Filed August 14, 2000
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 99-3775
HARRY BELLAS
v.
CBS, INC.; WESTINGHOUSE PENSION PLAN,
Appellants
On Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. Civ. No. 98-1455)
District Judge: Hon. Donetta W. Ambrose
Argued June 15, 2000
BEFORE: GREENBERG and McKEE, Circuit Judges,
and SHADUR,* District Judge
(Filed: August 14, 2000)
Henry W. Ewalt
George M. Medved
David J. Kolesar
Pepper Hamilton LLP
50th Floor, One Mellon Bank Center
500 Grant Street
Pittsburgh, PA 15219-2502
_________________________________________________________________
* Honorable Milton I. Shadur, Senior Judge of the United States District
Court for the Northern District of Illinois, sitting by designation.
Brian T. Ortelere
Pepper Hamilton LLP
3000 Two Logan Square
18th and Arch Streets
Philadelphia, PA 19103-2799
Andrew M. Kramer
Glen D. Nager (argued)
Gregory G. Katsas
Charles V. Stewart
Todd C. Amidon
Jones, Day, Reavis & Pogue
51 Louisiana Avenue, NY
Washington, D.C. 20001-2113
Dennis Derr
CBS Corporation
11 Stanwix Street
Pittsburgh, PA 15222-1384
Attorneys for Appellants
Theodore Goldberg
David B. Rodes (argued)
John T. Tierney, III
Goldberg, Persky, Jennings & White
1030 Fifth Avenue
Pittsburgh, PA 15219
William T. Payne
Schwartz, Steinsapir, Dohrman
& Sommers
1007 Mount Royal Boulevard
Pittsburgh, PA 15223
Attorneys for Appellee
2
Trevor W. Swett
Kent A. Mason
Albert G. Lauber
Michael T. Doran
Jason K. Bortz
Caplin & Drysdale
One Thomas Circle, N.W.
Washington, D.C. 20005-5802
Attorneys for Amicus Curiae
Association of Private Pension and
Welfare Plans
OPINION OF THE COURT
GREENBERG, Circuit Judge.
I. INTRODUCTION
This matter has been certified for interlocutory appeal to
address a question of first impression in this court, i.e.,
whether a permanent job separation benefit contained
within a pension plan constitutes an early retirement
benefit or retirement-type subsidy protected by the anti-
cutback provisions of the Employee Retirement Income
Security Act of 1974 ("ERISA"), 29 U.S.C.SS 1001 et seq.,
as amended by the Retirement Equity Act of 1984 ("REA")
and the Omnibus Reconciliation Act of 1987. The district
court had jurisdiction pursuant to 28 U.S.C. S 1331 and
ERISA section 502(e), 29 U.S.C. S 1132(e).
On June 29, 1999, the district court granted plaintiff-
appellee Harry Bellas's motion for partial summary
judgment, see Bellas v. CBS, Inc., 73 F. Supp.2d 500 (W.D.
Pa. 1999), and denied defendants-appellants CBS, Inc.'s
and Westinghouse Pension Plan's motion to dismiss the
complaint. See Bellas v. CBS, Inc., 73 F. Supp.2d 493 (W.D.
Pa. 1999). On July 13, 1999, appellants filed a motion to
certify the order granting Bellas's motion for partial
summary judgment for an interlocutory appeal pursuant to
28 U.S.C. S 1292(b) which the district court granted on July
29, 1999. Subsequently, the appellants filed a petition for
3
permission to appeal under section 1292(b), which we
granted on September 10, 1999.
a. Parties and Factual Background
Bellas, a former employee of CBS and Westinghouse
Electric Corporation, on August 31, 1998, filed this action
on behalf of himself and all others similarly situated
against CBS and the Westinghouse Pension Plan, alleging
that the Westinghouse Plan was amended impermissibly by
first the narrowing, and then the elimination entirely, of a
"Special Retirement Provision" in the plan that was
applicable to senior employees terminated as a result of a
"Permanent Job Separation." See J.A. at 269. Because CBS
is the plan sponsor and administrator and is a successor to
Westinghouse, CBS and Westinghouse may be considered
one entity for purposes of this appeal and thus we will refer
to the corporate defendant as CBS even though
Westinghouse previously employed Bellas. Bellas contends
that these amendments had the effect of eliminating or
reducing an early retirement benefit or retirement-type
subsidy in contravention of the REA amendments to ERISA
codified at section 204(g), 29 U.S.C. S 1054(g). Bellas
further claims that in adopting and implementing these
amendments, CBS violated its fiduciary duties of acting
solely in the interest of plan participants and beneficiaries
in administering the plan in accordance with both the
governing documents and instruments and ERISA, and of
exercising care, prudence, and diligence in the performance
of its responsibilities and thereby violated ERISA.
Section 20 of the pre-1994 version of the Westinghouse
Plan provided a "Special Retirement Provision" for
employees meeting stated age and service requirements
who were terminated as a result of a "Permanent Job
Separation" (the "PJS Benefit"). In particular, Section 20 of
the pre-1994 version of the plan provided in relevant part:
B. 1. An Employee whose employment is terminate d
as a result of a Permanent Job Separation, who at the
time of such Permanent Job Separation does not
satisfy any of the requirements for retirement pursuant
to Section 2 of the Plan, may retire on his Special
4
Retirement Date or on the first day of any month
following his Special Retirement Date if, by the end of
the calendar year in which he is separated, he would
have satisfied one of the age-and-service combinations
set forth below had he remained continuously
employed to the end of such year:
-- Age 50 or over with twenty-five (25) or mor e years
of Eligibility Service,
-- Age 51 or over with twenty-two (22) or more y ears
of Eligibility Service,
-- Age 52 or over with nineteen (19) or more yea rs of
Eligibility Service,
-- Age 53 or over with sixteen (16) or more year s of
Eligibility Service,
-- Age 54 or over with thirteen (13) or more yea rs of
Eligibility Service,
-- Age 55 or over with ten (10) or more years of
Eligibility Service.
2. The amount of monthly pension payable to an
Employee who satisfies the requirements set forth in
Subsection 20.B.1 above shall be the sum of (a), (b) and
(c) below:
(a) Any amounts computed pursuant to Section 4 of
the Plan [Section 4 is entitled "Normal Retirement
Pension"].
(b) Ten ($10.00) dollars multiplied by his Credite d
Service.
(c) If the Employee had twenty-five (25) years o f
eligibility Service and his Special Retirement Date is on
or before September 1, 1994, an additional $100.
The amounts calculated in accordance with Subsection
20.B.2 above shall be based on the provisions of the
Plan in effect on the Employee's Special Retirement
Date.
3. The amount calculated in accordance with
Subsection 20.B.2 (a) shall be payable for the lifetime of
5
the Employee and shall be subject to all of the optional
forms of payments described in Section 10.
4. The amounts calculated in accordance with
Subsections 20.B.2 (b) and 20.B.2 (c) shall be payable
up to and including the month in which the Employee
attains his 62nd birthday. These amounts shall not be
subject to any of the optional forms of payment
described in Section 10, except the Lump Sum form
described in Subsection 10.C.5.
J.A. at 74-75.
The pre-1994 version of the Westinghouse Plan, in
pertinent part, defined the term "Permanent Job
Separation" as meaning "the termination of the employment
of an Employee . . . through no fault of his own through
lack of work for reasons associated with the business for
whom [the employer] determines there is no reasonable
expectation of recall." Id. at Section 1, J.A. at 38. Further,
the Pre-1994 Summary Plan Description explains with
respect to this provision:
[t]he amount of your special retirement pension is the
full amount you have earned to the date you are
permanently separated. There are no reductions
applied to your pension, even though you are retiring
early. If you are under age 62, you receive a monthly
early retirement supplement of $10 for each year of
credited service. This supplement stops when you turn
age 62.
If you have at least 25 years of eligibility service, you
receive an additional $100 per month until you turn
age 62. This additional $100 per month is available
only if your special retirement pension begins on or
before September 1, 1994.
J.A. at 110.
The pre-1994 version of the Plan also contained a
"Normal Retirement Pension" provision and an"Early
Retirement Pension" provision. See pre-1994 version of the
Westinghouse Plan, Sections 4-5, J.A. at 42-48.
On January 1, 1994, the Westinghouse Plan was
6
amended to alter participants' entitlement to the PJS
Benefit in two respects: (1) the amendments made it harder
to qualify for the PJS Benefit after January 1, 1997, by
narrowing the definition of "Permanent Job Separation" to
apply only if an employee's employment termination was
due to a job movement, product line relocation, or location
close-down and (2) the amendments eliminated the PJS
Benefit in toto for terminations on or after September 1,
1998.1 More specifically, the definition of the term
"Permanent Job Separation" was redefined in the 1994
version of the plan, in relevant part, to read as follows:
Permanent Job Separation means, for periods prior to
January 1, 1997, the termination of the employment of
an Employee with an Employer . . . through no fault of
his own for lack of work for reasons associated with
the business for whom such Employer . . . determines,
on a uniform and nondiscriminatory basis, that there
is no reasonable expectation of recall.
. . . .
For periods on or after January 1, 1997 and before
September 1, 1998, a Permanent Job Separation
means solely the termination of the employment of an
Employee with an Employer. . . because of job
movement or product-line relocation, or location
closedown, as those terms are defined below. . . .
Layoffs due to adjustments in the workforce caused by
changes in production requirements, manufacturing
_________________________________________________________________
1. With respect to the total elimination of the Special Retirement Pension
after September 1, 1998, appellants, without providing any supporting
documentation, explained in their opposition to Bellas's motion for
summary judgment that "[t]he Plan was amended in 1998 to extend the
1994 PJS [Permanent Job Separation] benefit because of job movement
or product-line relocation, or location closedown until the year 2000."
See Bellas, 73 F. Supp.2d at 502-03 n.2 (citing Defendants' Opposition
to Plaintiff 's Motion for Summary Judgment, p. 6 n.7). For purposes of
its decision, the district court concluded it was immaterial whether or
not the amendments totally eliminated the Special Retirement Pension
after September 1, 1998, because appellants did not dispute that by
amending the Westinghouse Plan to narrow the definition of "Permanent
Job Separation," a participant's ability to receive a PJS Benefit under the
Westinghouse Plan was reduced.
7
processes, sales volume, inventory levels, make or buy
decisions, decisions to discontinue a product line, or
any other reasons associated with the business shall
not be a job movement or product-line relocation. . . .
In no event shall a Permanent Job Separation occur
after August 31, 1998.
