Opinion ID: 8407616
Heading Depth: 2
Heading Rank: 1

Heading: Accrued and Vested Benefits Under ERISA

Text: We first consider whether ERISA nullified the 'Plan’s break-in-service provisions regarding benefits accrued during pre-ERISA employment. Under ERISA, breaks in service impact the related eoii-cep'ts of accrued and vested benefits. “Accrued” benefits refer to those normal retirement benefits that an employee has earned at any given time during the course of employment. 29 U.S.C. § 1002(23)(A); see generally Esden v. Bank of Boston, 229 F.3d 154, 162-63 (2d Cir.2000). “Vested” benefits, on the other hand, refer to those normal retirement benefits to which an employee has a “nonforfeitable” 1 claim; in other words, those accrued benefits he is entitled to keep. 29 U.S.C. § 1002(19). The court below explained the relationship between the concepts as follows: An employee becomes fully vested when he has a nonforfeitable right to his entire accrued benefit. An employee accrues benefits both before and after he becomes vested in a portion of his accrued benefit. McDonald I, 153 F.Supp.2d at 272 n. 4. ERISA § 204(b)(1)(D) 2 provides for the accrual of benefits based upon an employee’s “years of participation” in a plan. Moreover, § 204(b)(4) 3 starts the clock for “participation” at “the earliest date on which the employee is a participant in the plan” and notes that such participation is included in the “period of service required to be taken into account” under § 202(b). In turn, with regard to the computation of years relevant for accrual purposes, § 202(b)(1) provides: Except as otherwise provided in paragraphs (2), (3), and (4), all years of service with the employer or employers maintaining the plan shall be taken into account in computing the period of service for purposes of subsection (a)(1). 29 U.S.C. § 1052(b)(1) (emphasis added). This combination of “the earliest date” and “all years of service” on its face does not allow for any break in a participating employee’s service to negate previously accrued benefits. 4 By contrast, ERISA § 203(b) treats breaks in service differently for vesting purposes. Section 203(b) explicitly allows pension plans to apply break-in-service provisions to the calculation of vested benefits arising from pre-ERISA service: (1) In computing the period of service under the plan for purposes of determining the nonforfeitable percentage under subsection (a)(2) of this section, all of an employee’s years of service with the employer or employers maintaining the plan shall be taken into account, except that the following may be disregarded: (F) years of service before this part first applies to the plan if such service would have been disregarded under the rules of the plan with regard to breaks in service, as in effect on the applicable date.... 29 U.S.C. § 1053(b). Both before and after the application of ERISA, the Plan deemed that an employee’s pre-ERISA employment had terminated and was no longer continuous when the employee had worked fewer than 400 hours a year for more than two consecutive calendar years. As a result of such a “break in service,” the PTF would not count an employee’s years of service prior to the break toward either the vesting or accrual of benefits. Given that ERISA first applied on January 1, 1976, McDonald’s break in service during 1970,1971 and 1972 would, for vesting purposes, fall under the Plan’s pre-ERISA provisions. 5 ERISA § 203(b), 29 U.S.C. § 1053(b)(1)(F), would apply, and the PTF, in determining McDonald’s vested benefits, could ignore his 13 years of pre-1970 service. Under ERISA § 202(b)(1), however, there is no congruent allowance for break-in-service provisions that deal with the calculation of accrued benefits arising from pre-ERISA service. At the heart of this appeal lies the question of what to make of the absence of such explicit statutory language. McDonald argues that Congress’s specific inclusion of language in ERISA § 203(b)(1) giving effect to break-in-service provisions with regard to vested benefits, coupled with its failure to include a parallel section - in § 202(b) for accrued benefits, indicates that Congress intended for accrued and vested benefits to be treated- differently. The PTF argues that this' asymmetrical treatment of breaks in service is inconclusive and that reference to the treatment of vesting and accrual elsewhere in ERISA is required. Specifically, the PTF points to Congress’s nearly identical treatment of accrued and vested benefits in ERISA § 211, which governs the transitional period between ERISA’s passage on January 1, 1974, and its effective date of January 1, 1976. This similarity, the PTF argues, means that Congress wanted accrued and vested benefits treated the same under other ERISA provisions. The district court agreed with McDonald, as do we. Implicitly conceding that the text of the statute authorizes the conclusion that, for accrual purposes, an employer may not exclude years of service based on a plan’s pre-ERISA break in service rules, the PTF criticizes this reading as dangerous “literalism” based upon “a lacuna in a complex and highly reticulated