Bonneau v. Plumbers & Pipefitters Local Union 51 Pension Trust Fund Ex Rel. Bolton , 736 F.3d 33 ( 2013 )

United States Court of Appeals
For the First Circuit
No. 13-1515
RONALD R. BONNEAU, RICHARD DONNELLY, JAMES KOZIERA,
AND JOHN F. TONER, JR.,
Plaintiffs, Appellees,
v.
PLUMBERS AND PIPEFITTERS LOCAL UNION 51 PENSION TRUST FUND, BY
AND THROUGH ITS TRUSTEES, ROBERT BOLTON, DAVID RAMPONE, MICHAEL
ST. MARTIN, DAVID GREENBERG, ROBERT WALKER, WILLIAM DEMELLO,
MICHAEL VOLINO, AND THOMAS HANFIELD,
Defendants, Appellants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
[Hon. John J. McConnell, Jr., U.S. District Judge]
Before
Lynch, Chief Judge,
Selya, Circuit Judge,
and Hillman,* District Judge.
James F. Grosso, with whom O'Reilly, Grosso & Gross, P.C.,
Michael W. Murphy, and Rodio & Ursillo, Ltd. were on brief, for
appellants.
William J. Conley, Jr. for appellees.
November 15, 2013
*
Of the District of Massachusetts, sitting by designation.
LYNCH, Chief Judge. This is a dispute between a group of
now-retired union employees over certain "banked hour" benefits
which their union Pension Trust wants to eliminate, and the Trust,
which is in distress and trying to find sources of funding to meet
its obligations to its larger group of plan participants. The
Trustees agreed not to impose the cuts until a court had finally
determined whether these cuts, effectuated through Plan Amendment
Nine, violated the anti-cutback provisions of the Employee
Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001
et seq., which protects "accrued benefits" against reduction by
amendment. Id. § 1054(g)(1).
This case raises a question of first impression in this
circuit as to whether a retroactively conferred benefit during the
course of employment constitutes a "benefit attributable to
service" and so an "accrued benefit" for purposes of ERISA's
anti-cutback rule. On cross-motions for summary judgment, the
district court entered summary judgment for the plaintiffs. While
the Trustees' arguments to the contrary are far from frivolous, we
find the plaintiffs' benefits are in fact "accrued" and that
Amendment Nine would violate the anti-cutback provisions. We
affirm the district court on this basis.
I.
The Plumbers and Pipefitters Local Union #51 ("the
Union") is a labor organization situated in East Providence, Rhode
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Island. The Union represents pipefitters and plumbers in Rhode
Island and southeast Massachusetts. The Union came to be on
September 1, 1997 through the merger of four former local unions.
After the merger, the local unions' employee benefits plans and
related plans and funds also merged. The result was the Plumbers
and Pipefitters Local Union #51 Pension Plan ("Post-Merger Plan"),
dated September 1, 1998. This is the plan which concerns us. The
pre-merger plans no longer exist.
Among the pension benefits promised under both the Pre-
and Post-Merger Plans were "banked hour" benefits. "Banked hours"
are hours of service worked in covered employment or otherwise
accrued by plan participants within a given year in excess of the
minimum number of hours required to earn a full year of service for
pension credit under the applicable plan. Such hours are "banked"
for a variety of uses, including filling in of hours of service for
years in which the participant fell short of the minimum required
for a full year of credit and "cash[ing] in" as additional pension
credits upon retirement.
One problem the Post-Merger Plan had to deal with was
that the "banked hour" provisions were different in each of the
four pre-merger plans. Indeed, the provisions contained in the
various pre-merger plan documents had different accrual, use, and
value of "banked hours." For example, under the pre-merger plans,
the minimum number of hours of service needed for the receipt of a
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full year of pension credit ranged from 1,200 in one plan to 1,710
hours in another. The Post-Merger Plan Document eliminated those
variations and chose to use as to each "banked hour" provision
among the most generous benefit terms from the earlier provisions.
