Court Opinion

ID: 6944671
Source: CourtListenerOpinion
Date Created: 2022-07-24 01:18:51.923121+00
Date Added: 2024-06-11T16:07:51.187536
License: Public Domain

WILLIAM A. NORRIS, Circuit Judge,
dissenting:
Plaintiffs-appellants are five retired Hughes Aircraft Company employees who are receiving retirement benefits under the Hughes Non-Bargaining Retirement Plan (the “Plan” or “Hughes Plan”).1 The five plaintiffs are among the 10,000-plus Hughes employees and retirees participating in the Plan. The principal relief plaintiffs seek is a termination of the Hughes Plan and a distribution of its assets to participants, such as the plaintiffs, who have made contributions to the Plan.
Plaintiffs allege that, largely as a result of “investment growth,” Plan assets grew to the point that they exceeded the aetuarially projected value of Plan liabilities by approximately $1 billion. In the event that plaintiffs succeed in their quest for a judgment terminating the Plan, ERISA provides for an equitable distribution of the Plan assets to those participants who have contributed to the Plan. Thus, if the Plan is terminated, plaintiffs will receive not only the defined pension benefits which they are currently receiving, but also a share of the $1 billion surplus. That is the pot of gold at the end of the rainbow that drives this litigation.
I
First Claim: Anti-Inurement
In their first claim for relief, plaintiffs contend that Hughes violated ERISA’s so-called anti-inurement provision, ERISA § 403(c)(1), 29 U.S.C. § 1103(c)(1),2
by utilizing excess Plan assets attributable to employer and employee contributions for the sole and exclusive benefit of the employer and to the detriment of plaintiffs anc* the class they represent.
Compl. ¶32. The plaintiffs’ anti-inurement claim is based on two independent theories. First, they allege that when the Plan accumulated “excess assets,” Hughes stopped making contributions to the Plan. As a result, plaintiffs contend, Hughes used Plan assets for its own benefit in violation of § 403(c)(1).
This claim is meritless.3 As the district court correctly noted, the Plan itself imposes an obligation on Hughes to contribute only when necessary to ensure that the Plan is aetuarially sound, i.e., sufficiently funded to meet projected liabilities. Judgment, filed Feb. 9, 1993, at ¶ 5(c). Section 3.1 of the Plan provides that:
The cost of Benefits under the Plan, to the extent not provided by contributions of Participants ... shall be provided by contributions of [Hughes] not less than in such amounts, and at such times, as the Plan Enrolled Actuary shall certify to be necessary, to fund Benefits under the Plan in accordance with the actuarial assumptions . selected by such Actuary from time to time_
In addition, section 6.2 of the Plan allows Hughes to “suspend” contributions unless it would thereby'cause an “accumulated funding deficiency.” 4
ERISA does not require an employer to continue making contributions to an adequately funded plan. In Fechter v. HMW Indus., Inc., 879 F.2d 1111 (3d Cir.1989), the *1304court noted that, although employees were required to continue making contributions,
[e]mployer contributions were made only when necessary to keep the Fund actu-arially sound, ie., sufficiently funded. Because the Plan was overfunded, [the employer] did not have to make any contributions for the last five plan years.
Id. at 1113; see also LLC Corp. v. Pension Benefit Guar. Corp., 703 F.2d 301, 302 (8th Cir.1983) (noting that terms of pension plan required employee participants to contribute six percent of salary, but required employer tó contribute only as much as necessary to fund actuarially determined benefits). The logic underlying this rule was explained in Johnson v. Georgia-Pacific Corp., 19 F.3d 1184, 1190 (7th Cir.1994):
Pension law covers bad times as well as good times. In bad times (when declines in the value of assets make plans underfunded) employers must contribute more. If in good times employers were required to distribute the surplus to retirees on the theory that they “owned” that value, outcomes would be asymmetric. Employers would be liable for shortfalls but could reap no benefit from surpluses.
The plaintiffs’ second anti-inurement theory is that Hughes violated § 403(e)(1) when it amended the Plan in 1991 to add a noncontributory benefit structure. Before this amendment, the Plan operated exclusively through a contributory benefit structure. In other words, under the pre-1991 Plan, all participants were required to make contributions to the Plan fund. Under the noncontributory benefit structure added by the 1991 amendment, participants would not be required to make contributions to the fund but they would receive lesser pension benefits than under the contributory structure. Under the 1991 amendment, existing employees were free to choose between the two benefit structures. Thus, the choice given existing employees was between (1) making contributions and receiving the higher level of defined benefits available under the contributory benefit structure; or (2) making no contributions and receiving lesser benefits under the non-contributory structure. New employees who enrolled in the Plan after the effective date of the 1991 amendment were required to enroll in the non-contributory benefit structure. The 1991 amendment had no effect on the rights of Plan participants, such as the plaintiffs, who had already retired and were already receiving their pensions as defined by the Plan. At all times, Plan benefits were paid out of a single fund, and Hughes’ obligation to assure that the Plan was adequately funded remained constant after the 1991 amendment.
