2008 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

8-28-2008

In Re: Lucent Death

Precedential or Non-Precedential: Precedential

Docket No. 06-5008

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Recommended Citation

"In Re: Lucent Death " (2008). 2008 Decisions. Paper 570.

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PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

 

Nos. 06-5008 & 06-5009

 

IN RE: LUCENT DEATH BENEFITS ERISA LITIGATION

EDWARD FOSS; SARAH CONDER;

ARTHUR J. BERENDT; ROBERT B.

HOWARD,

Appellants (No. 06-5008)

HELEN P. LUCAS, as surviving spouse

of Vincent R. Lucas,

Appellant (No. 06-5009)

 

Appeal from the United States District Court

for the District of New Jersey

(D.C. Civil Action Nos. 03-cv-05017/04-cv-01099/00640)

District Judge: Honorable Dennis M. Cavanaugh

 

Argued April 16, 2008

 
Honorable Paul R. Michel, Chief Judge, United States *

Court of Appeals for the Federal Circuit, sitting by designation.

2

Before: AMBRO, FISHER, and MICHEL, Circuit Judges *

(Opinion filed: August 28, 2008)

James R. Malone, Jr., Esquire (Argued)

Kimberly L. Kimmel, Esquire

Chimicles & Tikellis

361 West Lancaster Avenue

One Haverford Centre

Haverford, PA 19041

Counsel for Appellants

Edward Foss and Sarah Conder

Alan M. Sandals, Esquire

Scott M. Lempert, Esquire

Sandals & Associates

One South Broad Street

Suite 1850

Philadelphia, PA 19107

Victoria Quesada, Esquire (Argued)

Quesada & Moore

128 Avon Place

West Hempstead, NY 11552

Counsel for Appellant

Helen P. Lucas
3

Joseph D. Guarino, Esquire

Epstein, Becker & Green

Two Gateway Center

12th Floor

Newark, NJ 07102

John Houston Pope, Esquire (Argued)

Epstein, Becker & Green

250 Park Avenue

New York, NY 10177

Frank C. Morris, Jr., Esquire

Epstein, Becker & Green

1227 25th Street, N.W., Suite 700

Washington, DC 20037

Counsel for Appellee

Curtis L. Kennedy, Esquire

8405 East Princeton Avenue

Denver, CO 80237

Counsel for Amicus-Appellant

 

OPINION OF THE COURT

 
4

AMBRO, Circuit Judge 

Former employees of AT&T Corp. (“AT&T”) and

Lucent Technologies Inc. (“Lucent”) appeal the dismissal of

their putative class action relating to the termination of a

pensioner death benefit provided for in the governing benefit

plan. We conclude that this benefit was an unvested welfare

benefit and that neither the Employee Retirement Income

Security Act (“ERISA”), 29 U.S.C. §§ 1001–1461, nor

unilateral contract principles prohibited its termination. We thus

affirm.

I. Factual and Procedural Background

Plaintiffs allege the following. We assume the truth of

these facts for the purpose of this appeal of the District Court’s

order dismissing the complaint for failure to state a claim upon

which relief may be granted. See Phillips v. County of

Allegheny, 515 F.3d 224, 231 (3d Cir. 2008) (“[O]n a Rule

12(b)(6) motion, the facts alleged must be taken as true and a

complaint may not be dismissed merely because it appears

unlikely that the plaintiff can prove those facts . . . .”).

AT&T adopted a pension and disability benefit plan in

1913. This plan was called the Plan for Employees’ Pensions,

Disability Benefits and Death Benefits when ERISA was

enacted in 1974. 

