McClain, Theron M. v. Retail Food Employer ( 2005 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 04-3360
THERON M. MCCLAIN,
Plaintiff-Appellant,
v.
RETAIL FOOD EMPLOYERS JOINT PENSION
PLAN and BOARD OF TRUSTEES OF RETAIL
FOOD EMPLOYERS JOINT PENSION PLAN,
Defendants-Appellees.
____________
Appeal from the United States District Court for the
Southern District of Indiana, Indianapolis Division.
No. 03 C 403—Sarah Evans Barker, Judge.
____________
ARGUED APRIL 7, 2005—DECIDED JUNE 27, 2005
____________
Before MANION, ROVNER, and SYKES, Circuit Judges.
MANION, Circuit Judge. The Retail Food Employers Joint
Pension Plan denied Theron McClain pension benefits.
McClain sued the Plan and its board of trustees (collectively,
“the Plan”) under the Employee Retirement Income Security
Act (“ERISA”). McClain specifically alleged that the Plan
violated ERISA’s standard for handling accrued benefits.
2 No. 04-3360
The district court granted summary judgment for the Plan.
McClain appeals. We affirm.
McClain worked for the National Tea Company for
sixteen years, from March 1957 to March 1973. During that
period, he participated in the Plan. McClain left National
Tea to manage his own retail food store, at which time he
terminated his participation in the Plan. Eleven years later,
however, McClain went to work for Grace Foods and again
became a Plan participant. He continued to participate in
the Plan from April 1984 until he left Grace Foods nine years
later in April 1993.
At that juncture, McClain began receiving pension bene-
fits from the Plan based upon his service at Grace Foods. In
2001, McClain applied for pension benefits for his time with
1
National Tea, but the Fund denied the application, finding
that McClain did not qualify for benefits from the earlier
period. According to the Plan, the pension benefits that
McClain had accrued while at National Tea never vested
because of McClain’s break in service, i.e., the period
between his two participation periods, and the correspond-
ing contractual terms of the Plan.
Before further describing the Plan’s denial, it is helpful to
distinguish “accrued” from “vested” in this ERISA context.
“[A]ccrued benefits refer to those normal retirement benefits
that an employee has earned at any given time during the
course of employment.” Vallone v. CNA Fin. Corp., 375 F.3d
623, 635 n.5 (7th Cir. 2004) (internal quotation omitted). By
contrast, “[v]ested benefits . . . refer to those normal re-
tirement benefits to which an employee has a nonforfeitable
1
The record and the briefs do not reveal why McClain, who left
the Plan for good in 1993, waited until 2001 to submit his
application pertaining to his National Tea employment.
No. 04-3360 3
claim.” Id. (internal quotation omitted). In short, an em-
ployee’s vested benefits are the accrued benefits that the
employee is actually “entitled to keep.” Id. (internal quota-
tion omitted).
McClain was denied benefits based upon § 4.4(e) of the
Plan. Under the Plan, pension benefits are based upon an
employee’s “eligibility service,” and McClain’s time at
National Tea qualified as “eligibility service.” Nonetheless,
pursuant to § 4.4(e), if an employee has a “break in service,”
all of the “eligibility service” that he accumulated before his
break cannot “be counted for purposes of determining his
eligibility for a pension benefit.” For periods before January
1, 1976 (i.e., pre-ERISA), § 4.4(a) of the Plan defines a “break
in service” as two consecutive calendar years in which the
employee had failed to accumulate any “eligibility service.”
However, § 4.4(a) negates the ill effects of any such break on
the employee if, before the defined break, the employee was
“eligible for a pension benefit in accordance with the rules
of the Plan then in effect.”
Here, McClain had a defined “break in service” before
1976 because he did not accumulate any “eligibility service”
during the two consecutive calendar years of 1974 and 1975.
The matter then turns to whether McClain’s pre-break
benefits can be saved by § 4.4(a). The rules of the Plan in
effect before McClain’s defined 1974-1975 “break in
service”—that is, the rules in effect in 1973—come from the
1966 version of the Plan, as amended in 1972. Under § 5.5 of
that version, an employee had to meet two key require-
ments to become eligible for a pension benefit: (1) his
employment terminated on or after his fiftieth birthday and
(2) he completed ten or more years of service. Upon satis-
faction of these conditions, benefits vested under the Plan.
McClain was thirty-three in 1973 when he ended his sixteen
years at National Tea. Therefore, while McClain met the
4 No. 04-3360
second vesting condition, he did not satisfy the first. As a
result, McClain’s 1957-1973 accrued benefits did not vest
before his “break in service,” and, thus, pursuant to the
pertinent Plan provisions, he was not entitled to pension
benefits for the pre-break period.