1994 Version of the Westinghouse Plan, J.A. at 131-32.
CBS employed Bellas in its nuclear division from 1964
until December 31, 1997, during which employment he was
a participant in the Westinghouse Plan at all relevant times
before December 31, 1997, including the time of the
adoption of the 1994 amendments. Bellas was notified of
the amendments either in late 1994 or upon the
distribution of the January 1, 1995 Summary Plan
Description of the Westinghouse Plan.
CBS terminated Bellas's employment on December 31,
1997, through no fault of his own, for lack of work for
reasons associated with CBS's business and with no
reasonable expectation of recall. At the time of his
termination, Bellas was over 50 years of age and had 30
years of service with CBS. Under the pre-1994 version of
the Westinghouse Plan, upon his termination Bellas would
have satisfied all of the conditions necessary to receive the
PJS Benefit (i.e. age, years of service, and reason for
termination).
b. Procedural History
Bellas filed this class action on August 31, 1998, against
CBS and the Westinghouse Pension Plan. Count one of the
complaint alleged that the 1994 amendments to the
Westinghouse Plan, which amended eligibility conditions for
receipt of PJS Benefits, violated section 204(g) of ERISA.
See J.A. at 275. Count two of the complaint alleged that, in
adopting and implementing those amendments, CBS
violated fiduciary duties imposed under ERISA. See id. at
275-76. While appellants deny that they violated ERISA,
they do not dispute that the amendments greatly reduced
Bellas's benefits.
Appellants moved to dismiss the complaint, and Bellas
moved for partial summary judgment on the question of
8
whether the 1994 plan amendments violated section 204(g).
As we have indicated, on June 29, 1999, the district court
denied appellants' motion to dismiss, see Bellas v. CBS,
Inc., 73 F. Supp.2d 493, and granted Bellas's motion for
partial summary judgment. See Bellas v. CBS, Inc., 73 F.
Supp.2d 500.
In reaching its decision that the plan amendments
violated ERISA section 204(g), the district court adopted
reasoning directly contrary to the Internal Revenue
Service's interpretation of IRC S 411(d)(6), the IRC's
counterpart to section 204(g), as set forth in its General
Counsel's Memorandum ("GCM") 39869 dated April 6,
1992, a memorandum that we consider later as a central
matter on this appeal. Recognizing the direct conflict
between its ruling and the IRS interpretation, the district
court granted appellants' motion to certify the partial
summary judgment order for an interlocutory appeal. See
J.A. at 316-17. As we have indicated, we granted
appellants' subsequent petition for permission to appeal.
See id. at 1.
The district court set forth the controlling question of law
in its order granting appellants' motion to certify the partial
summary judgment order for interlocutory appeal, as:
Whether the Permanent Job Separation benefit
contained in the pre-1994 version of the Westinghouse
Pension Plan is a retirement-type subsidy protected by
section 204(g) of ERISA, 29 U.S.C. S 1054(g).
J.A. at 316.
II. DISCUSSION
We exercise plenary review with respect to the district
court's order on the motion for partial summary judgment.
See Seibert v. Nusbaum, Stein, Goldstein, Bronstein &
Compeau, 167 F.3d 166, 170 (3d Cir. 1999); Petruzzi's IGA
Supermarkets, Inc. v. Darling-Delaware Co., 998 F.2d 1224,
1230 (3d Cir. 1993). We will affirm only if we conclude that
the pleadings, depositions, answer to interrogatories and
admissions on file, together with the affidavits, show that
the party who obtained summary judgment on a point was
9
entitled to that judgment as a matter of law and that there
was no genuine dispute of material fact standing in his or
her way. See Fed. R. Civ. P. 56(c). Here, however, it is clear
that we are not concerned with disputed questions of fact
and thus our determination is essentially legal in nature.
We start our discussion of the issues by recognizing that
ERISA neither mandates the creation of pension plans nor
in general dictates the benefits a plan must afford once
created. See Smith v. Contini, 205 F.3d 597, 602 (3d Cir.
2000); Dade v. North Am. Philips Corp., 68 F.3d 1558, 1561
(3d Cir. 1995) (citing Hlinka v. Bethlehem Steel Corp., 863
F.2d 279, 283 (3d Cir.1988); H.R.Rep. No. 807, 93d Cong.,
2d Sess., reprinted in 1974 U.S.C.C.A.N. 4639, 4670, 4677).
Only the plan itself can create an entitlement to benefits.
Consequently, "[this court is] required to enforce the Plan
as written unless [it] can find a provision of ERISA that
contains a contrary directive." Dade, 68 F.3d at 1562.
The protection of retirement benefits reflects the
underlying policy goals of ERISA. Congress's chief purpose
in enacting the statute was to ensure that workers receive
promised pension benefits upon retirement. See Nachman
Corp. v. Pension Benefit Guaranty Corp., 446 U.S. 359, 375,
100 S.Ct. 1723, 1733 (1980); see also Smith, 205 F.3d at
604. In constructing ERISA, Congress perceived the
statute's accrual and vesting provisions as the heart of that
protection. See Hoover v. Cumberland, Maryland Area
Teamsters Pension Fund, 756 F.2d 977, 985 (3d Cir. 1985).
Accordingly, it recognized that
`Unless an employee's rights to his accrued pension
benefits are nonforfeitable, he has no assurance that
he will ultimately receive a pension. Thus, pension
rights which have slowly been stockpiled over many
years may suddenly be lost if the employee leaves or
loses his job prior to retirement. Quite apart from the
resulting hardships, . . . such losses of pension rights
are inequitable, since the pension contributions
previously made on behalf of the employee may have
been made in lieu of additional compensation or some
other benefit which he would have received.'
Smith, 205 F.3d at 604 (quoting S.Rep. No. 383, 93d Cong.,
2d Sess., reprinted in 1974 U.S.C.C.A.N. 4890, 4930).
10
Therefore, in Hoover, we concluded that a plan amendment
that retroactively reduced benefits promised to plaintiffs for
almost seven years was precisely the sort of inequity
Congress designed ERISA to prevent. See 756 F.2d at 985-
86.
As we have indicated, this appeal presents the question
of whether the PJS Benefits provided for in the
Westinghouse Plan constitute accrued benefits protected by
the anti-cutback provisions of ERISA section 204(g). Section
204(g) prohibits an employer from decreasing or eliminating
a participant's accrued benefits by plan amendment. See 29
U.S.C. S 1054(g). Before 1984, ERISA did not protect early
retirement benefits or retirement-type subsidies because
they were not considered to be accrued benefits. See
Bencivenga v. Western Pa. Teamsters and Employers
Pension Fund, 763 F.2d 574, 577 (3d Cir. 1985). 2
While the definition of an accrued benefit has not been
modified, Congress did modify section 204(g) in 1984 to the
end that early retirement benefits and retirement-type
subsidies were defined as being accrued for purposes of
ERISA's anti-cutback provisions. See Retirement Equity Act
("REA"), Pub.L. No. 98-397. Thus, ERISA section 204(g), as
amended, provides:
(g) Decrease of accrued benefits through amendme nt of
plan
(1) The accrued benefit of a participant und er a plan
may not be decreased by an amendment of the plan,
other than an amendment described in section
1082(c)(8) or 1441 of this title.
(2) For purposes of paragraph (1), a plan amen dment
which has the effect of--
_________________________________________________________________
2. ERISA defines an accrued benefit as "in the case of a defined benefit
plan, the individual's accrued benefit determined under the plan and . . .
expressed in the form of an annual benefit commencing at normal
retirement age." 29 U.S.C. S 1002(23)(A). ERISA defined normal
retirement age as the earlier of the normal retirement age under the plan
or the age of 65. See id. S 1002(24). Because an early retirement
provided a benefit commencing before normal retirement age, such a
benefit was found not to fall within the definition of an "accrued benefit."
See Bencivenga, 763 F.2d at 577.
11
(A) eliminating or reducing an early retir ement
benefit or a retirement-type subsidy (as defined in
regulations), or
(B) eliminating an optional form of benefit,
with respect to benefits attributable to service before
the amendment shall be treated as reducing accrued
benefits. In the case of a retirement-type subsidy, the
preceding sentence shall apply only with respect to a
participant who satisfies (either before or after the
amendment) the preamendment conditions for the
subsidy. The Secretary of the Treasury may by
regulations provide that this subparagraph shall not
apply to a plan amendment described in subparagraph
(B) (other than a plan amendment having an effect
described in subparagraph (A)).
(3) For purposes of this subsection, any--
(A) tax credit employee stock ownership pl an (as
defined in section 409(a) of Title 26), or
(B) employee stock ownership plan (as defined in
section 4975(e)(7) of Title 26),
shall not be treated as failing to meet the requirements
of this subsection merely because it modifies
distribution options in a nondiscriminatory manner.
29 U.S.C. S 1054(g).3
_________________________________________________________________
3. IRC S 411(d)(6) which parallels section 204(g) is relevant to our
discussion. Section 411(d)(6) provides:
Accrued benefit not to be decreased by amendment.--
(A) In general.--A plan shall be treated as not satisfying the
requirements of this section if the accrued benefit of a participant is
decreased by an amendment of the plan, other than an amendment
described in section 412(c)(8), or section 4281 of the Employee
Retirement Income Security Act of 1974.
(B) Treatment of certain plan amendments.--For p urposes of
subparagraph (A), a plan amendment which has the effect of--
(i) eliminating or reducing an early retirement be nefit or a
retirement-type subsidy (as defined in regulations), or
12
After 1984, a plan sponsor could eliminate prospectively
an early retirement benefit by amendment, but under
section 204(g) the amendment could not adversely affect
that portion of an early retirement benefit that already had
accrued to a plan participant who satisfied the pre-
amendment conditions for the benefit either before or after
the amendment. See 29 U.S.C. S 1054(g); Dade, 68 F.3d at
1562. Thus, if the 1994 Westinghouse Plan amendments
reduced or eliminated early retirement benefits or
retirement-type subsidies, the amendments would have had
to allow employees who remained employed by CBS after
the amendments to "grow into" the benefit. See id. at 1562.
Of course, we are required to enforce the Westinghouse
Plan as written unless we can find a provision of ERISA
that contains a contrary directive. See Dade, 68 F.3d at
1562. The question then is whether section 204(g) is such
a directive and this in turn depends on the contingent
nature of the PJS Benefits.
There is no question but that a standard early retirement
benefit, provided exclusively upon the satisfaction of certain
age and/or service requirements, is an accrued benefit that
is protected by section 204(g). See, e.g., Gillis v. Hoechst
Celanese Corp., 4 F.3d 1137, 1143-44 (3d Cir. 1993); see
_________________________________________________________________
(ii) eliminating an optional form of benefit,
with respect to benefits attributable to service before the
amendment shall be treated as reducing accrued benefits. In the
case of a retirement-type subsidy, the preceding sentence shall
apply only with respect to a participant who satisfies (either before
or after the amendment) the preamendment conditions for the
subsidy. The Secretary may by regulations provide that this
subparagraph shall not apply to a plan amendment described in
clause (ii) (other than a plan amendment having an effect described
in clause (i)).