Nonetheless, plaintiffs argue that Hughes acted for its own benefit by using assets from the “contributory plan” to discharge its obligation to fund benefits under the “non-contributory plan.” This argument is meritless. The 1991 amendment did not create a separate pension plan; it merely added an alternative-benefit structure under the existing Plan.5 In amending the Plan to add the noncontributory benefit structure, Hughes acted in its capacity as a settlor, not as a fiduciary. It is well-settled that an employer’s decision to' amend a pension plan is an exercise 'of plan design, which does not implicate the employer’s fiduciary duties. This principle was recently confirmed in Lockheed Corp. v. Spink, — U.S. -, -, 116 S.Ct. 1783, 1789, 135 L.Ed.2d 153 (1996) (“When employers [adopt, modify, or terminate a pension plan], they do not act as fiduciaries, but are analogous to the settlors of a trust.”) (citations omitted); see also Siskind v. Sperry Retirement Program, Unisys, 47 F.3d 498, 505 (2d Cir.1995) (“Virtually every circuit has agreed that ... an employer may decide to amend an employee benefit plan without being subject to fiduciary review.”); Hozier v. Midwest Fasteners, Inc., 908 F.2d 1155, 1162 (3d Cir.1990) (“[A]n employer’s decision to amend or terminate an employee benefit plan is unconstrained by the fiduciary duties that ERISA imposes on plan administration.”); Cunha v. Ward Foods, Inc., 804 F.2d 1418, 1432 (9th Cir.1986) (employer’s decision to terminate pension plan was a business deei*1305sion that did not implicate fiduciary duties under ERISA). As a plan settlor, Hughes “decide[s] who receives pension benefits and in what amounts, select[s] levels of funding, adjust[s] myriad other details of pension plans, and may decide to terminate the plan altogether.” Johnson, 19 F.3d at 1188. Having these powers, Hughes also has the lesser included power to add a new benefit structure to an existing plan. Cf. Hickerson v. Velsicol Chem. Corp., 778 F.2d 365 (7th Cir.1985), cert. denied, 479 U.S. 815, 107 S.Ct. 70, 93 L.Ed.2d 28 (1986) (holding that conversion from defined contribution, profit-sharing plan to defined-benefit plan did not violate ERISA); Treas.Reg. § 1.414(Z)-l(b)(l)(i), 26 C.F.R. § 1.414a)-l(b)(l)(i) (1995) (providing that, for income tax purposes, pension plan will be considered as “single plan” even if “plan has several distinct benefit structures”). Thus, Hughes’ use of Plan assets to fund benefits under the noncontributory benefit structure is unobjectionable under ERISA.
Although plaintiffs’ theory is less than clear, they seem to be arguing that under § 403(c)(1), Hughes may not use fund assets to pay benefits to Plan participants enrolled under the non-contributory structure as long as a surplus exists, i.e., as long as the Plan is overfunded. Plaintiffs’ rationale is that they are entitled to a share of the surplus because it is attributable at least in part to the investment growth on their contributions. This argument has no merit whatsoever. The existence of a surplus does not and cannot possibly serve as a basis for claiming that Hughes violated § 403(c)(1) by paying pension benefits out of fund assets. Using fund assets to pay pension benefits to Plan participants is not only allowed under the anti-inurement provision, it is required. ERISA § 403(c)(1), 29 U.S.C. § 1103(c)(1) (“[T]he assets of a plan shall never inure to the benefit of any employer and shall be held for the exclusive purposes of providing benefits to participants in the plan and their beneficiaries and defraying reasonable expenses of administering the plan.”).
Whether or not a fund is overfunded at a particular point in time is irrelevant under § 403(e)(1). The existence of a “surplus” in a pension fund is nothing more than an actuarial artifact. As plaintiffs themselves explain, a pension plan is “overfunded” at any point in time in which the present value of the Plan’s assets exceeds the actuarially determined value of the Plan’s liabilities. Appellant’s Br. at 5. The only legal significance of a state of overfunding is that Hughes’ obligation to pay into the Plan fund is temporarily suspended as long as the condition of overfunding exists. At all times, whether the fund’s investment portfolio is prospering or heading south, Hughes’ obligation to assure the financial health of the Plan remains constant.
It is inconceivable that Congress intended the lawfulness of a plan amendment to turn on whether a “surplus” existed at the time of the amendment. Whether or not a surplus existed is logically irrelevant to the question whether the 1991 amendment adding a noncontributory benefit structure violated ERISA’s anti-inurement provision. As written by Congress, § 403(c)(1) requires us to focus on the use the employer makes of pension fund assets, not whether the plan is overfunded. In focusing on the existence of the surplus, both the plaintiffs and the majority ignore the plain language of § 403(c)(1), which restricts the use of fund assets to the payment of pension benefits to plan participants.
Plaintiffs also seem to be arguing that § 403(c)(1) prohibits Hughes from using Plan assets to pay pension benefits to new employees (i.e., employees who joined the Plan after the effective date of the 1991 amendment), all of whom were required to enroll under the non-contributory structure. Again, the plaintiffs’ rationale seems to be that the surplus is attributable in part to the contributions made by old employees before the effective date of the 1991 amendment. This argument, too, is meritless. There is no basis in § 403(c)(1) or in the Plan itself for distinguishing new employees from old employees in this manner. Both new and old employees are participants in the Hughes Plan, and Hughes is thus required under § 403(c)(1) to use Plan funds to pay pension benefits to both. In essence, plaintiffs are again claiming that Hughes somehow violat*1306ed § 403(c)(1) when it used Plan funds to pay pension benefits to Plan participants.
