Harris Trust & Sav. v. John Hancock Mut. Life Ins.

• Decision Date: 26 September 1989
• Docket Number: No. 83 Civ. 5401(RPP).,83 Civ. 5401(RPP).
• Citation: 722 F. Supp. 998
• Parties: HARRIS TRUST & SAVINGS BANK, as Trustee of the Sperry Rand Master Retirement Trust No. 2 (and its successor, the Unisys Master Trust), Plaintiff, v. JOHN HANCOCK MUTUAL LIFE INSURANCE CO., Defendant.
• Court: U.S. District Court — Southern District of New York

722 F. Supp. 998

HARRIS TRUST & SAVINGS BANK, as Trustee of the Sperry Rand Master Retirement Trust No. 2 (and its successor, the Unisys Master Trust), Plaintiff, v. JOHN HANCOCK MUTUAL LIFE INSURANCE CO., Defendant.

No. 83 Civ. 5401(RPP).

United States District Court, S.D. New York.

September 26, 1989.

Anderson Kill Olick and Oshinsky, P.C. by Lawrence A. Kill (Richard W. Collins, John B. Berringer and Ann V. Kramer, on the briefs), New York City, for plaintiff Harris Trust and Sav. Bank.

Reboul, MacMurray, Hewitt, Maynard and Kristol by Howard G. Kristol (Robert M. Peak, Richard J. Scarola and Karl J. Stoecker, on the briefs), New York City, for defendant John Hancock Mut. Life Ins. Co.

OPINION AND ORDER

ROBERT P. PATTERSON, Jr., District Judge.

Harris Trust and Savings Bank, trustee of the Sperry Rand Master Retirement Trust No. 2, has sued John Hancock Mutual Life Insurance Company, alleging breaches of contract, breaches of fiduciary duty, professional malpractice, unjust enrichment, and assorted violations of the Employee Retirement Income Security Act of 1974 ("ERISA"). In these cross motions for partial summary judgment, the parties ask this Court to decide whether or not John Hancock is a fiduciary with respect to the Sperry Trust within the meaning of ERISA, and subject, therefore, to the responsibilities that attend that status.

In deciding the limited question presented by the parties' motions here, this Court considers only the Group Annuity Contract No. 50, as amended, and facts to which the parties have stipulated. For the reasons following the Court concludes that there are no genuine issues of material fact; and the Court finds as a matter of law that John Hancock is not an ERISA fiduciary with respect to the Sperry Trust. Accordingly, the defendant's motion for partial summary judgment is granted and the plaintiff's motion is denied. Fed.R.Civ.P. 56.

BACKGROUND

The following is taken from the agreed statement of facts to which the parties have stipulated for the purposes of their motions.

As of March 1, 1941, the Sperry Corporation and the John Hancock Mutual Life Insurance Company entered into Group Annuity Contract No. 50 GAC ("GAC 50").¹ From its inception until December 31, 1967, GAC 50 was a deferred annuity contract, under which Sperry purchased deferred annuities from Hancock on an annual basis for each employee eligible under the terms of the Sperry Rand Master Retirement Trust No. 2 (the "plan" or the "Sperry Trust"), once that employee became entitled to benefits in accordance with the plan ("the covered employees").² Upon the purchase of any deferred annuity, Hancock guaranteed the payment of that annuity to the covered employee (and his or her beneficiaries) for life to the extent that the employee and beneficiaries would be entitled to such a payment. In other words, once a covered employee's benefits vested pursuant to the terms of the plan, Hancock would guarantee the covered employee's benefits.

By an amendment effective as of January 1, 1968, GAC 50 was converted to a direct-rated retrospective immediate participation guarantee ("retro-IPG") form of contract. Hancock IPG contracts are "participating" contracts, sharing in the aggregate of the contract's mortality, expense, and investment experience to the extent that that experience is more favorable than the experience assumed in the contract's purchase rates.³ Net investment income allocated to an IPG contract is directly credited on an annual basis to that contract's Pension Administration Fund ("PAF" or "IPG Fund"). The amount of the PAF depends in part on the investment performance of Hancock's general account and upon the allocation of that performance to GAC 50. Under the 1968 Amendment, Hancock guarantees that the PAF on any date will not be less than it otherwise would have been if the sum of the net interest earned and capital gains and losses apportioned to the PAF had always been zero from January 1, 1968.

Pursuant to the 1968 Amendment to GAC 50, annuities purchased for certain employees up to December 31, 1967 were "cancelled," but Hancock continued to guarantee benefits to those employees and their beneficiaries. The 1968 Amendment also established a method for the provision of additional benefits payable for the period after December 31, 1967. Under the amendment, upon an eligible employee's retirement Hancock would determine, pursuant to rate tables contained in GAC 50, the amount by which the Liabilities of the Fund ("LOF")⁴ would increase if that portion of the employee's retirement benefit accruing in the period after January 1, 1968 were to be guaranteed by Hancock.⁵ If GAC 50's PAF balance exceeded the contract's Minimum Operating Level ("MOL") (equal to 105% of its LOF), based upon this increased LOF, Hancock would guarantee the payment of the additional benefits. If the amount of the PAF fell below the amount of the LOF (or if the amount of the PAF and its Supplemental Fund balances together fell below the amount of the MOL), Hancock could ask Sperry for a contribution.