IRC S 411(d)(6). "Regulations prescribed by the Secretary of the Treasury
under section[ ] . . . 411 . . . of Title 26 . . . shall also apply to the
minimum participation, vesting, and funding standards set forth in
[ERISA]." 29 U.S.C. S 1202(c). Accordingly, the interpretation of section
411(d)(6) is relevant to the instant appeal; section 204(g) and section
411(d)(6) are meant to be interpreted consistently. See id.
13
also Ahng v. Allsteel, Inc., 96 F.3d 1033, 1034 (7th Cir.
1996); Richardson v. Pension Plan of Bethlehem Steel, 67
F.3d 1462, 1467-68 (9th Cir. 1995); Constantino v. TRW,
Inc., 13 F.3d 969, 977 (6th Cir. 1994); Hunger v. AB, 12
F.3d 118, 120 (8th Cir. 1993); Harms v. Cavenham Forest
Indus., Inc., 984 F.2d 686, 692 (5th Cir. 1993); Aldridge v.
Lily-Tulip, Inc., Salary Retirement Plan Benefits Comm., 953
F.2d 587, 590 (11th Cir. 1992). Despite the agreement that
surrounds this general principle, the extension of section
204(g)'s coverage to benefits whose payment is contingent
upon the occurrence of an unpredictable event,4 as are the
PJS Benefits at issue on this appeal as their availability
was triggered by employment termination, has led to a split
of authority.
a. Defining the Terms Early Retirement Benefit and
Retirement-Type Subsidy
ERISA does not specifically set forth the definition of
early retirement benefit or retirement-type subsidy. Rather,
Congress contemplated that the Treasury Department
would promulgate regulations setting forth the definition of
retirement-type subsidy. See 29 U.S.C. S 1054(g)(2)(A). To
date, the Treasury has not promulgated or proposed any
such regulations.5 Nevertheless, on a general level, the
_________________________________________________________________
4. In this case, the Pre-1994 Westinghouse Plan provided benefits
contingent upon certain involuntary job losses. The courts, and the
appellants and the amicus, refer to this form of benefit as a plant
shutdown benefit even though the actual benefit provided may be
triggered by events other than a plant shutdown. Because there is no
relevant distinction between terming the benefit a plant shutdown
benefit or a job loss benefit, we adopt the use of the term "plant
shutdown" to facilitate discussion, though we recognize that Bellas
himself was not terminated as a result of a plant shutdown, as that term
may be commonly understood. Notwithstanding the concerns raised in
the concurring opinion, we find that the resolution of the questions
presented here turns not upon the nature of the contingent event that
triggered payment of the benefit, but on whether the benefit continues
beyond normal retirement age and therefore qualifies as an early
retirement benefit or retirement-type subsidy. The nature of the event
that caused the employee's termination does not control this inquiry
5. While regulations have not been promulgated that define what is an
accrued benefit protected by the anti-cutback provision, the Treasury
14
definitions of early retirement and retirement-type subsidy
appear to be the subject of some agreement.
ERISA provides that normal retirement age usually is 65.
See 29 U.S.C. S 1002(24). The Westinghouse Plan also
considers the age of 65 to be the normal retirement age.
See Westinghouse Plan S 2.A, J.A. at 40."[A]llowance . . .
for retirement at an earlier age legally creates an`early'
retirement benefit. The fact that the plan does not expressly
use the word `early' is not consequential." Hlinka v.
Bethlehem Steel Corp., 863 F.2d 279, 281 (3d Cir. 1988).
We have defined a retirement-type subsidy to be the
excess in value of a benefit over the actuarial equivalent of
the normal retirement benefit. See Ashenbaugh , 854 F.2d
at1521 n.6; see also Dade, 68 F.3d at 1562 n.1. We explain
this concept immediately below.
Pension plans frequently provide for early retirement
benefits. See Dan M. McGill & Donald S. Grubbs, Jr.,
Fundamentals of Private Pensions (6th ed. 1989) at 131-35,
App. 2 to Amicus Br. Such early retirements often
commence at age 55 and possibly require the fulfilment of
a minimum period of service. See id. The value of the early
retirement benefit is calculated by first determining the
amount that would be payable to the participant at normal
retirement age, given the participant's service and
compensation as of the date of early retirement. See id.
This value then is reduced by a factor reflecting that benefit
payments will begin earlier than was contemplated and,
therefore, are likely to continue for a longer period of time.
_________________________________________________________________
Department has issued a regulation in which it sets forth certain
benefits that are not accrued benefits for purposes of IRC S 411(d)(6).
The list of benefits that are not accrued benefits includes: (1) ancillary
life insurance protection, (2) accident or health insurance, (3) certain
social security supplements, (4) the availability of loans, (5) the right to
take after-tax employee contributions or elective deferrals, (6) the right to
direct investments, (7) the right to a particular form of investment, (8)
the allocation of dates for contributions, forfeitures, and earnings, the
time for making contributions, and the valuation dates for account
balances, (9) administrative procedures for distributing benefits, and (10)
rights that derive from administrative and operational provisions. See 26
C.F.R. S 1.411(d)-4 (in particular subsection (d) to Answer 1).
15
See id. This reduction of the normal retirement benefit in
the case of an early retirement often is termed an actuarial
reduction. See id. The provision of an early retirement
benefit greater than the actuarial equivalent of the normal
retirement benefit is referred to as a subsidized early
retirement. See id.; see also Ashenbaugh , 854 F.2d at 1521
n.6; Dade, 68 F.3d at 1562 n.1.
b. The Legislative History of Current Section 204(g)
The legislative history of the REA provides some insight
into the definition of the term "retirement-type subsidy" and
the reach of section 204(g). In the Senate Report addressing
the REA, the purpose for the amendment was set forth as
follows:
Reasons for Change
The committee believes that the protection of accrued
benefits, which are essentially retirement benefits,
against reduction by plan amendments is an essential
safeguard for plan participants and their beneficiaries.
The committee also believes that valuable rights of the
participants should not be lost through the elimination
of benefit options because options of equal actuarial
value may not be of equal value to people whose
particular circumstances are not taken into account in
determining actuarial equivalence.
S.Rep. No. 98-575, 98th Cong., 2d Sess., at 27 (1984),
reprinted in 1984 U.S.C.C.A.N. 2547, 2573.
The scope of section 204(g) was described in the following
manner:
Accordingly, the bill makes it clear that the prohibition
against reduction of a benefit subsidy (the excess of the
value of a benefit over the actuarial equivalent of the
normal retirement benefit) applies to a participant only
if the participant meets the conditions imposed by the
plan on the availability of the subsidy. If the protection
is afforded, an employee's accrued benefit is not to be
less than the protected level or the accrued benefit
determined under the plan without regard to the
protection, whichever is greater. For example, if a plan
16
is amended to eliminate a subsidized early retirement
benefit for employees who have completed 30 years of
service, then the plan would not be required to provide
the subsidy to an employee who never completes 30
years of service and it would not be required to provide
benefits to such an employee before the normal
retirement age. On the other hand, if the employee
completes 30 years of service, then the employee's
accrued benefit is not to be less than the protected
level or the accrued benefit determined without regard
to the protection, whichever is greater.
Id. at 28, reprinted in 1984 U.S.C.C.A.N. 2547, 2574.
With respect to retirement-type subsidies, the Senate
Report stated:
The bill provides that the term `retirement-type
subsidy' is to be defined by Treasury regulations. The
committee intends that under these regulations, a
subsidy that continues after retirement is generally to
be considered a retirement-type subsidy. The
committee expects, however, that a qualified disability
benefit, a medical benefit, a social security supplement,
a death benefit (including life insurance), or a plant
shutdown benefit (that does not continue after
retirement age) will not be considered a retirement-type
subsidy. The committee expects that Treasury
regulations will prevent the recharacterization of
retirement-type benefits as benefits that are not
protected by the provision.
Id. at 30, reprinted in 1984 U.S.C.C.A.N. 2547, 2576
(emphasis added). Accordingly, Congress clearly expressed
its intent that the term "retirement-type subsidy" not be
defined in such a way as to exclude a benefit that is
essentially a retirement-type benefit from the protections of
section 204(g).
c. Cases Finding Job Separation Benefits Are
Not Accrued Benefits
We are aware of three published opinions which arguably
support appellants' position that the PJS Benefits provided
17
under the Westinghouse Plan are not subject to the anti-
cutback provisions of section 204(g): Ross v. Pension Plan
for Hourly Employees of SKF Industries, Inc., 847 F.2d 329
(6th Cir. 1988); Roper v. Pullman Standard, 859 F.2d 1472
(11th Cir. 1988) (per curiam); and Blank v. Bethlehem Steel
Corp., 758 F. Supp. 697 (M.D. Fl. 1990).6
In Ross, the Court of Appeals for the Sixth Circuit
considered a plan that provided employees meeting certain
age and service requirements with the immediate payment
of pension benefits in the event of a plant shutdown. See
Ross, 847 F.2d at 330. The Ross court was concerned with
the determination of whether the plant shutdown benefits
were an early retirement benefit, retirement-type subsidy or
optional form of benefit for purposes of section 204(g). See
id. at 333.
The court explained that:
Early retirement benefits are generally benefits that
become available upon retirement at or after a specified
age which is below the normal retirement age, and/or
upon completion of a specified period of service. An
optional form of benefit is generally one that involves
the power or right of an employee to choose the way in
which payments due to him under a plan will be made
or applied. The . . . plant shutdown benefit becomes
due and payable only to a participant whose active
service ceases by reason of a permanent shutdown of
the plant, and who at the date of such cessation of
service has at least 15 years of Benefit Service and
either (a) is at least 55 years old or (b) has a combined
age and years of Benefit Service equal to 80 or more.
Id. The court concluded that a plant shutdown benefit is
not one that falls within the category of either an early
retirement benefit or an optional form of benefit. See id.
Observing that the REA also provided protection for
retirement-type subsidies, the court noted:
_________________________________________________________________
6. Independent research has found that these three opinions cited by the
appellants are the only court opinions which arguably support their
appeal.
18
The bill provides that the term `retirement type subsidy'
is to be defined by Treasury regulations. The committee
intends that under these regulations, a subsidy that
continues after retirement is generally to be considered
a retirement-type subsidy. The committee expects,
however, that a qualified disability benefit, a medical
benefit, a social security supplement, a death benefit
(including life insurance), or a plant shutdown benefit
(that does not continue after retirement age) will not be
considered a retirement-type subsidy. The committee
expects that Treasury regulations will prevent the
recharacterization of retirement-type benefits as
benefits that are not protected by the provision.