statute.” Defendant-AppellanWCross-Appellee’s Brief, p. 19. The PTF contends that this reading renders superfluous § 211(e), which contains transitional rules relating to both the vesting and accrual of benefits. The PTF also argues that this conclusion is inconsistent with that of other courts that have considered the question. The PTF’s arguments relating to ERISA § 211(e)(l)-(2), 29 U.S.C. § 1061(e)(l)-(2), do not convince us. The PTF points to two separate subsections of § 211—(e)(1)(A) and (e)(2)(A)—that treat accrued and vested benefits the same. Section 211(e)(1) prohibits the modification of break-in-service provisions as follows: No pension plan to which section 1052 of this title applies may make effective any plan amendment with respect to breaks in service (which amendment is made or becomes effective after January 1, 1974, and before the date on which section 1052 of this title first becomes effective with respect to such plan) which provides that any employee’s participation in the plan would commence at any date later than the later of— (A) the date on which his participation would commence under the break in service rules of section 1052(b) of this title, or (B) the date on which his participation would commence under the plan as in effect on January 1,1974. ERISA § 211(e)(1), 29 U.S.C. § 1061(e)(1). Given that the language of § 211(e)(1)(A), which by its specific reference to § 202 pertains to accrued benefits, is virtually identical to § 211(e)(2)(A), which specifically pertains to vested benefits, the PTF contends that, with regard to pre-ERISA break-in-service provisions, Congress meant to treat accrual and vesting the same way throughout ERISA. If accrued benefits were not subject to pre-ERISA break-in-service provisions, the PTF argues, then there would be no need for Congress to prohibit changes of these provisions during the transitional period. We are not persuaded. While ERISA § 202(b)(1) may have required McDonald’s pre-ERISA break in service to be disregarded for accrual purposes, the section did not require all such breaks in service to be disregarded. ERISA §§ 202(b)(2-4(A)), 29 U.S.C. § 1052(b)(2-4(A)). In any event, § 211(e)(1) did not prohibit amendments to the pre-ERISA break-in-service provisions of the sort that § 202 would nullify as of its effective date in 1976. Rather, § 211(e)(1) merely prohibited plans from amending their break-in-service rules during the transitional period to make accrual-related provisions less favorable to participants, unless the provisions were already more generous than § 202 would require. In other words, § 211(e)(1) was a narrow subsection that, for the purposes of accrued benefits, merely froze the break-in-service provisions that were in effect on January 1, 1974, by allowing only those amendments during the transitional period that would bring the provisions into compliance with § 202 in advance of its effective date in 1976. By instructing that a pension plan generally could not change its pre-1974 break-in-service provisions for accrual purposes during this two-year period, Congress prevented pension plans from enacting amendments during this period that would make deep cuts in accrued benefits. At the same time, by not immediately nullifying the pre-ERISA break-in-service provisions for accrual purposes, Congress afforded pension plans two years to effect a transition to the new break-in-service standards of § 202. We conclude that ERISA § 204(b) is clear. Congress has treated accrued benefits and vested benefits differently. The Supreme Court has found ERISA to be “an intricate, comprehensive statute.” Boggs v. Boggs, 520 U.S. 833, 841, 117 S.Ct. 1754, 138 L.Ed.2d 45 (1997). ERISA is a complicated enough statute without the courts soldering new sections onto it; had Congress intended to permit pre-ERISA break-in-service provisions to apply when calculating accrued benefits, it could have done so. See ERISA § 203(b)(1)(F), 29 U.S.C. § 1053(b)(1)(F). Consequently, we respectfully decliné to join the Seventh Circuit’s refusal “to treat vesting and accrual of benefits differently with respect to breaks in service.” Jones v. UOP, 16 F.3d 141, 143 (7th Cir.1994). Nor do we agree with that same conclusion implicit in the Third Circuit’s decision in Haas & Cass v. Boeing Co., No. CA 90-7414, 1992 WL 221335, 1992 U.S. Dist. LEXIS 13240 (E.D.Pa. Sept.4, 1992), aff'd without op., 993 F.2d 877 (3d Cir.1993). See also Redmond v. Burlington Northern R.R. Co. Pension Plan, 821 F.2d 461, 466-67 (8th Cir.1987). Finally, we share the PTF’s belief that the reference to the “secondary sources”— letters from the Department of Justice and Internal Revenue Service and regulations from the Department of Treasury and Department of Labor — that McDonald invites is unnecessary. Our conclusion that Congress intended to treat accrued benefits and vested benefits differently with regard to pre-ERISA breaks in service is grounded in text we find to be unambiguous. Accordingly, we affirm the district court’s decision that the PTF could not use the Plan’s pre-ERISA break-in-service provision to limit McDonald’s accrued benefits.