Opinion ID: 510624
Heading Depth: 2
Heading Rank: 1

Heading: Plan Sec. 12.1(c)

Text: 34 The provisions of Plan Sec. 12.1(c) must be part of a plan if the trust in which plan assets are held is to be tax-exempt. Under the Code, 35 a trust shall not constitute a qualified trust ... unless the plan of which such trust is a part provides that ... upon its termination or partial termination ... the rights of all affected employees to benefits accrued to the date of such termination [or] partial termination, ... to the extent funded as of such date ... are nonforfeitable. 36 Sec. 411(d)(3). The plaintiffs state repeatedly that this Plan section and this Code provision are what entitle them to Thirty-Year Benefits. They say, for example: 37 The Participants ... seek nothing more than the implementation of Plan Sec. 12.1(c).... The occurrence of the rare event of a partial plan termination triggers Sec. 12.1(c) of the Plan and requires that the age and service requirements otherwise applicable be superseded. 38 Appellants' Reply Brief at 3-4; see also Appellants' Brief at 18 (no rewriting of the Plan is necessary [as] Plan Article 12.1(c) provides all the writing needed); Reply Brief at 7 (stating that plaintiffs are governed by Sec. 411(d)(3)). 39 Plan Sec. 12.1(c) must be read in the context of ERISA as a whole, however. Under ERISA, the concepts of accrued benefits and vested (i.e. non-forfeitable) rights are quite distinct. In Hoover v. Cumberland, M.D. Area Teamsters Pension Fund, 756 F.2d 977 (3d Cir.1985), we began by explaining the concept of accrued benefits: 40 ERISA's statutory definition of accrued benefits imparts a specific meaning to the word accrued, connoting a set periodic increase or accumulation. Section 3(23) states that an accrued benefit is an individual's benefit expressed in the form of an annual benefit commencing at normal retirement age. 29 U.S.C. Sec. 1002(23)(A). ERISA's definitional counterpart for accrued benefit in the Internal Revenue Code, 26 U.S.C. Sec. 411(a)(7)(A)(i), is identical, and has been interpreted by the Internal Revenue Service in a Technical Information Release: 41 [I]n the case of a defined benefit plan, the accrued benefit must be expressed in the form of an annual benefit commencing at normal retirement age. The plan must provide a formula under which each participant's actual accrued benefit under the plan can be determined in each plan year. 42 Internal Revenue Service T.I.R. No. 1403 (Sept. 17, 1975). An accrued benefit, then, represents the interest in a retirement benefit that a participant earns each year, and a plan must state a method or formula for determining a participant's annual accrual rate. This requirement enables a worker to mark his or her progress toward the full pension benefit due at retirement. 43 756 F.2d at 981-82 (footnotes omitted). 44 We then contrasted accrued benefits with vested or non-forfeitable rights: 45 The concepts of accrued on the one hand, and vested or nonforfeitable, on the other, are related, but not the same. A participant becomes fully vested when he gains a nonforfeitable right to receive his entire accrued benefit. Vesting provisions do not affect the amount of the accrued benefit, but rather govern whether all or a portion of the accrued benefit is nonforfeitable. Accrual provisions provide a formula for calculating the amount of the normal retirement benefit which an employee has earned at any given time. 46 Id. at 983-84 (footnotes omitted). Rights must vest under a qualified plan within a relatively short term of years (presently fifteen and soon seven, see Code Sec. 411(a)(2); 29 U.S.C. Sec. 1053), while accrued benefits continue to accrue throughout the employee's service. 47 As we will discuss hereafter, the parties here disagree on whether the Thirty-Year Benefit falls within the statutory definition of an accrued benefit. We will assume for the moment that it does come within that definition and that it is thus to be treated in the same manner as the normal retirement benefit. As we have seen, an employee's accrued benefit at any particular point in time is what a fully vested employee would be entitled to receive under the terms of the plan if employment ceased at that particular point in time. Here, the Plan provides that an employee is entitled to receive Thirty-Year Retirement Benefits only when he or she retires on a Thirty-Year Retirement Date, i.e., only after having given 30 years of service. Thus, even if the Thirty-Year Benefit is to be treated as an accrued benefit, it does not accrue for any employee until he or she has given 30 years of service. 