Opinion ID: 3009695
Heading Depth: 2
Heading Rank: 2

Heading: The Designation of Haberern's Compensation as

Text: Salary and Bonus The district court imposed substantial liability on the appellants due to Lehigh Valley's division of Haberern's compensation into salary and bonus. It found that Haberern's salary throughout the period during which the defined benefits plan was in effect, September 1, 1979 to August 31, 1984, 20 remained at $14,428, and that the appellants paid her bonuses during that time. Lehigh Valley first divided her compensation into salary and bonus in 1980, but it did this for Kaupp and McDonald as well. Haberern, 822 F. Supp. at 254. The division was significant because pension benefits were based on salary but not bonuses. Id. But on a pretrial motion for summary judgment, the district court determined that this designation was not discriminatory in violation of 29 U.S.C. § 1140. In this regard, the court explained: Further, all plan participants took a portion of their compensation as 'bonus.' Indeed, the bonuses paid to physician plan participants were a greater portion of their total compensation than the bonuses paid to plaintiff. App. at 137 (citations omitted). Furthermore, the district court acknowledged that an employer may define compensation for purposes of calculation of pension benefits to include certain items and to exclude others. Haberern, 822 F. Supp. at 261. However, if an employer amends a plan to alter the definition of compensation, it must provide adequate notice to the beneficiaries. See section 204(h) of ERISA, 29 U.S.C. § 1054(h). In this case, there was no amendment, as the original plan excluded bonuses from the definition of compensation. Thus, the district court recognized that the notice requirements of section 204(h) did not apply. Nonetheless, the district court effectively imposed a notice requirement, concluding that: when Lehigh Valley established the Plan, they assured [Haberern] that she would receive a pension benefit equal to her salary upon retirement. Because 21 Defendants Lehigh Valley and McDonald failed to inform [Haberern] that characterizing a portion of her compensation as a bonus would reduce significantly her pension benefits, they breached their fiduciary duties under ERISA. Haberern, 822 F. Supp. at 261 (emphasis added). Based on its conclusion that the appellants breached their fiduciary duties, the district court ultimately awarded damages under section 502(a)(1)(B) for the decreased benefits for which Haberern was eligible under the defined benefit plan and the defined contribution plan. Thus, the court seems to have concluded that the appellants misrepresented the method of computing Haberern's retirement benefits and it further concluded that their failure to inform her of the significance of the division of her compensation into salary and bonus was a breach of fiduciary duty. Haberern supports the district court's conclusions by relying on a line of cases for the proposition that fiduciaries breach their duties of loyalty and care if they mislead plan participants or misrepresent the terms or administration of a plan. See Berlin v. Michigan Bell Tel. Co., 858 F.2d 1154, 1163 (6th Cir. 1988); Rosen v. Hotel & Restaurant Employees & Bartenders Union, 637 F.2d 592, 599-600 (3d Cir. 1981), cert. denied, 454 U.S. 898, 102 S.Ct. 398 (1981); Eddy v. Colonial Life Ins. Co., 919 F.2d 747, 750 (D.C. Cir. 1990). The appellants respond that these cases are inapplicable because the district court never made an explicit finding of misrepresentation, and thus they argue that Haberern's only possible cause of action 22 under ERISA is promissory estoppel. Reply Brief at 8 n.8. (citing Smith v. Hartford Ins. Group, 6 F.3d 131, 141 (3d Cir. 1993)). We disagree with the appellants' contention that the only cause of action upon which Haberern could recover is promissory estoppel. We note that in Smith, we cited Fischer v. Philadelphia Elect. Co., 994 F.2d 130, 133-34 (3d Cir.), cert. denied, 114 S.Ct. 622 (1993), in which we held an employer can be liable under ERISA in its fiduciary capacity both on breach of fiduciary duty and equitable estoppel theories for affirmative material misrepresentations. See Smith, 6 F.3d at 141 n.13. However, we need not remand the matter to the district court for clarification because we agree with the appellants that Haberern may not recover damages for a breach of fiduciary duty under section 