Walling v. Brady , 125 F.3d 114 ( 1997 )

Opinions of the United
1997 Decisions States Court of Appeals
for the Third Circuit
7-30-1997
Walling v. Brady
Precedential or Non-Precedential:
Docket 96-7526
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Recommended Citation
"Walling v. Brady" (1997). 1997 Decisions. Paper 179.
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Filed July 30, 1997
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 96-7526
JOSEPH R. WALLING, and other
individuals similarly situated
v.
EDWARD J. BRADY; HAROLD R. BROHAWN;
JOHN D. DANIELLO; WILLIAM R. HICKMAN;
TERRANCE M. SHANNON; JOHN W. STEWART;
JAMES R. WAHL; ALFRED C. WILSON, JR.,
as Trustees of the Plumbers and Pipe
Fitters Local Union No. 74 Pension Fund;
PLUMBERS AND PIPE FITTERS LOCAL UNION NO. 74
PENSION FUND,
Appellants
On Appeal from the United States District Court
for the District of Delaware
(D.C. No. 94-cv-00410)
Argued June 16, 1997
BEFORE: COWEN, ALITO and SEITZ, Circuit Judges
(Filed July 30, 1997)
Richard L. Abbott, Esq. (argued)
Theisen, Lank, Mulford & Goldberg
P.O. Box 1470
1201 Orange Street
One Commerce Center, Ninth Floor
Wilmington, DE 19899
COUNSEL FOR APPELLEE
Joseph R. Walling, and other
individuals similarly situated
Kent Cprek, Esq. (argued)
Richard B. Sigmond, Esq.
Sagot, Jennings & Sigmond
510 Walnut Street
The Penn Mutual Towers, 16th Floor
Philadelphia, PA 19106-3683
COUNSEL FOR APPELLANTS
Edward J. Brady
Harold R. Brohawn
John D. Daniello
William R. Hickman
Terrance M. Shannon
John W. Stewart
James R. Wahl
Alfred C. Wilson, Jr., as Trustees
of the Plumbers And Pipe Fitters
Local Union No. 74 Pension Fund
Plumbers and Pipe Fitters Local
Union No. 74 Pension Fund
2
Susan K. Hoffman, Esq.
Pepper, Hamilton & Scheetz
18th & Arch Streets
3000 Two Logan Square
Philadelphia, PA 19103-2799
COUNSEL FOR
AMICUS-APPELLEES
Local Union No. 626, United
Brotherhood of Carpenters &
Joiners of America Pension Fund,
as Plan Sponsor of Carpenters
Local No. 626 Pension & Annuity
Plan
Teamsters Pension Trust Fund of
Philadelphia and Vicinity
Teamsters Health and Welfare
Fund of Philadelphia and Vicinity
Carpenters Pension and Annuity
Fund of Philadelphia and Vicinity
Carpenters Health and Welfare
Fund of Philadelphia and Vicinity
Steamfitters Local Union No. 420
Pension Fund
Steamfitters Local Union No. 420
Welfare Fund
OPINION OF THE COURT
COWEN, Circuit Judge.
Appellants appeal from the February 9, 1996, order of
the district court granting summary judgment to plaintiff-
appellee Joseph R. Walling and a class of persons he
represents, and denying appellants' cross motion for
summary judgment. Walling v. Brady, 917 F. Supp. 313 (D.
Del. 1996). The district court held that the Board of
Trustees ("Trustees") of an ERISA-qualified multi-employer
3
pension fund had abused its discretion when it amended its
pension plan to authorize the payment of an additional
$100 per month to only 85% of the fund participants rather
than the full membership. We will reverse.
I.
The Plumbers and Pipefitters Local Union No. 74 Pension
Fund ("Pension Fund") and the Trustees were sued by a
class of 54 participants in the Pension Fund, with Walling
appointed as the designated class representative. The
plaintiffs asserted that the Trustees unlawfully diverted
pension funds in violation of 29 U.S.C.A. § 1103(c)(1) (1985
and Supp. 1997) and breached their fiduciary duty under
29 U.S.C.A. § 1104. The eight individuals serving as
trustees of the Pension Fund (four are appointed from the
union, four from management) are the same eight people
who serve as the trustees of the Plumbers and Pipefitters
Local Union No. 74 Welfare Fund ("Welfare Fund"). The
management representatives to the boards of trustees are
appointed by the Delaware Mechanical Contractors'
Association, Inc., which represents the multiple employers
who support the Pension Fund and the Welfare Fund.