This manner of disregarding service and denying benefits
is consistent with ERISA § 203, 29 U.S.C. § 1053, which
governs the vesting of benefits. In general, § 203(b)(1)
requires a plan to count all of an employee’s years of service
for vesting purposes. However, so as not to disturb contrac-
tual arrangements in existence before ERISA, § 203(b)(1)(F)
provides an exception to the general rule for pre-ERISA
breaks in service. This exception allows a plan to disregard
years of service before ERISA became applicable to the plan,
here 1976, “if such service would have been disregarded
under the rules of the plan with regard to breaks in service,
as in effect on the applicable date.” 29 U.S.C. § 1053(b)(1)(F).
Simply put, the Plan here may disregard McClain’s 1957-
1973 service under § 203(b)(1)(F) because that service would
have been disregarded under the applicable pre-ERISA
rules of the Plan.
Acknowledging this roadblock, McClain did not bring his
2
lawsuit under § 203. Rather, he complains that the Plan’s
2
McClain has fashioned this suit as a class action, but, pursuant
to an agreement between the parties, the district court adjudi-
cated the Plan’s summary judgment motion without making a
class certification ruling. Given the dispositive ruling at hand and
the fact that the district court did not reserve the certification
issue for future determination, the absence of a class certification
ruling does not affect our jurisdiction under 28 U.S.C. § 1291. See
Harold Wash. Party v. Cook County, Ill. Democratic Party, 984 F.2d
875, 878-79 (7th Cir. 1993). The lack of a certification ruling
(continued...)
No. 04-3360 5
denial of benefits runs afoul of ERISA § 204, 29 U.S.C.
§ 1054, which covers accrued benefits. Similar to § 203’s
general rule, § 204—particularly § 204(b)(4)(A)— requires a
plan to credit all of an employee’s years of service when
determining the amount of the employee’s accrued benefit.
See 29 U.S.C. §§ 1054(b)(1)(D) & (b)(4)(A) (cross-referencing
29 U.S.C. §§ 1052(b)(1)-(4)). Nevertheless, unlike § 203, § 204
does not contain a parallel exception for McClain’s situa-
tion; it is silent on pre-ERISA breaks in service. See id.
McClain therefore reasons that, if, under § 204(b)(4)(A), all
of his service must be counted, then the Plan must pay him
pension benefits for his service with National
Tea—irrespective of § 203(b)(1)(F). The Plan’s failure to do
so, argues McClain, violates § 204(b)(4)(A).
Under McClain’s approach, there is a clear conflict be-
tween § 203 and § 204. Service that is permissibly disre-
garded under § 203 could not be disregarded under § 204.
We squarely addressed and rejected such inconsistent
treatment of pre-ERISA breaks in service in Jones v. UOP, 16
F.3d 141 (7th Cir. 1994). In interpreting these statutory
provisions, we ruled in Jones that Congress did not intend
§ 204’s silence on pre-ERISA breaks in service to “override”
the explicit rules in § 203 for addressing such breaks. Id. at
143-44. Accordingly, we held that § 204 “should be read
together with [§] 203” and should not “defeat break in
service provisions in plans adopted before ERISA” existed.
Id. at 144. The upshot is that, if a plan was contractually able
to disregard an employee’s pre-break service before ERISA
became applicable, ERISA should not and does not retroac-
tively upset the plan’s pre-ERISA framework and award
(...continued)
merely means that the scope of the district court’s judgment is
limited to this particular plaintiff. See id.
6 No. 04-3360
unanticipated benefits to the employee. See id. at 143-44.
Based upon Jones, the district court granted the Plan sum-
mary judgment.
Under Jones then, we must analyze McClain’s § 204 claim
in conjunction with § 203. Specifically, § 204(b)(4)(D) must
be read together with the pre-ERISA break in service
exception of § 203(b)(1)(F). As already discussed above,
§ 203(b)(1)(F) permits the Plan to disregard McClain’s 1957-
1973 service since that service would have been disregarded
under the applicable pre-ERISA rules of the Plan. Therefore,
pursuant to Jones and § 203(b)(1)(F), the Plan’s denial of
benefits did not violate § 204(b)(4)(D) as alleged by
McClain.
McClain, nevertheless, seeks to have us overturn Jones. We
require a compelling reason to overturn circuit precedent.
See Debs v. N.E. Ill. Univ., 153 F.3d 390, 394 (7th Cir. 1998)
(citing Mid-Am. Tablewares, Inc. v. Mogi Trading Co., 100 F.3d
1353, 1364 (7th Cir. 1996)). Furthermore, “principles of stare
decisis require that we ‘give considerable weight to prior
decisions of this court unless and until they have been
overruled or undermined by the decisions of a higher court,
or other supervening developments, such as a statutory
overruling.’ ” Haas v. Abrahamson, 910 F.2d 384, 393 (7th Cir.
