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Nature of Suit Code: 791
Nature of Suit: Employee Retirement Income Security Act (ERISA)
Cause of Action: 

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PUBLISH 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

DENNIS COUNTS, and DELORES COUNTS, 

Plaintiffs-Appellants, 

FIL -- .J UnitA!d States Col:'.'t(lf .t\ppea~ Tenth Ci:-c.-uit 

FEBO 1 1993 

ROBERT L. HOECKER 

Clerk 

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No. 92 - 8036 

KISSACK WATER AND OIL SERVICE, INC., 

PROFIT SHARING PLAN, Claude Kissack, 

Representative; KISSACK WATER AND OIL 

SERVICE, INC., PLAN ADMINISTRATOR, 

Claude Kissack, President, 

Defendants-Appellees. 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF WYOMING 

(D . C. No. 91-CV-1043-B) 

Submitted on the briefs: 

Dennis Counts and Delores Counts, prose. 

Haultain E. Corbett, of Lonabaugh and Riggs, Sheridan, Wyoming, 

for Defendants-appellees. 

Before McKAY, Chief Judge, SEYMOUR, and KELLY, Circuit Judges.** 

** After examining the briefs and appellate record, this panel 

has determined unanimously that oral argument would not materially 

assist the determination of this appeal. See Fed. R. App. P. 

34 (a ) ; 10th Cir. R. 34.1.9. The case is therefore ordered 

submitted without oral argument. 

Appellate Case: 92-8036 Document: 010110165507 Date Filed: 02/01/1993 Page: 1 
KELLY, Circuit Judge . 

Plaintiffs-appellants Dennis and Delores Counts appeal the 

district court's grant of summary judgment in favor of 

defendants-appellees Kissack Water and Oil Service, Inc., Profit 

Sharing Plan (Plan) and Kissack Water and Oil Service, Inc . , Plan 

Administrator {Administrator), upholding the Administrator's 

refusal to pay Dennis Counts' retirement benefits in a lump sum 

payment . Because we find that the Plan was improperly amended to 

eliminate an optional form of benefit, the Administrator's 

decision was based on a mistake of law, and we must reverse. 

From May 1982 to January 1990, Dennis Counts worked for 

Kissack Water and Oil Service, Inc. (Kissack), participated in its 

profit sharing plan, and became fully vested. During this time, 

the Plan offered several forms of benefits at the employer's 

discretion, including a lump sum payment. Upon terminating his 

employment, Mr . Counts requested that his retirement benefits be 

paid in a lump sum. This request was refused, and Mr. Counts was 

informed that the Plan had been amended in 1990 to delete the lump 

sum option and that he could only receive his benefits in 

installments . 

An action was commenced in the Wyoming federal district 

c ourt, . claiming violations of the Employee Retirement Income 

Security Act, 29 U.S.C. §§ 1001-1461 (ERISA) . Employing the 

arbitrary and capricious standard, the district court determined 

that because the Plan had been lawfull y amended to eli minate the 

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Appellate Case: 92-8036 Document: 010110165507 Date Filed: 02/01/1993 Page: 2 
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option of a lump sum payment, the Administrator's decisi on was 

reasonable . 

The various versions of the Plan have consistently granted 

the Administrator the power to interpret the Plan; therefore, an 

arbitrary and capricious standard of review must be applied to t he 

Administrator's refusal to pay a lump sum benefit. See Firest one 

Tire & Rubber v. Bruch, 489 U. S . 101 , 115 (1989 ). An 

administrator's action is arbitrary and capricious if it is based 

on a "lack of substantial evidence, mistake of law, bad faith, 

[or] conflict of interest . " Winchester v. Prudential Life I ns. , 

975 F.2d 1479, 1483 (10th Cir. 1992). The district court's 

determination that the Administrator's decision was not arbitrary 

and capricious is reviewed de novo. Sandoval v. Aetna Life & Cas . 

Ins. Co., 967 F.2d 377, 380 (10th Cir. 1992) ; Pratt v. Petroleum 

Prod. Mgt., Inc. , 920 F . 2d 651, 658 (10th Cir. 1990 ). 

The Counts contend that Kissack violated 29 u.s.c. 

§ 1054(g) (2) 1 by amending the Plan in 1990 to eliminate the lump 

sum payment option. We agree . 