The Pension Fund is a defined-benefit plan. It does not
have a "finite asset pool" and is able to incur unfunded
liabilities. The employers and the Pension Fund jointly
share liability for the fund's obligations. The provisions of
the Pension Fund give the Trustees, collectively as plan
administrator, wide latitude to
[d]ecide all questions relating to the interpretation of
the Trust Agreement and Plan. The exercise of
discretion or determination of questions arising in the
administration, interpretation and application of the
Trust Agreement or Plan shall be final and binding
except as otherwise provided by law.
App. at 349-50. The plan administrator also may "[a]mend,
alter or otherwise change the Pension Plan in any way not
inconsistent with applicable laws or regulations of
government agencies or the provisions of this Trust." Id. at
350.
4
An actuarial consultant retained by the Trustees reported
that successful investments had caused the Pension Fund
to have a surplus. The Trustees were aware that the
Welfare Fund was simultaneously faced with increased
health care costs and that the Trustees had already
decided, in their capacity as the Welfare Fund board of
trustees, to impose a requirement that all Welfare Fund
participants pay a $100 per month fee for their coverage,
which previously had not required such a fee. The Trustees
chose to address the imbalance between the funds by
paying an additional $100 per month in benefits to those
members of the Pension Fund who, by virtue of also being
members of the Welfare Fund, would now have to pay $100
each month to the Welfare Fund: "The Trustees openly
concede that the motivation behind this additional $100
per month Pension Fund benefit was to maintain the
purchasing power of those retired Welfare Fund individuals
who now shouldered an additional $100 monthly burden,
presumably on a fixed income." Walling, 917 F. Supp. at
317. The Trustees also noted that the Pension Fund did not
reduce the benefits for Walling or any member of his class;
indeed, all Pension Fund participants received a separate
5% increase in benefits. The Walling class members, as well
as all the other members of the Pension Fund, have
received more than they had anticipated receiving from the
Pension Fund upon retirement. The class members consist
of Pension Fund members who do not also participate in
the Welfare Fund; they retired without fulfilling sufficient
years of service to qualify for Welfare Fund benefits.
Walling and his class asserted that the surplus should
have either been retained by the Pension Fund or
distributed equally to all participants. They note that all
Pension Fund members were faced with rising health care
costs, regardless of whether they were Welfare Fund
participants, and claimed that the payment of an
additional, monthly $100 to only the 85% of Pension Fund
members who are also Welfare Fund members was not a
valid "Pension Fund interest." Id. at 322.
The district court agreed with Walling. It held that
appellants violated their fiduciary duty of loyalty in
amending the plan to provide the supplemental $100
5
benefit. In so holding, the district court determined that
appellants violated their duty of loyalty, whether that duty
is reviewed under the strict " ``prudent' person standard" or
the more relaxed "arbitrary and capricious" standard. Id. at
321. We will reverse. We hold that no fiduciary duty
applies, and that the Trustees acted within their powers as
settlors in amending the Pension Fund plan.
II.
Subject matter jurisdiction over this matter was exercised
by the district court pursuant to 29 U.S.C.A. § 1132, as an
action to clarify benefits and enforce rights under the
Employee Retirement Income Security Act ("ERISA"). We
have appellate jurisdiction under 28 U.S.C.A. § 1291
(1984). This court exercises plenary review over the district
court's grant of summary judgment. We will affirm
summary judgment "if there is no genuine issue of material
fact and the moving party is entitled to judgment as a
matter of law." Smith v. Hartford Ins. Group, 6 F.3d 131,
135 (3d Cir. 1993).
III.
A.
The district court concluded that the fiduciary duty (set
forth in 29 U.S.C.A. § 1104) applied to the Trustees'
amendment to the Pension Fund plan, which provided for
the additional $100 per month payment. It determined that
the Trustees had failed to act with the duty and loyalty
required of a fiduciary. In the view of the district court,
under either the "prudent person" or the "arbitrary and
capricious" standard of review, the Trustees' actions were
improper. The court based its decision largely on a
perceived difference between multi- and single-employer
plans, citing dicta in Siskind v. Sperry Retirement Program,
Unisys, 47 F.3d 498, 506 (2d Cir. 1995). Siskind states that
multi-employer plans differ from single-employer plans on
the issue of fiduciary obligations. As the Second Circuit
explained:
6
The cases holding plan amendment to be an
administrative and fiduciary task concern
multiemployer pension plans, jointly administered by
trustees representing the employers and trustees
appointed by and representing the union. In the
multiemployer setting, trustees amending a pension
plan affect the allocation of a finite plan asset pool . . . .