Finally, plaintiffs seem to be arguing that § 403(c)(1) prohibits Hughes from using Plan funds to pay pension benefits to employees, new or old, enrolled under the non-contributory structure. This argument is also without merit. In order to make sense of their argument, the plaintiffs must distinguish between two subsets of pre-amendment employees — those who elected to remain enrolled under the contributory structure, and those who elected to switch to the non-contributory structure. The plaintiffs do not, and cannot, draw this distinction. The only difference between these two subsets of old employees is that one group chose to contribute a portion of their paychecks to the fund and receive greater pension benefits in return, while the other group chose to accept a lower level of pension benefits- so they could keep their full paychecks for current use. Surely the plaintiffs do not mean to say that § 403(c)(1) prohibits the use of Plan funds to pay benefits to these employees simply because they exercised their option to switch to the non-contributory structure. In sum, I see no basis in § 403(e)(1) or any other provision of ERISA for plaintiffs’ argument that ERISA forbids Hughes from using Plan assets to pay pension benefits to all Plan participants, whether enrolled under the contributory or non-contributory benefit structure.
Despite the fact that nothing in § 403(c)(1) forbids Hughes from using Plan assets to pay benefits to Plan participants, the majority reverses the district court’s § 12(b)(6) dismissal of the action and remands for further proceedings because it finds an unresolved issue of material fact, namely, whether the 1991 amendment to the Plan adding a noncontributory benefit structure effected a termination of the Plan. If the Plan is terminated, then § 4044(d) of ERISA, 29 U.S.C. § 1344(d), kicks in and requires an equitable distribution of the Plan assets after all Plan liabilities are satisfied. If such a distribution were to occur, the named plaintiffs, as retirees who made contributions to the Plan before their retirement, would receive a share of the $1 billion surplus (if it still exists),6 in addition to the defined pension benefits they are now entitled to.
The majority is incorrect in saying that there is a material issue of fact standing in the way of affirming the district court’s § 12(b)(6) dismissal of this action. The plaintiffs’ quest to have the Hughes Plan terminated and its assets distributed is based on the following facts, none of which is in dispute:
1. The Hughes Plan existed as a contributory plan;
2. The successful investment of Plan funds resulted in a surplus of $1 billion;
3. The Hughes Plan was amended to create a non-contributory benefit structure that was máde optional for existing employees and mandatory for new employees;
4. The new employees and those existing employees who opted to enroll under the non-contributory structure make no contributions to the Plan fund and receive lesser benefits than existing employees who opt to remain enrolled under the contributory structure; and
5. The assets of the Hughes Plan, including any “surplus” that may exist, are used to fund pension benefits under both the contributory and non-contributory benefit structures.
The majority does not and cannot disagree that these material facts are undisputed. The “question of fact” that the majority does rely upon to justify a remand is the question whether the amendment terminated the Plan altogether. Opinion at 1294. That, however, is not a question of fact, but a question of law.
The record is clear that plaintiffs have alléged all the facts necessary for deciding the legal question of whether ERISA forbids Hughes from amending its contributory pension plan to add a non-contributory benefit structure. The plaintiffs’ theory is that Hughes violated the anti-inurement provision of ERISA by creating a new and separate non-contributory plan and using the assets of its contributory plan to discharge its obli*1307gations to fond the new plan. In doing all this, plaintiffs argue, Hughes used the assets of the Plan for its own purposes rather than “for the exclusive purposes of providing benefits to the participants of the plan” in violation of § 403(c)(1), 29 U.S.C. § 1108(c)(1), the anti-inurement provision of ERISA, resulting in a termination of the Hughes Plan and an equitable distribution of the surplus pursuant to ERISA § 4044(d), 29 U.S.C. § 1344(d).
In accepting plaintiffs’ anti-inurement claim as viable, the majority relies upon neither of the two eases the plaintiffs cite in support of that claim, Bridgestone/Firestone, Inc. v. Pension Benefit Guar. Corp., 892 F.2d 105 (D.C.Cir.1989) and Holland v. Amalgamated Sugar Co., 787 F.Supp. 996 (D.Utah 1992), aff'd in part & rev’d in part sub nom. Holland v. Valhi, Inc., 22 F.3d 968 (10th Cir.1994). The majority’s omission is understandable since the cases are not on point. Bridgestone and Holland deal with the process of distributing a pension plan’s assets under § 4044(d), 29 U.S.C. § 1344(d), once a plan has been terminated. As a result, the cases do not address the antecedent question we are confronted with, which is whether a plan has been terminated in the first place.
