Dade v. North American Philips Corp., 94-5546

• Citation: 68 F.3d 1558
• Decision Date: 01 November 1995
• Docket Number: No. 94-5546,94-5546
• Parties: , 19 Employee Benefits Cas. 2097, Pens. Plan Guide P 23914Z James F. DADE; Jerome A. Budde, Jr., Individually and as the Class Representatives of all Persons Similarly Situated, Appellants, v. NORTH AMERICAN PHILIPS CORPORATION, as a Corporate Entity and as Plan Administrator of the Co-Defendant Pension Plan; Philips Electronics North American Corporation; the North American Philips Corporation Pension Plan for Salaried Employees.
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

Page 1558

68 F.3d 1558

64 USLW 2352, 19 Employee Benefits Cas. 2097,

Pens. Plan Guide P 23914Z

James F. DADE; Jerome A. Budde, Jr., Individually and as

the Class Representatives of all Persons Similarly

Situated, Appellants, v. NORTH AMERICAN PHILIPS CORPORATION, as a Corporate Entity and as Plan Administrator of the Co-Defendant Pension Plan;

Philips Electronics North American Corporation; the North

American Philips Corporation Pension Plan for Salaried Employees.

No. 94-5546.

United States Court of Appeals,

Third Circuit.

Argued June 13, 1995.

Decided Nov. 1, 1995.

David Tykulsker, Ball, Livingston & Tykulsker, Newark, NJ, and John C. Theisen

(argued), and John T. Menzie, Gallucci, Hopkins & Theisen, Fort Wayne, IN, for Appellants.

Michael J. Dell (argued), Kramer, Levin, Naftalis, Nessen, Kamin & Frankel, New York City, for Appellees.

Fredric S. Singerman and Christopher A. Weals, Seyfarth, Shaw, Fairweather & Geraldson, Washington, D.C., for Amicus Curiae Chamber of Commerce of the United States of America (Stephen A. Bokat, Robin S. Conrad, and Mona C. Zeiberg, National Chamber Litigation Center, Inc., Washington, D.C., of counsel).

John M. Vine and Jay T. Smith, Covington & Burling, Washington, D.C., for Amicus Curiae the ERISA Industry Committee.

Before: STAPLETON, McKEE and SEITZ, Circuit Judges.

OPINION OF THE COURT

STAPLETON, Circuit Judge:

The issue presented is whether Sec. 204(g) of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. Sec. 1054(g), requires an employer that sells a business but retains the pension plan covering the employees of that business to credit service with the purchaser when determining the eligibility of those employees for an early retirement benefit subsidy. Plaintiffs James Dade, Jerome Budde, Jr., and the class they purport to represent sued to force the North American Philips Corporation ("Philips"), their former employer, to comply with this alleged requirement. The district court held that ERISA does not impose such a requirement and dismissed the claims of plaintiffs for failure to state a claim under Fed.R.Civ.P. 12(b)(6). We will affirm.

I.

This dispute arises in connection with Philips' sale of the assets of its Magnavox Electronic Systems Company ("Magnavox") division to MESC Electronics Systems, Inc. ("MESCESI"). The relevant facts are not in dispute. Plaintiffs were employed by Magnavox on October 22, 1993, when the sale closed. Until the sale, plaintiffs participated in the Philips Electronics North America Corporation Pension Plan for Salaried Employees (the "Philips Plan" or the "Plan").

Under the terms of the Plan, sixty-five is the normal retirement age. However, participants who are at least fifty-five years old can elect to retire earlier. Such early retirees receive benefits reduced by 0.3% for each month their retirement precedes the normal retirement age. Under the Plan's "Rule of 85," early retirement benefits will not be reduced if the sum of the participant's age and years of eligible service at retirement is at least eighty-five. The Plan defines eligible service as service with Philips, an affiliate of Philips, or any other company that has adopted the Plan.

Philips notified the plaintiffs of the impending sale of Magnavox and of the sale's effects on their retirement benefits. After the sale, Philips would remain the sponsor of the Plan and there would be no transfer of Plan assets or liabilities. While the plaintiffs would cease to be Philips' employees at the time of the closing, they would retain their rights under the Plan. Moreover, the Plan would be amended in two respects. All participants' accrued retirement benefits would become 100% vested when the sale closed and Magnavox employees continuing with MESCESI would be entitled to credit for up to one year of additional service with MESCESI towards the Philips Plan's Rule of 85 requirements. No credit would be given for any subsequent service with MESCESI.

After the sale, the plaintiffs continued to work for MESCESI in the same jobs they held with Magnavox. They did not satisfy the Rule of 85 requirements when the sale closed, nor could they do so even with credit for an additional year of service with MESCESI. Plaintiff Budde's age and eligible service summed to eighty-five, but he was not yet fifty-five years old, and would not turn fifty-five by October 1994. Plaintiff Dade did not have sufficient eligible service.

II.