For that reason trustees administering a multiemployer
plan are expected to act solely for the benefit of
beneficiaries and are barred from acting on the
employers' behalf.
Id. (emphasis added)(citations and internal quotations
omitted). In contrast, the employer sponsoring a single-
employer plan, "must have latitude in the sound
management of its business to determine the benefits it will
guarantee." Id. at 505 (citing Johnson v. Georgia-Pacific
Corp., 19 F.3d 1184, 1188 (7th Cir. 1994)). The court then
held, "to the extent [the trustees' actions are] not regulated
by ERISA, they may act without invoking their fiduciary
duties to plan beneficiaries." Id. at 507.
B.
Arguments are advanced by both parties concerning
whether the Siskind approach (analyzing single- and multi-
employer cases differently) has been made obsolete by the
Supreme Court's recent decision in Lockheed Corp. v.
Spink, ____ U.S. ____, 116 S. Ct. 1783 (1996), which was
filed after the district court entered the appealed-from
order. In Lockheed, the Supreme Court explained that:
Plan sponsors who alter the terms of a plan do not fall
into the category of fiduciaries. As we said with respect
to the amendment of welfare benefit plans . . .
"[e]mployers or other plan sponsors are generally free
under ERISA, for any reason at any time, to adopt,
modify, or terminate welfare plans." When employers
undertake those actions, they do not act as fiduciaries,
but are analogous to the settlors of a trust.
___ U.S. at ___, 116 S.Ct. at 1789 (citations
omitted)(alteration in original). The Court made clear that
7
this reasoning applied to both "pension benefit plans" and
"welfare benefit plans." Id. at 1789-90.
Lockheed speaks of "plan sponsors," a term that applies
to both single-employer sponsors and multi-employer
sponsors under ERISA, and the opinion lacks any hint that
single- and multi-employer plans should be analyzed
differently. At the same time, the silence of Lockheed on
this topic could arguably be a result of its subject matter,
a single-employer plan. The Court did not mention multi-
employer plans nor state that its decision was intended to
reach them or to address their particular characteristics.
While we do not read Lockheed to be the definitive word
that there are never valid occasions on which to distinguish
between the two types of plans, we find that the instant
case is clearly one in which the fiduciary duty does not
apply. Lockheed states in simple language that "[p]lan
sponsors who alter the terms of a plan do not fall into the
category of fiduciaries." Id. at 1789. The plan feature (a
finite asset pool) on which Siskind based its deviation from
this bright-line rule is not present here.
In discussing the distinction between single- and multi-
employer plans, Siskind drew heavily on the Sixth Circuit's
opinion in Musto v. American General Corp., 861 F.2d 897,
912 (6th Cir. 1988). Musto placed importance on the fact
that a multi-employer plan involves a finite asset pool.
However, before Siskind was decided, the Sixth Circuit
issued Pope v. Central States Southeast & Southwest Areas
Health and Welfare Fund, 27 F.3d 211 (6th Cir. 1994). Pope
did not place emphasis on the "finite asset pool distinction"
and found no reason to treat multi-employer and single-
employer plans differently when the sponsor of either is
merely amending its plan:
[A]mendment of multi-employer plans does not
[materially] differ from amendment of single-employer
plans. . . . A company "normally acts in its role as
employer, not in its role as fiduciary" when amending
a single-employer plan. Musto, 861 F.2d at 912.
Imposition of fiduciary obligations in favor of plan
participants and beneficiaries would thus divide the
company's loyalties, a result ERISA was designed to
8
prevent. The trustees of a multi-employer plan do not
act in the role of employers when enacting plan
amendments which simply affect the allocation of an
asset pool among participants and beneficiaries. See
Musto, 861 F.2d at 912. However, multi-employer plan
trustees assume a position analogous to that of a
single-employer plan administrator when they amend a
plan to protect its financial stability. As in cases
involving single-employer plans, the policy encouraging
employers to establish welfare benefit plans is served
by permitting trustees of multi-employer plans to
amend such plans without fiduciary considerations.
Furthermore, and again like cases involving single-
employer plans, imposition of fiduciary obligations in
cases involving multi-employer plans would divide the
trustees' loyalties and might keep them from pressing
for generous welfare plan benefits.
Pope, 27 F.3d at 213-14 (citations omitted).
