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finding that SPD provided sufficient notice of amendment to satisfy § 204(h)
Summary of this case from Hakim v. Accenture U.S. Pension PlanOpinion
CIVIL ACTION NO. 06-12156-DPW.
June 11, 2009
MEMORANDUM AND ORDER
The Plaintiff, Robert W. Taylor ("Taylor"), is a retired pipefitter covered by the Pipefitters Local 537 Pension Plan ("Plan"). Taylor worked as a pipefitter from 1967 to 2004, but between 1991 and 1993 he was unable to find full-time employment. When Taylor returned to full-time employment in 1993, his benefits for work performed before 1993 were frozen at the pre-1993 benefits rate. Although framed as ten causes of action, Taylor's essential contention is that by freezing his pre-1993 accrual of benefits, the Defendants, the Pension Plan and the Board of Trustees have violated the Employment Retirement Income Savings Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq. The matter is before me on the parties' cross-motions of summary judgment on all ten claims of the Complaint.
I. BACKGROUND
A. The Pension Fund's Organization
The facts of this litigation are largely undisputed. The Pipefitters Local 537 Pension Fund ("Fund") is a trust established in 1957 by a labor organization, Pipefitters Local 537 ("Local 537"), and two contractor associations whose members perform pipefitting work in the metropolitan Boston area. Under a collective bargaining agreement with Local 537, employers working in the labor organization's territory are obligated to make contributions to the Pension Fund for every hour of work performed by their employees. The Fund, using the employer contributions and the returns earned on the investment of its assets, finances pension benefits provided to Fund participants. The Fund currently has approximately 100 employers, 2000 active participants, and 800 retirees.
The Fund is governed by a Board of Trustees of the Pension Plan of the Pipefitters Local 537 Pension Fund ("Board of Trustees"), which consists of three trustees designated by the employer associations and three trustees designated by Local 537. Charles Hannaford ("Hannaford") has been the Administrator of the Pension Fund since 2003, and is responsible for the day-to-day operation of the Fund. Hannaford serves as the Administrator of the Plan within the meaning of ERISA Section 3(16)(A), 29 U.S.C. § 1002(16)(A), and as a Plan "fiduciary" within the meaning of ERISA Section 3(21)(A), 29 U.S.C. § 1002(21)(A).
The Pension Plan outlines the rights and obligations of the Fund's employers and participating employees. The Plan has been revised multiple times, and on several occasions the Fund has adopted a "restated" Plan document that incorporates all the Plan amendments. The Fund occasionally publishes a Summary Plan Description ("SPD"), which is a booklet describing the Plan and mailed to the participants. The SPDs in 1973 and 1979 included a copy of the entire Pension Plan document.
The Plan as adopted in 2003 vests the Board of Trustees with various powers and duties in respect of the Pension Plan, including the authority to interpret the Plan.
B. The Plan's Benefit Structure
Upon retirement, participating employees receive a monthly pension benefit from the Fund. The amount of the monthly pension is a function of two factors: the number of years of "Credited Future Service" that the employee earned while participating in the Plan; and the accrual rate that applies to the earned Credited Future Service years.
"Credited Future Service" refers to the number of years, computed to the nearest one-tenth of a year, credited for service in covered employment. In each plan year (which typically runs from the beginning of March until the end of the following February), Credited Future Service is calculated by dividing the total number of hours worked during that year by 1,400, and rounding the result of that division to the nearest one-tenth (1/10), so long as not more than one year of Credited Future Service is given for any one plan year. For example, working 1,400 hours of service will earn a full year of Credited Future Service for that plan year. Working 1,390 hours would result in .993 of a year, which would round up to a full year.
The accrual rate is a dollar value that the Fund has determined applies to a full year of Credited Future Service. For example, if a participant earned a full year (1,400 hours) of Credited Future Service in 1995, and the accrual rate at his retirement is $155, then the monthly retirement benefit for his 1995 service is $155; if he earned only 700 hours of Credited Future Service in 1995, then he will receive $77.50 in his monthly benefit for his 1995 service hours. Over time, the Fund has established different accrual rates for Credited Future Service.
The employee's total monthly benefit upon retiring is the sum of the benefits earned for each plan year. If he has earned five full years of Credited Future Service from 1995 to 1999, with the accrual rate at $155, then the employee will receive a monthly retirement benefit of $775.
In their submissions in connection with the motions, the Defendants provide a sum of $755 for this example, but that appears to be a calculation error.
C. Break-in-Service Rules
If a Fund participant fails to work a minimum number of hours during a plan year, over the course of two consecutive years, he incurs a "break in service." To prevent a break in service, a participant must work a minimum of 280 hours during a plan year.
If a participant suffers a break in service, but has worked enough to have a vested benefit under the Plan, then the amount of his benefit is fixed at the accrual rates that were in place at the time of the break in service. If the participant returns to employment after the break in service, the benefit that was fixed at the pre-break accrual rate is referred to as a "Deferred Vested Benefit." Every year, the Fund's actuarial consultant prepares a set of notices for those participants who have incurred a break in service. The notices inform the participants of the date of the break in service, and advise them of the amount of their vested benefits. The Administrator signs these notices and mails them to the participants.
At various times, the Fund has increased the accrual rates for Credited Future Service, often on a prospective basis, but also at times on a retroactive basis. Such retroactive increases in accrual rates do not apply to pre-break Credited Future Service, for which the accrual rates have been fixed at the rates in place before the break in service.
The Plan's break-in-service rule has an exception that authorizes the Board of Trustees to grant a "grace period" for reasons of "total disability" and "involuntary employment." The effect of the grace period is that the two-year break in service is disregarded. (2003 Pension Plan § 2.7(a)(I).) To qualify for the grace period, the participant must request a grace period within one year of the break in service. The Board can waive the one-year deadline for requesting the grace period if it finds that "there were extenuating circumstances which prevented timely filing."
D. Taylor's Plan Participation
Taylor began participating in the Pension Plan in 1967, and became entitled to vested benefits from the Fund in 1977. He retired in 2004. The Plan in effect at his retirement was the plan adopted as amended on March 27, 2003 and generally effective as of March 1, 2001.