Id. at 333-34 (citing S.Rep. No. 575 at 30, reprinted in 1984
U.S.C.C.A.N. 2547, 2576). Without further discussion, the
court determined the plant shutdown benefits did not fall
within the category of a retirement-type subsidy as
contemplated by the legislative history of the REA. See id.
at 333.
In Roper, the Court of Appeals for the Eleventh Circuit
considered a pension plan that provided benefits to
employees whose service was interrupted by a plant
shutdown, lay-off or disability. See Roper, 859 F.2d at
1473. The Roper court, however, addressed the plan within
the context of ERISA section 206(a) and not section 204(g).
See id.7 Thus, although the court found it was not
necessary to its decision to address Ross, it noted that Ross
supported its conclusion that a plant shutdown benefit is
not an early retirement benefit. See id. at 1474.8
_________________________________________________________________
7. ERISA section 206(a) provides, in relevant part, "[i]n the case of a plan
which provides for the payment of an early retirement benefit, such plan
shall provide that a participant who satisfied the service requirements for
such early retirement benefit, but separated from the service . . . before
satisfying the age requirement for such early retirement benefit, is
entitled upon satisfaction of such age requirement to receive a benefit
not less than the benefit to which he would be entitled at the normal
retirement age, actuarially reduced under regulations prescribed by the
Secretary of the Treasury." 29 U.S.C. S 1056(a).
8. As relevant to this appeal, other than citing Ross, the Roper court did
not provide any analysis of section 204(g) and the definition of early
19
The Blank court also addressed a benefits plan that
provided benefits to participants meeting certain age and
service requirements separated from their employment as a
result of layoffs or disability. See Blank, 758 F. Supp. at
698. The court stated that " `[t]he accrued benefits secured
by ERISA do not encompass unfunded, contingent early
retirement benefits or severance benefits." Id. at 700
(quoting Sutton v. Weirton Steel Div. of Nat'l Steel Corp., 724
F.2d 406, 410 (4th Cir. 1983)) (relying upon case decided
prior to passage of REA and not addressing the anti-
cutback provisions of section 204(g)).9 In a footnote, the
_________________________________________________________________
retirement benefit or retirement-type subsidy. As noted by the Roper
court, section 206(a) only applies when a plan participant is separated
from service with a nonforfeitable right to an accrued benefit. See Roper,
859 F.2d at 1473-74. The primary basis for the decision of the Roper
court was not that the plant shutdown benefits were not an early
retirement benefit, but rather that the plan did not provide for a
nonforfeitable benefit because it encompassed factors other than age and
service. See id. (adopting the reasoning of the district court). Accordingly,
the Roper decision is not precedential on this appeal.
9. Blank also cited to our opinion in Hlinka, 863 F.2d 279, as standing
for the proposition that the plant shutdown benefits at issue in Blank
were not an accrued benefit. While we did find that such a plan was not
an accrued benefit, see Hlinka, at 284-85, we were not concerned with
the application of amended section 204(g). See id. at 285 n.10. Given
that the general ERISA definition of accrued benefits is linked to benefits
commencing at normal retirement age, see 29 U.S.C. S 1002(24), our
result was clearly appropriate. What we did not address in Hlinka,
however, was the fact that for purposes of section 204(g) early retirement
benefits and retirement-type subsidies are defined as being accrued, at
least for purposes of that section. Thus, while an early retirement benefit
may not be considered accrued for some purposes, it may be an accrued
benefit for purposes of the anti-cutback rule of section 204(g). Blank did
not discuss the import of this distinction.
Given that Hlinka did not address the application of section 204(g), its
holding is not controlling in this case. Further, the analysis of Hlinka,
which is limited to the observation that the concept of accrual is defined
in relationship to normal retirement age, is rendered inapplicable in this
case by the passage of the REA. See 29 U.S.C. S 1054(g) (defining early
retirement benefits and retirement-type subsidies as accrued benefits
despite fact they commence prior to normal retirement age).
20
court stated that its conclusions were not affected by the
application of section 204(g). See id. at 700 n.3.
d. Cases Finding Job Separation Benefits
Are Accrued Benefits
The reported cases found to support the proposition that
job separation benefits may be treated as accrued benefits
for purposes of section 204(g) are Harms v. Cavenham
Forest Industries, Inc., 984 F.2d 686, Wallace v. Cavenham
Forest Industries, Inc., 707 F. Supp. 455 (D. Ore. 1989),
and Richardson v. Pension Plan of Bethlehem Steel Corp., 67
F.3d 1462 (9th Cir. 1995).10 We set forth their reasoning
below.
In Wallace, the district court addressed supplemental
benefits that were provided "in lieu of Early Retirement
Benefits and Vested Benefits to eligible Participants who
were involuntarily separated under the Severance Program."
Wallace, 707 F. Supp. at 459. These benefits were found to
be payable for life, and thus continued beyond normal
retirement age. See id. at 460. The court reasoned that:
The fact that the [supplemental] benefits are offered `in
lieu of Early Retirement Benefits and Vested Benefits'
does not require the court to conclude that they are
not retirement-type benefits. This language only
indicates that an eligible participant cannot receive
both the special benefits provided . . . and the Early
Retirement Benefits and Vested Benefits under the
Crown retirement plan.
The fact that eligibility is contingent upon involuntary
separation does not require the court to conclude that
_________________________________________________________________
10. The court of appeals vacated its decision in Richardson when it
granted a petition for rehearing in that case. See Richardson v. Pension
Plan of Bethleham Steel Corp., 112 F.3d 982 (9th Cir. 1997). On
rehearing, the court decided that there had not been a plan amendment
and therefore did not reach the issue of whether shutdown benefits were
accrued benefits protected by section 204(g). See id. at 987. Accordingly,
while we note that the court's original opinion does not have precedential
value, its subsequent opinion did not undermine the logic of its earlier
ruling.
21
[the supplemental benefits do] not provide retirement-
type benefits. Eligibility for [supplemental] benefits is
conditioned upon age and years of service as well as
involuntary separation.
Id. The Wallace court concluded that the supplemental
benefits were retirement-type benefits subject to the
protections of section 204(g) of ERISA. See id.
Addressing the same plan at issue in Wallace, the Court
of Appeals for the Fifth Circuit in Harms reached the same
conclusion as had Wallace. The Harms court found it
significant that the supplemental benefits were payable for
life and were calculated similarly to general retirement
subsidies -- by multiplying the participant'sfinal average
pay figure by his or her years of service. See Harms, 984
F.2d at 692. Harms further concluded that the
supplemental benefits were provided not as a form of
severance benefit, but rather as a retirement-type subsidy.
See id. Accordingly, the court determined that the
supplemental benefits were subject to the protections of
ERISA section 204(g). See id.
Richardson provides perhaps the most thorough analysis
of whether shutdown benefits are protected as retirement-
type subsidies by section 204(g). Richardsonfirst noted that
Congress indicated that it expected the Treasury
Department to promulgate regulations defining the term
"retirement-type subsidy." See Richardson , 67 F.3d at 1468.
As noted, however, the Treasury Department has yet to do
so. See id. In that absence, Richardson observed that courts
have held that a retirement benefit is a retirement-type
subsidy if the sum of the monthly payments for the
participant's life exceeds what the participant would have
received as normal retirement benefits. See id. (citing
Ashenbaugh, 854 F.2d at 1516 n.6; Costantino v. TRW, Inc.,
13 F.3d 969, 972 (6th Cir.1994)).
The shutdown benefits addressed in Richardson consisted
of two parts: (1) $400 per month, paid until age 62 and (2)
an additional amount, equal to the normal retirement
benefit, paid until death. See id. The court found that these
shutdown benefits constituted a retirement-type subsidy
because the sum of the monthly payments for life exceeded
22
what the plan participants would have received as normal
retirement benefits. See id.
The Richardson court found that the legislative history for
section 204(g) supported this conclusion. See id. Quoting
from the Senate Report, the court noted that:
a subsidy that continues after retirement is generally
to be considered a retirement-type subsidy. The
committee expects, however, that a qualified disability
benefit, a medical benefit, a social security supplement,
a death benefit (including life insurance), or a plant
shutdown benefit (that does not continue after
retirement age ) will not be considered a retirement-
type subsidy.
Id. (quoting S.Rep. No. 575 at 30, reprinted in 1984
U.S.C.C.A.N. 2547, 2576). The court read the Senate Report
to mean that shutdown benefits that do continue after
retirement age are a retirement-type subsidy.11 See id. The
pension plan, however, argued that the shutdown benefits
there at issue did not continue after retirement age because
at age 62 the participants stop receiving the $400 per
month and then received only the same amount per month
as they would have received if they had retired at age 62.
See id. According to the pension plan, then, the subsidy
ended at normal retirement age. See id.
The court found that argument unavailing. See id. at
1469. The shutdown benefits that a plan participant
received upon a plant shutdown were found not to be
miraculously transformed into normal retirement benefits
_________________________________________________________________
11. The Richardson court declined to follow Ross, 847 F.2d 329, where
the Court of Appeals for the Sixth Circuit read the Senate Report as
stating that shutdown benefits never can be included in the definition of
"retirement-type subsidy." See Richardson , 67 F.3d at 1468 n.4. The
court believed that if Congress had wanted to indicate that shutdown
benefits were not retirement-type subsidies, it would have said so. See
id. By contrast, Congress said only that a shutdown benefit "that does
not continue after normal retirement" was not a retirement-type subsidy.
See id. That statement, in conjunction with Congress's general assertion
that a subsidy that continues after retirement is a retirement-type
subsidy, strongly implies that shutdown benefits that do continue after
retirement age are retirement-type subsidies. See id.
23
when the recipient reached age 62. See id. Rather, the plan
participants received shutdown benefits from the time the
plant closed until death. See id. While the amount of
shutdown benefits the plan participant was entitled to
receive was calculated by reference to normal retirement
benefits, the court held that that circumstance did not
transform the shutdown benefits into normal retirement
benefits. See id.
The Richardson court found additional support for its
conclusion in Treasury Department General Counsel
Memorandum 39869 addressing section 411(d)(6) of the
Internal Revenue Code. See id. The GCM defined different
types of shutdown benefits as follows:
Some shutdown benefits are provided in a form similar
to severance benefits. They are short-term in nature
and are a supplement or replacement of the
participant's income during the period of
unemployment. These benefits are provided for a
limited period of time after the termination of the
individual's employment and the amount of the benefit
is generally determined either as a flat amount or as a
multiple or fraction of the individual's annual
compensation. . . .
