Richardson v. Pension Plan of Bethlehem Steel Corp.
Docket: No. 93-36089
Court: Court of Appeals for the Ninth Circuit; October 17, 1995; Federal Appellate Court
A legal analysis is required to determine Bethlehem Steel Corporation's (BSC) liability for shutdown pension benefits for former employees following the sale and closure of a steel plant. Former employees of BSC, represented by the United Steel Workers of America, claim entitlement to pension benefits under a collectively bargained Pension Agreement governed by the Employee Retirement Income Security Act (ERISA). The benefits in question, termed 'shutdown benefits,' are outlined in sections 2.6 and 2.7 of the Pension Plan, granted to employees meeting age and service criteria, particularly when continuous service is disrupted by a plant's permanent shutdown.
The controversy originated in 1982 when BSC decided to divest its West Coast properties and was concerned about potential liabilities for shutdown benefits. To mitigate this, BSC amended the Plan with a provision allowing the General Pension Board to establish rules indicating that a sale would not break service continuity. BSC notified the Union that the sale of its Seattle division to Seattle Steel Inc. (SSI) would not constitute a shutdown if the facility was sold as a going concern, which the Union contested, leading to a grievance.
Subsequent negotiations resulted in a Memorandum of Settlement (MOS) ratified by Union members, stating the sale to SSI would not be deemed a break in service. In return, BSC agreed to provide cash payments to employees based on their service length and established a '48-month safety net' for future shutdown benefits if SSI failed. After the MOS, the General Pension Board formalized these terms, affirming the sale to SSI would not disrupt service continuity.
However, after SSI went out of business in 1990 and sold its assets without hiring former employees, they applied for shutdown benefits, which the General Pension Board denied, citing the MOS's stipulations. The district court upheld this denial, granting summary judgment to BSC, prompting the current appeal.
The former employees assert that the Memorandum of Settlement (MOS) preserves their entitlement to shutdown benefits. Alternatively, they argue that if the MOS is interpreted as terminating their right to such benefits after forty-eight months, it constitutes an illegal amendment under section 204(g) of the Employment Retirement Income Security Act (ERISA). They also challenge the district court’s dismissal of their claim against the General Pension Board for breaching fiduciary duties under section 404(a) of ERISA. In contrast to the district court and the General Pension Board Administrator, the former employees believe the MOS maintains their entitlement to shutdown benefits.
The court's review of the district court’s summary judgment is conducted de novo, although there is disagreement on whether to review the Administrator's decision for an abuse of discretion or de novo. The district court did not decide on the review standard, concluding that the former employees' claims failed even under the more rigorous de novo standard. The district court found that the MOS effectively eliminated rights to shutdown benefits, based on its language and extrinsic evidence indicating that the Union understood the MOS to limit benefits unless SSI failed within forty-eight months.
The former employees contest this conclusion and the evidence evaluation method used. ERISA does not provide its own contract law; instead, courts apply state law principles while considering ERISA's overarching policies. Terms in ERISA plans should be interpreted in their ordinary sense, and courts should first seek the explicit language of the agreement to ascertain the parties' intent. The entire agreement must be read cohesively to avoid rendering any provision meaningless. Although ambiguity typically invites extrinsic evidence to clarify intent, the former employees argue that the MOS is not ambiguous and supports their claims. However, upon analysis, the provisions indicate that section IV of the MOS provides a forty-eight-month timeframe for shutdown benefits, while sections V.A and V.B address employment transitions without breaking continuous service for pension eligibility.
Continuous service with SSI will be recognized as Bethlehem pension continuous service for various retirement plans, but shutdown benefits will only be accessible if SSI fails within a specified forty-eight-month safety net. Former employees interpret the sections to mean that their service with SSI qualifies for all pension plans; however, this interpretation is contradicted by specific provisions that exclude shutdown benefits from the list of eligible plans. Section IV outlines a safety net that limits shutdown benefits to a finite duration, creating inconsistency with the notion of indefinite availability. Although the language in the MOS may be ambiguous regarding the elimination of shutdown benefits post-safety net, the district court determined that the MOS explicitly removes these benefits after forty-eight months, supported by extrinsic evidence indicating Union negotiators’ understanding of this limitation.