10 48 Plaintiffs acknowledge that they would not be entitled to any Thirty-Year Benefit if it were not for Sec. 12.1(c) and the fact that their employment ceased in the course of a partial termination. It is the partial termination and Sec. 12.1(c), they say, that require[ ] that the age and service requirements otherwise applicable be superseded. But Sec. 12.1(c), and Code Sec. 411(d)(3) which it implements, have nothing to do with altering the conditions under which accrued benefits will accrue. As is apparent from their face, their purpose is to guarantee to employees who would not otherwise have any vested right to any pension benefits at the time of a plan termination or partial termination that they will be treated as having a fully vested right to any benefits that have accrued and are funded. Thus, for example, if a plan provides for 100% vesting of accrued benefits after ten years of service and a participant leaves the employer within ten years of being hired, he or she will not be entitled to any accrued benefits. On the other hand, if the participant were terminated from service in the course of an event giving rise to a termination or partial termination of the plan, he or she, by virtue of the provision which all plans are required to contain by Code Sec. 411(d)(3) in order to qualify for valuable tax advantages, would be entitled to 100% of his or her accrued benefits. See Weil v. Retirement Plan Admin. Comm., 750 F.2d 10, 11 (2d Cir.1984) (Because [employer] terminated both [participants] before either had completed ten years of service, neither of them was entitled to any non-vested benefits--unless their termination occurred pursuant to a partial termination of the [employer's] Plan). 49 Section 411(d)(3) and Plan Sec. 12.1(c) are thus vesting provisions only. As such, they have nothing whatever to do with the rights of fully vested employees like the plaintiffs in this case, and we are at a loss to understand plaintiffs' argument that these provisions somehow require the Plan to give them benefits they do not claim are provided by the other terms of the Plan. We therefore decline to accept plaintiffs' contention with respect to the effect of Sec. 12.1(c). 11 50 We also find it significant that the Pension Benefit Guaranty Corporation (PBGC) considers plaintiffs' argument regarding their entitlement to Thirty-Year Benefits as unfounded as we do. While most of its amicus brief is devoted to the subject of the proper interpretation of Sec. 4044 of ERISA, discussed below, the PBGC also takes the position that: 51 [Plaintiffs'] claim to additional benefits pursuant to Section 4.3(a) of the Plan is insupportable. That Section provides unreduced retirement benefits only to participants who have attained age 62 and completed 30 years of service. Appellants did not satisfy these conditions on July 31, 1982, when the partial termination occurred, and, because they lost their jobs when the Midland plant shut down, may never satisfy them. The Plan does not take post-termination events, such as the satisfaction of the age requirement, into account, and does not promise to grant participants credit for service never performed. And, certainly, it nowhere provides that the age and service requirements ... were removed upon the occurrence of [the] Plan termination, as appellants contend. 52 PBGC Amicus Curiae Brief at 9. 53 We therefore believe the issue posed by plaintiffs--i.e., whether Plan Sec. 12.1(c) or Code Sec. 411(d)(3) require the payment to them of Thirty-Year Benefits--can be resolved without determining whether early retirement benefits of the sort in dispute here can ever be properly classified as an accrued benefit. Even if we were required to reach that issue, however, we could not agree with plaintiffs that Thirty-Year Benefits are within the statutory definition of an accrued benefit. 54 Both the Code and ERISA define the term accrued benefit as: 55 in the case of a defined benefit plan, the [individual employee's] accrued benefit determined under the plan and ... expressed in the form of an annual benefit commencing at normal retirement age. 56 Sec. 411(a)(7)(A)(i); 29 U.S.C. Sec. 1002(23) (emphasis added). 57 Plaintiffs insist that the Thirty-Year Benefit is an early retirement benefit that falls within this definition. They find support for their position in Amato v. Western Union Int'l Inc., 773 F.2d 1402 (2d Cir.1985), cert. dismissed 474 U.S. 1113, 106 S.Ct. 1167, 89 L.Ed.2d 288 (1986). The issue in Amato was the validity of a plan amendment reducing early retirement benefits for which plaintiff participants were or would have become eligible; the court decided that such a reduction would be impermissible under ERISA Sec. 204(g), 29 U.S.C. Sec. 1054(g), which forbids the reduction of accrued benefits by the plan amendment. While Sec. 1054(g) does not cover partial terminations and so would not apply here, Amato 's definition of accrued benefits is the definition which the plaintiffs contend should be applied to determine the scope of coverage of Plan Sec. 12.1(c). 