AT&T spun off Lucent in 1996. Lucent assumed the
5

obligation to provide retirement benefits equivalent to those

under the AT&T plan to the retirees transferred to Lucent. It

created a plan called the Lucent Technologies Inc. Management

Pension Plan (“1996 Plan”) that expressly incorporated the

terms of the AT&T plans. The 1996 Plan included the

following provisions:

Pensioner Death Benefit Amount

In the event of the death of any person who at the

time of death is receiving, or who at the time of

death is a former Employee of a Participating

Company, is not employed by a Lucent

Controlled Group entity, and is eligible to receive,

a pension granted under Section 4.1(a) or 4.1(c)

of this Plan, the Committee or the BCAC [the

Benefit Claim and Appeal Committee], as

applicable, in its discretion, but subject to the

following provisions of this Section 5.4, may

authorize a Death Benefit to the spouse or

dependent relatives of the pensioner the total

amount of which shall not exceed the maximum

amount which could have been paid as a Sickness

Death Benefit under the terms of Section 5.3 if

the pensioner had died on his or her last day of

active service before retirement on pension;

provided, however, that in the case of a pensioner

who retired after the last day of the month in

which the pensioner’s Normal Retirement Age
6

occurred, and whose pension was effective during

the period from January 2, 1979 to August 10,

1980, inclusive, the Death Benefit shall not

exceed the maximum Sickness Death Benefit

which could have been paid if the pensioner had

died on the last day of the month in which the

pensioner’s Normal Retirement Age occurred.

1996 Plan Art. 5.4(a).

Power to Amend

The Board of Directors, or its delegate, may from

time to time make changes in the Plan as set forth

in this document, or terminate said Plan, but such

changes or termination shall not affect the rights

of any Employee, without his or her consent, to

any benefit or pension to which he or she may

have previously become entitled hereunder. 

1996 Plan Art. 10.1. 

Lucent amended its plan in 1997 to eliminate the

pensioner death benefit for employees who retired after January

1, 1998. It further amended its plan in February 2003 to

eliminate the pensioner death benefit for all management

employees then living regardless of the date of retirement. 

This litigation followed. Three separate lawsuits were
Lucas subsequently died. His widow Helen P. Lucas, an 1

appellant in this case, moved to be substituted as plaintiff. The

District Court denied that motion as moot when it dismissed the

complaint.

7

filed in 2003 and 2004 by long-serving AT&T employees who

had retired in the 1980s. Edward Foss, Vincent R. Lucas,1

Arthur J. Berendt, Robert B. Howard, and Sarah A. Conder

(collectively, “the pensioners”) filed a consolidated amended

complaint in the District of New Jersey in November 2005.

That complaint included four claims under ERISA and federal

common law on behalf of a putative class of pensioners. It

alleged that Lucent had terminated the pensioner death benefit

unlawfully and sought declaratory and injunctive relief reversing

that termination. 

The District Court dismissed the complaint in November

2006 for failure to state a claim upon which relief may be

granted. It concluded that the plan documents were not

ambiguous and therefore extrinsic evidence was not relevant to

construing them. It held that the pensioner death benefit was an

unvested welfare benefit and that neither ERISA nor unilateral

contract principles prohibited its elimination. 

The pensioners timely appealed.

II. Jurisdiction and Standard of Review

The District Court had jurisdiction under 29 U.S.C.
8

§ 1132(e)(1). We have jurisdiction under 28 U.S.C. § 1291.

Our review is plenary. See Burstein v. Retirement Account Plan

for Employees of Allegheny Health & Educ. Research Found.,

334 F.3d 365, 374 (3d Cir. 2003). 

III. Analysis

“ERISA recognizes two types of employee benefit plans:

pension plans and welfare plans.” In re. Unisys Corp. Retiree

Med. Benefit “ERISA” Litig., 58 F.3d 896, 902 (3d Cir. 1995).

Welfare plans provide “medical, surgical, or hospital care or

benefits, or benefits in the event of sickness, accident, disability,

death or unemployment . . . .” 29 U.S.C. § 1002(1). Pension

plans provide retirement income to employees or result in a

deferral of income by employees for periods extending to the

termination of covered employment or beyond. Id.

§ 1002(2)(A).

The distinction between accrual (the rate at which an

employee earns benefits to put in the employee’s pension

account) and vesting (the process by which an employee’s

already-accrued pension account becomes irrevocably the

employee’s property) is relevant to the protection of benefits.

