Opinion ID: 726590
Heading Depth: 2
Heading Rank: 2

Heading: Did Rights to benefits vest because of LTD Plan Termination?

Text: 27 Plaintiffs contend that even if their right to employer-paid health benefits did not contractually vest at the time they qualified for disability, the LTD Plan terminated upon the sale of the Imprimis division to Seagate, and their benefits unambiguously vested at that point. Under plaintiffs' interpretation of the LTD Plan's SPD, these benefits include a health care premium waiver. Defendants challenged the plaintiffs' interpretation of the term benefits. They argued that the term only includes salary replacement benefits, and also alleged that the LTD Plan never terminated. The district court did not decide whether the plan terminated, because it found that the vested benefits provided upon termination of the LTD Plan include only the 60% salary replacement benefit. 7 28 As discussed above, Control Data reserved the right to terminate the LTD Plan subject to the termination exception. The district court below found that the termination clause constitutes an unambiguous promise on the part of the defendant companies to continue long-term disability benefits to employees who have achieved long-term disability status in the event of termination of the plan ... Dt. Ct. Order at 16. We agree. The termination proviso exhibits the clear and express language necessary to vest an extra-ERISA commitment. Gable, 35 F.3d at 855 (quoting Wise, 986 F.2d at 937). The parties disagree both on whether the Control Data LTD Plan terminated with respect to the Imprimis division employees, and what is intended by the term long-term disability benefits. 29 Questions involving the scope of benefits provided by a plan to its participants must be answered initially by the plan documents, applying the principles of contract interpretation. See Howe, 896 F.2d at 1109. The law of trusts is also a valuable guide in interpreting ERISA documents. Jensen, 38 F.3d at 950; Blair, 974 F.2d at 1222. The terms of trusts created by written instruments are determined by the provisions of the instrument as interpreted in light of all the circumstances and such other evidence of the intention of the settlor with respect to the trust as is not inadmissible. Jensen, at 950 (quoting Bruch, 489 U.S. at 112, 109 S.Ct. at 955 (1989)) (internal quotation omitted). An SPD is considered part of the plan documents required by ERISA. Jensen, 38 F.3d at 949. If the clause to be construed does not itself determine the plan sponsor's intent, we read the language of the SPD as a whole. Id. at 950. Because the SPD best reflects the expectations of the parties to the plan, the terms of the SPD control the terms of the plan itself. Hansen at 982. When conflicting extrinsic evidence must be evaluated in order to illuminate a plan's terms, summary judgment is not appropriate. Bower v. Bunker Hill Co., 725 F.2d 1221, 1225 (9th Cir.1984). 30
31 The LTD Plan summary is not ambiguous in requiring that the LTD Plan terminate before any benefits vest in plaintiffs. Even assuming health premium payment benefits could vest for disabled employees in the LTD Plan, if the plan did not terminate, defendants are free to modify its terms. Plaintiffs argue that the LTD Plan terminated with respect to them when the Imprimis division was sold to Seagate and the latter assumed identical obligations to the plan participants. 8 Defendants characterize the change as a modification under 29 U.S.C § 1022(a)(2), (b), which sets out an SPD's notification requirements in cases of material modification. We conclude that the Control Data/Ceridian LTD Plan terminated with respect to plaintiffs upon the sale of the Imprimis division. 32 As part of the sale of the Imprimis division, the parties agreed that Seagate would become responsible for the payment of long-term disability benefits under the Control Data LTD Plan, and that Control Data's liability would terminate, except for payments of premiums on behalf of LTD participants on disability. Pursuant to this agreement, Control Data transferred funds to Seagate in an amount equal to the present value of the projected disability benefits determined as of the closing date payable with respect to Imprimis Employees listed on Attachment. Thereafter, Seagate established the Seagate Technology, Inc. Long Term Disability Plan for Imprimis employees previously covered by the Control Data Corporation Long Term Disability Plan. The Control Data LTD Plan specifically states that the Plan shall terminate as to a particular Employer upon the giving of notice by such Employer to the Trustee, executed in the manner of an amendment. The plan also provides: Upon termination of the Plan, the Trustee shall continue to hold the Trust Assets and make distribution thereof at the times and in the manner heretofore provided, until the Trust Assets are depleted thereby. 