Richardson v. Pension Plan of Bethlehem Steel Corp.

Citations: 112 F.3d 982; 20 Employee Benefits Cas. (BNA) 2828; 97 Cal. Daily Op. Serv. 3254; 97 Daily Journal DAR 5634; 1997 U.S. App. LEXIS 9860Docket: No. 93-36089

Court: Court of Appeals for the Ninth Circuit; May 2, 1997; Federal Appellate Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

The legal document addresses the liability of Bethlehem Steel Corporation (BSC) for shutdown pension benefits after the sale and closure of its Seattle steel plant. Former employees of BSC, represented by the United Steel Workers of America, are seeking pension benefits under a collectively bargained Pension Agreement governed by the Employee Retirement Income Security Act (ERISA). The controversy centers on the "shutdown benefits" defined in the Pension Plan, specifically the Rule-of-65 and 70/80 benefits, which apply to employees whose continuous service is interrupted due to a plant shutdown.

In 1982, BSC amended the Pension Plan to include a provision allowing the General Pension Board to determine that a sale would not disrupt continuous service. Following this, BSC negotiated the sale of its Seattle division to Seattle Steel Inc. (SSI) but faced opposition from the Union, which asserted that the sale constituted a shutdown. The dispute was resolved through a Memorandum of Settlement (MOS) in December 1984, ratified by the Union, which stipulated that the sale would not break continuous service and included cash payments to employees based on their tenure. Additionally, the MOS provided a 48-month safety net for employees if SSI’s business failed.

After the sale to SSI on January 1, 1985, SSI went out of business in October 1990 and later sold its assets to Salmon Bay Steel Corporation, which did not hire any former employees. The General Pension Board denied the former employees' claims for shutdown benefits, citing that the MOS terminated these benefits after the 48-month period. The district court upheld this denial, granting summary judgment to BSC, leading to the current appeal.

Former employees assert that the Modification of Settlement (MOS) maintains their entitlement to shutdown benefits. Alternatively, they argue that if the MOS is interpreted to eliminate these benefits after forty-eight months, it constitutes an illegal amendment under section 204(g) of ERISA, 29 U.S.C. 1054(g). Additionally, they contest the district court's dismissal of their claim regarding the General Pension Board's breach of fiduciary duties under section 404(a) of ERISA, 29 U.S.C. 1104(a). Unlike the General Pension Board Administrator and the district court, the former employees believe the MOS preserves their right to these benefits.

The court reviews the district court’s grant of summary judgment de novo. There is a disagreement over whether the Administrator's decision to deny benefits should be reviewed de novo or for an abuse of discretion, but the district court found the former employees' claims failed even under the de novo standard. The district court concluded, based on the MOS language and extrinsic evidence, that the MOS negated rights to shutdown benefits, understanding that the Union intended to preclude these benefits unless SSI failed within forty-eight months.

The interpretation of ERISA plans does not rely on a specific body of contract law but on principles derived from state law, guided by ERISA's policies. Courts are to interpret terms in an ordinary sense and look to the explicit language to discern the parties' intent, considering the context of the agreement. The former employees argue the district court improperly used extrinsic evidence, claiming the MOS is unambiguous and supports their claim for benefits. However, the court finds their argument meritless, noting that Section IV of the MOS establishes a forty-eight-month safety net for shutdown benefits, while Sections V.A and V.B address employment transitions and continuous service crediting without implying a break in pension service.