See generally DiGiacomo v. Teamsters Pension Trust Fund of

Philadelphia & Vicinity, 420 F.3d 220, 223 (3d Cir. 2005)

(quoting Cent. Laborers’ Pension Fund v. Heinz, 541 U.S. 739,

749 (2004), and discussing accrual and vesting). ERISA

provides elaborate requirements for the vesting of pension

benefits, but it does not provide automatic vesting of welfare
9

benefits. Int’l Union, United Auto., Aerospace & Agric.

Implement Workers of Am. v. Skinner Engine Co., 188 F.3d 130,

137–38 (3d Cir. 1999). An accrued pension benefit is protected

by ERISA’s anti-cutback provision without any showing that it

has vested. See 29 U.S.C. § 1054(g) (anti-cutback provision);

In re Fruehauf Trailer Corp., 444 F.3d 203, 212 (3d Cir. 2006)

(“Under ERISA’s ‘anti-cutback’ provision, benefits accrued in

a qualified plan are irrevocable; an administrator or sponsor may

not decrease them once they are granted.”). In contrast, a

welfare benefit is protected from elimination only if the plaintiff

proves by a preponderance of the evidence that the plan provider

had intended the welfare benefit to have vested (despite not

being obliged to do so by ERISA). See Skinner, 188 F.3d at

138–39. 

The pensioners contend that the pensioner death benefit

is an accrued and vested pension benefit that is protected by

ERISA from unilateral termination. Lucent, on the other hand,

argues that the pensioner death benefit is an unvested welfare

benefit that it may terminate unilaterally. See id. at 138.

A. Is the Pensioner Death Benefit a Welfare

Benefit or a Pension Benefit?

ERISA defines pension and welfare benefits as follows:

Except as provided in subparagraph (B), the terms

“employee pension benefit plan” and “pension

plan” mean any plan, fund, or program which was
10

heretofore or is hereafter established or

maintained by an employer or by an employee

organization, or by both, to the extent that by its

express terms or as a result of surrounding

circumstances such plan, fund, or program—

(i) provides retirement income to

employees, or

(ii) results in a deferral of income by

employees for periods extending to the

termination of covered employment or

beyond,

regardless of the method of calculating the

contributions made to the plan, the method of

calculating the benefits under the plan or the

method of distributing benefits from the plan. A

distribution from a plan, fund, or program shall

not be treated as made in a form other than

retirement income or as a distribution prior to

termination of covered employment solely

because such distribution is made to an employee

who has attained age 62 and who is not separated

from employment at the time of such distribution.

29 U.S.C. § 1002(2)(A). In contrast:

The terms “employee welfare benefit plan” and
11

“welfare plan” mean any plan, fund, or program

which was heretofore or is hereafter established or

maintained by an employer or by an employee

organization, or by both, to the extent that such

plan, fund, or program was established or is

maintained for the purpose of providing for its

participants or their beneficiaries, through the

purchase of insurance or otherwise, (A) medical,

surgical, or hospital care or benefits, or benefits in

the event of sickness, accident, disability, death or

un emp lo yment, or vacation ben efits,

apprenticeship or other training programs, or day

care centers, scholarship funds, or prepaid legal

services, or (B) any benefit described in section

186(c) of this title (other than pensions on

retirement or death, and insurance to provide such

pensions).

Id. § 1002(1) (emphasis added).

“ERISA’s framework ensures that employee benefit

plans be governed by written documents and summary plan

descriptions, which are the statutorily established means of

informing participants and beneficiaries of the terms of their

plan and its benefits.” Unisys, 58 F.3d at 902. We therefore

look to the plan documents to interpret plan obligations. See id.

Extra-ERISA commitments (such as vested welfare benefits)

must be found in the plan documents and stated in clear and

express language. Id. The written terms of a plan control and
12

employers may not modify or supersede them orally. Id. When

a plan is clear and unambiguous, a court must determine its

meaning as a matter of law without looking to extrinsic

evidence. Skinner, 188 F.3d at 138, 145.