33 ERISA provides strict obligations and procedures regarding termination of pension plans, 29 U.S.C. §§ 1103(d)(1), 1341, 1342, but provides no guidelines to determine when a plan terminates. See In re Syntex Fabrics, Inc. Pension Plan, 698 F.2d 199, 203 (3d Cir.1983) (suggesting that a plan terminates when the employer's obligation to fund the plan ceases, [and] employees can no longer accrue benefits). The Syntex factors are grounded in the essential purposes of ERISA: to prevent an employee from losing accrued, vested benefits in the event the employer terminated the pension plan. Nachman, 446 U.S. at 374-75, 100 S.Ct. at 1732-33. With respect to termination of a welfare plan, ERISA only requires that [t]he assets of a welfare plan which terminates shall be distributed in accordance with the terms of the plan, except as otherwise provided in the regulations of the Secretary. 29 U.S.C. § 1103(d)(2). Because ERISA welfare plans do not need to vest or be funded, the rules underlying terminating a pension benefit plan have little application. Unfortunately, there is a scarcity of guidance on questions of welfare plan termination. The two cases cited by plaintiffs for partial plan terminations both involve pension plan obligations, where in order to maintain a tax qualified plan, termination triggers specific ERISA obligations regarding accrued benefits. See Gluck v. Unisys Corp., 960 F.2d 1168 (3d Cir.1992); Kreis v. Charles O. Townley, M.D. & Assoc., P.C., 833 F.2d 74 (6th Cir.1987). 9 Partial terminations, determined for the tax aspects of ERISA plans, do not automatically determine partial terminations for ERISA purposes. Chait v. Bernstein, 835 F.2d 1017, 1020 (3d Cir.1987). 34 Although it is unclear whether the trustee of the Control Data LTD Plan was properly notified that the plan was terminating, the facts that new trustees were appointed to a replacement plan instituted by Seagate, that Seagate became the administrator of the new plan, that Control Data transferred money to fund the new plan, and that after the transfer Seagate assumed all of Control Data's obligations with respect to disability plan participants, together suggest that the Control Data LTD Plan terminated. 10 See In re Syntex Fabrics, 698 F.2d at 203; see also Myron v. Trust Co. Bank Long Term Disability Benefit Plan, 522 F.Supp. 511, 516 (N.D.Ga.1981) (disability plan terminated when plan funding was changed from one insurance company to another), aff'd, 691 F.2d 510 (11th Cir.1982), cert. denied, 462 U.S. 1119, 103 S.Ct. 3086, 77 L.Ed.2d 1348 (1983). Essential features of an ERISA plan include a procedure for establishing and carrying out a funding policy for the plan and procedures for the operation and administration of the plan. 29 U.S.C. § 1102(b). After the sale of Imprimis none of these provisions remained of the Control Data LTD Plan as far as plaintiffs were concerned; the responsibilities for funding and administering plaintiffs' disability benefits shifted to the Seagate LTD Plan. Given the facts of this case, the Control Data LTD Plan terminated with respect to Imprimis division employees when Control Data was released from its obligation to fund the plan with respect to those employees and the employees could look to the Seagate LTD Plan for benefits. 11 35
36 Defendants contend that the ERISA documents cannot support a reading of the term benefits to include payment of health care premiums. We begin our inquiry with the LTD Plan's SPD itself. It is impossible solely from the language of the SPD's termination provision to determine what benefits the phrase Long Term Benefits and your claim for such benefits includes. Elsewhere the SPD uses the term Long-Term Disability benefit and Long-Term Disability Plan benefits to describe what eligible employees are entitled to. The document does not expressly define either term, or distinguish between the two. See Aplt.App. 505-06. Plaintiffs point to several parts of the SPD to suggest that Long Term Benefits includes payment of the health insurance premiums. First, they note that the termination clause refers to benefits in the plural, while the definition section of the SPD refers to the compensation replacement component of the LTD Plan in the singular. (Basic monthly compensation: If you become disabled, the benefit you receive from the plan is calculated using your basic monthly compensation ...) Aplt.App. 506 (emphasis added). In other parts of the SPD, the term benefit and benefits are both used to describe what the LTD Plan provides. Second, the SPD refers to the premium payments several times as benefits that are part of long term disability status. Page 7 of the SPD states: Status: While on Long-Term Disability Status the company will pay the premiums for all the company-sponsored benefits ... for which you and your dependents were enrolled before your disability began. Aplt.App. 510. Again on page 11: 37 Rehabilitation benefits are calculated as follows: ... 