Opinion ID: 750718
Heading Depth: 4
Heading Rank: 2

Heading: Applicability of the welfare benefits case law in the

Text: 61 pension context 62 We believe that the contractual analysis in the welfare benefits cases provides the proper framework for our decision in this case. In the same sense that the amendment provisions in Unisys, Gable, and Howe unambiguously established that the welfare benefits at issue in those cases were not contractually guaranteed at a higher level than ERISA requires, the amendment provision of the Plan in this case unambiguously establishes that Spacek's early retirement benefits are not contractually guaranteed at a higher level than ERISA requires. Thus, we conclude that the Plan's application of the Amendment to Spacek comported with the legally correct interpretation of the Plan, and therefore did not constitute an abuse of discretion. 63 We acknowledge that courts have traditionally applied contract law in a manner that affords pension benefits greater protection than welfare benefits. See, e.g., Danti v. Lewis, 312 F.2d 345, 348-49 (D.C.Cir.1962) (holding that application of a pension benefit plan amendment to the plaintiff when the amendment was adopted after the plaintiff applied for benefits and rendered the plaintiff ineligible for benefits was arbitrary and capricious). This tendency doubtless stems from the special solicitude that courts have shown in protecting the rights of pensioners, who have labored the greater portion of their lives under an expectation that their hard work would bring them security in retirement. The statutory framework of ERISA reflects this solicitude toward pensioners' rights through minimum funding, vesting, and accrual requirements for pension plans that are inapplicable to other types of ancillary benefits. See Wise 986 F.2d at 934-35. These requirements statutorily preclude a pension plan from pulling the rug out from under pensioners. Williams v. Cordis Corp., 30 F.3d 1429, 1431 (11th Cir.1994). Because Congress has chosen to protect pensioners' expectations of retirement security statutorily, the courts need not endeavor--and indeed have no justification for endeavoring--to safeguard pensioners' interests by liberally applying equity-based theories of contract construction that deviate from contract law's traditional focus on the intent of the parties as determined by the objective manifestations of that intent contained in the language of the parties' agreement. The cases cited by Spacek support rather than undermine this conclusion. 64 Spacek relies heavily on the Ninth Circuit's decision in Brug v. Pension Plan of Carpenters Pension Trust Fund, 669 F.2d 570 (9th Cir.1982). In that case, the plaintiff became a beneficiary under a pension plan pursuant to an amendment adopted by the trustees of the plan. Id. at 573. The plaintiff later became disabled and applied for a disability retirement pension under the plan. Id. The trustees of the plan delayed considering the plaintiff's application until after they voted to rescind the amendment that had authorized her qualification as a beneficiary under the plan. Id. The trustees then denied the plaintiff's application. Id. The court concluded that the trustees' denial of the plaintiff's application was arbitrary and capricious because the Trustees did not have the discretionary authority to apply that termination [of the amendment allowing the plaintiff to qualify as a plan beneficiary] so as to preclude [her] eligibility for pension benefits that had vested in the meantime. Id. at 575. 65 Brug differs from the instant case in that the action of the trustees in Brug completely deprived the plaintiff of any opportunity to obtain benefits by rendering her ineligible to participate in the employee benefit plan. It is possible that 29 U.S.C. § 1054(g), amended since the Brug decision, would preclude the trustees' rescission of the amendment because such action arguably constitutes an amendment eliminating early retirement benefits. 11 Had Brug been decided today, deviation from traditional principles of contract interpretation may well have been unnecessary to protect the interests of the plaintiff in light of the enhanced statutory protections afforded by ERISA. 66 Spacek next relies upon Pratt v. Petroleum Production Management, Inc. Employee Savings Plan & Trust, 920 F.2d 651 (10th Cir.1990), in which the Tenth Circuit concluded that the administrators of an executive deferred compensation, or top hat, plan could not amend the plan so as to change the valuation dates for a terminated employee's shares of the employer's securities held by the plan, and Kemmerer v. ICI Americas Inc., 70 F.3d 281 (3d Cir.1995), cert denied, 517 U.S. 1209, 116 S.Ct. 1826, 134 L.Ed.2d 931 (1996), in which the Third Circuit utilized similar contractual analysis to conclude that an employer could not terminate a top hat plan and thereby defeat the rights of retired employees. In each case, the court reasoned that [a] pension plan is a unilateral contract which creates a vested right in those employees who accept the offer it contains by continuing in employment for the requisite number of years, and that unilateral adoption of an amendment cannot operate to diminish rights vested after acceptance of the offer. Pratt, 920 F.2d at 661 (internal quotation marks omitted); see also Kemmerer, 70 F.3d at 287. 67 Kemmerer and Pratt are distinguishable from the instant case because they involved top hat plans, which are not subject to ERISA's full panoply of regulations. ERISA exempts top-hat plans from the fiduciary, funding, participation and vesting requirements applicable to other employee benefit plans. Duggan v. Hobbs, 99 F.3d 307, 310 (9th Cir.1996); see also 29 U.S.C. § 1101(a)(1) (exempting top hat plans from fiduciary responsibilities), § 1051(2) (exempting top hat plans from participation and vesting requirements), § 1081(a)(3) (exempting top hat plans from minimum funding standards). As such, top hat plans are in some degree analogous to pre-ERISA pension plans because no statutory mechanism exists to safeguard the expectations of top hat plan participants in obtaining their deferred compensation. 