The former employees contended that this interpretation would constitute an illegal amendment under 29 U.S.C. 1054(g), which prohibits reductions in accrued benefits. The district court found that the MOS and accompanying Rules and Regulations were not amendments but rather interpretations of the existing Agreement and Plan. BSC maintained that these interpretations were necessary to clarify the implications of selling the Seattle plant to SSI, as the original documents did not specify whether such a sale constituted a permanent shutdown. Thus, the court concluded that the MOS and the Rules and Regulations do not violate 29 U.S.C. 1054(g) as they do not amend but interpret the original pension provisions.
BSC's argument regarding the interpretation of the MOS and the Rules and Regulations is flawed. While these documents could be seen as interpretations if they merely stated that the sale to SSI was not a shutdown, they also eliminate shutdown benefits entirely after the safety net period, which cannot be considered a mere interpretation of the Agreement or Plan. This situation parallels Fentron Industries v. National Shopmen Pension Fund, where an amendment was recognized when past service credits were canceled. Here, the MOS goes further by eliminating an entire class of benefits, which constitutes an amendment under section 1054(g) of the plan, prohibiting the reduction of accrued benefits.
Section 1054(g) states that amendments decreasing accrued benefits or retirement-type subsidies are not allowed. Courts have defined retirement-type subsidies as benefits that exceed normal retirement benefits if received earlier without actuarial reductions. BSC’s shutdown benefits, which include $400 per month until age sixty-two and an additional amount equating to the normal retirement benefit for life, qualify as a retirement-type subsidy because their lifetime total surpasses normal retirement benefits.
Legislative history supports this view, indicating that subsidies continuing post-retirement are generally retirement-type subsidies. Although BSC contends that the shutdown benefits stop at age sixty-two and convert to normal retirement benefits, this argument fails as the shutdown benefits do not cease; recipients continue receiving them until death, thus maintaining their status as retirement-type subsidies.
Shutdown benefits are linked to normal retirement benefits for calculation purposes but remain distinct and do not convert into normal retirement benefits. A Treasury Department General Counsel Memorandum clarifies that shutdown benefits may resemble severance benefits, characterized as short-term income supplements during unemployment, or retirement-type benefits that may extend beyond normal retirement age, incentivizing employees at or near retirement to leave during a plant shutdown. The benefits in question qualify as retirement-type subsidies under section 1054(g) of the Internal Revenue Code, which protects against the amendment of such subsidies if participants meet preamendment conditions, regardless of the timing of the amendment. The sale of SSI to Salmon Bay constituted a shutdown, and at that time, the appellants met the necessary conditions for shutdown benefits, meaning BSC's attempts to eliminate these benefits were ineffective under ERISA.
The former employees also alleged that the General Pension Board breached its fiduciary duties by mischaracterizing the sale to SSI as not a break in service. The district court dismissed this claim, stating that individual plaintiffs cannot assert fiduciary breach claims for personal benefit; benefits must accrue to the Plan as a whole. The court's reliance on Horan v. Kaiser Steel Retirement Plan was deemed misplaced, as the cases differ in that the current plaintiffs seek to recover only benefits explicitly outlined in the Plan, not to impose personal liability on fiduciaries.
ERISA permits participants to initiate civil actions to recover benefits due under their plans. In Meagher v. IAM Pension Plan, the court determined that each denial of benefits by an administrator constitutes a breach of fiduciary duty, giving rise to separate causes of action under 29 U.S.C. § 1132(a)(1)(B). The court found the district court's dismissal of the appellants' restitution claim to be erroneous. Although the district court correctly noted that the language of the MOS did not preserve shutdown benefits for former employees, the elimination of such benefits by BSC violated 29 U.S.C. § 1054(g). The district court’s dismissal under Rule 12(b)(6) for breach of fiduciary duty was also reversed and the case remanded for further proceedings, with costs borne by each party.
The legal provisions state that participants under certain age and service conditions are eligible for retirement pensions post-February 28, 1983, particularly in cases of plant shutdowns or layoffs. The former employees argued that unwritten intentions and oral agreements should not modify the written employee benefit plans, as 29 U.S.C. § 1102 mandates written instruments for employee benefit plans. Courts have distinguished between oral modifications and interpretations of plan provisions that do not contradict the written terms. The extrinsic evidence presented was deemed interpretive rather than modifying the MOS. The court declined to adopt the reasoning from Ross v. Pension Plan for Hourly Employees of SKF Industries, asserting that shutdown benefits continuing post-retirement age are considered retirement-type subsidies. Compliance with both the Internal Revenue Code and ERISA is required for qualified pension plans. Appellants alleged that BSC was aware of SSI's impending failure during the sale.
