Opinion ID: 74891
Heading Depth: 3
Heading Rank: 1

Heading: Interpreting the Plan

Text: The Thiokol Plan designates the Administrator, Smith, as the person who is responsible for interpreting the terms of the Plan and determining eligibility under the Plan. The district court found that Smith was operating under a conflict of interest because he “was not only an employee of Thiokol, but was also an officer and stockholder.” This circuit has noted that ERISA does not prohibit an individual from “serving as a fiduciary in addition to being an officer, employee, agent, or other representative of a party in interest.” Newell v. Prudential Ins. Co., 904 F.2d 644, 649 (11th Cir. 1990) (quoting 29 U.S.C. § 1108(c)(3) (West Supp. 1990)). However, as we have noted, in reviewing factors such as self-interest as pertains to the legal standard for reviewing benefits determinations, “This task reaches the height of difficulty in a case . . . where an insurance company serves as the decisionmaking fiduciary for benefits that are paid out of the insurance company’s assets.” Brown, 898 F.2d at 1561. In the case of Brown, which dealt with a health insurance company, we held that “[b]ecause an insurance company pays out to beneficiaries from its own assets rather than the assets of a trust, its fiduciary role lies in perpetual conflict with its profit-making role as a business.” Id.; see also Newell, 904 F.2d at 650 (citation omitted). Similar circumstances arise in the present case. Thiokol is a profit- 9 making business; the Plan provides that the payment of separation pay would be made from the general assets of the corporation; and the Administrator, a Thiokol employee, acknowledged that the cost could amount to millions of dollars. There is clearly a conflict of interest which requires a heightened scrutiny for abuse of discretion. See Newell, 904 F.2d at 651; see also Brown, 898 F.2d at 1569 (“Because Blue Cross profits from such forfeitures, we should demand strong justification for an interpretation which produces [a forfeiture] result.”). Under the heightened standard, we must first determine the legally correct interpretation of the disputed plan provision. Brown, 898 F.2d at 1570; Newell, 904 F.2d at 651. If the administrator’s interpretation was legally correct, the inquiry ends. Collins v. American Cast Iron Pipe Co., 105 F.3d 1368, 1370 (11th Cir. 1997). If the administrator’s interpretation differs, we must then determine whether the administrator was arbitrary and capricious in employing a different interpretation. Brown, 898 F.2d at 1570; Newell, 904 F.2d at 651. The original 1992 Plan document specifically excluded severance benefits for “[t]ermination of employment resulting from . . . (ii) the sale of all or part of the business assets of the Company or a subsidiary or a business unit; . . . or (iv) any other form of reorganization including a spinoff; and the employee is offered a position (whether or not such position is comparable to the prior position) by the 10 acquiring or resulting company; . . . .” However, the July 1995 Amendment states that a separation allowance will not be paid for termination “resulting from any sale, merger or reorganization of the company and the workteam member terminates rather than accept a comparable position.” The Amendment language states that severance benefits will not be paid for an employee who terminates when there is sale, merger or reorganization (while implying that there is no restriction on severance benefits for an employee who accepts a comparable position).6 (emphasis added). This language contradicts the language in the 1992 Plan and creates an ambiguity. The Amendment also conflicts with the explanations set forth in the Questions and Answers memo. ERISA requires that employee benefit plans be “established and maintained pursuant to a written instrument.” 29 U.S.C. § 1102(a)(1). In addition, by requiring that each plan specify the procedure for amending the plan, id. § 1102(b)(3), “Congress rejected the use of informal written agreements to modify an ERISA plan.” Nachwalter v. Christie, 805 F.2d 956, 960 (11th Cir. 1986) (citing Johnson v. Central States, Southeast 6 Although we suspect the language of the Amendment was a simple misstatement-presuming that Thiokol intended to state no separation allowance would be paid for: “Termination resulting from any sale, merger or reorganization and the workteam member accepts a comparable position or terminates rather than accept a comparable position”-the ambiguity which arises from the conflicting language of the Plan and the Amendment must be addressed. 