12 It is therefore at least arguable that courts have an equity-based justification for deviating to some degree from traditional contract analysis in evaluating the contractual authority of plan administrators to amend top hat plans that is similar to the equity-based justification for the pro-pensioner contract analysis that appears to underlie pre-ERISA cases interpreting pension plans. 68 This is precisely the rationale used by the Third Circuit in In re New Valley Corp., 89 F.3d 143 (3d Cir.1996), cert. denied, --- U.S. ----, 117 S.Ct. 947, 136 L.Ed.2d 835 (1997), in which the court concluded that a broad amendment and termination provision in a top hat plan did not unambiguously reserve to the employer the right to terminate the plan after its beneficiaries retired. Id. at 152. In doing so, the court distinguished its earlier decision in Unisys, 58 F.3d 896, which held that a substantially similar amendment provision in a welfare benefits plan unambiguously authorized amendments of welfare benefits at any time before or after retirement. See New Valley, 89 F.3d at 153-54. 69 First, the court concluded that it was not as strictly bound to the language of the plan documents in New Valley as it was in Unisys because top hat plans, unlike welfare benefit plans, are exempt from ERISA's writing requirements. Id. at 153. As such, top hat plan beneficiaries may be more justified in relying upon oral representations that are inconsistent with plan documents. See id. Second, the court observed that top hat plan participants lack the statutory cause of action for breach of fiduciary duty afforded to welfare benefit plan recipients. See id. The court was less inclined to find that the employer had unambiguously reserved the right to terminate the plan at any time when the participants' remedy was limited to a breach of contract action than when the participants had a statutory fall-back cause of action for breach of fiduciary duty. See id. Both of these bases for distinguishing top hat plans from welfare benefit plans are equally applicable in distinguishing top hat plans from ordinary pension benefit plans such as the one at issue in this case. Unlike the top hat plan at issue in New Valley, the Plan is not exempt from ERISA's fiduciary responsibility or writing requirements. See 29 U.S.C. § 1101(a) (establishing the scope of ERISA's fiduciary responsibility requirements, including the writing requirement contained in § 1102). 13 70 An additional justification that courts have offered for construing amendment provisions in top hat plans narrowly is that a broad construction of such provisions  'would make the [plans'] several specific and mandatory provisions ineffective, rendering the promises embodied therein completely illusory.'  Kemmerer, 70 F.3d at 287-88 (quoting Carr v. First Nationwide Bank, 816 F.Supp. 1476, 1494 (N.D.Cal.1993)). A promise is illusory when it creates no obligation whatsoever on the part of the purported promisor. See RESTATEMENT (SECOND) OF CONTRACTS § 2 cmt. e (1981). For example, when one contracting party reserves a right to cancel a services contract at any time without providing notice, the promise will likely be considered illusory. See ARTHUR LINTON CORBIN, CORBIN ON CONTRACTS § 163 (1963). However, if a party reserves the right to terminate upon a certain period of notice to the other party, the reserving party's promise is not rendered illusory because [t]he party in whom the power has been reserved has made a real promise, one that in terms purports to control his action during the specified period of notice. Id. § 164. 71 Interpreting a broad amendment provision in a top hat plan to allow an employer to terminate a top hat plan or sharply diminish the benefits that it provides renders the employer's obligations under the plan illusory because, under such a construction of the amendment provision, the employer has no duty of performance under the plan. This is not the case with an ordinary pension plan subject to all of ERISA's statutory safeguards because the backdrop of ERISA guarantees that the employer will have some obligation of performance under the pension plan. 72 While employers are not required to offer pension benefits at all, when they choose to do so, they must comply with ERISA's statutory requirements, such as minimum vesting and accrual standards. See Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 91, 103 S.Ct. 2890, 2896, 77 L.Ed.2d 490 (1983) ([ERISA] imposes participation, funding, and vesting requirements on pension plans. It also sets various uniform standards, including rules concerning reporting, disclosure, and fiduciary responsibility, for both pension and welfare plans. ERISA does not mandate that employers provide any particular benefits.... (citations omitted)); PERRITT, supra § 3.2 (ERISA provides for enforcement of employee benefits entitlements only when a contractual right or a trust right to such entitlements exists.). Thus, the administrators of a pension plan governed by ERISA could not, for example, exercise their amendment power so as to eliminate or reduce early retirement benefits because this is statutorily prohibited. See 29 U.S.C. § 1054(g). We therefore conclude that construing a broad amendment provision in a pension plan governed by ERISA as allowing the plan administrators to adopt any amendment that comports with ERISA's statutory requirements does not render the employer's obligations under the plan illusory because the plan administrators are bound to exercise their amendment power in a manner that comports with ERISA's minimum statutory requirements. These statutory requirements guarantee that the employer's performance is not purely discretionary. 73 In sum, while we express no opinion as to whether the contractual analysis of top hat plans utilized by the courts in Pratt, Kemmerer, and New Valley is correct, we conclude that the justifications for departure from traditional contract interpretation arguably present in dealing with top hat plans are absent in this case because of the statutory safeguards afforded by ERISA to ordinary pension plans such as the one at issue here. These safeguards insure that, when courts give a broad amendment provision in a pension plan the meaning dictated by its plain language, pensioners like Spacek will not have the rug pulled out from under them regarding their pension benefits. Therefore, the Plan's application of the Amendment to Spacek comports with the legally correct interpretation of the Plan.