Caterino v. Barry, 91-1542

• Decision Date: 08 April 1992
• Docket Number: No. 91-1542,91-1542
• Citation: 8 F.3d 878
• Parties: , 17 Employee Benefits Cas. 1761, Pens. Plan Guide P 23888W Ronald W. CATERINO, et al., Plaintiffs, Appellants, v. J. Leo BARRY, et al., Defendants, Appellees. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 878

8 F.3d 878

62 USLW 2333, 17 Employee Benefits Cas. 1761,

Pens. Plan Guide P 23888W

Ronald W. CATERINO, et al., Plaintiffs, Appellants, v. J. Leo BARRY, et al., Defendants, Appellees.

No. 91-1542.

United States Court of Appeals, First Circuit.

Heard April 8, 1992.

Decided Nov. 12, 1993.

Anthony M. Feeherry with whom Marie P. Buckley and Goodwin, Procter & Hoar, Boston, MA, were on brief, for appellants.

Randall E. Nash with whom James T. Grady and Grady and Dwyer, Boston, MA, were on brief, for appellees.

Before BREYER, Chief Judge, CYR and STAHL, Circuit Judges.

BREYER, Chief Judge.

For more than thirty years, New England employees of United Parcel Service ("UPS") have participated in the New England Teamsters and Trucking Industry Pension Fund (the "Teamsters Pension Fund"). In 1986, a group of those employees decided they wanted to leave the Teamsters Pension Fund. They hoped (through collective bargaining) to secure their employer's assistance in setting up a separate pension fund covering only UPS New England employees.

The employees failed to bring about the creation of a separate fund. And, they blame the Teamsters Pension Fund trustees for that failure. In particular, they believe that the trustees have thwarted their efforts to negotiate a plan switch, not through direct opposition, but by refusing to permit a transfer of any Teamsters Pension Fund assets to any new pension fund that they, together with UPS, might create. They brought this lawsuit against the trustees, claiming, in relevant part, that the trustees' refusal to transfer assets violates various laws, including certain provisions of the Employee Retirement Income Security Act of 1974 (ERISA). See 29 U.S.C. §§ 1104(a)(1), 1414(a).

After a trial, the district court found in the trustees' favor. The employees now appeal. They argue in essence that the trustees, in refusing to transfer any assets to a newly created fund, have violated the fiduciary obligations that ERISA imposes upon them. We can find no such violation, however; and, we affirm the judgment in the trustees' favor.

I Background

A The Teamsters Pension Fund

The large, multiemployer Teamsters Pension Fund pools contributions from nearly two thousand New England firms. Eight trustees (four Teamster representatives and four employer representatives) manage the fund, investing the pooled money and paying guaranteed monthly benefits to employees who retire. We have read the record with considerable care to try to understand, from the testimony and documents, as well as the briefs, how the Teamsters Pension Fund works. Based on our understanding of the record, we describe its significant features as follows.

First, employers contribute to the fund at a rate that, in 1986, varied, among employers, between 36 cents and $1.66 per employee working hour. The precise rate depends upon the results of local collective bargaining. Each employer pays the collective-bargained hourly rate for every hour that any employee works, whether the employee who performs the work is young or old, part-time or full-time, temporary or long-term.

Second, a retiring employee receives a pension benefit in an amount defined by a schedule that varies benefits depending primarily upon the employee's length of service and upon his, or her, employer's contribution rate. The schedule thus pays the same pension to two retirees who have worked for the same number of years for employers who contribute at the same rate. In 1986, for example, an employee who worked for twenty-five years for an employer who contributed $1.66 per hour (UPS' actual rate in 1986) would receive a pension of $900 per month. The benefit schedule imposes a minimum length of service (ten years as of 1986, lowered to five in 1990); no employee is entitled to any pension benefits until he has worked the minimum, i.e., until his Fund benefits have "vested." The schedule appears to set a maximum length of service as well (twenty-five or thirty years, depending on retirement age). Once an employee works the maximum number of years, additional work done does not entitle him to any additional benefit.