During the 1991-92 plan year, Taylor worked only 24 hours in covered employment because he was unable to find work, and the Fund credited him with 24 hours of service. During the 1992-93 plan year, Taylor still could not find work as a pipefitter; he worked no hours in covered employment and was credited with no hours of service. In 1993, the Fund determined that, effective February 28, 1993, Taylor had incurred a break in service under Section 2.7 of the Pension Plan then in effect, and that Taylor was entitled to a Deferred Vested Benefit under Section 3.5 of the Plan. On or about November 9, 1993, the Fund mailed Taylor a notice that noted his break in service and advised him of the amount of his vested benefit. When Taylor received the November 9, 1993 notice, he called the union office to ask questions about it, but no agents were available. He did not contact the Board of Trustees or the Fund Administrator.
In the 1993-94 plan year, Taylor resumed working in covered employment, and remained working until he retired in 2004. In the fall of each year from 1994 to 2004, the Fund mailed Taylor a standard benefits statement that referred to "the credit earned prior to your Break In Service on February 28, 1993," or "credit earned prior to break in service."
In July 2002, Taylor submitted a written request to the Board of Trustees for a grace period for the break in service effective February 28, 1993. On December 2, 2002, the Board notified Taylor that his request for a grace period was denied, on the grounds that employees must request a grace period within one year of the break in service, and that Taylor had not demonstrated extenuating circumstances that prevented him from meeting the one-year deadline.
On April 16, 2004, Taylor submitted a written request for reconsideration of the denial of a grace period. The request for reconsideration was denied on May 5, 2004. Taylor inquired to the Fund Administrator, Charles Hannaford, why his 24 hours of work during the 1991-92 plan year did not yield Credited Future Service, and Hannaford mailed a response on December 9, 2004 explaining the Plan provisions. On January 28, 2005, Taylor requested sixty additional days to appeal from the December 9, 2004 letter; the Fund granted Taylor's request. On May 19, 2005, Taylor submitted a written appeal on the question of his 24 hours of work during the 1991-92 plan year, among other issues. On July 11, 2005, the Board notified Taylor that the Fund had found his May 19 appeal to be untimely, and that it would have denied the appeal even if it had been submitted in a timely manner. On October 7, 2005, Taylor requested reconsideration of the Board's determination regarding the 24 hours of service; on November 1, 2005, the Board notified Taylor that it denied his request on the merits. On February 16, 2006, Taylor requested the Board to reconsider its prior decisions, and on February 27, the Board notified Taylor that it would take no action on Taylor's request because it had addressed Taylor's objections in its prior determinations.
E. The Operative Complaint
Taylor filed this suit in December 2006, and filed an Amended Complaint in June 2007. When the Defendants moved to dismiss his claims, Taylor sought to amend his first Amended Complaint. I denied the motion to dismiss as moot, and granted the Plaintiff's request to file a Second Amended Complaint.
The Second Amended Complaint has ten counts, alleging both violations of ERISA and violations of the Plan itself.
The Plaintiff uses the terms "First Claim for Relief," "Second Claim for Relief," and so on, for what I will refer to as his individual counts.
Count 1 alleges that the Defendants violated the terms of the Plan in determining that Taylor experienced a break in service.
Count 2 alleges that the 1991 Plan effected a retroactive reduction in benefits by requiring 280 hours of service for Credited Future Service to accrue, in violation of Section 204(g) of ERISA, 29 U.S.C. § 1054(g).
Count 3 alleges that the Plan violated Section 204(h) of ERISA, 29 U.S.C. § 1054(h), when the Board of Trustees failed to provide the required advance statutory notice of its amendment to the 1991 Plan requiring 280 hours of service to avoid a break year.
Count 4 alleges that the Defendants violated the terms of the Plan when the Board denied a grace period to Taylor.
Count 5 alleges that the Defendants violated ERISA Section 204(b)(4), 29 U.S.C. § 1054(b)(4), when they failed to aggregate Taylor's pre-break and post-break service for all purposes, including the calculation of the accrued benefit.
Count 6 alleges that the Plan's break-in-service rules violate ERISA Section 203(a), 29 U.S.C. § 1053(a), by evading the purpose of ERISA's early vesting provisions.
Count 7 alleges that the Plan's break-in-service provision violates the accrual rules set out in ERISA Section 204(b)(1)(B), 29 U.S.C. § 1054(b)(1)(B).
Count 8 alleges that the Plan's variation in coexisting accrual rates, caused by retroactive benefit rate increases that are not provided to all Plan participants, violates the accrual rules set out in ERISA Section 204(b)(1)(B), 29 U.S.C. § 1054(b)(1)(B).
Count 9 alleges that the Defendants acted arbitrarily and capriciously in refusing to grant a grace period for Taylor's break in service.
Count 10 alleges that the Trustees violated their fiduciary duties under ERISA Section 404(a)(1), 29 U.S.C. § 1104(a)(1), in two ways: in their adoption of a break-in-service scheme that violates ERISA; and in their implementation of the scheme.
II. STATUTE OF LIMITATIONS
Before turning to the merits of the Plaintiff's allegations, I first consider the Defendants' affirmative defense that the Plaintiff's claims are barred by the statute of limitations.
ERISA itself does not provide a statutory period of limitation for benefit claims. "Ordinarily a claim for benefits under an ERISA plan is governed by the statute of limitation prescribed for contract actions in the state in which the claim is brought." Alcorn v. Raytheon Co., 175 F. Supp. 2d 117, 120 (D. Mass. 2001); see also Doe v. Blue Cross Blue Shield United of Wisconsin, 112 F.3d 869, 873 (7th Cir. 1997) ("ERISA does not contain a statute of limitations for suits to recover benefits and . . . the practice of the federal courts . . . is to borrow the limitations period in the most nearly analogous state or federal statute of limitations."). In Massachusetts, the statute of limitation for contract actions is six years. Alcorn, 175 F. Supp. 2d at 121.
Taylor apparently agrees that a six-year statute of limitation governs, but challenges the Defendants regarding when the limitation period began to run. While Taylor sets the accrual date at 2002, when his request for greater benefits was denied, the Defendants assert that the limitation period accrued in 1993, when the Fund determined that Taylor had incurred a break in service.