As noted above, the Pension Fund is a multi-employer
plan that does not have a "finite asset pool," yet the
presence of such a pool is the sole reason Siskind
articulated for distinguishing between single- and multi-
employer plans. Pope stands for the proposition that the
Sixth Circuit, despite its authorship of Musto, is prepared
to treat single- and multi-employer plans similarly in the
absence of some other salient difference. In the instant
case, the employers and the Pension Fund jointly share
liability for the fund's obligations. The rationale for having
the fiduciary duty of loyalty apply is therefore absent,
because the Trustees have the power to incur unfunded
liabilities, as with any settlor or grantor in a single-
employer trust. All employers in a multi-employer plan are
collectively a single employer in the language of 29 U.S.C.A.
§ 1060 (explaining that other ERISA sections should "be
applied as if all employees of each of the employers were
employed by a single employer"). Section 1002(16)(B) of
ERISA uses the term "plan sponsor" rather than
"employer," indicating that the term "sponsor" is meant to
encompass more than single employers:
The term "plan sponsor" means (I) the employer in the
case of an employee benefit plan established or
9
maintained by a single employer . . . or (iii) in the case
of a plan established or maintained by two or more
employers or jointly by one or more employers and one
or more employee organizations, the association,
committee, joint board of trustees, or other similar
group of representatives of the parties who establish or
maintain the plan.
Id.
The distinction embraced in dicta by Siskind, and relied
upon by the district court, was due to its finding a material
difference in the administration of single- and multi-
employer plans. Finding no such difference here, we hold
that the simple fact that the plan at issue is a multi-
employer plan is insufficient to cause the fiduciary duty to
attach to the Trustees' actions.
C.
The principal reason that the fiduciary duty typically
attaches to the actions of plan trustees--that their action is
administrative or discretionary in character--is absent
here. ERISA draws a distinction between employers
modifying their plans ("plan modifiers") on the one hand,
and fiduciaries exercising the discretion vested in them as
plan administrators, on the other. The single-/multi-
employer distinction described in the foregoing paragraphs
is a byproduct of this more central distinction. Musto noted
the interconnectedness of these two sets of distinctions:
In amending a multi-employer plan, where the level of
contributions of each participating employer has
generally been set by collective bargaining, the trustees
"affect the allocation of a finite plan asset pool between
participants," as defendants point out in their brief,
and hence act as plan administrators subject to a
fiduciary duty. But when, as here, there is only one
employer, there is normally no "plan asset pool" to be
affected. In amending a single employer plan, therefore,
the company normally acts in its role as employer, not
in its role as fiduciary.
861 F.2d at 912.
10
In the instant case, the district court properly placed
emphasis on the fiduciary-administrator/employer-plan
modifier dichotomy. "[W]hen employers wear ``two hats' as
employers and administrators, ``they assume fiduciary
status "only when and to the extent" that they function in
their capacity as plan administrators, not when they
conduct business that is not regulated by ERISA.' " Walling,
917 F. Supp. at 319 (first alteration in original)(quoting
Curcio v. John Hancock Mut. Life Ins. Co., 33 F.3d 226, 234
n.10 (3d Cir. 1994)(quoting Payonk v. HMW Indus., Inc.,
883 F.2d 221, 225 (3d Cir. 1989)(citations omitted)). As to
the meaning of "business . . . not regulated by ERISA," id.,
we stated in Nazay v. Miller, "ERISA's concern is with the
administration of benefit plans and not with the precise
design of the plan." 949 F.2d 1323, 1329 (3d Cir.
1991)(citing Hozier v. Midwest Fasteners, Inc., 908 F.2d
1155, 1159 n.3 (3d Cir. 1990)). Similarly, the Supreme
Court explained in Varity Corp. v. Howe, ___ U.S. ___, ___,
116 S. Ct. 1065, 1071 (1996), that
a "person is a fiduciary with respect to a plan," and
therefore subject to ERISA fiduciary duties, "to the
extent" that he or she "exercises any discretionary
authority or discretionary control respecting
management" of the plan, or "has any discretionary
authority or discretionary responsibility in the
administration" of the plan. ERISA § 3(21)(A) [29
U.S.C.A. 1002(21)(A)]. Varity was both an employer and
the benefit plan's administrator [,]
and was therefore acting as a fiduciary only to the extent it
acted as an administrator. In Lockheed, the Court
concluded that "the act of amending a pension plan does
not trigger ERISA's fiduciary provisions." 116 S. Ct. at 1790.
This approach was acknowledged by the district court:
Courts have reasoned that an employer who is also a
plan administrator acts as a fiduciary only when it
functions in its capacity as plan administrator, not
when it conducts business that is not regulated by
ERISA. Because ERISA does not require the creation of
employee pension plans in the first instance, an
employer who designs, amends, or terminates a
11
pension benefit plan is not "administering"[the] plan
and thus does not act as a fiduciary.
