Freund v. Marshall & Ilsley Bank

Citation485 F. Supp. 629
Decision Date24 September 1979
Docket Number77-C-276.,No. 76-C-543,76-C-543
PartiesHerbert FREUND et al., Plaintiffs, v. MARSHALL & ILSLEY BANK et al., Defendants. Ray MARSHALL, Secretary of Labor, Plaintiff, v. R. W. DEKEYSER et al., Defendants.
CourtUnited States District Courts. 7th Circuit. Western District of Wisconsin

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

John M. Potter, Wisconsin Rapids, Wis., Richard Bolte, Bolte Law Office, Wausau, Wis., for Freund.

Charles F. Smith, Jr., Tinkham, Smith, Bliss, Patterson & Richard, Wausau, Wis., and V. Downing Edwards and Patricia M. Heim, Edwards, Parke & Heim, LaCrosse, Wis., for defendants Marshall & Ilsley Bank, as Personal Representative of Estate of Phillip Slomann, Ashley H. Slomann, Herman Nemzoff, Frank L. Guth, Bonita Rooney, and R. W. DeKeyser.

Frank T. Mustacci, Korth, Rodd, Sommer & Mouw, Rhinelander, Wis., for Olive F. and William Hyland.

Robert N. Eccles and Mary Champagne, U. S. Dept. of Labor, Plan Benefits Sec. Div., Washington, D. C., for Ray Marshall.

Charles F. Smith, Jr., Wausau, Wis., and Patricia M. Heim, LaCrosse, Wis., for defendants DeKeyser, Bauer, Coggins, Rooney, Slomann and Stenberg.

Kenneth M. Hill, Wisconsin Rapids, Wis., for Viola Daly.

LARSON, Senior District Judge.

CONCLUSIONS OF LAW

1. The Court has jurisdiction over these actions under section 502(e)(1) of ERISA, 29 U.S.C. § 1132(e)(1). Venue of these actions is proper in this district under section 502(e)(2) of ERISA, 29 U.S.C. § 1132(e)(2). The Secretary of Labor has authority to bring this action under sections 502(a)(2) and (5) of ERISA, 29 U.S.C. § 1132(a)(2) and (5). The action brought by participants is authorized by section 502(a)(2) and (3) of ERISA, 29 U.S.C. § 1132(a)(2) and (3).

2. The Northwest Retirement and Investment Club (the Plan) is an employee pension benefit plan within the meaning of section 3(2) of ERISA, 29 U.S.C. § 1002(2), which is maintained by employers engaged in an industry affecting commerce within the meaning of section 4(a)(1) of ERISA, 29 U.S.C. § 1003(a)(1). See NLRB v. Reliance Fuel Oil Corp., 371 U.S. 224, 83 S.Ct. 312, 9 L.Ed.2d 279 (1962). The basis for the Court's conclusion that the Plan is subject to the coverage of ERISA has been set forth previously in the memorandum opinion denying defendants' motions for summary judgment. However, in view of the substantial attention devoted to this issue by the parties in their written submissions, and the amount of evidence presented at trial which was not before the Court on the motion for summary judgment, additional discussion by the Court is appropriate.

Those defendants who argue against ERISA coverage place great stock in the fact that the Plan was not qualified for favorable tax treatment under the Internal Revenue Code, 26 U.S.C. § 403 et seq. and § 501 et seq., but this argument simply overlooks the statutory scheme of ERISA. Title I of ERISA, known as the labor provisions of ERISA, is administered and enforced by the Secretary of Labor and contains provisions applicable to all employee benefit plans, including pension and welfare plans. Title II, containing the tax provisions of ERISA, amends the Internal Revenue Code insofar as it relates to retirement plans. Title III governs coordination among the agencies enforcing the statute. Title IV establishes a system of termination insurance for tax-qualified, defined benefit plans. Thus, Titles II and IV are limited to tax-qualified plans, see 29 U.S.C. § 1321(a)(1). Title I, however, applies by its terms to all plans which meet the definitions of sections 3(1), (2) and (3), 29 U.S.C. §§ 1002(1), (2), (3), without regard to tax qualification, including all welfare benefit plans and any non tax-qualified pension plans. Thus, the tax status of this Plan does not govern whether it is covered by Title I of ERISA.