11 and Southwest Areas Pension Funds, 513 F.2d 1173, 1174-75 (10th Cir. 1975) (stating that benefits may not be enforced according to a company booklet and letter that are inconsistent with the terms of a written pension plan)). Although the Amendment is a formal, written document as prescribed under ERISA, see 29 U.S.C. §§ 1102(a)(1), 1102(b)(3), which modified the Plan as allowed, its primary purpose was to raise the separation benefit amounts as pertains to the Space Services division. In all other respects, it repeats the language of the Plan except for the one contradictory statement.7 Under the decisions of this court and the laws of Florida, where the meaning of a term is unclear or ambiguous, a reviewing court can consider extrinsic evidence to explain the ambiguity. See Stewart v. KHD Deutz of America, Corp., 980 F.2d 698, 702 (11th Cir. 1993); Hurt v. Leatherby Ins. Co., 380 So.2d 432, 433 (Fla. 1980); see also Vencor Hosp. South, Inc. v. Blue Cross and Blue Shield of Rhode Island, 86 F.Supp.2d 1153, 1160 (S.D. Fla. 2000). We find this also applies in determining ambiguous language in an ERISA plan such as the one in this case. As the Supreme Court noted in Bruch, where the plan did not delegate discretionary or final authority to construe uncertain terms, the reviewing court 7 The Questions and Answers memo is not controlling as it is simply an informal employee communication. See Nachwalter, 850 F.2d at 960. 12 could “look[] to the terms of the plan and other manifestations of the parties’ intent.” 489 U.S. at 112-13 (citations omitted). Although Smith was delegated final authority, he also looked to “other manifestations of the parties’ intent.” While the Questions and Answers memo clearly supports the language of the Plan, Smith looked further in examining extrinsic evidence which would explain Thiokol’s intent. As indicated in the record, he spoke with current and former Thiokol employees, who stated that the Plan was created to formalize Thiokol’s prior administrative policies with regard to separation pay and to establish basic, uniform standards. The management policy memo which predated the 1992 Plan provided that separation benefits would not be paid in the case of a “[t]ermination as a result of any sale or transfer of business, in whole or in part, or in cases of merger, consolidation, or other reorganization where the individual is offered the opportunity to remain in the same or a substantially equivalent position with the new employer.” Management Policy, Morton Thiokol, Inc. Aerospace Group Support Services, Separation Allowance, February 27, 1989. Smith also reviewed the employment and termination history of Thiokol and found that Thiokol had consistently denied separation pay to employees who were displaced and accepted comparable employment with a successor. See Anderson v. Ciba-Geigy Corp., 759 F.2d 1518, 1522 (11th Cir. 1985) (“The Plan was consistently interpreted because 13 in every other divestment situation where Ciba-Geigy employees were retained in their old positions by the purchasing entity, no severance pay was given.”). All of the extrinsic evidence points to the fact that the language of the Plan policy, not the Amendment, is controlling. The Plan language denies severance benefits where there is a sale of all or part of the business assets of a subsidiary or business unit of Thiokol or where there is a reorganization, and the employee is offered a position by the acquiring or resulting company. Thiokol sold the assets of the Space Services division to Lockheed, which then took over the division with all but approximately forty of the previous employees. Thiokol Space Services ceased to be an operating unit when Lockheed purchased a substantial portion of the Space Services assets and began operating the division as its own. Smith determined that the loss of the contract resulted in a reorganization of Thiokol because the Space Services division ceased to exist as a Thiokol division and an internal restructuring of Thiokol operations took place. Smith correctly interpreted the sale or reorganization language to apply to Thiokol “as a whole or to any subcomponent thereof.”8 8 Smith also took into account the fact that the transaction had been treated as a sale of substantially all of the assets of a separate trade or business under Thiokol’s 401(k) plan, thus allowing Plaintiffs to receive distribution of their 401(k) plan accounts. 14 In making his initial determinations as to who might or might not be eligible for separation pay, Smith also reviewed the positions and pay of all of the Plaintiffs with respect to “comparability.” Smith used a broader definition of comparability than “90% or more of an employee’s Thiokol wages,” as stated in the Questions and Answers memo, but took into account the wage amount, benefits, and job duties. He determined that 303 employees were employed by Lockheed at either the same or a higher initial base salary. Smith also consulted two independent firms for advice. There is no requirement that an administrator who occupies the dual role of fiduciary and employee of the party in interest, such as Smith, must seek independent counsel in interpreting and administering an ERISA plan. See Newell, 904 F.2d at 650 (citing Ashenbaugh v. Crucible Inc., 1975 Salaried Retirement Plan, 854 F.2d 1516, 1531-32 (3rd Cir. 1988) (holding that a plan fiduciaries’ reliance on in-house counsel to aid in interpreting and administering the plan, rather than hiring independent counsel, was not a violation of ERISA)).9 Smith commissioned Towers Perrin, an international benefits consulting firm, to conduct an actuarial analysis of the two benefit programs. The principal of the firm reported that “there 9 The Third Circuit notes that the only ERISA cases which require independent counsel have to do with the conduct of fiduciaries in connection with the investment and management of plan assets, an area in which ERISA fiduciaries are uniformly held to stricter standards. Ashenbaugh, 854 F.2d at 1532 (citations omitted). 