The majority cites no authority for its holding that plaintiffs’ anti-inurement and termination theories are sufficiently viable to survive Hughes’ motion to dismiss. It does not claim that either of the eases it cites, Lockheed, — U.S. at -, 116 S.Ct. at 1783, and Amato v. Western Union Int’l, Inc., 773 F.2d 1402 (2d Cir.1985), cert. dismissed, 474 U.S. 1113, 106 S.Ct. 1167, 89 L.Ed.2d 288 (1986), supports its view. Rather, the majority cites these eases only to distinguish them and to claim they do not stand in the way. Both Lockheed and Amato stand for the proposition that an employer does not act in its fiduciary capacity when amending a pension plan, and that a plan amendment adding a new benefit structure does not violate ERISA. The majority attempts to distinguish both Lockheed and Amato on the ground that each involved an amendment to a non-contributory plan, while this case involves an amendment to a contributory plan. However, there is nothing in either the Lockheed or Amato opinion indicating that either holding should be limited to non-contributory plans. In fact, neither Lockheed nor Amato mentions whether the plan at issue was contributory or non-contributory. In other words, there is no basis whatsoever for limiting the precedential value of these cases to non-contributory plans, as the majority does.
This contributory/non-contributory dichotomy is the heart of the majority’s analysis. The dichotomy, however, is a false one for the purpose of deciding whether Hughes violated ERISA in adding a non-contributory benefit structure to the Plan. There are, of course, contractual differences between the two types of pension plan, as the facts of this case illustrate. Under the contributory benefit structure, the employee makes cash contributions to the Plan and receives greater benefits. Under the non-contributory structure, the employee contributes nothing to the Plan and receives lesser benefits. Either way, the benefits are provided out of a single fund and it is the ultimate responsibility of Hughes to make whatever contributions are necessary to assure that the fund does not accumulate a “funding deficiency.” See supra Part I, at 1303. In terms of economic reality, it should make no difference whether an employee makes contributions to a plan directly, or whether the employee makes contributions indirectly through the employer. Either way, the contributions are the economic product of the employee’s services.
To be sure, there are provisions in ERISA that are designed for the protection of an employee’s contributions to a pension plan. An employee’s contributions are always non-forfeitable, which means that the employee has a legally enforceable right to recover his contributions with interest, even if he leaves the plan before reaching normal retirement age. ERISA § 203(a)(1), 29 U.S.C. § 1053(a)(1). In addition, if a plan is terminated, participants are entitled to an equitable distribution of the surplus, with each share proportional to the individual participant’s contributions, as long as all other plan liabilities are first satisfied. 29 U.S.C. § 1344(d)(3). Except for these protections for employee contributions, ERISA limits an employee’s interest in a pension plan fund to his “accrued benefits,” which are the benefits *1308defined under the terms of the plan. 29 U.S.C. § 1002(23); see also Johnson, 19 F.3d at 1189 (rejecting retirees’ claim that they were entitled to the same benefits increase as active employees when surplus resulted in part from retirees’ contributions, reasoning that because “a defined-benefit plan gives current and former employees property interests in their pension benefits but not in the assets held by the trust”).
The ERISA provisions protecting employee contributions have no bearing on the question whether Hughes violated ERISA in amending its contributory plan to add a noncontributory benefit structure. On this point the majority and I are in sharp disagreement. The majority asserts that the distinction between the two types of pension plans is “critical” to the termination question, but offers no cogent reason why it is “critical” or even relevant. Opinion at 1294. The only authority cited by the majority is §§ 203 and 4044(d)(3)(A) of ERISA, 29 U.S.C. §§ 1053 and 1344(d)(3)(A), which — as discussed above — respectively establish minimum vesting requirements for accrued benefits derived from employee contributions, and provide that in the event a pension plan is terminated, any surplus assets attributable to employee contributions shall be distributed equitably to participants who have made contributions. But how do provisions governing nonforfeiture of accrued benefits, on the one hand, and distribution of assets once a plan is terminated, on the other, help us decide whether a plan has been terminated? The majority’s only answer is that the plaintiffs have alleged that the non-contributory amendment resulted in the termination of the contributory plan. Opinion at 1295. If this allegation were an allegation of fact, we would be obliged to accept it as true on this 12(b)(6) motion. But it is not an allegation of fact.7 It is a conclusion of law. And it is a. conclusion of law that cannot be reached except by following the circular path traveled by the majority.
To repeat, the majority has ordered a remand because of what it views as an unresolved issue of fact — whether the amendment adding the non-contributory benefit structure resulted in the termination of the Hughes Plan. In my view, and the view of the district court, this is a pure question of law.