For example, under the Post-Merger Plan, the minimum number of
hours of service required for the receipt of a full year of pension
credit was only 1,200 hours for all participants.1 The Post-Merger
Plan Document's more generous "banked hour" provisions had both
prospective and retrospective effect. As a result, a number of
plan participants, the plaintiffs among them, received
retrospectively increased levels of "banked hour" pension credits
and increased pension benefit levels immediately after the merger
pursuant to those more generous provisions. This case involves
only those retrospective benefits.
Over the past several years, the Trust has experienced
funding deficiencies caused by a number of factors, including stock
market fluctuations and decreased pension contributions resulting
from unemployment and lack of work opportunities for plan
1
This benefit provision was subsequently amended and
prospectively reduced. That amendment is not at issue here.
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participants.2 The Trustees explored and adopted various measures
intended to improve the Plan's financial health.3
In August 2011, after discussions with the Plan's
actuarial consultant, the Trustees voted upon and enacted Amendment
Nine to the Post-Merger Plan Document. Amendment Nine purports to
reduce plan participants' retrospective "banked hour" pension
benefits for hours accumulated prior to September 1, 1998, the date
of the Post-Merger Plan, back to the lower levels promised under
plan participants' respective pre-merger plan document. The
Trustees say Amendment Nine would reduce the Plan's liability by
several million dollars. On or about October 6, 2011, the Trustees
sent a notice to all participants in the Post-Merger Plan alerting
them to the retroactive benefit reductions that would result from
Amendment Nine.
2
In 2010 and again in 2012 the Post-Merger Plan was declared
to be in critical status under the Pension Protection Act of 2006
("PPA"), Pub.L. No. 109–280, 120 Stat. 780. The Trustees do not
argue that either the fact that the Plan was in critical status
under PPA or the fact that they were required as a result to
formulate a Rehabilitation Plan in any way alters the law on the
anti-cutback rule.
The anti-cutback rule does permit the decrease by amendment of
accrued benefits in cases where a plan faces a "substantial
business hardship," 29 U.S.C. § 1082(d)(2), and in cases involving
terminated multi-employer plans, id. § 1441. Neither exception
applies here.
3
Should the Post-Merger Plan ultimately become insolvent, the
federal Pension Benefit Guaranty Corporation (PBGC), which insures
multi-employer pension plans such as this one, will be required to
intervene. See Sun Capital Partners III, LP v. New Eng. Teamsters
& Trucking Indus. Pension Fund, 724 F.3d 129, 132 n.2 (1st Cir.
2013).
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On November 3, 2011, the plaintiffs filed this action
against the Trustees in the district of Rhode Island. The
plaintiffs alleged that the implementation of Amendment Nine would
conflict with ERISA's so-called "anti-cutback" rule, which
prohibits the "decrease[] by amendment" of any "accrued benefit of
a participant" in an ERISA plan. 29 U.S.C. § 1054(g)(1). The
plaintiffs maintained that all of their pre-September 1, 1998
"banked hour" benefits, whether prospective from September 1 or
retrospective, had "accrued." They relied on 29 U.S.C. § 1002(23),
which defines the term "accrued benefit" for purposes of ERISA.
The Trustees agreed to suspend the implementation of Amendment Nine
pending the result of this action.
On April 5, 2013, the district court orally granted the
plaintiffs' motion for summary judgment and denied the Trustees'
cross-motion for summary judgment. The district court held that
the plaintiffs' pre-September 1, 1998 "banked hour" benefits did
constitute "accrued benefits" under ERISA. The district court
noted that, at the time of the merger and the bestowing of uniform
"banked hour" benefits in the Plan, the plaintiffs were active
employees as opposed to retirees. The Plan was also unchanged at
their retirement date. Indeed, they had received the very benefits
after retirement that the Trustees now seek to cut. As such, the
district court reasoned, "[w]hen the Plaintiffs retired, their
expectations of receiving the banked-hours benefits in the [Post-
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Merger] Plan were justified." On this basis, the district court
concluded that the implementation of Amendment Nine would result in
the "decrease[] by amendment" of the plaintiffs' "accrued benefits"
in violation of 29 U.S.C. § 1054(g)(1).
On appeal, the Trustees argue that the district court
erred in holding that the plaintiffs' pre-September 1, 1998 "banked
hour" retrospective benefits are "accrued benefits" under ERISA.