58 This court has, however, disagreed with Amato on the very issue of whether early retirement benefits are accrued benefits in the context of plan amendment. In Bencivenga v. Western Pennsylvania Teamsters & Employers Pension Fund, 763 F.2d 574, 577 (3d Cir.1985), we held that early retirement benefits did not fall within the definition of accrued benefits, and were therefore not protected by Sec. 1054(g). Bencivenga stands as precedent in this circuit, and we are not free to adopt plaintiffs' position that Amato rather than Bencivenga should be followed here. In any case, we think Bencivenga better law. One important point on which Amato and Bencivenga part company, and as to which we think Bencivenga correct, is the significance of the following language from ERISA's legislative history: 59 In the case of a defined benefit plan the bill provides that the accrued benefit is to be determined under the plan, subject to certain requirements. The term 'accrued benefit' refers to pension or retirement benefits and is not intended to apply to certain ancillary benefits, such as medical insurance or life insurance.... Also, the accrued benefit to which the vesting rules apply is not to include such items as the value of the right to receive benefits commencing at an age before normal retirement age, or so-called social security supplements.... 60 H.R.Rep. No. 807, 93d Cong., 2d Sess., reprinted in 1974 U.S.Code Cong. & Admin.News 4639, 4670, 4726; see also H.Conf.Rep. No. 1280, 93d Cong., 2d Sess., reprinted in 1974 U.S.Code Cong. & Admin.News 5038, 5054. The Amato court was of the view that this passage has nothing to do with early retirement benefits, and thus sheds no light on the meaning to be given to the term 'accrued benefit' in the present context. 773 F.2d at 1410. Bencivenga, however, quoted and relied on this passage in connection with claims to early retirement benefits, as did Hoover and as have a number of other courts. See, e.g., Shaw v. International Ass'n of Machinists and Aerospace Workers Pension Plan, 750 F.2d 1458 (9th Cir.1985), cert. denied 471 U.S. 1137, 105 S.Ct. 2678, 86 L.Ed.2d 696 (1985) (quoting and relying on the above passage in holding that amendment that eliminated the cost-of-living increase in a living pension feature of a plan was elimination of an accrued benefit); Sutton v. Weirton Steel Div'n of Nat'l Steel Corp., 567 F.Supp. 1184, 1196 (N.D.W.Va.1983), aff'd 724 F.2d 406 (4th Cir.1983), cert. denied 467 U.S. 1205, 104 S.Ct. 2387, 81 L.Ed.2d 345 (1984) (relying on quoted legislative history in holding that certain retirement benefits were conditional and in the nature of early retirement benefits and so could not be considered accrued benefits); Petrella v. NL Industries, Inc., 529 F.Supp. 1357 (D.N.J.1982) (holding that elimination of early retirement option did not violate ERISA because benefits under that option did not accrue nor were they vested so as to be protected against forfeiture). But see Collins v. Seafarers Pension Trust, 641 F.Supp. 293, 296 (D.Md.1986) (declining to follow Hoover and Bencivenga, and holding a funded, noncontingent early retirement benefit to be an integrated part of a retirement plan and within the scope of accrued benefits protected in case of plan amendment). In our view, this legislative history is contrary to the plaintiffs' position here, just as it was in Bencivenga. 61 We take Bencivenga and the other caselaw cited above to support the proposition that in 1982, when the partial termination of CIOC's Plan occurred, Thirty-Year Benefits were not within the statutory definition of an accrued benefit and that, for this additional reason, Plan Sec. 12.1(c) did not make Thirty-Year Benefits available to plaintiffs. 62 Subsequent developments in this area of the law provide additional support for this conclusion. Since 1982, Congress, in the Retirement Equity Act of 1984, has provided as follows: 63 (A) ... A plan shall be treated as not satisfying the requirements of this section if the accrued benefit of a participant is decreased by an amendment of the plan.... 64 (B) ... For purposes of subparagraph (A), a plan amendment which has the effect of-- 65 (i) eliminating or reducing an early retirement benefit or a retirement-type subsidy (as defined in regulations), or 66 (ii) eliminating an optional form of benefit, 67 with respect to benefits attributable to service before the amendment shall be treated as reducing accrued benefits. In the case of a retirement-type subsidy, the preceding sentence shall apply only with respect to a participant who satisfies (either before or after the amendment) the preamendment conditions for the subsidy. 