502(a)(1)(B) of ERISA, 29 U.S.C. § 1132(a)(1)(B). The district court made it clear that section 502(a)(1)(B) is implicated because it noted that Haberern brings this action pursuant to ERISA, 29 U.S.C.A. § 1132(a)(1)(B) (West 1985) to recover lost salary and benefits owed to her under the terms of the Plans and to enforce her rights under terms of the Plans. Haberern, 822 F. Supp. at 257. Section 502(a) of ERISA provides in relevant part that a civil action may be brought: (1) by a participant or beneficiary - ... (B) to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan; (2) by the Secretary, or by a participant, beneficiary or fiduciary for appropriate relief under section 1109 of this title; 23 (3) by a participant, beneficiary ... to obtain other appropriate equitable relief... 29 U.S.C. § 1132(a). Section 409(a) of ERISA establishes liability for a fiduciary. The section provides: Any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by this subchapter shall be personally liable to make good to such plan any losses to the plan resulting from each such breach, and to restore to such plan any profits of such fiduciary which have been made through use of assets of the plan by the fiduciary, and shall be subject to such other equitable or remedial relief as the court may deem appropriate, including removal of such fiduciary. A fiduciary may also be removed for a violation of section 1111 of this title. 29 U.S.C. § 1109(a). In McMahon v. McDowell, 794 F.2d 100 (3d Cir.), cert. denied, 479 U.S. 971, 107 S.Ct. 473 (1986), we interpreted section 409(a) in the context of section 502(a)(1)(B). In McMahon, the plaintiffs brought suit under section 502(a)(1)(B) and section 502(a)(2) to recover damages individually from plan fiduciaries for their failure to collect delinquent pension plan contributions, which failure the plaintiffs alleged was a breach of fiduciary duty. McMahon, 794 F.2d at 108.0 We found the cause of action inappropriate under section 502(a)(1)(B), but allowed the suit to proceed under section 502(a)(2) so that the plaintiffs could recover damages . . . for the benefit of the plan. . . . 794 F.2d at 109. 0 McMahon also involved other claims not germane here. 24 With respect to the cause of action under section 502(a)(1)(B), we noted that the plaintiffs characterized the claim as one brought to recover benefits due to [them] under the terms of [their] plan, to enforce [their] rights under the terms of the plan, or to clarify [their] rights to future benefits under the terms of the plan. 794 F.2d at 109 (quoting section 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B)). We noted that actions brought under Section 502(a)(1)(B) are personal in nature and 'seek to declare the plaintiff beneficiary's rights under the plan, to recover benefits personally due him, or to enforce his personal rights.' 794 F.2d at 109 (quoting Livolsi v. R.A.M. Construction Company, 728 F.2d 600, 602 (3d Cir. 1984)). Additionally, we noted that in Massachusetts Mutual Life Ins. Co. v. Russell, 473 U.S. 134, 140-42, 105 S.Ct. 3085, 3089-90 (1985), the Supreme Court held that section 409 of ERISA does not authorize a private right of action for compensatory relief. McMahon, 794 F.2d at 109. Noting the conflict between section 409, which establishes liability for an ERISA fiduciary but does not authorize a private right of action for compensatory damages, and section 502(a)(1)(B), which authorizes a private right of action for a beneficiary to enforce her own rights, we concluded that the plaintiffs could not proceed under section 502(a)(1)(B) in a suit to recover damages for a breach of fiduciary duty. Id. This analysis applies here. The district court concluded that the appellants breached a fiduciary duty by making assurances to Haberern and then failing to inform her that those 25 assurances were incorrect. Haberern, 822 F. Supp. at 261, 267. Although in this case the wrongdoing affected Haberern more directly than the wrongdoing affected the plaintiffs in McMahon, we are unpersuaded that we should depart from McMahon's holding that section 502(a)(1)(B) is unavailable in actions for breach of fiduciary duty.0 0 In an opinion dated June 26, 1989, on a motion for summary judgment made by the appellants, the district court pointed out that Haberern stated that her claim with respect to the bonus was brought under section 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B). App. at 140. The court made