Alternatively, shutdown benefits may continue beyond
normal retirement age, i.e., retirement-type benefits.
Generally, shutdown benefits provide an incentive to
employees who are at or near normal retirement age to
retire at the time of a plant shutdown. For example,
the employer . . . may supplement the accrued benefit
of the individual.
Id. (quoting GCM 39869). Accordingly, the court concluded
that the shutdown benefits there at issue continued after
normal retirement age, and thus were retirement-type
subsidies for purposes of section 204(g). See id.
In Richardson the pension plan also argued that even if
the shutdown benefits were retirement-type subsidies, plan
participants were not protected by section 204(g) because
their benefits did not accrue before the amendment. See id.
That is, the shutdown did not occur until after the pension
24
plan eliminated the shutdown benefits. See id. The court
rejected this argument. See id.
The Richardson court found that section 204(g) explicitly
provides protection against amendment of retirement-type
subsidies so long as the participant satisfies the
preamendment conditions for the subsidy "either before or
after the amendment." Id. Further, the court observed that
an IRS revenue ruling concerning retirement-type subsidies
under IRC S 411(d)(6) states that "[a] participant could,
after the date of the proposed [amendment], satisfy the
[preamendment] conditions necessary to receive this
retirement-type subsidy." Id. (citing Rev.Rule 85-6, 1985-1
C.B. 133). Because the shutdown benefits were found to be
a retirement-type subsidy, section 204(g) precluded the
pension plan from eliminating them. See id.
e. IRS GCM 3986912
_________________________________________________________________
12. Appellants argue that we should defer to the IRS's interpretation of
section 411(d)(6) as set forth in GCM 39869 and a favorable
determination letter from the IRS stating that the plan here at issue did
not violate section 411(d)(6). See Appellant Br. at 18-30. As we have
noted, due weight is given to the IRS's interpretation of its statute, and
such decisions are not disregarded unless they conflict with the statute
they purport to interpret or its legislative history, or if they are otherwise
unreasonable. See Gillis, 4 F.3d at 1145. Nevertheless, inasmuch as we
find that the IRS's interpretation is in conflict with the statute and its
legislative history, we do not defer to either GCM 39869 or the favorable
determination letter. Our decision to accord little weight to GCM 39869
is consistent with the Supreme Court's recent statement that an
agency's interpretations, which are not the product of a formal
adjudication or notice-and-comment rulemaking, are entitled only to
respect, not deference, to the extent that those interpretations have the
power to persuade. See Christensen v. Harris County, ___ U.S. ___, 120
S.Ct. 1655, 1662-63 (2000). As noted, the IRS's departure from the
express language of the statute and its legislative history renders GCM
39869 unpersuasive on the points most relevant to this appeal.
We also note that Bellas argues that under an IRS manual, General
Counsel opinions "do not represent the positions of the [IRS]" and thus
appellants "strive[ ] to puff [GCM 39869] into something it is not." See
Appellee Br. at 13. Inasmuch as we depart significantly from GCM
39869, we see no reason to consider the limitations the IRS places on
such a memorandum.
25
IRS General Counsel Memorandum 39869, dated April 6,
1992, addressed two issues relevant to the instant appeal:
(1) whether shutdown benefits may be provided in a
qualified pension plan, and (2) if shutdown benefits may be
provided in a qualified plan, whether they are accrued
benefits protected under IRC S 411(d)(6). See GCM 39869,
IRS Pos. (C.C.H.) P 2351 at 7851 (Apr. 6, 1992). The IRS
found that shutdown benefits may be provided in a
qualified plan, but found that they were not subject to the
anti-cutback provisions of section 411(d)(6) until the
occurrence of the contingent event -- i.e., the plant
shutdown.
As to the first issue, the IRS stated that the
determination of whether shutdown benefits may be
provided in a qualified pension plan is not dependent solely
on the event that triggers the payment of the benefit, but
rather on the terms of the benefit, including the form of the
benefit that is being provided. See id. at 7853. For example,
shutdown benefits that are retirement-type benefits may be
provided under a qualified pension plan. Benefits that
become payable because of a plant shutdown and are in
the form of annuity payments that continue after
retirement age were found to be retirement-type subsidies
that could be provided under a qualified pension plan. See
id. at 7854.13
In addition, the IRS indicated that shutdown benefits
that are ancillary benefits (i.e., social security supplements)
also could be provided. See id. at 7854. These benefits
must satisfy any necessary requirements to be considered
an ancillary benefit (e.g., a social security supplement must
satisfy the requirements of IRC S 411(a)(9) and section
1.411(a)-7(c)(4) of the regulations). Shutdown benefits that
_________________________________________________________________
13. The IRS indicated that the determination of whether a shutdown
benefit may be provided in a qualified pension plan should focus on the
form of benefit. See id. at 7853. Shutdown benefits may be provided by
an employer for a number of reasons. For example, if the employer is
concerned that the employees may need some time tofind a new
position, the employer may want to provide each employee with a short-
term replacement of income for several months or more. Alternatively, if
the employees are near retirement age, the employer may prefer to
supplement their retirement benefits.
26
are merely layoff or severance-type benefits, however, may
not be provided in a qualified pension plan. See id. at 7853.
As to the second issue, the IRS found that shutdown
benefits that are retirement-type benefits, and not ancillary
benefits, become accrued benefits and therefore are
protected benefits under section 411(d)(6) only upon the
occurrence of the event that triggers the right to payment of
benefits (i.e., the contingent event). See id. at 7855. Section
411(d)(6) provides that a qualified pension plan shall not be
treated as satisfying section 411, and therefore is not
qualified under IRC S 401(a), if the accrued benefit of a
participant is decreased or eliminated. See IRC S 411(d)(6).14
Pursuant to GCM 39869, if shutdown benefits are provided
as retirement-type subsidies, they are accrued benefits and
therefore are protected under section 411(d)(6). See id. at
7855. Shutdown benefits, however, that are provided as
ancillary benefits are not protected benefits under section
411(d)(6).
The IRS determined that shutdown benefits that are
retirement-type benefits, and are not ancillary benefits,
become an accrued benefit protected under section
411(d)(6) upon the occurrence of the event that triggers the
right to the benefits. See id. at 7855. The IRS believed that
this conclusion was consistent with the treatment of
shutdown benefits as unpredictable contingent event
benefits for purposes of the funding requirements under
IRC S 412. See id. at 7855. In determining a defined benefit
plan's current liability for purposes of the funding
requirements under section 412, unpredictable contingent
event benefits are not taken into account until the event on
which the benefit is contingent occurs. See IRC
S 412(1)(7)(B).
The IRS stated that the legislative history of section
412(1) states that shutdown benefits are unpredictable
contingent event benefits, citing H.R. Rep. No. 391, 100th
Cong., 1st Sess. 987 (1987); S. Rep. No. 63, 100th Cong.,
_________________________________________________________________
14. Plan qualification is important because of the various tax benefits
afforded qualified plans which will be lost if a plan is disqualified, and
because of other adverse consequences following disqualification. See,
e.g., IRC SS 402(b), 404(a) & 501(a).
27
1st Sess. 171-172 (1987) in this regard. See id. at 7855.
Because shutdown benefits are considered to be
unpredictable contingent event benefits under section
412(1), a qualified pension plan is not required to fund for
shutdown benefits until the triggering event occurs.
The IRS found that treating a shutdown benefit as an
accrued benefit, and therefore as a section 411(d)(6)
protected benefit at the time that the triggering event
occurs was consistent with the treatment of this benefit as
an unpredictable contingent event benefit for purposes of
the additional funding requirements under sections 412(1)
and 412(c)(7). See id. at 7855. The plan's definition of the
shutdown benefit generally will determine the occurrence of
the contingent event. For example, a plan may provide that
shutdown benefits will be offered to all affected participants
upon the resolution by the board of directors to close a
facility. The IRS determined that in such a case the
resolution by the board would be the event that triggers the
shutdown benefit. See id. at 7855. Other plans may provide
that the actual termination of operations at a particular
facility is the triggering event. The IRS stated that a plan's
description of a specific event is also the triggering event for
determining when the shutdown benefit becomes a section
411(d)(6) protected benefit.
f. Our Conclusions
After careful analysis of the arguments presented and the
cited authority, we hold that unpredictable contingent event
benefits that provide a benefit greater than the actuarially
reduced normal retirement benefit are retirement-type
subsidies, and therefore are accrued benefits under section
204(g), if the benefit continues beyond normal retirement
age. Such benefits are accrued upon their creation rather
than upon the occurrence of the unpredictable contingent
event. Our result is consistent with both the language of
section 204(g) and its legislative history. For the reasons we
set forth below, we do not adopt the contrary case law we
have discussed above and contrary portions of the analysis
contained in GCM 39869.
As an initial matter, the concept that all plant shutdown
benefits or any similar contingent benefit, cannot be a
28
protected retirement-type subsidy runs contrary to the
legislative history of section 204(g). As noted in the Senate
Report, "a subsidy that continues after retirement is
generally to be considered a retirement-type subsidy ."
S.Rep. No. 575 at 30, reprinted in 1984 U.S.C.C.A.N. 2547,
2576 (emphasis added). The Senate Report considered only
a plant shutdown benefit that does not continue after
normal retirement age not to be a retirement type subsidy.
See id. Thus, the Senate Report clearly suggests that plant
shutdown benefits that continue after normal retirement
age are retirement-type subsidies -- a conclusion
consistent with Congress's intended general rule that
subsidies continuing past normal retirement age are to be
considered retirement-type subsidies.
Cases like Roper -- and Ross, which relied upon Roper --
use the Senate Report to reach the conclusion that plant
shutdown benefits do not fall within the category of a
retirement-type subsidy. See, e.g., Ross, 847 F.2d at 333-
34. The Ross court, however, did not explain why, in the
face of Congress's express intention, it chose tofind that
plant shutdown benefits never may be considered
retirement-type subsidies. There is no discussion in Ross of
whether the plant shutdown benefits there continued
beyond normal retirement age. Accordingly, we believe that
the Ross court's analysis of the issue does not provide a
basis upon which to decide this matter.
In addition, the appellants' citation of Blank adds little to
this case as the court there relied on pre-REA case law for
the proposition that contingent early retirement benefits do
not fall within ERISA's definition of accrued benefits. See
Blank, 758 F. Supp. at 700. The Blank court relegated its
discussion of post-REA section 204(g) to a footnote that
does not address the statutory substance of the REA
amendments. See id. at 700 n.3. Accordingly, Blank does
not offer support for its conclusions with respect to ERISA
as it is now written.