2) If you are receiving Long-Term Disability benefits when you return to work on Rehabilitation Status, your rehabilitation benefit will be equal to 60 percent of you wage loss.... This benefit is not taxed. The company will continue to pay premiums on company sponsored benefits.... 38 Aplt.App. 514. On page 14, the SPD provides a chart entitled Continuation of other Benefits and Programs During Disability. In this chart, it is clear that the company pays the health care premium for employees who are Disabled and on Short-Term or Long-Term Status. 39 Plaintiffs have made a prima facie case that a reasonable person in the position of an LTD Plan participant could find the language in the SPD to include payment of health insurance premiums as a benefit to which persons on Long-Term Disability Status are entitled. Long-Term Disability Status is achieved after an employee's fifth consecutive month of disability. Aplt.App. 509. The promise of continuing benefits in the termination clause applies to persons who are totally disabled, a term that likewise is not defined. The term Long-Term Disability benefits, as used in the termination clause, is susceptible to the reading given it by plaintiffs, that the termination clause can be read to vest health benefits. See Carland v. Metropolitan Life Ins. Co., 935 F.2d 1114, 1120 (10th Cir.), cert. denied, 502 U.S. 1020, 112 S.Ct. 670, 116 L.Ed.2d 761 (1991). 40 Defendants argue that when looking at the plan documents as a whole, the language regarding the extent of benefits at termination is unambiguous. Beginning with the SPD they note that the purpose of the LTD Plan is to protect disabled employees from loss of income and to help them return to productive work whenever possible. Aplt.App. 504. From this the defendants conclude that the LTD Plan's SPD must be read to insure only against income loss created by disability. Defendants fail to recognize that requiring disabled employees to pay their health care premiums out of the 60% salary replacement benefit exacerbates their income loss. This language does not resolve the apparent ambiguity. 41 Next, defendants explain the apparent ambiguity of using both benefit and benefits to describe the income replacement provision of the LTD Plan by suggesting that when used in the singular, the SPD is referring to a single periodic payment of the income replacement, while when used in the plural it refers to multiple payments. The language of the SPD section on payment of the salary replacement benefit could be read consistently with defendants' interpretation. Nevertheless, we cannot say that this explanation removes the ambiguity. An SPD is intended to be a document easily interpreted by a layman; an employee should not be required to adopt the skills of a lawyer and parse specific undefined words throughout the entire document to determine whether they are consistently used in the same context. See McKnight v. Southern Life & Health Ins. Co., 758 F.2d 1566, 1570 (11th Cir.1985) (the purpose of an SPD is to simplify and explain the complex document that makes up the plan). An employee reading the SPD and believing that upon the termination of the LTD Plan she would be entitled to continued company-paid premiums for health insurance, is not engaging in an unrealistically narrow interpretation of the document. Wise, 986 F.2d at 939 (quoting Sharron v. Amalgamated Ins. Agency Serv., Inc., 704 F.2d 562, 566 (11th Cir.1983)). Plaintiffs' reading of the promised benefits in the SPD's is not rebutted by defendants' reference to the SPD as a whole. 42 Defendants next shift to the LTD master plan document itself. Noting that it does not include health premium payments as benefits within the plan, they argue that only the Control Data/Ceridian Health Care Plan provides these benefits to disabled employees. Because the LTD Plan's termination clause has no vesting effect on benefits granted under the health care plan, defendants maintain the LTD Plan benefits are unambiguously limited to income replacement. Defendants submit that by reviewing the LTD Plan's language, any ambiguity in the SPD is resolved. The issue then narrows to whether the ambiguity of plan benefits in the plan SPD can be resolved against participants by looking to the plan master documents. 43 While Control Data/Ceridian may have intended to coordinate the benefits in its various plans in such a manner that LTD Plan participants were entitled only to income replacement benefits upon the termination of the plan, it was obligated by the SPD to inform its employees of such intent. 29 U.S.C. § 1022(a)(1); see also 29 C.F.R. § 2520.102-3(j)(2), (l) (a welfare benefit plan's SPD shall include a description or summary of benefits and a statement clearly identifying circumstances which may result in disqualification, ineligibility, or denial, loss, forfeiture or suspension of any benefits that a participant or beneficiary might otherwise reasonably expect the plan to provide on the basis of the description of benefits required). The LTD Plan SPD nowhere states that health care benefits provided to those on disability come from the health care plan, not from the LTD Plan. In fact, the LTD Plan SPD purports to summarize the LTD program, not the Health Care program. 