1990) (quoting Colby v. J.C. Penney Co., 811 F.2d 1119, 1123
(7th Cir. 1987)); see also Debs, 153 F.3d at 394. Here, there has
been no such decision by a higher court or a statutory
overruling.
McClain attempts to meet the compelling reason standard
with two other arguments. First, he points to McDonald v.
Pension Plan of the NYSA-ILA Pension Trust Fund, 320 F.3d
151, 156-59 (2d Cir. 2003), in which the Second Circuit
No. 04-3360 7
3
declined to follow Jones. According to McDonald and
McClain, Congress intended accrued and vested benefits to
be treated differently. Id. at 159. McDonald posited that “had
Congress intended to permit pre-ERISA break-in-service
provisions to apply when calculating accrued benefits, it
could have done so.” Id. That is a fair point, but, with due
respect, we find it unpersuasive. As discussed above, if
§ 203 and § 204 are not read together in the present situa-
tion, service that is permissibly disregarded under § 203
could not be disregarded under § 204. As we reasoned in
Jones, Congress could not have intended such a result. 16
F.3d at 143-44. Section § 203(b)(1)(F) demonstrates clear
congressional intent to have pre-ERISA contractual relation-
ships regarding breaks in service continue after ERISA’s
enactment and, thus, under § 203(b)(1)(F), certain service
may be disregarded. See id. To respect and effectuate this
congressional intent, § 204(b)(4)(A) and § 203(b)(1)(F)
should be read together. Moreover, “[i]t is an ‘elementary
canon of construction that a statute should be interpreted so
as not to render one part inoperative[,]’ ” superfluous, or
meaningless. Jenkins v. Heintz, 124 F.3d 824, 833 (7th Cir.
1998) (quoting Dep’t of Revenue of Or. v. ACF Indus., Inc., 510
U.S. 332, 340-41 (1994)); see also In re Scott, 172 F.3d 959, 969
(7th Cir. 1999). So that the explicit break in service exception
in § 203 should be read to have meaning and effect,
§ 204(b)(4)(A) should not be interpreted in a way that would
3
McDonald is the only circuit opinion since Jones to address the
issue. As observed in Jones and McDonald, the Third and Eighth
Circuits have, like Jones, read § 204 and § 203 together. See Jones,
16 F.3d at 143 (citing Jameson v. Bethlehem Steel Corp., 634 F. Supp.
688 (E.D. Pa.), aff’d without opinion, 802 F.2d 447 (3d Cir. 1986);
Redmond v. Burlington N. R.R. Co. Pension Plan, 821 F.2d 461 (8th
Cir. 1987)); see also McDonald, 320 F.3d at 159.
8 No. 04-3360
override § 203(b)(1)(F). The reasoning in Jones is sound, and
we reaffirm it here.
Second, McClain cites a Labor Department regulation
about accrual rules to support his position, contending that
the regulation should be afforded deference in accordance
with Chevron U.S.A. Inc. v. Natural Resources Defense Council,
Inc., 467 U.S. 837 (1984). The regulation at issue is 29 C.F.R.
§ 2530.204-2(b). This regulation, like § 204(b)(4)(A), gener-
ally provides that all of an employee’s service should be
taken into account for accrual purposes under § 204. See 29
C.F.R. § 2530.204-2(b); see also 26 C.F.R. § 1.411(b)-1(c)(1).
The regulation, however, does not speak to, let alone
resolve, the § 203(b)(1)(F) conflict at issue. It simply does not
advance the ball. If anything, the regulation lends support
to Jones and the Plan. That is because the regulation, similar
to § 203(b)(1)(F), looks to the applicable rules of a plan to
determine what service should be counted by the plan: “all
service from the date of participation in the plan as deter-
mined in accordance with applicable plan provisions, shall be
taken into account in determining an employee’s period of
service.” 29 C.F.R. § 2530.204-2(b) (emphasis added).
McClain’s regulatory argument does not offer a compelling
reason to overturn Jones.
Consequently, pursuant to our decision in Jones and
§ 203(b)(1)(F), the Plan is entitled to summary judgment on
4
McClain’s § 204(b)(4)(D) claim. Under the Plan’s pre-ERISA
framework, McClain’s break in service precluded pension
benefits for his time with National Tea, and ERISA does not
4
In his opening appellate brief, McClain also preemptively
raised a statute of limitations argument to which the Plan offered
no response. As the Plan has abandoned this affirmative defense,
it merits no further discussion here.
No. 04-3360 9
alter that contractual arrangement. The judgment of the
district court is AFFIRMED.
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—6-27-05