Because showing that a claim is time-barred under the statute of limitations is an affirmative defense, Fed.R.Civ.P. 8(c), the Defendants have the burden of proving by a preponderance of the evidence that the claims are time-barred. Payan v. Aramark Mgmt. Servs. Ltd. P'ship, 495 F.3d 1119, 1122-23 (9th Cir. 2007) (noting that the defendant bears the burden of proof in a statute of limitations defense); Colbert v. Potter, 471 F.3d 158, 165 (D.C. Cir. 2006) (same). The Defendants have provided little discussion of how accrual operates for limitations periods in ERISA claims, and how such operation applies to the facts of this case. "Ordinarily, a cause of action under ERISA . . . accrue[s] when a fiduciary denies a participant benefits." Cottrill v. Sparrow, Johnson Ursillo, Inc., 100 F.3d 220, 223 (1st Cir. 1996). Without meaningful discussion from the parties as to which event constitutes the relevant denial of benefits — e.g., the determination of a break in service, the denial of the grace period, or the application of accrual rates to Taylor's pre-break service — and why the Defendants did or did not satisfy their burden of proof, I decline to act on the statute of limitations contention, and proceed to the merits of the Plaintiff's claims.
III. THE PLAINTIFF'S CLAIMS FOR RELIEF
Because of the multiplicity and wide range of the Plaintiff's claims, I have organized my discussion of the claims as follows: challenges to the Plan's compliance with ERISA requirements for pension benefit plans (Counts 2, 3, 5, 6, 7, and 8); alleged breaches of the Defendants' fiduciary duties under ERISA (Count 10); and challenges to the Defendants' compliance with the Pension Plan (Counts 1, 4, and 9).
A. Standard of Review
A court grants summary judgment where "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). I view the record in the light most favorable to the nonmoving party, and draw all reasonable inferences in his favor. Noonan v. Staples, Inc., 556 F.3d 20, 25 (1st Cir. 2009) (citing Franceshi v. U.S. Dep't of Veterans Affairs, 514 F.3d 81, 84 (1st Cir. 2008)). On cross-motions for summary judgment, the standards of Rule 56 remain the same, and the court determines whether either party deserves judgment as a matter of law on the facts not in dispute. Adria Int'l Group, Inc. v. Ferré Dev., Inc., 241 F.3d 103, 107 (1st Cir. 2001).
B. The Plan's Compliance with ERISA Requirements
To bring focus to the various ERISA issues raised by the Plaintiff, I will discuss his allegations according to the relevant statute sections identified in the Complaint.
1. Section 204(g)
Section 204 of ERISA, 29 U.S.C. § 1054, lays out certain requirements for the accrual of pension benefits, and subsection (g) makes special provision for the decrease of accrued benefits. "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. § 1082(d)(2) or § 1441. 29 U.S.C. § 1054(g)(1). A plan amendment cannot eliminate or reduce an early retirement benefit that is attributable to service before the amendment. § 1054(g)(2).
Taylor states in Count 2 of his Second Amended Complaint that the Defendants violated this provision when they passed the 1991 Pension Plan, which added a new Section 2.6 defining a break year as one in which an employee has less than 280 hours of service credited to him. The 1979 Pension Plan had placed the threshold at 70 hours of service. The 1991 amendment also stated that a break year would have this 280-hour threshold "[o]n or after March 1, 1987." This revision, according to Taylor, effected a retroactive reduction in the benefits accrued under the Pension Plan. Although Taylor has moved for summary judgment on his claims, he does not refer to Count 2 or Section 204(g) in his summary judgment submissions.
In any event, Taylor's claim of retroactive effect cannot be supported by the undisputed facts in the record. Section 2.6 was not introduced in the 1991 Pension Plan, but rather in the 1987 Plan, which was amended on March 1, 1987, and reads: "On and after March 1, 1987, Break Year shall mean any Plan Year in which an Employee has less than 280 hours of service credited to him in the Plan Year." The 1991 Pension Plan merely retained the language from the 1987 amendment, including the March 1, 1987 date of effectiveness, and therefore did not have retroactive effect as to the Plaintiff.
Because increasing the threshold from 70 hours to 280 hours did not have retroactive effect, it did not decrease any accrued benefits of Pension Plan participants. Rather, it altered the conditions under which participants could accrue benefits in the future. Consequently, the Plaintiff cannot show as a matter of law that the Pension Plan violates Section 204(g) of ERISA.
2. Section 204(h)
Taylor alleges in Count 3 that the Defendants violated Section 204(h) of ERISA, 29 U.S.C. § 1054(h), in failing to provide adequate notice of the Plan's change in requiring 280 hours of service to prevent a break in service.
Under Section 204(h)(1), "[a]n applicable pension plan may not be amended so as to provide for a significant reduction in the rate of future benefit accrual unless the plan administrator provides the notice described in paragraph (2) to each applicable individual. . . ." 29 U.S.C. § 1054(h)(1). The notice must be written to be understood by "the average plan participant" and must provide enough information to allow an individual to understand the amendment's effect. § 1054(h)(2).
According to Taylor's Complaint, the 280-hour threshold to avoid a break in service made it more likely that participants would suffer a break in service and a subsequent freeze on their benefit accrual rates. The freeze in accrual rates is a reduction in future benefit accruals, he says, and thus requires advance notice under Section 204(h). Again, Taylor does not mention these allegations in his summary judgment memoranda.
The change to 280 hours was incorporated into a restated Plan document in 1991. The record shows that the Defendants issued a SPD in 1990 that provided some discussion of the new threshold:
8. CAN I LOSE MY CREDITED SERVICE AND ELIGIBILITY CREDITS?
Yes, if you have two consecutive "Break Years" and therefore have a "Break In Service" before you come eligible for pension, or before you have become "vested" (see Question 21). Normally it would be considered a "Break Year" if you fail to have at least 280 Hours of Service in any Plan Year after March 1, 1987, or have a Plan Year with less than 70 hours of service before 1987.