The majority also views the question whether any benefit Hughes received from the asset surplus was more than “incidental” as a question of material fact that cannot be resolved at the 12(b)(6) stage. Opinion at 1296. The question, however, is beside the point. Whether an employer might realize cost savings from an amendment to a pension plan is not a factor Congress intended courts to consider in deciding whether a pension plan amendment violates ERISA’s anti-inurement provision. The focus of our inquiry under ERISA’s anti-inurement provision must be whether Hughes used Plan assets for a purpose other than the payment of benefits to Plan participants. The answer to that question is clearly no. The district court’s dismissal of plaintiffs’ § 403(c)(1) anti-inurement claim should be affirmed.
II
Second Claim: The 1991 Amendment as a Breach of Fiduciary Duty
In their second claim, plaintiffs assert that Hughes breached its fiduciary duties under ERISA § 404(a)(1)(A), 29 U.S.C. § 1104(a)(1)(A),8 by “utilizing excess Plan assets attributable to employer and employee participant contributions for the exclusive benefit of defendant Hughes rather than for the benefit of Plan participants and their beneficiaries.” Compl. ¶ 34. In their brief, plaintiffs argue that Hughes violated § 404(a)(1)(A) “by expending surplus assets, especially those attributable to employee con*1309tributions, not to provide benefits to participants of the Contributory Plan, but rather to participants of the new Non-Contributory Plan whose benefits Hughes is obligated to fund.” Appellants’ Br. at 14-15 (emphasis in original).
Plaintiffs’ second claim is not substantively different from their first claim. They merely allege a violation of the general fiduciary duty provision of ERISA, § 404(a)(1)(A), rather than the anti-inurement provision, § 408(c)(1). As such, plaintiffs’ second claim is directly foreclosed by Lockheed, ’s holding that without exception, “[p]lan sponsors who alter the terms of a plan do not fall into the category of fiduciaries.” — U.S. at -, 116 S.Ct. at 1789. For the reasons stated in connection with plaintiffs’ first claim, I do not agree with the majority that the Plan amendments enacted by Hughes implicated ERISA’s fiduciary obligations because the Plan was a contributory plan. See Opinion at 1296-97. To repeat, with minor exceptions, ERISA limits an employee’s interest in a pension plan fund to his “accrued benefits,” which are the benefits defined under the plan. 29 U.S.C. § 1002(23).
The district court’s dismissal of plaintiffs’ § 404(a)(1)(A) claim should be affirmed.
Ill
Third Claim: Vesting Requirements
In their third claim, plaintiffs allege that Hughes violated ERISA § 203(a)(1), 29 U.S.C. § 1053(a)(1),9 “by using assets attributable to employees [sic] ... contributions to meet [its own] funding obligations and [has] therefore caused a divestiture and forfeiture of rights.” Compl. ¶ 36. This claim is based upon a misunderstanding of § 203(a)(1), which establishes minimum vesting standards. The purpose of § 203(a) is to guide courts in determining the percentage of an employee’s pension benefits that carlnot be divested under various circumstances.10 In short, § 203(a)(1) sets out a vesting schedule that “address[es] the problem of how much to limit an employer’s power to withdraw previously offered benefits.” Hozier v. Midwest Fasteners, Inc., 908 F.2d 1155, 1160 (3d Cir.1990). This claim also fails.
The plaintiffs do not allege that Hughes has ever withdrawn previously offered benefits. They do not allege that the 1991 amendment diminished in any way the defined benefits to which Plan participants enrolled at the time of the Amendment were entitled. In fact, employees active in the Plan before the 1991 amendment’s effective date were given the choice between remaining enrolled in the contributory benefit structure and switching to the non-contributory structure. Retired members, all of whom had been enrolled in the contributory benefit structure, continued to receive the same defined benefits they were always entitled to under the Plan.
Athough plaintiffs continue to receive their defined benefits under the Plan, they argue that the vesting provisions of § 203(a)(1) entitle them to benefits greater than those defined in the Plan. According to plaintiffs, § 203(a)(1) vests them 100% in their “own contributions and what they have earned.” Appellants’ Br. at 19. The plaintiffs are mistaken. Section 203(a)(1) requires that an employee’s rights in the accrued benefit derived from his own contributions be nonforfeitable. 29 U.S.C. § 1053(a)(1) (“A plan satisfies [ERISA’s minimum vesting standards] if an employee’s rights in his accrued benefit derived from his own contributions are nonforfeitable.”) (emphasis added). Nothing in the Plan or ERISA gives plaintiffs an ownership right in the investment return on their contributions. Under both *1310the Plan and ERISA, plaintiffs are entitled to nothing more than their accrued benefits, which are- the defined pension benefits they are now receiving. See ERISA § 3(23), 29 U.S.C. § 1002(23) (providing that “accrued benefits” are defined solely by terms of pension plans).
The district court’s dismissal of plaintiffs’ § 203(a)(1) should be affirmed.
IV
Fourth Claim: “Wasting Trust”
The plaintiffs’ fourth claim is based solely on the theory that the 1991 amendment creating the non-contributory benefit structure somehow had the effect of converting the Plan into a “wasting or dry trust.” The plaintiffs do not explain what they mean by the term “wasting trust,” nor do they explain how the creation of a non-contributory benefit structure could possibly turn the Plan into a “wasting trust.” The plaintiffs’ argument in support of this claim is limited to a citation of a single case, In re Gulf Pension Litig., 764 F.Supp. 1149 (S.D.Tex.1991), aff'd on other grounds sub nom. Borst v. Chevron Corp., 36 F.3d 1308 (5th Cir.1994). They make no attempt to show that the two cases share any facts that might be material to their wasting trust theory.