15 is not a material difference in the actuarial value of the benefits provided by Thiokol Space Services and Lockheed Martin Space Operations.” While Smith found the non-salary benefit programs to be somewhat different, he concluded that Thiokol’s benefits and Lockheed’s benefits were “comparable in the aggregate.” We note the evenhandedness of Smith’s decision-making process, as evidenced by Smith’s extensive efforts to make informed and knowledgeable decisions, including input from two independent firms, in interpreting the Plan. While we do not address the merits of Smith’s “comparable job” findings, this showing of evenhandedness is evidence of Smith’s good faith efforts. See Anderson, 759 F.2d at 1522. We find that Smith’s decision was a fair and reasonable reading of the Plan language. Id. Notwithstanding the contradictory statement contained in the Amendment, the Plan clearly states no severance pay was to be awarded when there is a sale or reorganization and the employee accepts a comparable position with the new entity. See Harris v. Pullman Standard, Inc., 809 F.2d 1495, 1498 (11th Cir. 1987); Anderson, 759 F.2d at 1520 (holding that plan administrator’s decision to deny severance benefits was not arbitrary or capricious when company’s ERISA plan provided for an exception to severance pay provision). Contrary to Plaintiffs’ assertion that this was a RIF, the record shows that Thiokol 16 acted as if this was a sale or reorganization, not a RIF. Lockheed and Thiokol informed Plaintiffs of the terms and conditions under which they would be transferred to Lockheed. Plaintiffs were placed on notice by the Questions and Answers memo, which stated that those employees accepting a comparable job would not receive severance benefits. See Anderson, 759 F.2d at 1522. Plaintiffs had a reliable document which explained the affect of his or her decision to accept a position with the new company in relationship to eligibility for severance benefits from the old company. See Sharron v. Amalgamated Ins. Agency Services, Inc., 704 F.2d 562, 566-67 (11th Cir. 1983) (upholding denial of benefits where company distributed booklet which discussed the effect of breaks in service as to pension plan benefits and which contained hypothetical questions and answers and addressed plaintiff’s specific situation). One of the primary goals of an ERISA plan should be the protection of the employees’ interests. See Shaw v. Delta Airlines, Inc., 463 U.S. 85, 90 (1983). However, an ERISA plan administrator is required to administer a plan “in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions [of ERISA].” 29 U.S.C. § 1104(a)(1)(D). Smith noted the Plan’s stated purpose was to “provide unemployment income assistance,” and concluded that the employees who 17 transferred to Lockheed were not unemployed and did not experience a material loss of income. As Smith stated, “It is not the intent of the severance pay Plan to provide bonus payments to individuals who have experienced no income loss.” See Bradwell v. GAF Corp., 954 F.2d 799, 801 (2nd Cir. 1992). In this case, we agree with the Eighth Circuit’s holding in Harper v. R.H. Macy & Co. Inc., which stated, “[W]hen terminated employees are immediately rehired by a departing [employer’s] successor under terms that are comparable to those received from their initial employer, the employees are not entitled to severance benefits.” 920 F.2d 544, 545-46 (8th Cir. 1990) (citations omitted). The Thiokol Plan anticipated and addressed this type of situation. See Bradwell, 954 F.2d at 800 (“By its plain language and evident intent, the Severance Pay Policy does not entitle appellants to recover.”); Headrick v. Rockwell Int’l. Corp., 24 F.3d 1272, 1276 (10th Cir. 1994). Any severance pay from Thiokol would have been the equivalent of a windfall recovery for the Plaintiffs, who never suffered a day of decreased pay or unemployment.10 As to Plaintiffs’ assertion that the sale of assets did not occur until after the transition, Smith stated that he had been told of Lockheed’s intent to purchase the 10 This does not address those employees who are terminated but may then find alternate employment on their own. See Bradwell, 954 F.2d at 800. 18 division’s assets and retain the personnel prior to July 1995 in order to prepare the severance pay communications given to the employees. The Lockheed letter and Special Report to Employees support this contention. An affidavit given by Thiokol’s contracts manager also stated that Lockheed was contractually obligated to purchase the Space Services assets upon termination of the subcontract. Given the fact that negotiations regarding the sale of Space Services assets had been ongoing after Lockheed announced it would not renew Thiokol’s employment contract, we do not find the fact that the sale of assets contract was signed on October 2, 1995 to be determinative. Nothing in the record indicates Smith acted in anything other than good faith. See Anderson, 759 F.2d at 1522. Although he alone was given the authority to interpret the Plan, he requested an independent actuarial evaluation and solicited an independent review from an outside law firm. We find that Smith’s interpretation was legally correct and therefore affirm this portion of the district court’s finding of summary judgment.11