Opinion ID: 445620
Heading Depth: 2
Heading Rank: 1

Heading: The Act's Effective Date

Text: 15 Part 2 of ERISA contains participation and vesting requirements. In this part, 29 U.S.C. Sec. 1054(g) provides: The accrued benefit of a participant under a plan may not be decreased by an amendment of the plan, other than an amendment described in [29 U.S.C. Sec. 1082(c)(8), contained in Part 3 of ERISA]. Part 2's mandates became effective in the case of plan years beginning after September 2, 1974. 29 U.S.C. Sec. 1061(a). Therefore, the effective year would be 1975. 16 Part 3 of ERISA provides funding requirements. This part contains 29 U.S.C. Sec. 1082(c)(8) to which the Part 2's limitation on amendments refers. This section provides a description of the only permissible means of decreasing plan benefits by amendment. Such an amendment will be approved if: the plan administrator files a notice with the Secretary notifying him of such amendment and the Secretary has approved ... or ... failed to disapprove such amendment. Part 3's effective dates vary. It becomes effective against pension plans for employees of tax-exempt labor organizations (under 26 U.S.C. Sec. 501(c)(5)), such as the IAM, on the earlier of: 17 (1) the date on which the second convention of such labor organization held after September 2, 1974, ends or 18 (2) December 31, 1980. 19 29 U.S.C. Sec. 1086(e). In this case, that date would be September 10, 1980, the date on which the IAM's second convention after September 2, 1974, ended. 20 The controverted amendment was adopted at IAM's 1976 convention--in between 1975 and 1980. If Part 3's effective date governs, the amendment could reduce accrued benefits with impunity; if Part 2's effective date governs, no amendment could reduce accrued benefits unless application was made to, and approved by (or not disapproved by), the Secretary. 21 The IAM argues that the later date governs. It reasons that Part 2's (Sec. 1054(g)'s) limitation on amendments, because it refers to a permissible amendment process described in Part 3 (Sec. 1082(c)(8)), must incorporate the latter's deferred effective date. This interpretation is illogical: it makes the first section, the broad prohibition on decreases, superfluous, and makes the second section, the exemption, become the rule. This interpretation also contradicts ERISA's purposes. Part 2's section, 1054(g), protects vesting by prohibiting decreases in accrued benefits in most circumstances. This general declaration comports with ERISA's general concern for protecting workers' vested interests. Part 3's section, 1082(c)(8), describes the procedure for procuring an exception to the general prohibition. It would flout the purpose of ERISA for us to expand the applicability of the exception by making it effective earlier than Congress did. It would also create an unprecedented six-year window--between 1974 and 1980--within which union plans could unilaterally decrease accrued benefits with impunity. General contract principles precluded such action before ERISA. See UMWA Health & Retirement Funds v. Robinson, 455 U.S. 562, 575 n. 14, 102 S.Ct. 1226, 1234 n. 14, 71 L.Ed.2d 419 (1982). As Shaw correctly points out, It would be ironic indeed if ERISA were interpreted to casually dispense with even this modicum of protection. 22 The IAM plan also argues that Congress intended that ERISA be interpreted the plan's way. They contend, explicitly, that to achieve consistency between ERISA's Title I (Labor Code) and Title II (Tax Code) amendments, both titles' dates of effectiveness with respect to labor unions should be deferred equally. They also contend, implicitly, that to achieve consistency between ERISA's Labor Code provisions--Part 2, Participation and Vesting, and Part 3, Funding--both Parts' dates of effect with respect to labor unions should be identically extended. 23 Congress, however, seems to have been conscious of the fact that it adopted staggered and discrepant dates of effectiveness. In fact, a report called all these differences to the attention of House and Senate conferees. Staff of House and Senate Conferees on H.R. 2, 93d Cong., 2d Sess., Summary of Differences Between the Senate Version and the House Version of H.R. 2 to Provide for Pension Reform, Prepared for the Use of the House and Senate Conferees on H.R. 2, Part One, Participation, Vesting, Funding, Actuaries, Jurisdiction and Portability at 28 (Comm. Print, May 15, 1974) [hereinafter Conferees' Report], reprinted in III Subcommittee on Labor of the Committee on Labor and Public Welfare, United States Senate, Legislative History of the Employee Retirement Income Security Act of 1974, 5151 at 5181 [hereinafter Legislative History]. This Conferees' Report compared House and Senate versions of Title I's and Title II's effective dates for Part 2's vesting requirements, and referred specifically to the question of delayed applicability to labor unions, by referring to Staff Comments on pp. 10-11. Id. The Conferees' Report also compared House and Senate versions of Title I's and Title II's effective dates for Part 3's funding requirements, and noted specifically the potential discrepancy between effective dates for funding and vesting. Conferees' Report at 41, III Legislative History at 5181 and 5194-95. Indeed, the staff commented with respect to funding: Some of the staff believe the effective dates for funding should be the same as for vesting, and others believe (if an early effective date is chosen for vesting) that the effective dates for funding should be later than for vesting. Conferees' Report at 42, III Legislative History at 5195 (parenthesis in original). And, referring to vesting and participation, the staff commented: The conferees may wish in the case of plans maintained by tax-exempt labor organizations to apply new standards [at a later date]. Conferees' Report at 11, III Legislative History at 5164. Congress responded by adopting only a limited deferment of applicability to labor unions--for the Labor Code's funding requirements, but not its vesting requirements. Its seemingly discordant effective dates thus seem to reflect conscious choices. 