On April 5, 1991, the Fund mailed copies of the 1990 SPD to all participants, and there is apparently no colorable dispute that Taylor received a copy. Also, the language regarding the hours of service that must be worked to avoid a break year is unambiguous and readily understood. As a result, the introduction of the 280-hour provision does not violate ERISA Section 204(h), and Taylor has not argued to the contrary.
3. Section 204(b)(4)
In his Count 5, Taylor alleges that Section 204(b)(4), 29 U.S.C. § 1054(b)(4), was violated when the Defendants failed to aggregate Taylor's pre-break and post-break service for accrual purposes. In other words, Taylor argues that the Pension Plan cannot freeze a participant's pre-break service at one accrual rate, and then provide a different accrual rate for the participant's post-break service.
Section 204(b)(4)(A) of ERISA states as follows:
For purposes of determining an employee's accrued benefit, the term "year of participation" means a period of service (beginning at the earliest date on which the employee is a participant in the plan and which is included in a period of service required to be taken into account under section 1052(b) of this title, determined without regard to section 1052(b)(5) of this title) as determined under regulations prescribed by the Secretary which provide for the calculation of such period on any reasonable and consistent basis.29 U.S.C. § 1054(b)(4)(A). Section 202(b), 29 U.S.C. § 1052(b), provides that "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) of this section," 29 U.S.C. § 1052(b)(1) (emphasis added), except as provided in § 1052(b)(2)-(4), whose provisions do not apply to Taylor.
Taylor agues that the phrase "taken into account" signifies that a pension plan cannot subject his pre-break service and post-break service to different accrual rates. He asserts that under Section 204(b)(4), no years of services may be disregarded. He also contends that Sections 204 and 202 require that all years of service must be aggregated for purposes of applying a uniform accrual rate to the entire period of service.
Taylor's interpretation of the statute is unfounded. The statute makes clear that years of service may not be disregarded, but the statute does not state that a uniform benefit accrual rate must be applied to those years of service. When Section 202(b) states that years of service must be "taken into account," it explicitly states that this time must be taken into account "in computing the period of service"; it does not state that the time must be considered for computing the benefit accrual rate or the total benefits awarded. 29 U.S.C. § 1052(b)(1). Indeed, the statute "does not guarantee a particular amount or a method for calculating the benefit," and instead "set[s] outer bounds on permissible accrual practices." Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 512 (1981).
Taylor responds that the statute uses the term "period of service," rather than periods of service, suggesting that creating more than one period is improper. But Taylor reads too much into the word "period" in the singular. The criterion outlined in Section 202(b) is that all the years of service in a period of service must be taken into account — not that it must be grouped in a unitary period, or that different accrual rates cannot apply to different segments of the period. All years of service have been taken into account by the Defendants, and the years' grouping into a pre-break period of service and post-break period of service does not violate the clear language of the statute.
The case cited by Taylor to support his reading, Carollo v. Cement and Concrete Workers District Council Pension Plan, 964 F. Supp. 677 (E.D.N.Y. 1997), is inapposite. Carollo involved alleged violations of Sections 204(b)(1) and 204(b)(3), 29 U.S.C. § 1054(b)(1), (3), and therefore provides no direct support for Taylor's statutory interpretation of Section 204(b)(4). Carollo, 964 F. Supp. at 681-85. The plaintiff in Carollo did, however, challenge a break-in-service provision. The Carollo plan had two types of retirement benefits: one for participants with unbroken service and one for participants with a break in service. Id. at 683. Participants who attained 25 years of unbroken service received a retroactive increase in benefit accrual rates that participants having 25 years of service with a break did not receive. Although the court expressed reservations regarding the plan's break-in-service provision, the reservations were based on the fact that retirement benefits could change adversely if a participant had a break in service in the future, thereby making it "impossible to determine what a participant's retirement benefit will be." Id. at 683. Break-in-service provisions generally were not the court's concern, but rather "the Plan's variable rate of accrual conditioned on a temporary break in service," when calculated by reference to length of service. Id. at 684. Here, the variation in accrual rates is a function of the calendar year in which a break occurs and the Board's decision to raise accrual rates for all participants.
The Plaintiff next argues that the statute is ambiguous, and that turning to legislative history demonstrates that Congress intended for all years of service to be aggregated into one period of service for purposes of applying a uniform accrual rate. Turning to the legislative history of ERISA is unnecessary — and perhaps inappropriate — in this case because the language of Sections 204(b)(4) and 202(b) is not ambiguous. An exercise in statutory interpretation always begins — and, assuming no ambiguity, should end — with the statute's language. S.E.C. v. Tambone, 550 F.3d 106, 126 (1st Cir. 2008).
In any event, even if the statute's legislative history were a necessary and appropriate resource here, I find those materials do not support the reading suggested by Taylor. Taylor quotes a Conference Committee Report that stated "once an employee has achieved any percentage of vesting, then all of his pre-break and post-break service must be aggregated for all purposes." But the purposes discussed in this Committee statement, and the Ways and Means Committee Report also cited by Taylor, relate to receiving credits and accruing benefits for years worked, not the rates at which those credits and benefits are accrued.
Taylor has failed to show, and cannot show as a matter of law, a violation of Sections 204(b)(4) and 202(b). The Fund undeniably took into account Taylor's pre-break service for purposes of accrual, and Taylor's monthly pension benefit reflects both his pre-break and post-break service. Taylor's objection is that the benefits were not calculated at the correct accrual rate. I can find no language in Sections 204(b)(4) and 202(b) that requires the Fund to take into account Taylor's pre-break service by providing a universal accrual rate for all his years of service.
4. Section 203(a)
Section 203(a) of ERISA provides for the nonforfeitability, or vesting, of normal retirement benefits upon the attainment of normal retirement age. 29 U.S.C. § 1053(a). Section 203(a) also provides for early vesting: if, in a defined benefit plan, employees have completed at least five years of service and receive a nonforfeitable right to 100 percent of their accrued benefits, then the requirements of Section 203(a) are satisfied. 29 U.S.C. § 1053(a)(2)(A)(ii). Taylor's Count 6 alleges that the Plan's break-in-service scheme violated these rules by evading "the purpose of early vesting." (Second Am. Compl. ¶ 63.)