The same defendants also, ironically, rely on two Department of Labor regulations to support their position. In regulations codified at 29 CFR § 2510.3-2(d) the Department took the position that certain employee bonus programs would not be regarded as "pension plans" under ERISA. Since the Court has already found that this Plan was not a bonus program, see Finding of Fact No. 8, supra, this regulation offers no support to the defendants. In another regulation, 29 CFR 2510.3-1(a)(2), the Department excluded from the definitions of "welfare plan" and "pension plan" some systems of employer checkoff of monies, through payroll deductions, for deposit to savings accounts owned by employees. Notwithstanding some similarities between such systems and the Plan, the Court has already concluded that the Plan — as a system of employer and employee contributions to a trusteed fund, with contributions and investment earnings of the fund's assets being allocated to individual accounts — is not a system described in these regulations. The Department of Labor obviously shares these interpretations of its regulations as applied to this Plan.

Indeed, were the statutory language and legislative history ambiguous on this issue, well-settled canons of statutory construction would lead the Court toward finding ERISA coverage in this case. Other Courts have noted that ERISA is a comprehensive remedial statute designed to protect the pensions and other benefits of employees, Marshall v. Snyder, 430 F.Supp. 1224 (E.D. N.Y., 1977) aff'd 572 F.2d 894, 901 (2d Cir. 1977); Eaves v. Penn, 587 F.2d 453 (10th Cir. 1978), and have recognized the board sweep of its provisions. Nachman Corp. v. PBGC, 592 F.2d 947 (7th Cir. 1979). With such a statute, a liberal construction is warranted in order to carry out the statute's remedial purposes, Marshall v. Kelly, 465 F.Supp. 341, 349 (W.D.Okl., 1979), and coverage should be extended to provide the maximum degree of protection to employees. Connolly v. PBGC, 581 F.2d 729, 732 (9th Cir. 1978).

3. In this case, however, the Plan clearly satisfies the statutory requirement that it be established or maintained by employers to provide retirement income to their employees. Section 3(2) of ERISA, 29 U.S.C. § 1002(2) provides:

The terms "employee pension benefit plan" and "pension plan" mean any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that by its express terms or as a result of surrounding circumstances such plan, fund, or program —
(A) provides retirement income to employees, or
(B) results in a deferral of income by employees for periods extending to the termination of covered employment or beyond . . .

The Plan by "the express terms" of the Plan document was established to provide retirement income to employees of the sponsoring companies and this fact alone establishes ERISA coverage. In addition, the evidence set forth in Findings of Fact Nos. 4, 7, and 8, supra, establishes that, "as a result of surrounding circumstances" the Plan was established and maintained to provide retirement income to employees and would have done so but for the transactions challenged in these actions. As set forth in the Court's earlier opinion, the Plan document which was distributed to employees is itself persuasive evidence not only of the companies' promise to provide retirement funds but also of their attempts to encourage employees to leave their funds in the Plan for retirement. The fact that the Plan fiduciaries subsequently concluded that certain incentives, such as the 90 day notice and the forfeiture of earnings interest, were unnecessary to encourage the accumulation of funds in Plan accounts did not change the essential nature of the Plan. There is abundant evidence that both Plan officials and Plan participants considered that retirement benefits were being provided by the Plan. Therefore, even absent the "express terms" of the Plan documents, the Court would conclude "as a result of surrounding circumstances" that this Plan operated to provide retirement income to employees.

4. Section 3(21)(A) of ERISA, 29 U.S.C. § 1002(21)(A), provides in part that

. . . 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; . . . or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan . . . By the very nature of their positions, plan trustees and a plan administrator are fiduciaries with respect to a plan. See 29 CFR § 2509.75-8 at D-3. Thus, all of the persons who served as named trustees of the Plan, see Finding of Fact No. 4, supra, were fiduciaries with respect to the Plan as of the effective date of ERISA within the meaning of § 3(21)(A). Likewise, R. W. DeKeyser was a fiduciary in his capacity as administrator and during his brief tenure as a trustee.

It is apparent from the evidence that many of these persons were confused about the nature of their fiduciary duties and indeed unsure whether they were fiduciaries with respect to the Plan. Certain of the defendants may have believed that they were removed from fiduciary status when their companies ceased their business affiliations with Northwest or, in the case of Midstates Distributing, when its employees dropped out of the Plan. Their state of mind, however, does not determine their fiduciary status under ERISA. The objectives of ERISA's fiduciary provisions, as described by one of the law's chief sponsors, Senator Harrison Williams, are

. . . to make applicable the law of trusts; . . . to establish uniform fiduciary standards to prevent transactions which dissipate or endanger plan assets, and to provide effective remedies for breaches of trust.
U.S.Code Cong. and Admin.News, pp. 4639, 5186, 93d Cong. 2d Sess., 1974.

Thus, the intent of Congress was to federalize the common law of trusts applied in view of the special nature and purpose...

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