The district court had jurisdiction under 28 U.S.C. Sec. 1331 and 29 U.S.C. Sec. 1132. Our jurisdiction over this appeal rests on 28 U.S.C. Sec. 1291. We exercise plenary review over the district court's order dismissing plaintiffs' complaint under Fed.R.Civ.P. 12(b)(6). Moore v. Tartler, 986 F.2d 682, 685 (3d Cir.1993).

III.

Plaintiffs' complaint asserts that both ERISA and the terms of the Plan require Philips to give plaintiffs credit for all of their service with MESCESI for the purpose of satisfying the Rule of 85. The district court was correct in holding that neither ERISA nor the terms of the Plan require that Philips give this credit.

A. The Plan

While plaintiffs insist that Philips breached the Plan, their supporting argument before us rests squarely on two provisions of the Plan that incorporate the "applicable law": Section 4.2.3, which requires the Plan to give credit for service with a successor employer "to the extent required by law," and Section 13.4, which authorizes amendments to the Plan in order to "comply with any other provision of applicable law." Since the "applicable law" to which plaintiffs point is Sec. 204(g) of ERISA, it necessarily follows that the sole issue presented in this appeal is whether Sec. 204(g) requires credit for the plaintiffs' service with MESCESI. It is nevertheless important to view the statutory issue in the context of the provisions of the Plan.

The unambiguous terms of the Plan do not require Rule of 85 credit for service with MESCESI. Section 5.7 of the Plan sets out the terms for early retirement subsidies. A participant's right to an early retirement subsidy is based on the participant's age and years of "Eligibility Service." "Eligibility Service" is defined as the "number of years and months of employees' Periods of Service." "Period of Service" is in turn defined as the period running from an employee's "Employment Commencement Date" (defined in Section 1.2.25 as the day on which he performs his first hour of paid work for an Employer or Affiliate) through an applicable "Severance Date." Finally, "Severance Date" is defined for relevant purposes as the "earliest of: the date on which an employee quits, retires, is discharged or dies; or the first anniversary of the first date of a period in which an employee remains absent from service (with or without pay) with an Employer or Affiliate for any [other] reason." Plan Sec. 1.2.53 (A. 57). The Plan defines "Employer" as Philips or any other entity that has adopted the Plan with the approval of the Pension Committee, Sec. 1.2.24 (A. 45), and "Affiliate" as an entity owned by or part of the controlled group of an Employer. Sec. 1.2.3 (A. 38). MESCESI has not adopted the Plan and is not an affiliate of Philips.

Section 4.2.3 expressly excludes from the definition of "Period of Service" time spent working for any entity that is not yet or is no longer an Employer or Affiliate:

In no event shall a Period of Service include any period of service with a corporation or other entity (a) prior to the date it became an Employer (or the date it became an Affiliate, if earlier) or (b) after it ceases to be an Employer or Affiliate except to the extent required by law, or to the extent determined by the Pension Committee in its discretion exercised in a manner that does not discriminate in favor of highly paid employees.

(A. 73.) Since the parties agree that the Pension Committee did not exercise its discretion to credit service with MESCESI after the first year, we turn to the effect of Sec. 204(g) of ERISA.

B. The Requirements of ERISA

ERISA does not mandate the creation of pension plans. Nor, with exceptions not here relevant, does it dictate the benefits to be afforded once a decision is made to create one. Hlinka v. Bethlehem Steel Corp., 863 F.2d 279, 283 (3d Cir.1988); see also H.R.Rep. No. 807, 93d Cong., 2d Sess., reprinted in 1974 U.S.C.C.A.N. 4670, 4677. "ERISA is not a direction to employers as to what benefits to grant their employees." Hlinka, 863 F.2d at 283. Philips was thus at liberty to define the early retirement benefit in any way it chose, including a stipulation that only service to Philips or an affiliate would be credited towards the Rule of 85 requirement. Plaintiffs do not contend otherwise. Accordingly, we are required to enforce the Plan as written unless we can find a provision of ERISA that contains a contrary directive. The only candidate identified by the plaintiffs is Sec. 204(g).

Section 204(g) of ERISA prohibits an employer from decreasing a participant's accrued benefits by plan amendment. Prior to 1984, no protection was given to early retirement benefits because they were not considered to be accrued benefits. Bencivenga v. Western Pa. Teamsters and Employers Pension Fund, 763 F.2d 574, 577 (3d Cir.1985). In 1984, however, Congress amended ERISA Sec. 204(g) to provide protection for early retirement benefits. Retirement Equity Act of 1984 ("REA"), Pub.L. No. 98-397, Sec. 301(a)(2), 98 Stat. 1450-51. Section 204(g) as amended provides in relevant part:

(1) The accrued benefit of a participant under a plan may not be decreased by an amendment of the plan

....

(2) For purposes of paragraph (1), a plan amendment which has the effect of--

(A) eliminating or reducing an early retirement benefit or a retirement-type subsidy (as defined in regulations) ...

with respect to benefits attributable to service before the amendment shall be treated as reducing accrued benefits. In the case of a retirement-type...