Taylor makes no further discussion of this allegation beyond that found in the Complaint. The Second Amended Complaint identifies no specific provision that is violated by the Plan's break-in-service scheme, and I can find no relevant provision in Section 203(a). The statute provides for the nonforfeitability of years of service, and Taylor's years have not been forfeited. All of his years of service have vested, and he objects only to the benefit accrual rates that apply to this time. Accrual rates are not referenced in Section 203(a), giving Taylor no basis for relief as a matter of law.
5. Section 204(b)(1)(B)
Two of Taylor's claims for relief allege violations of ERISA Section 204(b)(1)(B), 29 U.S.C. § 1054(b)(1)(B). Taylor alleges in Count 7 that the Defendants violated this Section by creating the Plan's particular break-in-service scheme. In Count 8, Taylor alleges further that the Section is violated by the creation of variation in accrual rates among participants.
Section 204(a)(1), 29 U.S.C. § 1054(a)(1), requires every defined benefit plan to satisfy the requirements of Section 204(b)(1). Section 204(b)(1)(B) provides a mechanism for benefit accrual:
A defined benefit plan satisfies the requirements of this paragraph of a particular plan year if under the plan the accrued benefit payable at the normal retirement age is equal to the normal retirement benefit and the annual rate at which any individual who is or could be a participant can accrue the retirement benefits payable at normal retirement age under the plan for any later plan year is not more than 133 1/3 percent of the annual rate at which he can accrue benefits for any plan year beginning on or after such particular plan year and before such later plan year.29 U.S.C. § 1054(b)(1)(B).
This provision for the annual rates of accrual is directed to the practice known as "backloading," or structuring a plan to be unfairly weighted against short-term employees. Langman v. Laub, 328 F.3d 68, 71 (2d Cir. 2003), cert. denied, 540 U.S. 1107 (2004). Backloading is the practice of providing "inordinately low rates of accrual in the employee's early years of service when he is most likely to leave the firm and . . . concentrating the accrual of benefits in the employee's later years of service when he is most likely to remain with the firm until retirement." H.R. Rep. 93-807 (1974), reprinted in 1974 U.S.C.C.A.N. 4670, 4688. In other words, employers, wanting to encourage employees to remain on the job long-term, would create pension plans that provide for a faster rate of benefit accrual in the employee's later years of employment. For example, participants might accrue 2 percent of compensation for each year of service until age 50, and then 3 percent for years age 50 and older.
Taylor maintains that the Plan violates this anti-backloading rule by providing substantially different accrual rates among those employees who had a break in service and those employees who did not have a break in service.
Taylor's argument on this point misapprehends the nature of the Plan's benefit structure. The Plan's accrual rates are applied to particular calendar years, and apply universally to all participants who performed service during each calendar year. If two participants are working in 2001, and there is an increase in accrual benefits in 2001, the increase applies to everyone. Section 204(b)(1)(B), by contrast, requires a comparison in relationship to length of employment between benefits payable on or after a particular plan year, and benefits payable for any later plan year. 29 U.S.C. § 1054(b)(1)(B). It subjects to scrutiny plans that have different rates based on length of employment. As stated in the regulation, a plan does not satisfy the anti-backloading rule "if the base for the computation of retirement benefits changes solely by reason of an increase in the number of years of participation." 26 C.F.R. § 1.411(b)-1(b)(2)(ii)(F). The benefit structure in the Plan at issue does not make such distinctions between a participant's short-term and long-term service. The rates may be revised, but the change is universal and the increased rate does not simultaneously coexist with different rates based upon length of employment.
A distinction arguably arises when a retroactive increase does not apply to pre-break service, where rates under the Plan are fixed at the pre-break accrual rate. In that case, an employee's pre-break service may have a different accrual rate than his post-break service, the latter of which might benefit from a retroactive increase in accrual rates. Such pre-break service might also have a different accrual rate than service performed in the same year by an employee who did not experience a break in service. Consider, for example, two participants who have been working since 1995, but one participant experienced a break in service in 1998 and 1999. In 2007, the Plan increases accrual rates by $50, and makes them retroactive except for periods of service that occurred before a break in service. In that case, the accrual rate for the 1995 plan year will be $50 higher for the participant without the break in service; and the participant with the break in service will have an accrual rate that is $50.00 lower than his accrual rate for 2007.
Excluding pre-break service from retroactive increases, however, does not violate Section 204(b)(1)(B). If any ambiguity might be found in the statute, the legislative history is unambiguous. Congress stated that the statute does not apply to changes in rates that come about because of subsequent amendments to the Plan: "The 133 1/3 percent rule . . . is obviously not intended to place a limit on the amount of benefit increases for future service that may be provided under plan amendments." H.R. Rep. 93-807 (1974), reprinted in 1974 U.S.C.C.A.N. 4670, 4688.
The Second Circuit rejected an argument similar to Taylor's in Langman v. Laub. In Langman, the plan provided a $50 benefit rate multiplied by the number of years of service; but for service that occurred before a "separation" from covered employment, the employee would receive the benefit rate in effect at the time of separation. 328 F.3d at 70. The defendant challenged this freezing of benefit rates at the pre-separation level as a violation of Section 204(b)(1)(B). The court rejected the challenge, stating that the ERISA anti-backloading provision "is irrelevant to across-the-board increases in benefit rates made at some future time on behalf of all current employees regardless of period of service." Id. at 71. The court observed that the effect of the plaintiff's interpretation would be "a strange rule that would prohibit a fund from making more than a one-third increase in its across-the-board benefit rate unless that rule were retroactively applied to all former employees." Id. at 71-72.
I agree with the Second Circuit's analysis. The purpose of Section 204(b)(1)(B) was to prevent the weighting of benefits to favor long-term employees over short-term employees through the increase in benefit rates for later years of employment. The Plan's break-in-service rules engage in no such backloading. Rather, they make a distinction between work performed before a break in service and work performed after a break in service, regardless of how many years of employment the employee has served at either time. The Defendants are entitled to summary judgment regarding this claim as expressed in Counts 7 and 8.