II.
This court reviews a grant of summary judgment de novo,
taking the facts in the light most favorable to the non-moving
party. Lloyd's of London v. Pagán-Sánchez, 539 F.3d 19, 21 (1st
Cir. 2008). "On an appeal from cross-motions for summary judgment,
the standard does not change; we view each motion separately and
draw all reasonable inferences in favor of the respective
non-moving party." Roman Catholic Bishop of Springfield v. City of
Springfield, 724 F.3d 78, 89 (1st Cir. 2013). The parties agree
upon all material facts. This court is left to address pure
questions of law.4
ERISA's anti-cutback rule prohibits the "decrease[] by
amendment" of any "accrued benefit of a participant" in an ERISA
plan. 29 U.S.C. § 1054(g)(1); accord 26 U.S.C. § 411(d)(6)(A); see
4
We have no reason to reach an argument made by the
plaintiffs that the initial provision of benefits to them upon
retirement somehow estops the Trustees from denying the benefits
were "accrued."
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also Cent. Laborers' Pension Fund v. Heinz, 541 U.S. 739, 744
(2004) (describing ERISA's anti-cutback rule as "crucial to th[e]
object" of protecting employees' justified expectations). A plan
must not violate the rule in order to remain qualified for tax-
exempt status. 26 U.S.C. § 411(d)(6)(A). The purpose of this was
set forth in Central Laborers' Pension Fund, where the Supreme
Court said:
[W]hen Congress enacted ERISA, it wanted to
. . . mak[e] sure that if a worker has been
promised a defined pension benefit upon
retirement -- and if he has fulfilled whatever
conditions are required to obtain a vested
benefit -- he actually will receive it.
541 U.S. at 743 (alterations in original) (quoting Lockheed Corp.
v. Spink, 517 U.S. 882, 887 (1996)) (internal quotation marks
omitted).
The Trustees' core argument is that the plaintiffs did
not "earn" these retrospective benefits by working; the
retrospective benefits were a gratuity resulting from a prior
merger of benefit plans.5 The term "earned" appears nowhere in the
statute, although it does in some case law as a shorthand term,6
and we do not adopt it as a substitute term for the statutory
5
The parties agree that Amendment Nine would result in the
"decrease[]" of the plaintiffs' retrospective pre-September 1, 1998
"banked hour" benefits under their ERISA plan.
6
See, e.g., Thornton v. Graphic Commc'ns Conference of Int'l
Bhd. of Teamsters Supplemental Ret. & Disability Fund, 566 F.3d
597, 602 (6th Cir. 2009); Silvernail v. Ameritech Pension Plan, 439
F.3d 355, 359 (7th Cir. 2006).
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language. The Trustees argue, based on the concept of "earned"
benefits, that the plaintiffs' pre-September 1, 1998 "banked hour"
benefits were conferred retroactively, and that retroactively
conferred benefits are unearned gratuities and as a result cannot
"accrue[]." We disagree. The Trustees' position is not irrational
as a matter of policy, but Congress chose otherwise. The Trustees'
position has no basis in the statutory text.
The Trustees' position is that in order for a benefit to
"accrue[]" under section 1054(g)(1), the promise of the relevant
benefit must necessarily predate the service to which that benefit
corresponds. The Trustees argue that an employee can only "earn"
a benefit through service if she has been promised that benefit in
advance. This is based on the reasoning that any benefit not
promised beforehand is by definition unexpected, and that any
unexpected benefit constitutes a mere gratuity. In other words,
according to the Trustees, a benefit can only be "earned" through
service if the promise of a benefit could have provided incentives
to perform that service. ERISA does require that the promise of a
benefit provide incentives to continue employment in order for that
benefit to "accrue[]." But that condition is satisfied here.