The 1968 Amendment provided that if Sperry failed to maintain the PAF balance at least equal to the LOF (or to maintain GAC 50's PAF and Supplemental Fund balances at or above the MOL), the PAF could be "terminated." Upon termination of the PAF, the contract would cease to function as a retro-IPG contract, and would thereafter function as a deferred annuity contract. The termination of the PAF would also result in Hancock's "repurchase" of the pre-1968 Annuities and the purchase of annuities sufficient to provide the benefits guaranteed by Hancock in the period after January 1, 1968, at the rates set forth in the 1968 Amendment. As of January 1, 1968, GAC 50's PAF balance equalled its LOF. Since at least the early 1970s, GAC 50's PAF balance has exceeded the amount of its MOL (and thus its LOF). GAC 50 provides that if there is a balance in the PAF upon its termination, Hancock shall pay or apply that balance in a manner to be determined by mutual agreement between Hancock and the plan's trustee, Harris Trust.⁶

By an amendment effective as of August 1, 1977, GAC 50 was converted to a retrospective immediate participation guarantee/prospective deferred liability form of contract. Under the 1977 Amendment, GAC 50's LOF would not be increased automatically upon the retirement of any employee and new retirement benefits would not be guaranteed automatically by Hancock. On any date after August 1, 1977, the Sperry Retirement Committee ("SRC") could request that Hancock establish guaranteed benefits in addition to the benefits already guaranteed. Since the effective date of the 1977 Amendment, the SRC has not requested that Hancock establish any new guaranteed benefits.⁷

In November, 1988 Hancock transferred to Harris Trust, as trustee of the assets of the Sperry Rand Master Retirement Trust No. 2, approximately $53 million from out of the PAF.

DISCUSSION

I

The Employee Retirement Income Security Act of 1974 ("ERISA"), Pub.L. No. 93-406, 88 Stat. 829 (codified as amended at 29 U.S.C. §§ 1001 et seq.), is Congress's comprehensive and farreaching regulatory scheme to protect employee pensions. In Congress's own words, ERISA exists

to protect ... the interests of participants in employee benefit plans and their beneficiaries, by requiring the disclosure and reporting to participants and beneficiaries of financial and other information with respect thereto, by establishing standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans, and by providing for appropriate remedies, sanctions, and ready access to the Federal courts.

Id. § 1001(b); See Massachusetts v. Morash, ___ U.S. ___, 109 S.Ct. 1668, 1671, 104 L.Ed.2d 98 (1989) (Congress passed ERISA "to safeguard employees from the abuse and mismanagement of funds that had been accumulated to finance various types of employee benefits"); see also 29 U.S.C. § 1001a(c); id. § 1001b(c). ERISA's scope is broad; it applies, with certain exceptions not germane, to "any employee benefit plan if it is established or maintained" by employers engaged in interstate commerce. Id. § 1003(a). Congress's commerce clause power, of course, is virtually limitless, and its exercise of that power in enacting ERISA was manifestly proper. See, e.g., Hewlett-Packard Co. v. Barnes, 425 F.Supp. 1294, 1300-01 (N.D.Cal.1977), aff'd, 571 F.2d 502 (9th Cir.) (per curiam), cert. denied, 439 U.S. 831, 99 S.Ct. 108, 58 L.Ed.2d 125 (1978). Neither Harris Trust nor John Hancock contends otherwise. Nor do the parties suggest that the Unisys Master Trust is anything but an "employee benefit plan," a term that ERISA explicitly defines. See 29 U.S.C. § 1002(3); id. § 1002(1); id. § 1002(2); cf. Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 107 S.Ct. 2211, 96 L.Ed.2d 1 (1987).

John Hancock takes the position nonetheless that when it enacted ERISA Congress did not mean to "alter the way in which insurance companies invest and manage billions of dollars of assets and dislocate the ... framework of state regulation that has historically governed the industry practices that are the subject of Harris Trust's claims." Memorandum of Defendant in Support of its Motion for Partial Summary Judgment at 4. ERISA's broad preemption clause directs that the statute "shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan." 29 U.S.C. § 1144(a). The preemption clause is subject to the important qualification of the "saving clause," id. § 1144(b)(2)(A), which states that ERISA "shall not be construed to exempt or relieve any person from any law of any State which regulates insurance...." According to Hancock, the Supreme Court held in Metropolitan Life Insurance Co. v. Massachusetts, 471 U.S. 724, 105 S.Ct. 2380, 85 L.Ed.2d 728 (1985), that the saving clause incorporates the McCarran-Ferguson Act, 15 U.S.C. § 1011 et seq., which leaves...