C. Alleged Breaches of Fiduciary Duties
Taylor alleges in his tenth claim for relief that the Fund's Board of Trustees violated its fiduciary duties under ERISA Section 404(a)(1) in two ways: by designing a Plan whose provisions violate ERISA; and by implementing the benefit structure in unlawful ways.
Section 404(a)(1), 29 U.S.C. § 1104(a)(1), lays out the obligations of ERISA fiduciaries under the "prudent man standard of care":
(1) Subject to sections 1103(c) and (d), 1342, and 1344 of this title, a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and —
(A) for the exclusive purpose of:
(i) providing benefits to participants and their beneficiaries; and
(ii) defraying reasonable expenses of administering the plan; . . . and
(D) in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions of this subchapter and subchapter III of this chapter.29 U.S.C. § 1104(a)(1).
Taylor contends first that the Board of Trustees has violated its duties under this provision by adopting a Plan provision that violates ERISA protections. He does not discuss this allegation in the summary judgment materials, only in his Complaint. As discussed above, Taylor cannot demonstrate as a matter of law that the Plan violates Sections 203 and 204 of ERISA. Consequently, such a violation cannot be the basis of Taylor's fiduciary duties claim.
Taylor next contends in his Complaint that the Board has violated its fiduciary duties in implementing the Plan provision. Taylor contends that the break-in-service rules of the Plan are not for the exclusive purpose of providing benefits to participants and beneficiaries, in violation of Section 404(a)(1)(A)(i). He says that if the Board wanted to prevent participants from abusing the system by returning from a break in service for only a short period of time, and from benefitting unfairly from retroactive increases in benefit accrual rates, then the Board could have required employees to work a minimum number of years after their break in service before earning the increases.
Taylor cannot establish as a matter of law that the Plan's break-in-service scheme was not developed with the exclusive purpose of providing benefits to Plan beneficiaries. The rules for breaks in service are implemented to prevent employees from taking advantage of retroactive increases in accrual rates, despite having left covered employment for significant periods of time. This provision preserves Fund resources for present and future beneficiaries. Although employees who experience breaks in service are disadvantaged by this provision, the disadvantage is not extreme; they continue to receive credit for their vested years of covered service, and their accrual rate remains at the level in place at the time the break occurred.
When the Plaintiff maintains that the Plan's provision is not for the exclusive benefit of the beneficiaries, he apparently refers only to beneficiaries who experienced a break in service. The provision after all does benefit other beneficiaries — indeed all beneficiaries — of the Fund by preserving Fund resources and distributing them in a fair and equitable manner. It is clear that such treatment does not fall to the level of a violation of fiduciary duty under Section 404(a)(1).
D. The Defendants' Compliance with the Pension Plan
In Counts 1, 4, and 9, Taylor alleges that the Defendants failed to comply with the terms of the Pension Plan, namely, in the determination that Taylor experienced a break in service, in the determination that Taylor received no Credited Future Service in 1991-92, and in the denial of Taylor's requested grace period. The parties dispute the appropriate level of judicial scrutiny for these decisions.
Counts 1 and 4 allege violations of the terms of the Pension Plan, while Count 9 alleges that the Defendants' denial of a grace period was arbitrary and capricious.
1. Judicial Review of Benefit Denials
Section 502(a)(1)(B) permits a participant or beneficiary to bring a civil action "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." 29 U.S.C. § 1132(a)(1)(B).
In Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101 (1989), the Supreme Court held that a court reviews a denial of benefits under § 1132(a)(1)(B) using a de novo standard "unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan." Id. at 115. If a plan does provide the administrator or fiduciary with such discretionary authority, then a court will review the administrator's or fiduciary's benefit determination based on whether it was arbitrary and capricious. Diaz v. Seafarers Int'l Union, 13 F.3d 454, 457-58 (1st Cir. 1994). In the First Circuit, the "arbitrary and capricious" standard means that a court will uphold a board of trustee's decision if it is "reasoned and supported by substantial evidence in the record." Doyle v. Paul Revere Life Ins. Co., 144 F.3d 181, 183-84 (1st Cir. 1998).
Taylor attempts to characterize Met. Life Ins. Co. v. Glenn, 128 S. Ct. 2343 (2008), as overruling Firestone. To the contrary, Glenn ruled on the issue of the potential conflicts of interest that arise when one entity both determines eligibility for benefits and also pays those benefits "out of its own pocket." Id. at 2346. In those cases, "[w]e here decide . . . that a reviewing court should consider that conflict as a factor in determining whether the plan administrator has abused its discretion in denying benefits; and that the significance of the factor will depend upon the circumstances of the particular case." Id.
The Fund in this case does not involve such a conflict. Although benefits are paid from the Fund, the Fund does not pay them "out of its own pocket" in the sense meant by Glenn, where the Court explicitly referred to employers and insurance companies acting as administrators of their own benefit plans. Id. at 2346. In discussing the range of conflicts of interest, the Court began with the "clear" answer that a conflict exists where the employer both funds the plan and evaluates the claim. Id. at 2348. The Court went on to find that this conflict may extend to an employer's selection of an insurance company as the plan administrator. Id. at 2349-50. The Court's discussion of the existence of conflicts ended there, and at no time identified a board of trustees as an entity engaged in a conflict of interest. See id. at 2350. Here, the Plan involves multiple employers, and is governed by a Board of Trustees that consists of representatives of both the employers and the union. There is no conflict of interest under Glenn that is a factor here in the denial of Taylor's benefits. Where there is no conflict of interest, and where a pension plan has delegated discretionary authority to a fiduciary to interpret the plan and determine eligibility for benefits, a court engages in deferential review of the determination. Indeed, it does not appear that the First Circuit reads Glenn as fundamentally modifying the Circuit's prior approach. See Denmark v. Liberty Life Assur. Co. of Boston, ___ F.3d ___, 2009 WL 1219438, at *7 (1st Cir. May 6, 2009) ("[T]he standard of review articulated in our earlier cases comports generally with Glenn. . . .").
Turning to the Plan delegation, the 2003 Plan, effective in 2001, does in fact give the fiduciary discretionary authority:
Determination of any question arising in connection with the interpretation, application, or administration of the Plan (including any question of fact relating to age, Credited Service, or Eligibility Credits of Employees); and their decisions or actions in respect thereof shall be conclusive and binding upon any and all persons and parties, including Employees, former Employees, Employers and the Union;. . . .