Section 1054(g) explains that the anti-cutback rule
applies only to "benefits attributable to service" prior to the
amendment at issue. 29 U.S.C. § 1054(g). And in this sense,
"accrued benefits" are contrasted with mere "gratuit[ies]." Bd. of
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Trs. of Sheet Metal Workers' Nat'l Pension Fund v. Comm'r, 318 F.3d
599, 604 (4th Cir. 2003). In addition, contrasted with other
statutory language the restriction on "benefits attributable to
service" means that "accrued benefits" must be attributable to
service already performed. See Cinotto v. Delta Air Lines Inc.,
674 F.3d 1285, 1294 (11th Cir. 2012) (observing the distinction
between "accrued benefits" and "anticipated benefits based on
future years of service"). Here, however, the plaintiffs' pre-
September 1, 1998 "banked hour" benefits are clearly "attributable
to" the plaintiffs' pre-September 1, 1998 service. That those
benefits were conferred retroactively does not defeat that point.
Other than through section 1054(g), the text of ERISA
provides few clues as to the interpretation of "accrued benefit."
Section 1002 of Title 29 defines "accrued benefit" as follows:
(23) The term "accrued benefit" means--
(A) in the case of a defined benefit
plan, the individual's accrued benefit
determined under the plan and, except
as provided in section 1054(c)(3) of
this title, expressed in the form of an
annual benefit commencing at normal
retirement age, or
(B) in the case of a plan which is an
individual account plan, the balance of
the individual's account.
The accrued benefit of an employee shall not
be less than the amount determined under
section 1054(c)(2)(B) of this title with
respect to the employee's accumulated
contribution.
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29 U.S.C. § 1002(23); accord 26 U.S.C. § 411(a)(7)(A). Because the
Post-Merger Plan is a defined benefit plan, most relevant here is
section 1002(23)(A). Under that provision, an "accrued benefit" is
"the individual's accrued benefit determined under the plan and
. . . expressed in the form of an annual benefit commencing at
normal retirement age." 29 U.S.C. § 1002(23)(A). As the Supreme
Court has observed, section 1002(23)(A)'s "rather circular[]"
definition provides little guidance. Cent. Laborers' Pension Fund,
541 U.S. at 744. Indeed, "[t]he only apparent textual limit" is
that an "accrued benefit" must be "expressed in the form of an
annual benefit commencing at normal retirement age." Bd. of
Trustees of Sheet Metal Workers' Nat'l Pension Fund, 318 F.3d at
603 (discussing the parallel provision in the Internal Revenue
Code). The parties agree that limit is satisfied in this case.
Apart from that limit, section 1002(23)(A) appears to be nothing
more than a "signpost directing us to look to the terms of the plan
at issue." Id. at 602-03.7
Section 1002(23) does explain that "[t]he accrued benefit
of an employee shall not be less than the amount determined under
section 1054(c)(2)(B) of this title with respect to the employee's
accumulated contribution." 29 U.S.C. § 1002(23); accord 26 U.S.C.
§ 411(a)(7)(D). For present purposes, the substance of this
7
The plan document at issue contains no language to suggest
that the plaintiffs' pre-September 1998 "banked hour" benefits were
not intended to be eligible for "accru[al]."
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requirement is of no matter. What is relevant is the provision's
use of the term "employee" as well as its tethering of "accrued
benefits" to the "employee's accumulated contribution." There is
no doubt that the plaintiffs were employees at the time they were
promised the benefits.8 This benefit scheme also applied at the
time they retired.9
Section 1002(6) of Title 29 defines "employee" as "any
individual employed by an employer." 29 U.S.C. § 1002(6). Under
ERISA, an "employee" thus contrasts with a "participant."
"Participant" is in turn defined by section 1002(7) as:
any employee or former employee of an
employer, or any member or former member of an
employee organization, who is or may become
eligible to receive a benefit of any type from
an employee benefit plan which covers
employees of such employer or members of such
organization, or whose beneficiaries may be
eligible to receive any such benefit.
Id. § 1002(7).
That there is a relevant distinction between "employees"
and mere "participants" as to accrual is reinforced by the
contrasting language of section 1054(g)(1). Under that provision,
"[t]he accrued benefit of a participant under a plan may not be
8
Although the plaintiffs are all now retired, the parties
agree that each plaintiff worked in the service for a covered
employer for some period of time following the merger.