24 Shaw argues that Sec. 1054(g)'s limitation on amendments is almost absolute, excepting only the cross-referenced procedure of applying to, and securing the approval of, the Secretary. Absent compliance with the cross-referenced procedure, Shaw argues, no amendments may decrease benefits. Despite the delayed applicability of this procedure to labor unions, the earlier applicability of the general, substantive prohibition governs. To rule otherwise would effectively repeal Sec. 1054(g)'s general, substantive mandate against decreasing accrued benefits, and leave available only Sec. 1082(c)(8)'s allowance of decreasing accrued benefits through later amendments. 25 The legislative history is illuminating on this point. The bills that were to become ERISA originally contained no distinction between the dates of effectiveness for vesting and funding provisions or with respect to labor unions and other plans. E.g., S. 4, 93d Cong., 1st Sess. Sec. 701 (1973), reprinted in I Legislative History at 189. Deferred applicability of participation and funding provisions to labor organizations began to appear later. See H.R.Rep. No. 93-779, 93d Cong., 2d Sess. 51, 100 (1974), reprinted in II Legislative History at 2640, 2689. The legislature was aware that discrepancies appeared in the effective dates for different Parts, but it tolerated later effective dates in the case of plans in existence on January 1, 1974, in order to afford such plans adequate opportunity to adopt any amendments needed in order to conform to the new requirements resulting from this bill. Committee on Education and Labor, Employee Benefit Security Act of 1974: Material Explaining H.R. 12906 Together with Supplemental Views, reprinted in II Legislative History 3293 at 3334. The legislature even contemplated a means for resolving some seeming discrepancies: 26 Where a qualified plan does not meet the funding requirements of existing law because of vesting or participation requirements made applicable by the substitute and where the funding requirements of the conference substitute do not become applicable until a later time than the vesting or participation requirements, then to the extent that failure to meet the funding requirements of existing law is attributable to these new vesting or participation requirements, no plan is to be disqualified in this interim period on the grounds of underfunding. 27 H.R.Rep. No. 93-1280, 93d Cong., 2d Sess. 294 (1974), U.S.Code Cong. & Admin.News 1974, pp. 4639, 5074, reprinted in III Legislative History 4277 at 4561. We have the opposite problem here: not underfunding, but undervesting--failure to meet the vesting section's mandates. But the IAM's failure is not attributable to the potentially exculpatory effect of its striving to meet funding requirements. No funding requirement demanded contravention of the vesting requirement regarding diminution of accrued benefits. In the absence of such a conflicting, and thus potentially exculpatory, mandate, the vesting section's provisions are effective and absolute. 28 Congress chose to defer applicability of ERISA's funding provisions to labor unions, but not to deter ERISA's vesting provisions. ERISA's limitation on decreasing accrued benefits by amendment was thus effective in 1975, one year before the IAM adopted its take-away amendment. 29 II. The living pension feature is an accrued benefit within the meaning of ERISA and thus subject to ERISA's limitation on amendments decreasing accrued benefits. 30 ERISA provides: The accrued benefit of a participant under a plan may not be decreased by an amendment of the plan, other than an amendment described in section 302(c)(8) [29 U.S.C. Sec. 1082(c)(8) ]. 29 U.S.C. Sec. 1054(g). Shaw and the IAM disagree over whether the living pension feature is an accrued benefit within the meaning of this section. If the feature were an accrued benefit, it would be subject to the limitations on decrease of benefits through plan amendment for which this section, and the cross-referenced section, provide; if the feature were not an accrued benefit, then it is subject to no such limitation. 31 The plain language of ERISA provides little help in determining whether the living pension feature is an accrued benefit or not: 32 The term accrued benefit means ... in the case of a defined benefit plan, the individuals's accrued benefit determined under the plan and, except as provided in section 1054(c)(3), expressed in the form of an annual benefit commencing at normal retirement age .... 33 29 U.S.C. Sec. 1002(23). Thus, ERISA's language provides only two sources for defining accrued: (1) a tautological reference to the individual's accrued benefit; and (2) a somewhat more enlightening reference to the plan. Before turning to the plan itself, we turn to other sources of guidance. 34 ERISA's history provides a little more help. It, too, defers to the private employer's plan, subject to certain requirements. H.R.Rep. No. 93-807, 93d Cong., 2d Sess. 60 (1974), reprinted in II Legislative History at 3180. It describes benefits that are considered accrued. This category includes pension or retirement benefits, and the types of benefits that are not generally transferable when employees move on to new jobs. It distinguishes these from ancillary benefits, such as medical or life insurance. Benefits in this latter category lack the primary function ... [of] provid[ing] retirement income; are generally provided by succeeding employers. Also, accrued benefits do not include 35 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 which are commonly paid in the case of early retirement but then cease when the retiree attains the age at which he becomes entitled to receive current social security benefits, or any value in a plan's joint and survivor annuity provisions to the extent that exceeds the value of what the participant would be entitled to receive under a single life annuity. 