(2003 Pension Plan, § 8.1(d).) This provision, however, does not appear in the 1979 Pension Plan or the 1991 Pension Plan. Further, the record does not indicate when this provision was adopted. The decisions challenged by the Plaintiff arguably occurred in 1993, when the Board determined that Taylor experienced a break in service, and in 2002, when the Board denied Taylor a grace period for his break in service. The latter event occurred after the 2003 Pension Plan became effective; but the Defendants have not demonstrated that the 1993 break-in-service determination was made pursuant to either Section 8.1(d) or some comparable delegation provision.
I review the 2002 grace period determination under the abuse of discretion standard. But without a demonstration that in 1993 the Board of Trustees had been delegated discretion to construe the terms of the Plan and to make eligibility determinations, I must review de novo the Defendants' break-in-service determination.
2. Determination of a Break in Service
In Count 1, Taylor alleges that the Board improperly determined that Taylor experienced a break in service. A "break year" is defined as follows:
On and after March 1, 1987, Break Year shall mean any Plan Year in which an Employee has less than 280 Hours of Service credited to him in the Plan Year. Prior to March 1, 1987 and after March 1, 1987, a Break Year was any Plan Year in which an Employee failed to accumulate 70 Hours of Service.
(2003 Pension Plan, § 2.6.) A break in service "shall be deemed to have occurred if an Employee has two consecutive Break Years," with exceptions outlined in Section 2.7(a)-(f). ( Id. § 2.7.)
a. Application of the 1991 Plan
Taylor contends in Count 1 that the Defendants improperly applied the provisions of the 1991 Plan in determining his break in service, rather than the 1979 Plan.
The 1991 Plan includes Section 2.6, which defines a break year after March 1, 1987, as one in which an employee has less than 280 hours of service. Before the 1991 Plan, a break in service was defined by Section 2.7, which stated that a break in service is "deemed to have occurred if an Employee fails to accrue any Credited Future Service in any period of two consecutive Plan Years." (Hannaford Decl. Ex. 4. § 2.7.)
This argument is not further developed on summary judgment, but in any event, I have already determined that it was not improper for the 1991 Plan's break-in-service provisions to apply to Taylor, and that he had notice of the break-in-service rules through the 1990 SPD. ( See Part III.B.1-2 supra.) And as discussed below, even if the pre-1991 Plan applied, Taylor failed to earn any Credited Future Service in 1991-92 and 1992-93.
b. Credited Future Service in 1991-92
Taylor argues that the Defendants erred in their determination that Taylor earned no Credited Future Service in 1991-92. It is undisputed that the Plaintiff performed 24 hours of service in the 1991-92 plan year, and zero hours of service in 1992-93. The Plaintiff argues that the 24 hours of service in 1991-92 should be included in his Credited Future Service.
A beneficiary earns benefits from the Fund based on years of covered employment, which are determined by the years of Credited Future Service. In Section 2.4 of the current Plan, Credited Future Service is computed as follows:
"Credited Future Service" shall mean the number of years, computed to the nearest one-tenth (1/10) year, credited to an Employee for his service Covered Employment on or after March 1, 1956. Such service shall be calculated in each plan year by dividing the total number Hours of Service hereunder in such year by 1400, the results to be taken to the nearest one-tenth (1/10) year, provided that no more than one year of credit shall be given for any one Plan year. Hours credible hereunder shall be as follows:
(a) An employee shall be credited with all Hours of Service in Covered Employment for which contributions have been made or are receivable. Any hours worked at premium rate shall count as straight-time hours. . . .
(2003 Pension Plan, § 2.4.) Substantially similar provisions are found in the 1991, 1987, and 1979 Plans as well.
Under the provision, Credited Future Service for 1991-92 would be determined by dividing the 24 hours worked by 1,400, yielding 0.0171. Rounding this to the nearest 1/10, the result is zero Credited Future Service. The result would have to be at least 0.05 in order to be rounded up to 0.10, or 1/10. In other words, Taylor would have had to work at least 70 hours of service in order to receive any Credited Future Service.
The Plaintiff responds with a unique argument that when the Plan uses the phrase "the result to be taken to the nearest one-tenth (1/10)," this requires rounding to a positive integer and cannot signify rounding down to zero-tenths.
If this argument were correct, then the provision would have to be read literally that all rounding would have to be to the one-tenth — as in, .1 decimal. No rounding could occur to the .5 decimal, or the .9 decimal, because those numbers would be five-tenths or nine-tenths. The Plaintiff's reading of the provision cannot be taken seriously. The provision is clearly a mechanism for rounding to the nearest decimal point, regardless of whether that decimal is .0, .1, or .9.
Not only is this the clear meaning of the Plan's language, but it is confirmed in the 1990 Summary Plan Description provided to the beneficiaries. A chart in the 1990 SPD showed that if a participant worked fewer than 70 hours of service, he would receive zero Credited Future Service. It was only if he worked at least 70 hours of service, but fewer than 210 hours of service, he would receive .1 Credited Future Service.
Taylor maintains that the Summary Plan Description also communicated the idea that hours of service could not be rounded down to zero. He quotes from the explanation of Credited Future Service, which states that "[i]f you have less than 1,400 hours of service in a Plan Year, you receive partial credit to the nearest 1/10 of a year." Here, again, the nearest one-tenth of a year given 24 hours of service is zero-tenths. The language is not ambiguous.
3. Denial of a Grace Period
The Plan permits participants to apply for a grace period based on involuntary employment, which would disregard a two-year break in service. Taylor's break in service was effective February 28, 1993, and he requested a grace period on July 1, 2002, well beyond the one-year deadline. Taylor's Counts 1 and 4 alleges that the Defendants improperly denied Taylor's request for a grace period from his break in service.