The overarching concept that emerges from the statute
and the legislative history is that, in the proper
circumstances, plant shutdown benefits that continue
beyond normal retirement age should be treated as accrued
benefits for purposes of section 204(g). As stated, the
29
Senate Report addressing the amendment of section 204(g)
suggests that shutdown benefits continuing beyond normal
retirement age are retirement-type benefits. See S.Rep. No.
575 at 30, reprinted in 1984 U.S.C.C.A.N. 2547, 2576. Even
GCM 39869, upon which the appellants heavily rely, notes
that "benefits that become payable because of a plant
shutdown and are in the form of annuity payments that
continue after retirement age are retirement-type subsidies.
. . ." Given that there does not appear to be any relevant
distinction between plant shutdown benefits and a more
broadly defined contingent event benefit, we hold that
contingent event benefits that continue beyond normal
retirement age may be either early retirement benefits or
retirement-type subsidies (or both) within the meaning of
ERISA section 204(g). See, e.g., Richardson, 67 F.3d at
1468-69; Harms, 984 F.2d at 692; Wallace , 707 F. Supp. at
460.15
Appellants argue that even if section 204(g) protects
contingent event benefits that continue beyond normal
retirement age, such benefits may not be considered
accrued until after the contingent event has occurred. See
Appellant Br. at 16-30; see also Amicus Br. at 12-24. In
support of this proposition, appellants rely primarily upon
_________________________________________________________________
15. At oral argument, appellants suggested that the contingent event
benefits here at issue should not be construed as retirement benefits
protected by Section 204(g). See Tr. at 50-52 (citing Rombagh v. Nestle
USA, Inc., 211 F.3d 190, 192-94 (2d Cir. 2000)). We note that the
Rombagh court addressed disability benefits provided in a pension plan.
Such benefits were found to constitute a "welfare plan" and not a
pension plan protected by section 204(g). See id. Accordingly, the issue
presented to the Rombagh court is distinguishable from the issue
presented on this appeal. The PJS Benefits provided in the Westinghouse
Plan are not a temporary benefit provided in the event of unemployment,
but rather provide covered employees with the option of retiring early
rather than experiencing a period of unemployment. Such a benefit is
not a welfare plan, but rather falls within the definition of a pension
plan. See 29 U.S.C. S 1002(2)(A); see also GCM 39869 (finding that
certain plant shut down benefits were properly considered to be part of
a pension plan subject to anti-cutback provisions); cf. S.Rep. No. 575 at
30, reprinted in 1984 U.S.C.C.A.N. 2547, 2576 (stating that when plant
shut down benefit does not continue beyond normal retirement age it
will not be considered a retirement-type subsidy).
30
GCM 39869. But we believe that to the extent that GCM
39869 determined that plant shutdown benefits are not
accrued benefits until after the occurrence of the contingent
event, it is in conflict with the express terms of IRC
S 411(d)(6) and the legislative history of its ERISA
counterpart, section 204(g).
On this point, the district court in this matter stated:
I further find that the Defendants' argument that an
unpredictable contingent event benefit such as the PJS
benefit, is not protected until the contingent event
occurs, is without merit in that it (and the authority it
relied on) reads into the relevant statute a limitation on
the protection of retirement-type benefits that simply is
not supported by either the statutory language or the
legislative history of S 204(g). More specifically, first, no
where in plain language of S 204(g) is there any
distinction made between `contingent' and `non-
contingent' retirement-type subsidy benefits. Second,
the legislative history of the amendment to S 204(g)
expressly states that the amendment was designed to
`protect[ ] the accrual of benefits with respect to
participants who have met the requirements for a
benefit as of the time a plan is amended and
participants who subsequently meet the preamendment
requirements.' See S.Rep. No. 575, 98th Cong., 2d Sess.
28, reprinted in 1984 U.S.Code Cong. & Admin. News
2547, 2574 (emphasis added). Additionally, such a
conclusion seemingly would be in direct opposition to
the Third Circuit court's view of S 204(g) in Dade,
supra., wherein after noting that the early retirement
benefit at issue was a retirement-type subsidy, the
court explained, without any limitations, that after the
amendment to S 204(g) in 1984, while `a plan sponsor
could prospectively eliminate an early retirement
benefit by amendment . . . the amendment could not
adversely affect the early retirement benefit of a plan
participant who satisfied the pre-amendment
conditions for the benefit either before or after the
amendment' and `[t]hus, if [the plan sponsor] had
adopted such an amendment, it would have had to
allow those employees who remained in its employ after
the amendment to "grow into" the benefit.'
31
Bellas, 73 F. Supp.2d at 509 (citing Dade, 68 F.3d at
1562).
The district court was correct in noting that there is
nothing in the language of section 204(g), or its legislative
history, to suggest that a contingent event benefit accrues
only upon the occurrence of the contingency. The plain
language of the statute reveals that once a benefit is found
to be a retirement-type subsidy, it is considered an accrued
benefit. See ERISA section 204(g), 29 U.S.C. S 1054(g). The
concept expressed in GCM 39869, that a benefit can be
considered a retirement-type subsidy and yet not accrue
until the occurrence of some later event, reads additional
requirements into the language of section 204(g)--
requirements for which there does not appear to be any
support.
As the Senate Report made clear, the committee expected
that any regulations defining the term retirement-type
subsidy would prevent the recharacterization of retirement-
type benefits as benefits that are not protected by section
204(g). See S.Rep. No. 575 at 30, reprinted in 1984
U.S.C.C.A.N. 2547, 2576. By grafting on the requirement
that the contingency must occur before certain retirement-
type benefits may be protected, the IRS in GCM 39869 has
undertaken just such a recharacterization. GCM 39869
appears to concede that plant shutdown benefits that
continue beyond normal retirement age may be retirement-
type subsidies, yet at the same time removed such
subsidies from any meaningful protection by finding that
such benefits did not accrue until the contingent event
occurs. The legislative history, however, calls for an
inclusive definition of the term retirement-type subsidy.
Accordingly, we will not impose an artificial condition, such
as suggested by appellants, that would have the effect of
rendering unprotected a benefit that is clearly retirement in
nature.
Appellants also argue that the concept of accrual
connotes a benefit that accrues over time by reference to an
employee's age, years of service, and years of participation.
See Appellant Br. at 23-24. There can be no disputing this
point. Appellants proceed to argue, however, that shutdown
benefits do not steadily accrue in this sense, but rather are
32
triggered by an unpredictable event such as a qualifying
termination for lack of work. This argument, however,
misses its mark.
Appellants appear to have imposed the concept of
eligibility on the concept for accrual. While it is true that a
plan participant may not be eligible to receive a shutdown
benefit until the contingent event occurs, that circumstance
by no means indicates that the value of that benefit has not
been increasing over time in relationship to the
participant's years of service under the plan, as in the case
of a normal retirement benefit. The fact that a participant
may not be eligible to receive payments until reaching the
age of 65 does not mean that his or her retirement benefit
does not accrue until the age of 65. Rather, as is commonly
accepted, and as defined in ERISA section 3(23), normal
retirement benefits accrue over time prior to the date of
eligibility.
The fact that contingent event benefits accrue over time
is bolstered by review of the Westinghouse Plan. The value
of the PJS Benefits provided under the Westinghouse Plan
is linked to the value of the participant's normal retirement
benefit. See Westinghouse Plan S 20.B.2(a), J.A. at 74.
Accordingly, the value of these benefits is linked directly to
a participant's years of service and participation and may
be calculated at any point in time. While a participant may
not be entitled to receive this value until the contingent
event occurs, that does not mean that such benefits do not
accrue, as that term is commonly understood.
Appellants point to principles of actuarial practice to
support their construction of section 204(g). See Appellant
Br. at 25-28. Actuaries routinely treat traditional early
retirement benefits (those dependent upon age and service
only) as benefits that accrue at a fixed rate over time. See
id. at 25 (citing Actuarial Standards Board, Actuarial
Standards of Practice No. 4, at 25-26 (1993)). On the other
hand, because shutdown benefits are contingent upon
unpredictable events, they largely have defied conventional
actuarial principles. See id. at 25-26. As a result, under
ERISA, as amended by the Omnibus Reconciliation Act of
1987, unpredictable contingent event benefits are not taken
into account in determining a plan's current liability and
33
related funding obligations until after the contingent event
occurs. See 29 U.S.C. S 1082(d)(7)(B); IRC S 412(1)(7)(B).
Appellants argue that construing the anti-cutback rule not
to apply to shutdown benefits until the occurrence of the
unpredictable contingent event -- and recognizing that,
until then, shutdown benefits are more in the nature of
insurance than anticipated benefits -- advances one of the
central objectives of ERISA: ensuring adequate funding for
all vested and accrued benefits. See Appellant Br. at 26-27
(citing 29 U.S.C. S 1001(a); Nachman Corp. , 446 U.S. at
374-75, 100 S.Ct. at 1732-33).
While the construction of section 204(g) proffered by
appellants would lend some consistency between section
204(g) and ERISA's funding provisions, it does not appear
that the statute or its legislative history requires or compels
such consistency. Appellants assert that until the
contingent event occurs, shutdown benefits are more akin
to insurance than an anticipated benefit. See Br. at 26-27.
Under this logic, appellants appear to suggest that the
occurrence of the contingent event somehow transforms
insurance into a retirement benefit. As we stated above,
however, Congress discouraged this attempt at
recharacterizing retirement-type benefits.
In addition, we see no compelling need for consistency in
this regard as the appellants urge. The question of whether
a contingent event benefit is protected from reduction or
elimination does not appear to be connected with the
concept of funding in either ERISA or the IRC. Accounting
and actuarial guidelines represent an attempt to account
for real life events in the best manner possible. Hence,
unpredictable contingent event benefits are not calculated
into a plan's current liabilities because there is no means
of knowing when and if such an event ever will occur. We
do not understand why this circumstance need be related
to the question of whether such benefits are protected from
reduction or elimination.
Appellants suggest that employers will face problems
funding for contingent event benefits given that ERISA and
the IRC require funding to be based upon reasonable
actuarial principles. See Appellant Br. at 27 (citing 29
U.S.C. S 1082(c)(3); IRC S 412(c)(3)). But if we concluded
34
that such benefits are not protected by section 204(g) until
the contingent event occurs, our result would not alleviate
this problem. The problem cited by appellants will exist
regardless of whether the contingent event benefit is
maintained as a result of the plan's own terms or simply is
a product of the operation of section 204(g)'s anti-cutback
provisions. Accordingly, the appellants' actuarial and
funding arguments have no bearing on the determination of
when contingent event benefits become protected under
section 204(g).16
When contingent event benefits are provided to continue
beyond the normal retirement age, they are an early
retirement benefit within the scope of section 204(g) and
are accrued benefits within that section. Moreover, under
section 204(g), once a benefit is found to meet the definition
of a retirement-type subsidy it is to be considered an
accrued benefit within that section. Accordingly, for
purposes of the anti-cutback provisions of ERISA, such
benefits are protected by section 204(g) with respect to
employees within the pension plan after their creation and
not upon the occurrence of the contingent event.
