covered employment to qualify. Siles claimed this was the first notice she received regarding the pension qualifications. Shortly after the denial, she received a job referral for temporary work but did not pursue it because she was already employed full-time. Siles subsequently filed a lawsuit against the Fund and two individuals, seeking to challenge the denial of her benefits and to certify a plaintiff class of similarly affected beneficiaries. The district court denied her class certification motion, citing insufficient proof of numerosity and her ability to represent the class. Following this, both parties sought summary judgment; the court denied Siles's motion but granted the Fund's in part, finding an issue of fact regarding the adequacy of notice given to Siles. Ultimately, while recognizing the issue of fact, the court ruled that Siles had not detrimentally relied on the lack of notice, thus granting summary judgment to the Fund. The review of summary judgment is de novo, with decisions reversed only if arbitrary and capricious. The district court's denial of class certification can be overturned only for abuse of discretion. ERISA aims to protect employees' pension rights through minimum participation and vesting requirements, which were effective for plans existing as of January 1, 1974, with transitional rules allowing changes in vesting requirements only if they were at least as favorable to employees as previous rules or compliant with ERISA.

Siles contends that section 3.2(4) of the ERISA plan is less favorable than the pre-ERISA plan's break-in-service rules and violates ERISA. The court, however, finds that section 3.2(4) complies with ERISA, thus not addressing Siles' first claim. The focus is on whether section 3.2(4) meets ERISA's break-in-service rules for minimum vesting requirements, which it does. ERISA allows pension plans to adopt one of three minimum vesting provisions, and the Fund's plan requires that an employee with at least 10 years of service has a nonforfeitable right to 100% of accrued benefits from employer contributions. The plan must consider all years of service, subject to certain exceptions, including break-in-service rules under section 1053(b)(3). 

Two relevant rules are: section 1053(b)(3)(B), which permits a plan to disregard years of service prior to a one-year break until the employee returns and completes one year of service; and section 1053(b)(3)(D), which requires accounting for pre-break years unless the breaks equal or exceed the years of service accrued. Siles argues that section 3.2(4) fails to incorporate section 1053(b)(3)(D) by denying her the ability to count service years prior to her 1975 break. While it is accurate that section 3.2(4) does not allow for counting pre-break years, Siles misinterprets the break-in-service rules by focusing solely on section 1053(b)(3)(D) without considering section 1053(b)(3)(B). 

The two provisions must be read in tandem, demonstrating that section 3.2(4) is compliant. It stipulates that an employee who experienced a break in service prior to 1976 must return and work for at least one year after 1975 to rectify the break, a requirement allowed under section 1053(b)(3)(B). The plan would contravene ERISA only if it mandated that an employee return before her break-in-service years equaled her prior years of service.

Siles contends that she qualified for the ERISA plan due to her covered employment in 1976, citing Smith v. CMTA-IAM Pension Trust as support. However, the Smith case is deemed inapplicable here, as it involved an employee's retirement benefits being suspended in 1974 due to continued work after age 62, with benefits resuming in 1978 upon retirement. The decision in Smith confirmed that ERISA's vesting provisions applied to claims from 1976 onward but clarified that these provisions were not retroactive. Siles has forfeited benefits under a valid pre-1976 plan, which distinguishes her case from Smith.

Siles is not deprived of earned retirement benefits; she needed an additional five years of work to qualify under the pre-ERISA plan. Even with potential discretionary credits from the Fund's trustees, she would still require at least two more years of work for pension qualification. The legislative intent behind ERISA aimed to protect employees like Siles without jeopardizing pension fund solvency, leading to transitional rules, which the Fund's section 3.2(4) adhered to.

Siles further alleges a breach of fiduciary duty by the Plan trustees under 29 U.S.C. Sec. 1104, which mandates that trustees act solely in the interests of plan participants. The "structural defect" test is applied to evaluate whether trustees acted arbitrarily or capriciously. Siles argues that adopting section 3.2(4) lacked legitimate justification for limiting ERISA's ten-year vesting requirement. The district court found no evidence that this section disproportionately excluded employees from benefits. Even if it had, the Fund provided a reasonable justification: the provision was intended to maintain the Plan's actuarial soundness, as immediate vesting for all employees with ten years of service would risk fund viability. The court concluded that the trustees had shown a legitimate purpose for section 3.2(4) and did not violate their fiduciary duties.

Siles argues that the trustees' application of the 435-hour requirement for 1975 was arbitrary and capricious concerning her involuntary unemployment. She cites Lee v. Nesbitt, where a pension trust's break-in-service rule was deemed unjust for an employee whose unemployment was involuntary, noting that the employee had already earned sufficient hours for pension eligibility. However, Siles had not yet earned any benefits under either the pre-ERISA or ERISA plans at the time the rule was applied, making the reasoning in Lee inapplicable to her situation.

Siles also contends that retroactive application of the 435-hour requirement without adequate notice was arbitrary and capricious. The district court did not address this argument, having concluded Siles had made every effort to find covered work from 1975 to 1979 and thus had not detrimentally relied on the lack of notice. The appellate court agrees with the district court's finding regarding her efforts but disagrees with the necessity for Siles to prove detrimental reliance, arguing that the standard is unreasonably burdensome. Instead, Siles must demonstrate harm resulting from the lack of notice, which the court finds she did not experience, as her own testimony indicates she could not have acted differently had she received proper notice.

The trial court denied class certification, concluding Siles did not show numerosity or that she could adequately represent the class. This decision is upheld, as Siles provided insufficient evidence regarding the number of employees affected by the pension loss. The district court's summary judgment in favor of the Fund is affirmed.

Under the ERISA plan, an employee qualifies for a pension by meeting the criteria of either a twenty-year plan or the ten-year plan mandated by ERISA. Specifically, 29 U.S.C. Sec. 1061(e)(2) prohibits amendments to pension plans concerning breaks in service if such amendments reduce the nonforfeitable benefits that employees would otherwise receive based on existing rules or the plan as it was effective on January 1, 1974. 

Siles raises a question regarding her participation in the ERISA plan; however, this issue is not addressed for two reasons: first, section 3.2(4) of the ERISA plan pertains only to participants, and it is assumed Siles is a participant for this challenge; second, her entitlement to benefits hinges on whether she has a vested right, not merely on her status as a participant. According to ERISA, a participant is defined as an employee who is or may become entitled to retirement benefits (29 U.S.C. Sec. 10027).

Determining Siles's status requires evaluating whether she has a vested right to benefits. A one-year break in service is defined as a twelve-month period during which an employee does not work at least 500 hours (29 U.S.C. Sec. 1053(b)(3)(A)). Sections 1053(b)(3)(B) and 1053(b)(3)(D) outline rules for calculating years of service in light of breaks in service, indicating that years of service before a break may not be counted under certain conditions.

Siles attempts to differentiate her status by arguing that section 1053(b)(3)(B) applies to employees while section 1053(b)(3)(D) applies to non-vested participants. While her assertion that section 1053(b)(3)(B) pertains to employees is valid, her claim to be a participant rather than an employee is incorrect, as ERISA defines participants as employees. Consequently, both sections apply to her.

There is some evidence suggesting Siles received notice of the ERISA plan requirements prior to 1979, but the court does not need to determine the adequacy or timeliness of this notice based on the outcome of the issue at hand.