68 Code Sec. 411(d)(6) (effective for plan years beginning after Dec. 31, 1984). Each side in this case relies upon this provision for support of its position. The plaintiffs argue that it represents a congressional acceptance of the Amato court's interpretation of the state of the law prior to the amendment. As we pointed out in Bencivenga, 763 F.2d at 577, however, elsewhere the Act's legislative history states that: 69 The bill clarifies the scope of the prohibition against such decreases [in accrued benefits]. The committee intends that no inference is to be made on the basis of this clarification as to the scope of the prohibition before the effective date of the provision. 70 S.Rep. No. 575, 98th Cong., 2d Sess. 28, reprinted in 1984 U.S.Code Cong. & Admin.News 2547, 2574. 71 As we have indicated, we do not believe the pre-1984 law regarded all amendments eliminating early retirement benefits, retirement-type subsidies, or other optional benefits, or reducing early retirement benefits or retirement-type subsidies, as being amendments affecting accrued benefits. But the fact that such amendments will now be treated as reducing accrued benefits does not mean that Congress intends to foreclose employers from circumscribing the availability of such optional benefits when they are being created. 72 Even if Sec. 411(d)(6) reflected the state of the law in 1982, it would require that we sustain defendant's, rather than plaintiffs', position regarding the Thirty-Year Benefits. While this provision makes it clear that the amendment of a plan to reduce early retirement benefits is impermissible because it must be treated as an amendment reducing accrued benefits, Sec. 411(d)(6) also excludes from full accrued benefits protection any retirement-type subsidy. It is apparent from the legislative history of the 1984 Code amendment that benefits like the Thirty-Year Benefits offered by this Plan are a retirement-type subsidy, and are therefore a benefit to which participants are not entitled unless relevant conditions are met. According to the legislative history, 73 the bill makes it clear that the prohibition against reduction of a benefit subsidy (the excess of the value of a benefit over the actuarial equivalent of the normal retirement benefit) applies to a participant only if the participant meets the conditions imposed by the plan on the availability of the subsidy. If the protection is afforded, an employee's accrued benefit is not to be less than the protected level or the accrued benefit determined under the plan without regard to the protection, whichever is greater. For example, if a plan is amended to eliminate a subsidized early retirement benefit for employees who have completed 30 years of service, then the plan would not be required to provide the subsidy to an employee who never completes 30 years of service, and it would not be required to provide benefits to such an employee before the normal retirement age. On the other hand, if the employee completes 30 years of service, then the employee's accrued benefit is not to be less than the protected level or the accrued benefit determined without regard to the protection, whichever is greater. 74 S.Rep. No. 575, supra, at 28, reprinted in 1984 U.S.Code Cong. & Admin.News 2547, 2574. 12 The excess of the value of the Thirty-Year Benefit over the actuarial equivalent of the normal retirement benefit is precisely what the plaintiffs in this case seek and have been denied. We conclude from this that the Thirty-Year Benefits at issue here are retirement-type subsidies, and as such would not accrue until the conditions imposed by the Plan on their availability are fulfilled. 75 To sum up: while Sec. 411(d)(6) is not directly applicable here, it indicates that the Thirty-Year Benefit would be considered a retirement-type subsidy and not an accrued benefit that cannot be altered. But even disregarding that section, the fact remains that existing law in this circuit at the time of partial termination of the Plan is squarely against the view that the Thirty-Year Benefit was within ERISA's definition of an accrued benefit. Finally, even if the Thirty-Year Benefit were considered an accrued benefit, Plan Sec. 12.1(c) would not have the effect of superseding the age and service requirements of the Plan. It follows that the Plan fiduciaries' denial of Thirty-Year Benefits must be sustained.