the same observation in its reported opinion. See Haberern, 822 F. Supp. at 257. Thus, we do not reach the question whether Haberern's misrepresentation argument could be upheld under section 502(a)(3), 29 U.S.C. § 1132(a)(3). See Smith v. Hartford Ins. Group, 6 F.3d at 137. We do note, however, that Haberern's misrepresentation argument has troubling implications because the summary plan description pages given to her made it clear that the retirement benefit was based on compensation and that compensation did not include bonuses. See app. at 167 (Haberern's testimony that she received her trial exhibit 1, the summary plan description, when the plan was put in place); app. at 279 (exhibit 1 includes a page indicating compensation means salary or wages excluding bonuses) (emphasis in original document); app. at 281 (exhibit 1 includes a page indicating the retirement benefit is based on compensation subject to a cap). Of course, the summary plan description mirrored the plan itself. Thus, Haberern effectively is relying on parol evidence to contradict clearly defined terms of a plan revealed to her in writing. Accordingly, if we adopt her approach we will create a precedent for any beneficiary to make claims for benefits beyond those provided in a plan. It would be difficult to reconcile that result with our cases holding that oral or informal amendments to ERISA benefit plans are precluded. See Confer v. Custom Eng'g Co., 952 F.2d 41, 43 (3d Cir. 1991); Frank v. Colt Indus., Inc., 910 F.2d 90, 98 (3d Cir. 1990). See also Schoonejongen v. Curtiss-Wright Corp., 18 F.3d 1034, 1040 (3d Cir. 1994) (Unless and until the written plan is altered in a manner, and by a person or persons authorized in the plan, neither the plan administrator nor a court is free to deviate from the terms of the original plan.). In this regard, we deem it significant that the district court found that Haberern's duties as a secretarybookkeeper involved handling the telephone, scheduling appointments, processing insurance claims forms, typing letters, 26 We also point out that insofar as we can ascertain the record does not support a finding that Haberern suffered damages by reason of the breach of fiduciary duty predicated on the alleged misrepresentation. In its opinion, the district court concluded that the appellants did not notify Haberern that designating a portion of her compensation as a bonus would have the effect of reducing her pension benefits. Haberern, 822 F. Supp. at 254. The court later explained that because the appellants failed to inform [Haberern] that characterizing a portion of her compensation as a bonus would reduce significantly her pension benefits, they breached their fiduciary duties under ERISA. Id. at 261. But the court never explained what damages Haberern suffered by reason of the appellants' failure to give her this information. It did not suggest, for example, that Haberern had a veto power over the appellants' decision to divide her compensation between salary and bonus and, of course, she had no such power. Nor does it indicate that the evidence demonstrated that if Haberern had been aware of the significance of the designation of a portion of her compensation as a bonus, receiving payments, bookkeeping, taking care of checkbooks, and paying all the bills. Furthermore, she kept an accounting of the contributions to the defined contribution plan. Haberern, 822 F. Supp. at 252. Surely it would be extraordinary to hold that a person with such responsibilities who had possession of a summary plan description expressly indicating that her benefits would be based on her compensation excluding bonuses, contrary to the terms of the plan effectively could obtain a modification of the plan so that her benefits would be predicated on compensation including bonuses. However, in view of our disposition, we need not discuss this point further. 27 she would have resigned and obtained a different position paying higher compensation elsewhere. Similarly, Haberern does not explain what damages she suffered by reason of appellants' alleged misrepresentation in not explaining the significance of the division of her compensation into salary and bonus. Brief at 28-30. Rather, she contends that the 'bonus' designation reduced [her] pension benefit. That observation, though undoubtedly correct, does not explain how Haberern suffered damages from the misrepresentation as distinguished from the design of the plan.