Since 1984, 29 U.S.C. § 1054(g) (2) has prohibited the 

amendment of a pension plan to eliminate accrued benefit s, 

including "an optional form of benefit . " The payment of benefits 

in a lump sum is one such "optional form of benefit." See 26 

1 The Counts, i n their prose brief, framed their argument in 

terms of a tax code violation, citing 26 U.S.C. § 4ll (d ) (6 ) (B). 

This provision, which disqualifies a pension plan for tax purposes 

if it is amended to eliminate an optional form of benefi t, is 

identical to an ERISA provision which prohibits the same conduct. 

Because the Counts' action is one for retirement benefits pursuant 

t o 29 U.S.C. § 1132 , we construe their argument as arising under 

t h e ERISA provision rather than under the tax code. 

3 

Appellate Case: 92-8036 Document: 010110165507 Date Filed: 02/01/1993 Page: 3 
C.F.R. § 1.41l(d)-4, Q & A-l (b). Thus, unless an exception 

exists, by its very terms, the 1990 Plan amendment violated the 

proscription of 29 U.S.C. § 1054 (g ) (2 ) . 

A very limited exception to this statute was created, 

however, in 1988, when Treasury regulations were issued requiring 

the elimination of employer discretion as to the form of benefit 

to be paid. 2 26 C.F.R. §§ 1.4ll(d) -4, Q & A-4 (a) and Q & A-8 (b ) . 

Employers whose pension plans allowed them to make the final 

decision as to the availability of an optional form of benefit 

were given three alternatives: (1) to amend the plan to eliminate 

the optional form of benefit; (2) to make the benefit available to 

all participants without limitation; or (3) to apply objective and 

nondiscriminatory criteria to the availability of the optional 

form of benefit. 26 C.F.R. § 1.41l(d) -4, Q & A-8(b) . 

The regulations set out two relevant deadlines for 

compliance. First, the employer was required to "select" one of 

these alternatives prior to the first day of the first plan year 

beginning on or after January 1, 1989 . 26 C.F.R. §§ 1.41l (d ) -4, Q 

& A 8(c) (1) and Q & A 9(c) (2). Second, the plan itself had to be 

amended by a particular date to reflect the employer's 

"selection." 26 C.F.R. § 1.411(d)-4, Q & A 8(c) (2). 

Here, it appears that Kissack failed to "select" its 

operational alternative within the time permitted by the 

2 29 U.S.C. § 1054(g) (2) makes Treasury regulations applicable 

to the ERISA provision, stating that "(t]he Secretary of the 

Treasury may by regulations provide that this subparagraph does 

not apply to a plan amendment [eliminating an optional form of 

benefit] . " 

4 

Appellate Case: 92-8036 Document: 010110165507 Date Filed: 02/01/1993 Page: 4 
regulations. Kissack's profit sharing plan year runs from January 

1 to the following December 31. The employer, therefore, was 

required to "select" its alternative by January 1, 1989, which was 

the "first day of the first plan year commencing on or after 

January 1, 1989." 26 C.F.R. § 1.411(d)-4, Q & A 9(c) (4). Kissack 

did not make its "selection," however, until March 9, 1989, 

several months after the deadline. See Distribution Policy, 

Aplee . App. at D. Because Kissack failed to "select" its 

transitional alternative prior to the deadline, its subsequent 

Plan amendment did not qualify for the exception. 26 C.F.R. 

§ 1.411(d)-4, Q & A 8(d) . 3 

We have also considered whether Kissack's history of not 

awarding lump sum benefits constituted a "selection" prior to 

January 1, 1989. We hold that an employer may not be deemed to 

have achieved operational compliance with 26 C.F . R. § 1.411(d)-4, 

Q & A 8(c) (1) through mere inaction. Rather, the employer must 

have taken some affirmative step to formalize its selection, and 

consequently, to create an enforceable right in favor of the plan 

participants. 

The only two cases addressing the "selection" requirement 

have held that the regulations were not satisfied where an 

employer simply relied on an unspoken informal policy of not 

granting lump sum benefits. In Auwarter v. Donohue Paper Sal es 

3 It appears that Kissack attempted to cure the lateness of its 

"selection" by making its Distribution Policy retroactive to the 

be ginning of the Plan y e ar. The regulations, however, required 

t hat the plan sponsor select a transitional alternative" [o] n or 

before the applicable effe ctive date," 26 C. F.R. § 1.411 (d) -4, Q & 

A 8 (c) (1), which in this c ase was January 1, 1989. 