Continuous service with SSI is recognized as Bethlehem pension continuous service for eligibility in various pension plans, including 65/10, 62/15, 30-year, and 60/15 retirement options, as well as deferred vested retirement, provided specific pension age requirements are met. However, shutdown benefits are only available if SSI fails within a forty-eight month safety net period. The former employees interpret the agreement to mean their service with SSI qualifies for all pension plans, but this interpretation is contradicted by other sections of the agreement, specifically Section IV and Section V.B, which do not include shutdown benefits under certain plans. The ambiguity regarding shutdown benefits does not support their claim, as extrinsic evidence indicates that the Union understood the agreement to limit shutdown benefits to the specified safety net period. The district court upheld that shutdown benefits were eliminated post-safety net expiration. The former employees argued this limitation violated 29 U.S.C. 1054(g) regarding plan amendments. However, the court found that the agreement and its interpretations did not constitute amendments but rather clarifications, as Section 1054(g) applies only to amendments to a plan, not interpretations of its terms. The resolution hinges on whether the agreement was an amendment or an interpretation, with the court confirming it was an interpretation.

Employees argue that the Memorandum of Settlement (MOS) amended their pension Plan, citing the case Fentron Industries v. National Shopmen Pension Fund, which indicated that indirect actions reducing vested rights can constitute an amendment under 29 U.S.C. 1053. However, Fentron did not provide a clear test for Plan amendments and focused on section 1053 rather than 1054(g). The more pertinent case is Oster v. Barco of California Employees’ Retirement Plan, where a modification of the Plan's lump-sum distribution policy was ruled not to be an amendment. The court adopted reasoning from the D.C. Circuit, asserting that "amendment" is a limiting term in 1054(g), emphasizing that not every change triggers its provisions. 

The court concluded that the MOS was not an amendment but an interpretation resulting from a settlement regarding the application of Plan provisions in the context of a sale to SSI. The Plan allowed the General Pension Board to establish rules to determine if such a sale constituted a break in service. The MOS provided a temporary “safety net” for employees, which did not alter the existing benefits framework for other employees. 

Equitably, when the Union learned of BSC’s position regarding the sale, it filed a grievance and agreed through the MOS that the sale would not be treated as a shutdown, obtaining cash payments and the safety net in return. The employees cannot now contest that negotiated arrangement under ERISA. 

Additionally, the former employees alleged that the General Pension Board violated fiduciary duties under ERISA when it ruled the sale did not interrupt service, asserting that the sale was a "sham." However, the district court dismissed their claim for failing to state a valid claim under Rule 12(b)(6). The employees framed their argument as a claim for benefits under 29 U.S.C. 1132(a)(1)(B), but this claim was deemed invalid as they had already agreed to the terms of the MOS, which included a four-year safety net after which they accepted the risk of SSI’s failure. Therefore, they cannot retroactively demand additional benefits beyond what was negotiated. The court affirmed the lower court's dismissal.

Each party is responsible for their own legal costs. Retirement eligibility is outlined as follows: 

1. **70/80 Retirement**: Participants under 62 with at least 15 years of continuous service can retire if they meet one of the following:
   - At least 55 years old, with combined age and service equal to 70 or more.
   - Combined age and service equal to 80 or more.
   Eligible participants who retire will receive a pension.

2. **Rule-of-65 Retirement**: Participants with at least 20 years of continuous service, under 55 years old, and combined age and service between 65 and 80 can retire if:
   - Their service was interrupted due to a layoff or disability.
   - They are absent due to a voluntary layoff from a permanent shutdown without suitable long-term employment offered.
   Eligible participants who retire will also receive a pension.

The former employees argue that oral agreements cannot modify written employee benefit plans, referencing 29 U.S.C. 1102, which mandates that employee benefit plans must be maintained through written instruments. Courts have determined that while oral agreements cannot contradict ERISA plans, oral interpretations that align with written provisions are permissible. The 'no oral modification' rule is deemed unconvincing since the extrinsic evidence merely interprets the plan rather than modifies it.

Additionally, the plan allows credit for continuous service if an employee is transferred to another employer through the sale of part of the original employer's entity, per rules established by the General Pension Board. Although the issue is not definitively addressed, it is noted that the plaintiffs may only qualify for Rule-of-65 and 70/80 benefits due to the provisions in the MOS, potentially failing to meet preamendment conditions for those benefits.