It is important to understand that the Teamsters Pension Fund (like most "defined benefit" pension plans and unlike "defined contribution" plans such as those of many university employees) does not guarantee any employee that he will receive a pension that exactly reflects all the contributions made on behalf of that particular employee over the years (plus the investment income associated with those contributions). As we have just said, an individual employee who works more than the maximum number of years loses the benefit of some contributions made in respect to some of his work hours. More important, an employee who leaves covered employment before his Fund benefits vest loses the benefit of all contributions made in respect to his work. Less obviously, employees who are young also lose the benefit of some contributions. For example, an employee who works a certain number of years, say fifteen, between the ages of forty and fifty-five (and then quits) receives no more upon his retirement at sixty-five than an employee who works the same fifteen years between the ages of fifty and sixty-five; yet the contributions made on behalf of the first employee are likely more valuable, for they have had more time to accrue investment income before retirement age.

This lack of a perfect fit between individual contributions and individual benefits may reflect administrative considerations. It may, for example, reflect a judgment not to create discrepancies in benefit levels that turn solely upon the relation between investment market performance and the time that an individual's contributions are made. But, the most important reason for the imperfect fit, as the Ninth Circuit has pointed out, is that the "excess" contributions made in respect to some workers help to assure that all workers (who work a reasonable number of years) will have a decent pension. "A modern defined benefit pension plan pools contributions for all workers ... to provide reasonable pensions for workers who satisfy reasonable eligibility standards. The formula necessarily assumes [inter alia ] that the pensions of a significant number of employees may never vest." Phillips v. Alaska Hotel and Restaurant Employees Pension Fund, 944 F.2d 509, 517 (9th Cir.1991) (citation omitted), cert. denied, --- U.S. ----, 112 S.Ct. 1942, 118 L.Ed.2d 548 (1992); see also Local 144 Nursing Home Pension Fund v. Demisay, --- U.S. ----, ----, 113 S.Ct. 2252, 2260, 124 L.Ed.2d 522 (1993) (Stevens, J., concurring) ("That some portion of [some defined benefit plan employees'] contributions will go to benefit [other] employees ... is, of course, in the nature of a multiemployer plan. Such plans ... pool[ ] employer contributions for the joint benefit of all participating employees.").

At the same time, the plan retains an important connection between an individual's contributions and that individual's benefits. By tying benefit levels to years of service and employer contribution rates, the Fund still ensures that those employees who do not get the full benefit of contributions made on their behalf get much of that benefit (at least if their pension rights have vested).

Third, the Teamsters Pension Fund is a multiemployer plan. The fact that it is "multiemployer" means the fund is large, thereby permitting trustees to diversify investment risks and also lowering administrative costs per pension dollar. Moreover, multiemployer "reciprocity" permits a worker to change jobs, among participating employers, without losing the benefit of past contributions.

Finally, the Teamsters Pension Fund contains a special feature--a "no asset transfer" rule--which the UPS employees now challenge. That rule says:

If any employee or group of employees ... shall cease to be covered by the Fund for any reason whatsoever, they shall not be entitled to receive any assets of the Fund or portion thereof nor shall the Trustees be authorized to make any transfer of assets on behalf of such employees.

New England Teamsters and Trucking Industry Pension Fund, Agreement and Declaration of Trust, Article XII, section 9 (1958). According to the trustees, this seemingly absolute prohibition is modified by the Trust Agreement's next section. That section requires the trustees to interpret and apply the Agreement

so as to be in full compliance with all applicable provisions of law, including the Employee Retirement Income Security Act of 1974, as amended.

New England Teamsters and Trucking Industry Pension Fund, Restated Agreement and Declaration of Trust, Article XII, section 10 (1982).

B This Case

In 1986, a group of UPS employees learned that they could dramatically improve the level of their pensions were they, with UPS, to withdraw from the Teamsters Pension Fund and create their own single-employer plan. That is because, as confirmed in the findings of the district court, UPS employs a relatively large number of temporary workers, for whom the company contributes for every hour worked, but who leave the New England trucking industry before their pensions vest. The UPS workforce also includes a large percentage of younger workers. Thus, UPS' contributions made on behalf of its employees contain a higher-than-average amount of "excess" contributions. The Teamsters Pension Fund, being a multi-employer fund, spreads the benefits of such excess contributions among all participants in the Fund. In a single-employer plan, the UPS employees realized, they would not have to share their "excess" with others. And unshared, UPS' $1.66 per hour contribution, as of 1986, could buy pensions of $2600 per month (instead of $900 per month) for UPS employees who retired from UPS service after twenty-five years. Alternatively, UPS, in a single-employer plan, could fund the $900 per month pension for employees retiring after 25...