44 Because the SPD is such an important vehicle in ERISA's attempt to fairly regulate employment benefits, courts have held that the terms of the master plan cannot control an SPD's provision that is ambiguous or in conflict with the master plan document. Pierce v. Security Trust Life Ins. Co., 979 F.2d 23, 27 (4th Cir.1992); Hansen, 940 F.2d at 981-82; Heidgerd v. Olin Corp., 906 F.2d 903, 907 (2d Cir.1990); Edwards v. State Farm Mut. Auto. Ins. Co., 851 F.2d 134, 136 (6th Cir.1988); McKnight, 758 F.2d at 1570-71. The duty of clarity falls upon the plan sponsor. As the Fifth Circuit cogently reasoned in Hansen: 45 Any burden of uncertainty created by careless or inaccurate drafting of the summary must be placed on those who do the drafting, and who are most able to bear that burden, and not on the individual employee, who is powerless to affect the drafting of the summary or the policy and ill equipped to bear the financial hardship that might result from a misleading or confusing document. Accuracy is not a lot to ask. And it is especially not a lot to ask in return for the protection afforded by ERISA's preemption of state law causes of action--causes of action which threaten considerably greater liability than that allowed by ERISA. 46 Hansen, 940 F.2d at 982. Allowing the plan's master documents to trump the SPD would both undermine Congress's intent for the SPD to convey accurately plan information to employees upon which they could rely, see 29 U.S.C. § 1022(a)(1), and would tempt plan sponsors to engage in drafting legerdemain in order to conceal or omit the less attractive aspects of their plan, thereby creating for ERISA a Daliesque world of legal surrealism. See James F. Stratman, Contract Disclaimers in ERISA Summary Plan Documents: A Deceptive Practice?, 10 Indus.Rel.L.J. 350 (1988) (documenting how employees reading SPDs can be misled as to their contractual rights). Based on the evidence in the record it is unclear what benefits plaintiffs were entitled upon plan termination. Whether we conclude that the ambiguous SPD renders the LTD Plan documents faulty, or that it is unclear from the plan documents what benefits the plan confers, summary judgment is inappropriate. 47 The mere demonstration that the SPD is inconsistent with the terms outlined in the LTD Plan itself does not entitle plaintiffs to the benefits they believe vested upon termination. Where the SPD incorrectly described benefits in the plan,  'to secure relief, [the claimant] must show some significant reliance upon, or possible prejudice flowing from, the faulty plan description.'  Aiken v. Policy Management Sys. Corp., 13 F.3d 138, 140 (4th Cir.1993) (quoting Govoni v. Bricklayers, Masons & Plasterers Int'l Union of America, Local No. 5 Pension Fund, 732 F.2d 250, 252 (1st Cir.1984)); accord Gable, 35 F.3d at 859; Gridley v. Cleveland Pneumatic Co., 924 F.2d 1310, 1319 n. 8 (3d Cir.) cert. denied, 501 U.S. 1232, 111 S.Ct. 2856, 115 L.Ed.2d 1023 (1991); Bachelder v. Communications Satellite Corp., 837 F.2d 519, 522-23 (1st Cir.1988). This requirement makes sense because the purpose of the SPD is to give employees an understanding of the plan upon which they are entitled to rely; the master plan document, however, is also relevant to determine what the terms of the plan actually are. Only where employees rely on an ambiguous or faulty SPD, or otherwise show prejudice from the inconsistency between the SPD and the master plan document, is relief appropriate. Any other rule would allow a windfall for some employees and unfairly increase costs for employers and their insurers, who rely on the terms of the plan in providing benefits and coverage. This in turn could jeopardize the solvency of the plan with respect to the remaining employees. Because we conclude that summary judgment is inappropriate regarding the scope of benefits vested upon plan termination, we leave it to the district court to determine the issue of reliance. 48 On remand, plaintiffs may attempt to demonstrate that the LTD Plan did in fact include health benefit premiums as part of disability benefits. 12 Alternatively, if plaintiffs' evidence only shows that the LTD Plan SPD could lead an employee to reasonably believe that the Plan intended health benefits to vest, each individual plaintiff must demonstrate some reasonable reliance on the SPD provision or prejudice flowing from the inconsistency between the SPD and the Plan master document. The issue of detrimental reliance on the plan document is not appropriate for class action determination. See Jensen, 38 F.3d at 953. 13 Of course, if plaintiffs prove that the LTD Plan in fact intended to vest a continuing health care premium waiver, no reliance need be shown.