The pensioner death benefit neither provides retirement

income to employees nor results in a deferral of income by

employees. See 29 U.S.C. § 1002(2)(A) (defining pension

plan); see also Oatway v. American Int’l Group, Inc., 325 F.3d

184, 189 (3d Cir. 2003) (concluding that a plan that was not

“created for the purpose of providing retirement income” was

not a pension plan). Moreover, it could not be an accrued

pension benefit since it is not “an annual benefit” and it does not

“commenc[e] at normal retirement age.” See 29 U.S.C.

§ 1002(23); see generally Bencivenga v. W. Pa. Teamsters &

Employers Pension Fund, 763 F.2d 574, 577 (3d Cir. 1985)

(discussing accrued pension benefits). Nor does the pensioner

death benefit directly relate to an accrued benefit by paying out

an accumulated amount of accrued benefits. See, e.g., West v.

AK Steel Corp., 484 F.3d 395, 410–11 (6th Cir. 2007).

Instead, the pensioner death benefit provides “benefits in

the event of . . . death.” See 29 U.S.C. § 1002(1) (defining a

welfare plan). This fits readily within the definition of a welfare

benefit. As the Second Circuit Court of Appeals has explained,

the fact that a welfare benefit appears in a larger plan that also

provides pension benefits does not change the character of that

welfare benefit. See Rombach v. Nestle USA, Inc., 211 F.3d

190, 193–94 (2d Cir. 2000) (discussing McBarron v. S & T
13

Indus. Inc., 771 F.2d 94 (6th Cir. 1985)). As in Rombach, the

“meaning and function” of the pensioner death benefit “remain[]

clear” despite surrounding benefits or the use of the word

“Pensioner” to describe the benefit. See id. at 194. The 1996

plan language thus identifies the plan as a welfare benefit plan

to the extent that it provides the pensioner death benefit. See

generally 29 U.S.C. § 1002(1). 

Nothing in the Summary Plan Descriptions distributed by

Lucent suggests otherwise. See Burstein, 334 F.3d at 378

(explaining that “where a summary plan description conflicts

with the plan language, it is the summary plan description that

will control”). The pensioners focus on the following Plan

Description language:

The Plan is classified as both a pension plan and

a welfare plan under the Employee Retirement

Income Security Act of 1974, as amended

(ERISA). It is a defined benefit pension plan for

service and deferred vested pension purposes and

for the payment of certain sickness death benefits

upon the death of a participant under the pension

provisions of the Plan. The Plan is a “welfare

plan” for purposes of providing disability

pensions and certain other death benefits

payments.

This passage does not state that the pensioner death benefit is a

pension benefit. It merely says, in general terms, that some
14

death benefits are pension benefits and others are welfare

benefits. Regardless whether the other death benefits in the plan

(the “Accident Death Benefit,” and the “Sickness Death

Benefit,” see 1996 Plan Art. 5.2–5.3) are pension benefits, the

pensioner death benefit is a welfare benefit and this language in

the Plan Description does not change that. 

Nor does the asserted fact that the pensioner death benefit

has characteristics “consistent with” or “not inconsistent with”

a pension benefit change its character. The amount and

calculation method of the pensioner death benefit, the identity

of the recipient of payment, and the treatment of the pensioner

death benefit for tax, accounting, and plan termination purposes,

are relevant details for administrators of the plan, but they do

not change the fundamental character of the benefit. The type

of benefit provided, not other considerations, determines

whether a plan is a pension plan or a welfare plan. Indeed, the

statutory definition of pension plans specifically states that a

plan providing the relevant type of benefits is a pension plan

“regardless of the method of calculating the contributions made

to the plan, the method of calculating the benefits under the plan

or the method of distributing benefits from the plan.” 29 U.S.C.

§ 1002(2)(A). We accordingly will not give weight to these

factors in the face of the unambiguous provision of welfare

benefits rather than pension benefits.