In Gulf Pension, the district court described the “wasting or dry trust” doctrine as the principle “[a]t common law [that] if a trust did not state a definite term, it was deemed to last until its purpose was accomplished.” Id. at 1202. The court deemed the Gulf Pension plan to have been terminated because all of its purposes had been accomplished. Id. at 1203. The Gulf Pension court explained:
[Plan] membership has long been closed and the plans are substantially overfunded as to all future liabilities. The [pension plans] are not accruing significant benefit obligations that could potentially eliminate their surpluses. Nor could the surpluses be used to eliminate or reduce future employer contributions since none have been made since 1970. Therefore, ... delaying termination Of the ... trusts would benefit neither the plans nor their participants in the future.
Id. at 1204. The Gulf Pension court based its finding that all the trust’s purposes had been accomplished on the following facts: Only 2900 active employees and 16,000 retirees were enrolled in the Gulf Pension plan. Id. at 1203. Retired members accounted for 94% of the Gulf Pension plan’s liabilities. Id. In addition, most of the active members were nearing retirement, which meant that projected benefits for their future service were “de minimis in relation to the surplus assets in the plans.” Id.
The plaintiffs allege no facts of the kind relied upon by the Gulf Pension court in finding a “wasting trust.” Most notably, plaintiffs do not allege that the Hughes Plan’s purposes have been accomplished. Indeed, the only fact alleged in the wasting trust claim is that the Hughes Plan was amended in 1991 to create a non-contributory benefit structure. The plaintiffs do not even attempt to explain why there is any logical connection between the 1991 amendment and their wasting trust theory. All they do is cite Gulf Pension.
The majority cites the district court’s decision in Gulf Pension in a footnote, contending that plaintiffs’ allegations that the 1991 amendment adding a non-contributory benefit structure converted the Plan into a wasting trust survive a Rule 12(b)(6) challenge because the “question of when a termination occurs is a mixed question of law and fact.” Opinion at 1295 n. 3. In the view of the majority, the questions of whether the “Contributory Plan’s [sic] purposes have been accomplished and whether its liabilities are fixed enough to terminate the plan” are material questions that can only be answered after discovery. Id. at 1296. I disagree. As explained above, I believe that, as a matter of law, the Plan was not terminated by the addition of a non-contributory benefit structure.
The district court’s dismissal of plaintiffs’ wasting trust claim should be affirmed.
V
Fifth Claim: Transfer to a Party in Interest
In their fifth claim, plaintiffs argue that use of assets from the “contributory plan” to *1311fund the benefits of participants in the “noncontributory plan” constitutes a use or transfer to Hughes, a party in interest, in violation of ERISA §§ 406(a)(1)(D) & (b)(2), 29 U.S.C. § 1106(a)(1)(D) & (b)(2).11 The analysis I apply in rejecting plaintiffs’ first and second claims is also applicable to the fifth claim. See supra Parts I and II.
I would find no violation of § 406 even if Hughes had created two separate pension plans, one contributory and the other noncontributory. Notwithstanding any incidental benefit Hughes might have received from the 1991 amendment, Hughes did not transfer funds to itself as a party in interest. Indeed, the “payment of benefits conditioned on performance by plan participants cannot reasonably be said to [come within the scope of § 406].” Lockheed, — U.S. at -, 116 S.Ct. at 1791 (holding that employer did not violate § 406 when it amended its retirement plan to create a new benefits schedule with new conditions for eligibility to be paid for from the plan’s asset surplus). Nothing in ERISA prohibits two different benefit structures from being funded from one source. Cf. Holliday v. Xerox Corp., 732 F.2d 548, 551 (6th Cir.), cert. denied, 469 U.S. 917, 105 S.Ct. 294, 83 L.Ed.2d 229 (1984) (holding that transfer of funds from one pension account to another, and subsequent use of transferred funds as setoff in calculating retirement benefits, was permissible under ERISA); Treas. Reg. § 1.414(Z)-l(b)(l)(i), 26 C.F.R. § 1.414(7 )-l(b)(l)(i) (1995) (providing that, for income tax purposes, pension plan will be considered as “single plan” even if “plan has several distinct benefit - structures”). Because the amendment was within Hughes’ power as a settlor, see supra Part I, and because Hughes did not transfer assets to itself as a party in interest, I would affirm the district court’s dismissal of plaintiffs’ fifth claim, which is based on § 406.12
VI
Sixth Claim: The Early Retirement Program as a Breach of Fiduciary Duty
The plaintiffs’ sixth claim is based upon a 1989 amendment to the Hughes Plan. In the 1989 amendment, Hughes created an early retirement program which offered improved retirement benefits to some active employees who elected to take early retirement. The 1989 amendment made no changes in the defined benefits that retirees, such as plaintiffs in this action, were already receiving.