5 

Appellate Case: 92-8036 Document: 010110165507 Date Filed: 02/01/1993 Page: 5 
=C=o=rp-=-=·-~D~e=f=1=·n=e=d'--=B=e=n=e=f~1~·t=--=-P=e=n=s=i=o=n=-~P~l=a=n, 802 F . Supp . 830 (E.D.N.Y. 

1992), the court interpreted 

imposing an affirmative duty 

specified, and found that the 

the "selection" requirement as 

to take some action by the date 

employers' "contention that they 

'selected' by continuing not to do something that they claim they 

had .not been doing all along, namely paying out lump sum benefits, 

is logic strained beyond the bounds of reasonableness." Id. at 

839. The court reasoned that if the regulations did not require 

an overt act by the employer, "there would be little reason to 

include a separate requirement of operational compliance." Id. 

So too, in Hollingshead v. Burford Equipment Co., 747 F. Supp. 

1421, 1434 (M.D. Ala . 1990), the court rejected a claim that the 

company "selected" an operational alternative by not disbursing 

any benefits after a certain date . 

Here, other than continuing an unspoken policy, Kissack first 

appears tq have made its "selection" in March 1989, two months 

after it was required to do so under the regulations. Thus, 

Kissack did not make a timely choice, and, after January 1, 1989, 

was not entitled to formally amend its Plan to eliminate the lump 

sum option for those whose rights had already accrued. 

Instead, ERISA and the Treasury regulations required Kissack 

to amend its Plan to afford the lump sum option to all employees 

whose rights accrued prior to the 1990 amendment. Because 

employer discretion as to the availability of an optional form of 

benefit violated 29 U.S.C. § 1054(g) (2), Kissack was under a legal 

duty to eliminate such discretion. See 26 C.F.R. § 1.411 (d ) -4, Q 

& A 8 (b ) ( "the plan must be amended"). Although prior to January 

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Appellate Case: 92-8036 Document: 010110165507 Date Filed: 02/01/1993 Page: 6 
1, 1989, Kissack could have chosen any one of the three 

alternatives discussed above, it was prohibited after that date 

from either eliminating the lump sum option or imposing new 

objective conditions on its availability. 26 C.F.R. § 1.411(d)-4, 

Q & A 8(d). The only remaining alternative was to make the 

benefit available to all employees. 

The retroactive application of a Plan amendment to eliminate 

an accrued benefit "is not only ineffective, but also arbitrary 

and capricious." Pratt, 920 F.2d at 661. Because the 

Administrator failed to interpret the Plan to offer the option of 

lump sum payments to any participant whose rights had accrued 

prior to the 1990 amendment, his interpretation was contrary to 

the requirements of ERISA, and was based on a "mistake of law." 

Winchester, 975 F.2d at 1483 . His decision, therefore, cannot be 

upheld. 

We note that the ineffectiveness of Kissack's "selection" has 

not been raised by either party on appeal. Based on the 

undisputed fact that the Distribution Policy was adopted in March 

1989, two months after the deadline had passed, we cannot, as a 

matter of law, uphold the district court's determination that 

Kissack complied with the Treasury regulations. Although it is 

rarely done, an appellate court may, sua sponte, raise a 

dispositive issue of law when the proper resolution is beyond 

doubt and the failure to address the issue would result in a 

miscarriage of justice. See Gregory v. United States/United 

States Bankruptcy Court, 942 F.2d 1498, 1500-01 (10th Cir. 1991), 

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Appellate Case: 92-8036 Document: 010110165507 Date Filed: 02/01/1993 Page: 7 
cert. denied, 112 S. Ct. 2276 (1992); see also Petrini v. Howard, 

918 F.2d 1482, 1483 n. 4 (10th Cir. 1990). 

The judgment of the United States District Court for the 

District of Wyoming is REVERSED, and the case is REMANDED with 

directions to enter judgment for the Plaintiffs-appellants. 

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Appellate Case: 92-8036 Document: 010110165507 Date Filed: 02/01/1993 Page: 8