Any claimed reliance on a belief that the pensioner death

benefit is a pension benefit also is irrelevant to the character of

the pensioner death benefit. The pensioners identify no
15

authority stating that such detrimental reliance has significance

under the facts of this case.

The Lucent plan thus is a welfare plan to the extent that

it provides for the pensioner death benefit at issue in this case.

No ambiguity in the plan prohibits us from reaching this legal

conclusion since the plan language is not “subject to reasonable

alternative interpretations.” Taylor v. Cont’l Group Change in

Control Severance Pay Plan, 933 F.2d 1227, 1232 (3d Cir.

1991); see also In re New Valley Corp., 89 F.3d 143, 149 (3d

Cir. 1996) (stating that the existence of ambiguity is a question

of law). 

B. Is the Pensioner Death Benefit Vested?

Having concluded that the pensioner death benefit is a

welfare benefit, we must decide if that benefit had vested prior

to its termination. “Employers are generally free . . . [,] for any

reason at any time, to adopt, modify or terminate welfare plans.”

Skinner, 188 F.3d at 138 (internal quotation marks omitted;

alteration in original). However, they may “relinquish their

right to unilaterally terminate those benefits and provide for

lifetime vesting.” Id. “Because vesting of welfare plan benefits

constitutes an extra-ERISA commitment, an employer’s

commitment to vest such benefits is not to be inferred lightly

and must be stated in clear and express language.” Id. at 139.

The pensioner death benefit vests for an eligible

mandatory recipient (i.e., becomes unalterably the property of
16

the recipient) “[i]n the event of the death” of a pensioner. 1996

Plan Art. 5.4(a)–(b) (making the otherwise discretionary grant

of benefits subject to mandatory beneficiary provisions). It

vests for a discretionary beneficiary when, after the death of a

pensioner, the plan administrator “in its discretion . . .

authorize[s] a Death Benefit.” Id. Nothing in the plan

documents suggests that the pensioner death benefit vests during

the life of the pensioner and the plan documents certainly do not

state such vesting in clear and express language. 

The pensioners nonetheless argue that the pensioner

death benefit has vested. They over-read the plan’s language,

however, to the extent they claim that, by making the payment

of death benefits mandatory for certain recipients, the plan

vested the pensioner death benefit. Section 5.4 of the plan does

incorporate the “Mandatory Beneficiary” section and instructs

that payment “shall be made,” but the vesting event remains the

pensioner’s death. Put another way, the pensioner death benefit

does not belong irrevocably to living pensioners. The

mandatory language merely indicates how the pensioner death

benefit should be distributed once death causes the benefit to

vest. Moreover, the pensioners do not allege that Lucent failed

to pay death benefits that vested (by reason of the death of the

pensioner) prior to the termination of the pensioner death

benefit. 

All this leads to one conclusion: the pensioner death

benefit was not vested, meaning that Lucent could terminate it.

See Hooven v. Exxon Mobil Corp., 465 F.3d 566, 575 (3d Cir.
17

2006) (explaining that vesting does not occur unless “all of the

conditions precedent to the employee’s receipt of that benefit

have been satisfied”); see also 1996 Plan Art. 10.1 (reservation

of rights clause). 

For the same reasons, we conclude that no unilateral

contract binds Lucent to providing the pensioner death benefit.

Unilateral contract principles are relevant in ERISA cases only

“where the asserted unilateral contract is based on the explicit

promises in the ERISA plan documents themselves.” Hooven,

465 F.3d at 573 (internal quotation marks omitted). No such

promises appear in these plan documents.

IV. Conclusion

The pensioner death benefit, a lump-sum payment made

in the event of a pensioner’s death, was an unvested welfare

benefit that Lucent could terminate without violating ERISA or

unilateral contract principles. We thus affirm the decision of the

District Court dismissing the pensioners’ complaint and denying

as moot Helen Lucas’ motion to substitute herself in this case

for her deceased husband.