The plaintiffs claim that, in creating the early retirement program,. Hughes violated its fiduciary duties under ERISA § 404(a)(1)(D), which requires plan fiduciaries to carry out their duties “in accordance with the documents and instruments governing the plan....” 29 U.S.C. § 1104(a)(1)(D). The plaintiffs argue that Hughes violated this section because the 1989 amendment discriminated against plaintiffs in providing that Plan assets would be used to fund improved benefits exclusively for those active employees who were made eligible for early retirement. According to plaintiffs, this use of Plan assets contravened Article V, § 5.2 of the Plan, which provides that the “Plan shall be administered, interpreted and applied fairly and equitably and in accordance with the specified purposes of the Plan.” The majority acknowledges that, in Lockheed, the Supreme Court held that an employer.may amend a retirement plan to offer an early retirement program funded by surplus plan assets without violating ERISA. Nonetheless, the majority holds that plaintiffs have stated a claim under § 404(a)(1) because the *1312assets used to fund Hughes’ early retirement program are in part attributable to employee contributions.
The majority’s holding cannot be squared with Lockheed, nor with cases from two other circuits which have held that pension plan amendments that create retirement windows with incentives for early retirement do not violate § 404(a)(1) of ERISA. Belade v. ITT Corp., 909 F.2d 736, 737-38 (2d Cir.1990); Trenton v. Scott Paper Co., 832 F.2d 806, 809 (3d Cir.1987), cert. denied, 485 U.S. 1022, 108 S.Ct. 1576, 99 L.Ed.2d 891 (1988). These cases emphasize the precept that when an employer amends a plan, just as when an employer first designs a plan, it acts as a settlor and not as a, fiduciary. Lockheed, — U.S. at -, 116 S.Ct. at 1789; Belade, 909 F.2d at 738; Trenton, 832 F.2d at 809; Johnson v. Georgia-Pacific Corp., 19 F.3d 1184, 1190 (7th Cir.1994) (holding that plan amendment improving benefits for active workers does not violate § 404(a)(1)); see also supra Part I.
To distinguish Lockheed, the majority again relies on a purported distinction between contributory and non-contributory benefit structures.13 Without citing any authority, the majority asserts that it “do[es] not think that an employer can unilaterally decide to use plan assets attributable to employee contributions without implicating ERISA’s fiduciary obligations.” Opinion at 1302. The majority seems to be saying that employees are co-settlors of contributory plans. The majority, of course, offers no authority for this startling proposition. Moreover, even if we treated employees as settlors of contributory plans, the majority still fails to explain how that makes their ostensible co-settlor, Hughes, a “fiduciary” within the meaning of § 404(a).
Although plaintiffs assert that the early retirement amendment “raises all of the same issues presented in” the first five claims, Appellants’ Br. at 30, they fail to elaborate any further. I see no violation of any section of ERISA in Hughes’ creation of the early retirement program. The district court’s dismissal of plaintiffs’ claims regarding the 1989 amendment should be affirmed.
CONCLUSION
The majority holds that plaintiffs have stated a claim upon which relief can be granted under ERISA on the theory that Hughes terminated the Plan when it merely amended it to include a non-contributory benefit structure as well as a contributory benefit structure. Thus, the majority clears the way for plaintiffs to continue on their quest for their pot of gold, a share of the $1 billion surplus. If plaintiffs ultimately succeed in obtaining a judgment declaring the contributory plan to be terminated, their pensions will no longer be limited to their “defined benefits.” It is understandable that the plaintiffs (and their lawyers) covet the financial gains that resulted from the successful investment strategy that dramatically increased the value of the Plan’s assets in the 1980s. But that does not diminish the reality that they have failed to state a legally cognizable claim.
Moreover, the majority’s decision may have serious adverse consequences for the 10,000-odd participants in the Hughes Plan if this litigation ends in a judicial decree terminating the Plan and distributing the Plan assets. If the Plan continues to run a sizea-ble surplus as a result of a successful investment portfolio, retirees like the plaintiffs in this action would get a windfall over and above their defined pension benefits. It is not clear, however, where this would leave Plan participants who are still working toward retirement, including those existing employees who opted to remain covered under the contributory benefit structure, those who opted for the non-contributory structure, and the new employees who are enrolled under the non-contributory benefit structure as a matter of plan design.
In addition, the unfortunate effects of the majority’s decision may extend well beyond the parties in this particular action. Today’s decision announces that in the Ninth Circuit *1313there are severe, if vague and ill-defined, restrictions on the discretion of employers charged as plan settlors under ERISA with responsibility for the design of qualified pension plans. Only time can tell what impact these vague and uncertain restrictions will have on employers and their employees.
In my view, there is no basis in ERISA, the caselaw, or logic for the majority’s decision that in amending its pension plan, Hughes effectively terminated the plan. If ERISA is in need of clarifying or restricting amendments to the provisions relating to the authority of employers as settlors to design pension plans, that need should be addressed by Congress, not this court.