In this matter, the version of the Westinghouse Plan
before its amendment provided that "[a]n Employee . . .
may retire" on the first day of the month following the
month in which an employee's employment was terminated
as a result of a Permanent Job Separation. See
Westinghouse Plan S 20.A, J.A. 74. In order to retire after a
Permanent Job Separation, an employee must have
satisfied one of the age and service combinations set forth
below:
-- Age 50 or over with 25 or more years of Eligi bility
Service;
-- Age 51 or over with 22 or more years of Eligi bility
Service;
_________________________________________________________________
16. We also note that to the extent the value of the PJS Benefits here is
determined in relationship to the normal retirement benefit, they always
will be at least partially funded. Thus, the funding concerns appellants
raise are not as serious as they would have us believe.
35
-- Age 52 or over with 19 or more years of Eligi bility
Service;
-- Age 53 or over with 16 or more years of Eligi bility
Service;
-- Age 54 or over with 13 or more years of Eligi bility
Service;
-- Age 55 or over with 10 or more years of Eligi bility
Service.
See id. S 20.B.1.
The amount of monthly pension payable to an employee
satisfying the above requirements was the sum of (1) the
employee's normal retirement benefit, (2) $10.00 multiplied
by the employee's Credited Service, and (3) an additional
$100.00 if the employee had 25 years of Eligibility service,
and his Special Retirement Date was on or before
September 1, 1994. See id. S 20.B.2 (a-c). The normal
retirement benefit was to be paid for the lifetime of the
employee, but the additional dollar amounts were payable
only until the employee reached the age of 62.17 Appellants
and amicus argue that none of the benefits provided under
the Westinghouse Plan continue beyond normal retirement
age. See Appellant Br. at 30-34; Amicus Br. at 3-11.
_________________________________________________________________
17. Because the $10.00 multiplied by Credited Service and the additional
$100.00 benefit do not continue beyond normal retirement age, they
cannot properly be considered a retirement-type subsidy as
contemplated by section 204(g). Accordingly, those benefits properly
could be the subject of amendment or elimination without violating
section 204(g). Neither the district court nor the parties to this appeal
have expended much time addressing these benefits. Rather, the parties
and the district court focused on the Westinghouse Plan's provision for
the payment of normal retirement benefits without any actuarial
reduction.
In addition, Bellas did not satisfy the condition set forth in the
Westinghouse Plan for receipt of the additional $100.00, namely that he
retire on or before September 1, 1994. Because he failed to satisfy the
conditions for the benefit, either before or after that amendment, Bellas
has no protected right to this benefit under section 204(g). See 29 U.S.C.
S 1054(g).
36
The district court, in addressing this issue stated:
I find that because Subsection 20.B.2 (a) of the pre-
1994 version of the Plan provided that the monthly
amount of the PJS benefit included `any amounts
computed pursuant to Section 4 of the Plan [the
normal retirement pension provision of the Plan]'
without any actuarial reduction, even though the
participant was retiring at an age which would not
normally entitle him or her to the normal retirement
pension provided under the terms of the Plan without
any actuarial reduction and further states in
Subsection 20.B.3 that `[t]he amount calculated in
accordance with Subsection 20.B.2(a) shall be payable
for the lifetime of the Employee,' that, at the very least,
the amount of the PJS benefit `computed pursuant to
Section 4 of the Plan' (if not the entire PJS benefit) is:
(1) a benefit pursuant to which `more is provided . . .
than any reasonable actuarial equivalent of the plan's
normal retirement benefit' and (2) `a subsidy that
continues after retirement.' Therefore, the PJS benefit
is `a retirement-type subsidy' as that term is used in
SS 204(g) and 411(d)(6). See Dade, 68 F.3d at 1562,
n.1; S.Rep. No. 575, 98th Cong., 2d Sess. 30, reprinted
in 1984 U.S. Code Cong. & Admin. News 2547, 2576.
In so holding, I obviously disagree with the
Defendants' position that the PJS benefit is not a
protected retirement-type subsidy because the Plan
provides that `once the employee reached age 65[the
normal retirement age under the Plan], this pre-
retirement subsidy ceased, and he or she received only
the Plan's "normal retirement" benefit. It is a key fact
that, when the employee reached age 65, he or she was
entitled to nothing more than their normal retirement
benefit.' Defendants' Supporting Brief, p. 6. The
difficulty I have with the Defendants' argument is that
`Subsection 20.B.3 expressly provides that "[t]he
amount calculated in accordance with Subsection
20.B.2(a) shall be payable for the lifetime of the
Employee,' " not until the participant turned 65.
Bellas, 73 F. Supp.2d at 508-09. The district court is
clearly correct that, by its express terms, the Westinghouse
37
Plan provides PJS Benefits that continue for the life of the
participant. See Westinghouse Plan S 20.B.3.
The appellants and amicus argue that any subsidy
provided by the Westinghouse Plan ends when the
participant reaches normal retirement age, at which point
the participant merely would receive his normal retirement
benefit. See Appellant Br. at 32. Appellants argue that the
PJS Benefits do not provide any increased value to a
participant once that participant reaches normal retirement
age.
The logic supporting the appellants' argument appears to
be as follows. A plan participant is provided with his
normal retirement benefit upon becoming entitled to his or
her PJS Benefits. A participant would be entitled to this
benefit, regardless of the permanent job separation, upon
reaching normal retirement age. Accordingly, once a plan
participant reaches normal retirement age, he or she is not
receiving any increased value as a result of the permanent
job separation. Therefore, any subsidy provided by the
Westinghouse Plan must be viewed as ceasing upon a plan
participant's reaching normal retirement age.
The appellants' argument, however, overlooks one key
feature -- PJS Benefits provide for the early payment of the
normal retirement benefit without actuarial reduction.
Normally, the early commencement of retirement benefits
would be actuarially reduced. These reduced payments,
begun earlier, would continue for life, the idea being that a
greater number of smaller payments are actuarially
equivalent to a smaller number of larger payments begun at
normal retirement age. As mentioned, the Westinghouse
Plan does not reduce the normal retirement benefit in the
case of PJS Benefits, even though the payment of those
benefits may begin as much as 10 years before normal
retirement age. Thus, such payments have been subsidized
to equal the non-actuarially-reduced normal retirement
payment. It is this subsidy that continues for life.
Amicus attempts to buttress appellants' argument that
the subsidy does not continue for life. Amicus explains:
Pension benefits ordinarily are actuarially reduced
when an employee elects to commence distributions
38
prior to normal retirement age. The reduction is not a
penalty; it simply adjusts the vested distributable
amount to reflect that (1) an amount paid currently is
worth more than the same amount paid later, (2) the
periodic benefit is payable over a greater number of
years, and (3) the risk that an employee will die before
the payments commence is reduced. The actuarial
reduction is calculated by determining the benefit
amount that would be payable at normal retirement
age (on the basis of the participant's service and
compensation to the date of the early commencement),
and multiplying the benefit payable at normal
retirement age by a discount factor. . . .
For example, a 55-year old employee who terminates
employment with a vested monthly retirement benefit
of $1,000 for life commencing at age 65 might be
entitled to $400 per month for life commencing at age
55 after the actuarial reduction is made. A full
actuarial subsidy, such as that provided under the PJS
benefit, eliminates this actuarial reduction and so
provides an employee with a level stream of benefits
before and after normal retirement age, consisting of a
monthly $1,000 subsidy until normal retirement age
and the monthly $1,000 normal retirement benefit
thereafter.
Amicus Br. at 5-6.
Amicus, however, has overstated its case and the data
upon which it relies. Under its theory, a plan participant
receiving a subsidized early retirement receives payments
that consist wholly of the subsidy before retirement age and
no subsidy after retirement age. While the data presented
by amicus certainly establishes that the total value of the
subsidy is less for the person who qualifies for the benefit
at an age that is closer to normal retirement age, the data
does not support the conclusion that payments made prior
to normal retirement age consist wholly of a subsidy.
After reviewing the arguments raised by appellants and
amicus, and the language of the Westinghouse Plan, we
conclude that the district court correctly concluded that the
PJS Benefits in the Westinghouse Plan continue beyond
39
normal retirement age. As noted, the plan itself states that
such benefits commence upon the special retirement date
and continue for life. Because the Westinghouse Plan
provides for a benefit that continues beyond normal
retirement age, and is not actuarily reduced by reason of its
payment before the normal retirement age, it is a
retirement-type subsidy protected by section 204(g) of
ERISA. Consequently, to the extent CBS amended the
Westinghouse Plan in 1994 to eliminate certain plan
participants from eligibility for PJS Benefits, it violated
section 204(g).
We note, however, that neither the district court nor any
other court or body addressing the issue appears to have
drawn a distinction between contingent event benefits that
provide for an early retirement and those benefits that
provide a retirement-type subsidy. The general practice is to
consider the entire benefit provided to be a subsidy. That
practice, however, appears to us to be contrary to the
definition of retirement-type subsidy that we have adopted.
We have considered only the excess in value of a benefit
over the actuarial equivalent of the normal retirement
benefit to be a subsidy. See Dade, 68 F.3d at 1562 n.1;
Ashenbaugh, 854 F.2d at 1521 n.6. Accordingly, to the
extent the Westinghouse Plan provided PJS Benefits that
were not actuarially reduced, the value of the benefit over
and above the actuarially reduced value is a retirement-
type subsidy protected by section 204(g). The balance, i.e.
that portion paid that is equal to the actuarially reduced
normal retirement benefit, constitutes an early retirement
benefit protected by section 204(g) but is not a retirement-
type subsidy.18
_________________________________________________________________
18. This conclusion is consistent with the terms of the Westinghouse
Plan, which defines the PJS Benefits in terms of allowing a plan
participant to retire. It is also consistent with GCM 39869, which notes
that rather than providing short term benefits to plan participants close
to retirement age, a plan may offer an incentive for such participants to
retire at the time of the plant shutdown. See GCM 39869. This is exactly
what the Westinghouse Plan provides. Rather than offer some other form
of severance to employees that are sufficiently close to retirement age,
the Westinghouse Plan allows such employees to retire early.