Section 2.7(a) of the Plan lays out the grace period provision. An employee is allowed a grace period if his absence from covered employment is due to "involuntary employment," and the period consists of up to two consecutive plan years in which the participant failed to earn pension credit. (2003 Pension Plan, § 2.7(a).) To secure the grace period, the employee must give written notice to the Board of Trustees within one year of the absence from covered employment. ( Id. § 2.7(a)(ii).) The trustees may waive the one-year time limit if "there were extenuating circumstances which prevented timely filing." ( Id.)
a. Notice of the Grace Period Provision
Taylor argues that the SPDs that were distributed to him made no reference to "grace periods." Question 21 asked: "Am I Entitled To Any Benefits From The Plan If I Suffer A Break In Service Before Retirement?" The answer said that for vested participants, "you cannot lose your pension even if you have a break in service." Taylor faults the answer for not referring to the "grace period" provision.
The Plaintiff overlooks the lengthy discussion of grace periods found in the answer to Question 8:
8. CAN I LOSE MY CREDITED SERVICE AND ELIGIBILITY CREDITS?
Yes, if you have two consecutive "Break Years" and therefore have a "Break in Service" before you become eligible for pension, or before you have become "vested" (see Question 21). Normally it would be considered a "Break Year" if you fail to have at least 280 Hours of Service in any Plan Year after March 1, 987, or have a Plan Year with less than 70 hours of service before 1987.
There are the following exceptions to this rule: . . .
Involuntary Unemployment: If you are unable to find a job in covered employment, you may be allowed a grace period for the first two consecutive plan years of the period of unemployment. In order to obtain the benefit of the grace period, you must give written notice to the Trustees and submit any evidence which they request of you. You will not be granted a grace period for any period which is more than one year prior to the filing of your notice. Involuntary unemployment is to be determined to the sole satisfaction of the trustees.
Given this explanation, the Plaintiff cannot argue that the 1990 SPD failed to provide notice of the grace period provision.
To the extent that the SPD content on grace periods (or lack thereof) is relevant, it bears on whether the Plaintiff demonstrated extenuating circumstances for having failed to meet the one-year deadline for grace period requests. I find that the Defendants did not act unreasonably when they found no such extenuating circumstances in Taylor's purported ignorance of the grace period provision. It is undisputed that the Plaintiff had a copy of the Pension Plan in his possession that included the provisions for breaks in service. Also, the 1990 SPD made clear reference to the availability of a grace period provision and to how one applied for one. Although ERISA "contemplates that the summary will be an employee's primary source of information regarding employment benefits," Heidgerd v. Olin, 906 F.2d 903, 907 (2d Cir. 1990), there is no conflict here between the terms of the Plan and the explanation in the SPD. See id. at 907-08 (expressing concern about plans with different terms that "supersede" the terms of the SPD).
b. Availability to Vested Participants
Taylor maintains the SPD suggested that the grace period provision applied only to non-vested participants, and thus the SPD failed to communicate its availability to vested participants such as Taylor.
Taylor refers to the 1990 SPD, which provided that a participant can lose credited service and eligibility credits "if you have two consecutive 'Break Years' and therefore have a 'Break in Service' before you become eligible for pension, or before you have become 'vested' (see Question 21)."
The Plaintiff's argument is flawed. The provision clearly states that one can lose credited service either before becoming eligible for pension, or before one has become "vested." The latter did not apply to Taylor because he was a vested participant; but Taylor was not yet eligible for pension at the time of his break in service, and consequently Question 8's explanation did apply to him.
c. Notice of Taylor's Break in Service
Taylor argues that the Defendants failed to provide him with adequate notice of his break in service in 1991-93, thereby making him unequipped to request a grace period. The Plaintiff's benefit statements, however, submitted in connection with the Defendant's summary judgment motion, made explicit reference to a break in service: "Your pension and death benefits include credit earned prior to your Break in Service on February 28, 1993." Taylor characterizes this language as unclear and without explanation, but he has provided no persuasive reason for his confusion in light of other available information.
d. Disparate Treatment of Other Participants
In Count 9, Taylor contends that the Defendants' treatment of his request for a grace period is arbitrary and capricious in not conforming with the treatment given to other participants. The Defendants have demonstrated, however, that between 1976 and 2004, only one grace period was granted despite a request after the one-year deadline. That participant was only 66 days late, and had been disabled. Taylor has come forward with no evidence of unfair and nonconforming treatment.
e. Alleged Violations of ERISA Section 102(a)
In his briefing, Taylor engages in a lengthy discussion of whether the Defendants violated ERISA Section 102(a) and 29 C.F.R. § 2520.102-2(a), in failing to discuss the "grace period" provision in the SPDs. I note these statutory violations have not been alleged in the Second Amended Complaint, and are therefore inappropriate to raise on summary judgment. Moreover, there was no such failure of notice and explanation, because the 1990 SPD did discuss grace periods and how one applies for them. Finally, even if there were such a failing, a cause of action under Section 102(a) would require a showing of reliance or prejudice. Govoni v. Bricklayers Masons and Plasterers Local No. 5 Pension Fund, 732 F.2d 250, 252 (1st Cir. 1984) (finding that the plaintiff must show "some significant reliance upon, or possible prejudice flowing from, the faulty plan description"). There is nothing in the record indicating that Taylor relied on any Plan documents in connection with his failure to request a grace period in a timely fashion.
E. Full and Fair Review of Taylor's Claim
Taylor argues on summary judgment that fiduciaries must provide claimants with basic procedural safeguards, providing a full and fair review of claim denials. Section 503 of ERISA requires every employee benefit plan to provide "adequate notice in writing" setting forth the reasons for the denial, and to give participants a reasonable opportunity for a "full and fair review" by the fiduciary denying the claim. 29 U.S.C. § 1133.
Allegations that the Defendants violated Section 503 have not been pleaded in the Complaint, and cannot now be raised on summary judgment. In fact, the Plaintiff does not raise the issue in his own motion for summary judgment, but rather in his Opposition to the Defendants' motion. This is an inappropriate attempt to challenge proceedings that appear in any event to have been thorough, fair, and with clear communication to the Plaintiff.
CONCLUSION
For the reasons discussed more fully above, I GRANT the Defendants' motion for summary judgment (Docket No. 34), and DENY the Plaintiff's motion for summary judgment (Docket No. 44).