9
We are not faced with a situation in which a post-retirement
increase in benefits was specified in pension plan documents while
the employee worked in the service of the employer. See Thornton,
566 F.3d at 607.
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decreased by an amendment of the plan." 29 U.S.C. § 1054(g)(1)
(emphasis added); accord 26 U.S.C. § 411(d)(6). Section 1054(g)(1)
refers to "participant[s]" rather than "employee[s]" for good
reason: If ERISA's purpose is to "mak[e] sure" that a worker
"actually . . . receive[s]" the defined pension benefit promised to
her "upon retirement," Nachman Corp. v. Pension Benefit Guaranty
Corp., 446 U.S. 359, 375 (1980), it would be nonsensical for anti-
cutback protection to cease the moment employment ends and
retirement begins.
Taken together, sections 1002(23) and 1054(g)(1) outline
the following scheme: "[A] retirement benefit may be 'accrued' only
by an 'employee', but, once accrued, the benefit is protected from
diminution as long as the individual who accrued the benefit is a
'participant' in the plan, whether as an employee or as a retiree."
Thornton, 566 F.3d at 607 (discussing parallel Internal Revenue
Code provisions) (quoting Bd. of Trs. of the Sheet Metal Workers'
Nat'l Pension Fund v. Comm'r, 117 T.C. 220, 228-29 (2001)). Under
this scheme, a promised benefit must provide incentives for future
employment in order for that benefit to "accrue[]," just in the
sense that the promise of a benefit must predate an individual's
retirement or termination. See, e.g., Williams v. Rohm & Haase
Pension Plan, 497 F.3d 710, 714 (7th Cir. 2007) (holding that cost
of living adjustment ("COLA") was an "accrued benefit" where
promise of COLA predated plaintiffs' retirement); Bd. of Trs. of
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Sheet Metal Workers' Nat'l Pension Fund v. Comm'r, 318 F.3d 599,
604 (4th Cir. 2003) (holding that COLA was a "gratuitous benefit"
where promise of COLA postdated plaintiffs' retirement). Once an
individual continues employment in exchange for a promised benefit,
that is enough, other things being the same, to generate the sort
of "justified expectation[]" the anti-cutback rule is designed to
protect. Cent. Laborers' Pension Fund, 541 U.S. at 743.
We sum up. The Trustees properly concede that under the
terms of the Post-Merger Plan prior to Amendment Nine, the
plaintiffs' pre-September 1, 1998 service entitles them to at least
their pre-September 1998 prospective "banked hour" benefits. The
Trustees concede further that the plaintiffs were "employee[s]"
under the Post-Merger Plan when that plan went into effect.
Finally, the Trustees concede that the plaintiffs are still plan
"participant[s]." We conclude that the plaintiffs' pre-September
1, 1998 "banked hour" benefits, prospective and retrospective, are
"accrued benefits" for purposes of section 1054(g)(1) and, so, that
Amendment Nine is inconsistent with the requirements of ERISA's
anti-cutback rule. The Trustees' real argument is that the
plaintiffs did not "earn" their pre-September 1998 retrospective
"banked hour" benefits -- that they were a "gift" of sorts. But
ERISA's anti-cutback rule does not ask whether benefits were
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"earned."10 Rather, it asks whether benefits have "accrued." We
decline the Trustees' invitation to amend the statute.
The district court is affirmed.
10
The Trustees contend that their interpretation of the anti-
cutback rule finds support in the decisions of other circuits. The
decisions on which the Trustees rely, however, concern only
benefits promised after retirement. See Rohm & Haas Pension Plan,
497 F.3d at 714 (holding that benefit cannot "accrue[]" if it is
"not included in the plan during the term of the participants'
employment" (emphasis added)); Thornton, 566 F.3d at 609 (holding
that an amendment cannot give rise to an "accrued benefit" for an
individual if "the amendment occurred after he or she permanently
separated from covered employment" (emphasis added)); Bd. of Trs.
of Sheet Metal Workers' Nat'l Pension Fund, 318 F.3d at 604 ("[T]he
benefit could not have been an 'accrued benefit' because it did not
accumulate during their service so as to become part of their
legitimate expectations at retirement under the terms of the Plan
then in effect." (emphasis added)).
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