Accordingly, the PJS Benefits provided by the Westinghouse Plan should
40
Amicus expresses concern that shutdown benefits that
have been written into plans on the expectation that they
could be modified or removed prior to an actual plant
shutdown under the result we reach, will become
permanent features of those plans. This result, however,
appears to express the intent of ERISA, at least as concerns
shutdown benefits that are provided in the form of early
retirement benefits or retirement-type subsidies. As noted,
one of the purposes of ERISA was to protect an employee's
interest in his or her retirement benefits. The"expectation"
of companies cannot override the language of the statute.19
Additionally, amicus asserts that application of the anti-
cutback rule to shutdown benefits prior to the occurrence
of the triggering event would expose many plans to the
threat of immediate disqualification for federal income tax
purposes because adoption of an amendment that violates
IRC S 411(d)(6) causes a plan to be disqualified. Amicus
further asserts that such disqualification would occur
regardless of whether an employer reasonably relied upon
GCM 39869. There can be no doubt that these arguments
are substantial and we recognize that there may be
significant adverse tax consequences as a result of this
opinion if relief from sources other than this court is not
granted. We hope that the appropriate authorities take note
of this problem and take steps to alleviate it. Yet section
_________________________________________________________________
be viewed as a subsidized early retirement benefit, protected as an early
retirement to the extent of the actuarially reduced value of the normal
retirement and protected as a subsidy, to the extent the Westinghouse
Plan provides a benefit of greater value than the actuarially reduced
value of the normal retirement benefit.
19. Other policy concerns militate against accepting the amicus's
arguments. The ability to eliminate or remove a shutdown retirement
benefit prior to an actual shutdown seems contrary to the goals of
ERISA. If a company could provide for shutdown retirement benefits and
then remove them prior to an actual shutdown, it could persuade its
employees to stay on board to help overcome difficult financial times,
secure in the knowledge that if the company fails they can retire, but
nevertheless could remove such benefits when it became evident the
company could not be saved. In the absence of ERISA, such actions may
not have been legally problematic, but the intent of section 204(g) surely
would take this option away from an employer.
41
204(g), particularly when considered with the legislative
history, compels us to reach our result.
Nevertheless, while we do not suggest that employers
have not relied reasonably on GCM 39869, and thus are
not entitled to tax relief, we point out that knowledgeable
persons in this esoteric field might have been aware since
1989 that section 204(g) was subject to an interpretation
contrary to that which the IRS later reached. See Wallace,
707 F. Supp. 455. The Wallace court issued its opinion
more than three years before the IRS published GCM
39869. Further, the Court of Appeals for the Fifth Circuit in
1993 in Harms, 984 F.2d 686, and the Court of Appeals for
the Ninth Circuit in 1995 in Richardson, 67 F.3d 1462,
adopted the Wallace position.
Finally, amicus asserts that if we affirm the decision of
the district court we will discourage employers from adding
future shutdown benefits. We think that amicus overstates
the impact of our opinion. The only shutdown benefits
subject to the anti-cutback provisions under this opinion
are those provided in the form of early retirements and
retirement-type subsidies that continue beyond normal
retirement age. If, notwithstanding this opinion, an
employer desires to have the flexibility of providing
shutdown benefits that it easily can modify or amend in a
qualified plan, it still may provide ancillary shutdown
benefits that do not continue beyond normal retirement
age. See, e.g., IRC S 1.401(a)(4)-4(3)(2) (defining ancillary
benefit to include shutdown benefits not protected under
section 411(d)(6)). Accordingly, the amicus's concern does
not compel a conclusion different from the one we adopt.
III. CONCLUSION
For the reasons set forth above, we will affirm the order
of the district court entered June 29, 1999. Wefind that
the PJS Benefits offered under the Westinghouse Plan are
both an early retirement benefit and a retirement-type
subsidy protected under section 204(g), to the extent that
they include the lifetime provision of a normal retirement
benefit commencing after a covered job loss. To the extent
the Westinghouse Plan provided PJS Benefits that did not
42
continue beyond normal retirement age, those benefits are
not protected by section 204(g). We will remand the matter
to the district court for further proceedings consistent with
this opinion.
43
SHADUR, Senior District Judge, concurring:
Westinghouse Electric Corporation ("Westinghouse") fired
its long-term employee Harry Bellas ("Bellas") on December
31, 1997. That was of course within Westinghouse's rights:
Under the common law principles of at-will employment, an
employer is free to terminate a 32-year employee--just as it
is free to terminate a probationary employee with just a few
months under his or her belt--for good reason, bad reason
or no reason at all. But here it is more than worth noting
that there was no Westinghouse "plant shutdown" or any
other kind of "shutdown" involved at all--and that is the
bizarre mischaracterization that appellants have attached
to Bellas' layoff (his firing), and that has been referred to in
the majority opinion at n.4 and then employed throughout
the opinion. What or who was "shut down"? Bellas? Surely
not.
Most importantly for present purposes, that acceptance
of appellants' mischaracterization in the opinion has given
them (and the amicus in the case) substantially more than
their due, and has thus made the reaching of our panel's
conclusions--though clearly correct--needlessly more
difficult in terms of analysis. And that has in turn
occasioned this separate concurrence.
For appellants to attach the "shutdown" label to Bellas'
termination of employment, and then to attempt to use that
label as a springboard for a flawed analysis, does more
than violate the home truth contained in one of the
aphorisms ascribed to Abraham Lincoln:
If you call a tail a leg, how many legs has a dog? Five?
No, calling a tail a leg don't make it a leg.
After all, from an employee's perspective the occasion for
his or her being fired is irrelevant--in Gertrude Stein terms,
"a firing is a firing is a firing." 20 But from an employer's
_________________________________________________________________
20. There is no question that Bellas was fired, rather than some more
euphemistic term such as "layoff " being applicable to his termination.
Bellas' original notice from the employer's Benefits Access Center used
the language of his being "involuntarily separated from Westinghouse,"
which was clear enough on its own, and Westinghouse's ultimate
44
point of view, a plant shutdown is a major economic event
(as an individual's layoff, or even a number of individual
layoffs, need not be). And of course every employer is well
aware of its employee turnover rates, so that although the
prospect or timing of any individual employee's termination
cannot be predicted, the inevitability of a reasonably
anticipatable number of employee terminations can be. And
that situation contrasts sharply with an entire plant
shutdown, which is almost always an unusual and
unpredictable event (at least far in advance) in a company's
economic life.
It is thus no accident, I believe, that when Congress
acted to overturn adverse judicial precedent by enacting the
Retirement Equity Act (ERISA S204(g)'s anti-cutback
provisions), the Senate Report (which has been quoted in
the majority opinion's section captioned Legislative History
of Current Section 204(g), and has also been expressly
referred to in both Ross v. Pension Plan for Hourly
Employees of SKE Indus., Inc., 847 F.2d 329, 333 (6th Cir.
1988) and Richardson v. Pension Plan of Bethlehem Steel
Corp., 67 F.3d 1462, 1468 (9th Cir. 1995)) proceeded to list
and explain the types of benefits that an employer could
continue to control and could hence modify despite the
Section 204(g) amendment. Importantly, in the course of
doing so the Senate Report referred only to"a plant
shutdown benefit (that does not continue after retirement
age)." It did not speak at all of an employer's right to alter
such retirement benefits payable on an individual's
retirement or other termination.
And it is relatedly worth noting that not one of the three
decisions on which appellants seek to rely, and with which
_________________________________________________________________
communication (which cut the cord conclusively after a short extension
that it had granted from the original notice date) left no conceivable room
for doubt (emphasis added):
Previously you were notified of permanent separation effective
August 27, 1997. You were subsequently informed that due to
business conditions, your employment was extended.
This letter is formal notification that your effective date of separation
will be December 31, 1997
45
our panel has deliberately parted company in substantive
terms, involved (as this case does) an individual layoff
unassociated with a plant shutdown. Instead the two Court
of Appeals decisions, Ross and Roper v. Pullman Standard,
859 F.2d 1472 (11th Cir. 1988)(per curiam), did involve
plant shutdowns and the major employee displacements
that such events create, while the District Court decision in
Blank v. Bethlehem Steel Corp., 758 F.Supp. 697 (M.D. Fla.
1990) involved the sale of a facility to a purchaser that did
not take over the workforce in toto (thus also being much
the equivalent, from the selling employer's perspective, of
an unanticipatable plant shutdown).
In sum, the analysis and result that plainly favor Bellas
in this case flow easily not only from the facts that the
benefits at issue here were framed to continue after
retirement age but also from the fact that such benefits are
not even hinted at in the Retirement Equity Act or its
legislative history as subject to modification by an employer
that must deal with the post-statutory termination of an
individual employee. Indeed, that conclusion should really
follow a fortiori from the majority opinion's decision that
the continuation of such a benefit beyond retirement would
also insulate a plant shutdown situation from the
employer's attempted revision of that retirement benefit.
It is also significant, I suggest, that the General Counsel's
Memorandum that was authored by an anonymous Internal
Revenue Service lawyer--the GCM on which appellants seek
to lay such heavy stress and that the majority opinion
properly finds unpersuasive as a substantive matter--
becomes an even weaker reed when looked at from the
perspective set out here. That GCM speaks of "such
shutdown benefits" in the everyday English meaning of an
employer's closing of a facility or the like. Westinghouse's
effort to bootstrap that notion into applying to every
termination of every employee represents an unjustified
quantum leap.
It is of course true that Bellas has shaped his Complaint
as a putative class action to encompass all participants in
the Westinghouse Plan who were laid off after January 1,
1997 under circumstances that meet the pre-Plan
Amendment requirements for the type of pension claimed
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by Bellas, or even to encompass some Plan participants
who are still employed. But because this appeal comes
before us on an interlocutory basis before the issue of class
certification has been addressed by the district court, it
cannot now be known (for example) whether Bellas, with
his own situation involving an entirely individualfiring,
would or would not qualify under the Fed. R. Civ. P. 23
standards of typicality or adequacy of representation for a
class including such Westinghouse employees who might
become affected in the future by a now-purely-hypothetical
plant shutdown. Hence our panel's reaching out to address
that hypothetical situation poses the problem always
presented by judicial dictum: the prospect that when an
actual controversy of that nature presents itself, it may
present issues that no one has now anticipated fully, and
that could therefore call for a different analysis (or even
perhaps a different result).
For those reasons I would limit the present analysis and
decision to the one before us in real-world terms: Bellas'
individual termination (although I do want to make it clear
that my substantive analysis of the hypothetical plant
shutdown situation, if we were properly called upon to
reach it, would be no different from what has been said in
the majority opinion). Accordingly I concur in the majority
opinion to the extent of its materially less difficult
resolution of the appeal as to Bellas' individual claim.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
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