. The plaintiffs seek to represent a class "consisting of all participants of the Plan who are or may become eligible to receive retirement benefits under the Plan.” Compl. ¶ 10.

. ERISA § 403(c)(1) provides in relevant part:
[T]he assets of a plan shall never inure to the benefit of any employer and shall be held for the exclusive purposes of providing benefits to participants in the plan and their beneficiaries and defraying reasonable expenses of administering the plan.
29 U.S.C. § 1103(c)(1).

. The majority agrees. However, of all the plaintiffs’ varied claims regarding the $1 billion surplus, this is the only one that the majority finds meritless.

."Accumulated funding deficiency” is defined in ERISA as
the excess of the total charges to the funding standard account for all plan years (beginning with the first plan year to which [ERISA] applies) over the total credits to such account for such years or, if less, the excess of the total charges to the alternative minimum funding standard account for such plan years over the total credits to such account for such years.
ERISA § 302(a)(2), 29 U.S.C. § 1082(a)(2).

. Exhibits "A” and "B” to the Plan set forth provisions specific to the contributory and noncontributory benefit structures, respectively.

. It is possible, of course, that the Plan’s investments have declined in value since plaintiffs filed their complaint in 1992, and that the surplus has therefore diminished or disappeared.

. The majority leaves us clueless as to how a jury could be instructed to resolve as a question of fact whether the 1991 amendment effected a termination of the Plan.

. ERISA § 404(a)(1)(A) provides in relevant part:
[A] fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and ... for the exclusive purpose of: (i) providing benefits to participants and their beneficiaries; and (ii) defraying reasonable expenses of administering the plan....
29 U.S.C. § 1104(a)(1)(A).

. ERISA § 203(a)(1) provides:
A plan satisfies the requirements of [ERISA’s minimum vesting standards] if an employee’s rights in his accrued benefit derived from his own contributions are nonforfeitable.
29 U.S.C. § 1053(a)(1).

. For example, § 203(a) applies when an employee becomes disabled, Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 101 S.Ct. 1895, 68 L.Ed.2d 402 (1981); when an employee has a break in service to a company, Bolton v. Construction Laborers’ Pension Trust, 954 F.2d 1437 (9th Cir.1991); when a noncompetition forfeiture clause applies, Clark v. Lauren Young Tire Ctr. Profit Sharing Trust, 816 F.2d 480 (9th Cir.1987); or when an employee dies, Hernandez v. Southern Nevada Culinary & Bartenders Pension Trust, 662 F.2d 617 (9th Cir.1981).

. ERISA § 406(a)(1)(D) provides:
A fiduciary with respect to a plan shall not cause the plan to engage in a transaction, if he knows or should know that such transaction constitutes a direct or indirect ... transfer to, or use by or for the benefit of, a party in interest, of any assets of the plan....
29 U.S.C. § 1106(a)(1)(D). ERISA § 406(b)(2) provides:
A fiduciary with respect to a plan shall not ... in his individual capacity or in any other capacity act in any transaction involving the plan on behalf of a party ... whose interests are adverse to the interests of the plan or the interests of its participants or beneficiaries....
29 U.S.C. § 1106(b)(2).

. Plaintiffs make no allegations of fact to support their claim that Hughes' amendment of the plan was a "sham transaction” meant to disguise an otherwise unlawful, act. They merely allege "sham" in a conclusory fashion.

. The only valid distinctions between contributory and non-contributory benefit structures are discussed supra in Part I, at 1307.