Walling, 917 F. Supp. at 319-20 (citations omitted).
Nonetheless, the district court failed to recognize the result
dictated by this distinction. Because the Trustees were not
administering the plan, their amendment was not a
fiduciary act.
The jurisprudence of this area is marked by the drawing
of a sharp distinction between 1) the sponsors of a plan
acting as an administrator (which is discretionary and
therefore fiduciary) and 2) the sponsors of a plan amending,
altering, terminating, or otherwise redesigning the plan
itself (functions considered to be not discretionary and
therefore not fiduciary).1 "Discretion" for the purpose of
determining the applicability of fiduciary obligations means
solely that the plan administrator is making a choice
reserved to it by the plan document in administering the
plan, not tinkering with the plan document itself.
These dichotomies, single-employer/multi-employer and
employer/fiduciary, are useful as guideposts in determining
whether the fiduciary duty applies. In the particular matter
before us, the employer/fiduciary dichotomy unequivocally
tells us that the Trustees were not acting as a fiduciary
when they amended the Pension Fund's plan design. ERISA
clearly states, in pertinent part:
_________________________________________________________________
1. See, e.g., Fagan v. National Stabilization Agreement of Sheet Metal
Indus. Trust Fund, 60 F.3d 175, 178 (4th Cir. 1995); Izzarelli v. Rexene
Prods. Co., 24 F.3d 1506, 1524-25 (5th Cir. 1994); United Paperworkers
Int'l Union v. Jefferson Smurfit Corp., 961 F.2d 1384, 1386 (8th Cir.
1992); McGann v. H & H Music Co., 946 F.2d 401, 407 (5th Cir. 1991);
Hozier, 908 F.2d at 1160-61; Musto v. American Gen. Corp., 861 F.2d at
912 ("[W]hen an employer decides to establish, amend, or terminate a
benefits plan, as opposed to managing any assets of the plan and
administering the plan in accordance with its terms, its actions are not
to be judged by fiduciary standards."); Young v. Standard Oil (Indiana),
849 F.2d 1039, 1045 (7th Cir. 1988) ("In short, an employer does not
owe its employees a fiduciary duty when it amends or abolishes a
severance benefit plan."); Cunha v. Ward Foods, Inc., 804 F.2d 1418,
1432-33 (9th Cir. 1986); Phillips v. Amoco Oil Co., 799 F.2d 1464, 1471
(11th Cir. 1986); Amato v. Western Union Int'l, Inc., 773 F.2d 1402, 1417
(2d Cir. 1985).
12
Except as otherwise provided in subparagraph (B), a
person is a fiduciary with respect to a plan to the
extent (I) he exercises any discretionary authority or
discretionary control respecting management of such
plan or exercises any authority or control respecting
management or disposition of its assets, (ii) he renders
investment advice for a fee . . . or has any authority or
responsibility to do so, or (iii) he has any discretionary
authority or discretionary responsibility in the
administration of such plan.
29 U.S.C.A. § 1002(21)(A) (emphasis added). None of the
above-described situations that give rise to thefiduciary
duty is present here.
IV.
We reject the district court's statement that the
"[t]rustees enacted the amendment to advance non-Pension
Fund interests." Walling, 917 F. Supp. at 322. The court
simply identified the wrong criteria: since the Trustees, as
settlors, were free to scrap the plan altogether, they were
free to advance non-Pension Fund interests in making
design changes to it.
In sum, the ERISA fiduciary obligations simply do not
apply to a plan amendment. See Lockheed, 116 S. Ct. at
1789. The Trustees, acting collectively as settlor, were free
to make any amendment that did not run afoul of relevant
ERISA regulations. No such regulation was implicated here.
See, e.g., 29 U.S.C.A. § 1054(g)(amendment generally may
not decrease accrued plan benefits) and § 1085b (if
adoption of an amendment results in underfunding of a
defined benefit plan, the sponsor must post security for the
amount of the deficiency). Walling and his class had no
accrued or vested benefits that were affected by the
Trustees' actions. The Pension Fund plan explicitly states:
12.04 No Vesting in Assets. No person other than
the Trustees of the Pension Fund shall have any right,
title, or interest in any of the income or property of any
funds received or held by or for the account of the
Pension Fund, and no person shall have any vested
right to benefits provided by the Pension Plan . .. .
13
Ohio App. at 180.
V.
For the reasons stated herein, we will reverse the
February 9, 1996, order of the district court. The matter
will be remanded to the district court with a direction to
enter an order granting the Trustees' motion for summary
judgment.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
14