36 Id., U.S.Code Cong. & Admin.News 1974, p. 4726. 37 The living pension feature fits more easily within the enumeration of accrued benefits. The feature is a pension or retirement benefit[ ]; it primarily provides retirement income; and it is not generally transferable from one employer to another. The living pension feature does not fit within any of the enumerated categories of ancillary or nonaccrued benefits. Aside from these categories, the accrued benefit is to be determined under the plan. H.R.Rep. No. 93-1280, 93d Cong., 2d Sess. 273 (1974), U.S.Code Cong. & Admin.News 1974, p. 5054, reprinted in III Legislative History 4277 at 4540. 38 The case law also categorizes various benefits as either vested or ancillary. No case, however, deals with the narrow issue of post-retirement upward adjustments like the living pension provision. The categories defined by the case law parallel those enumerated in the legislative history. In Sutton v. Weirton Steel Division of National Steel Corp., 567 F.Supp. 1184 (W.Va.1983), aff'd 724 F.2d 406 (4th Cir.1983), cert. denied, --- U.S. ----, 104 S.Ct. 2387, 81 L.Ed.2d 345 (1984), for example, the district court held: 39 An examination of the eligibility requirements for 70/80 and rule of 65 retirement reveals they are conditional and in the nature of early retirement benefits and cannot be considered nonforfeitable or as an accrued benefit.... Since the increased $400.00 per monthly pension is conditioned upon eligibility for 70/80 or rule of 65 retirement, it cannot be considered nonforfeitable. 40 Id. at 1196. The living pension feature, in contrast, is not in the nature of early retirement benefits. Nor is it conditional: the Constitution provides for the adjustment in mandatory language, to be measured by an occurrence wholly outside the pensioner's control. The Sutton court used the legislative history as a guide, but it made its determination based on the terms of the plan itself. 41 On appeal, the court added the term unfunded to describe the typical unaccrued, contingent early retirement benefit. 724 F.2d at 409. This bolstered further the district court's decision that the unfunded early retirement benefits at issue in that case were ancillary, rather than funded. The living pension feature in the IAM Plan, in contrast, was included with the rest of the pension funds when the Plan's liabilities were computed. 42 Similarly, in Petrella v. NL Industries, Inc., 529 F.Supp. 1357 (D.N.J.1982), the court recited the difference between ancillary and accrued benefits under ERISA and decided that the benefits before it were not accrued. Id. at 1366. This case squeezed into the ancillary category five plans: two early retirement plans; a plan providing supplemental benefits to retirees until the age of 65; a level income option that pays higher monthly benefits to start, and then decreases payments after the retiree is eligible for social security to make up the difference; and life insurance and major medical benefits. This case provided no new indices of difference between accrued and ancillary. The benefits in Petrella paralleled those listed in ERISA as ancillary: early retirement, life insurance and medical plans. The living pension feature, in contrast, parallels none of ERISA's list of ancillary or nonaccrued benefits. And, again, the Petrella court looked to the terms of the plan to determine into which camp its benefits fell. 43 The terms of the IAM Plan support our conclusion that Shaw's living pension benefits were accrued. The plan takes explicit form in the IAM Constitution and the IAM Pension Plan booklet. In the Constitution, the monthly pension benefit is described in terms of a formula. The formula contains three numbers: years of service, the 2.5% rate, and the salary by which the product of these two numbers is to be multiplied. In paragraph one of Section 7, the salary is described as the participant's current monthly salary immediately prior to his retirement date. In paragraph two of that section, the salary is described as the salaries for positions corresponding to those in which they were employed immediately prior to their retirement .... Thus, the living pension adjust[s] the basic formula for determining benefits at normal retirement, rather than providing a separate, unfunded, optional plan like medical coverage or early retirement. It describes the multiplicand; it does not provide a separate formula or benefit. When the pension plan booklet shows exemplary pension benefit computations, it shows the salary figure as a multiplicand; it shows no separate formula or benefit to be added. Cf. In re W.S. Dickey Clay Manufacturing, 720 F.2d 25, 27 (10th Cir.1983) (even where the terms of the pension plan explicitly retain the power to change the multiplier in the benefit determination formula, the benefits are not forfeitable). The living pension feature was therefore an accrued benefit, just like the rest of Shaw's pension benefits. 44 The IAM declined to take advantage of the statutory escape valve that allows the Secretary to approve amendments decreasing accrued benefits upon a showing of substantial business hardship. 29 U.S.C. Sec. 1082(c)(8). Perhaps the IAM can now submit its discussion of financial hardship, which is irrelevant to our decision, to the Secretary. We see no time limit on applications brought under that escape valve section. 45