Phillips v. Alaska Hotel and Restaurant Employees Pension Fund, s. 89-35735
| Decision Date | 06 December 1991 |
| Docket Number | 90-35144,Nos. 89-35735,s. 89-35735 |
| Parties | 138 L.R.R.M. (BNA) 2287, 60 USLW 2252, 120 Lab.Cas. P 10,936, 14 Employee Benefits Cas. 1505 Helen PHILLIPS; Carson K. Workman; Joe Ahlers, a/k/a Uwe Ahlers, individually and on behalf of all others similarly situated, Plaintiffs-Appellees, Cross-Appellants, v. ALASKA HOTEL AND RESTAURANT EMPLOYEES PENSION FUND, Defendant-Appellant, Cross-Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Randall G. Simpson, Robert A. Royce, Jermain, Dunnagan & Owens, Anchorage, Alaska, for defendant-appellant, cross-appellee.
William H. Song, Brigid Carroll, William I. Lee, Davies, Roberts & Reid, Seattle, Wash., for amicus curiae Alaska Teamster-Employer Pension Trust, supporting defendant-appellant.
Lawrence Walner, Dan Edelman, Lawrence, Walner & Assoc., Ltd., Chicago, Ill., Alan M. Levy, O'Neil, Cannon & Hollman, S.C., Milwaukee, Wis., Albert R. Malanca, Donald S. Cohen, Diane J. Kero, Elizabeth P. Martin, Gordon, Thomas, Honeywell, Malanca, Peterson & Daheim, Seattle, Wash., for plaintiffs-appellees, cross-appellants.
Appeal from the United States District Court for the Western District of Washington.
Before WRIGHT, O'SCANNLAIN, Circuit Judges, and PRO, * District Judge.
We consider here whether a pension plan that excludes a high number of participants from vesting violates the Labor Management Relations Act (LMRA). In particular, we consider whether the maintenance of restrictive vesting standards amounts to arbitrary and capricious conduct or creates a structural defect under § 302(c)(5) of the LMRA, 29 U.S.C. § 186(c)(5).
The Alaska Hotel and Restaurant Employees Pension Fund (the Fund) appeals a judgment that it violated the LMRA by failing to adopt vesting standards that would have allowed a greater number of participants to obtain benefits. Many participants whose pensions did not vest were former employees on the Trans-Alaska pipeline.
The Fund makes two arguments supporting reversal: (1) the district court erred in concluding that the plan contained a structural defect and that the trustees acted arbitrarily and capriciously, and (2) the plaintiffs' class action is time barred under the applicable statute of limitation. Finding no violation of the LMRA, we reverse the judgment of the district court.
The Fund was established in 1966 pursuant to an agreement between two local chapters of the International Union of Hotel and Restaurant Employees and the Association of Alaska Hotel and Restaurant The Fund was set up as a defined benefit plan. This type of plan pools contributions rather than segregating them in individual accounts. Employers make contributions on behalf of all employees regardless of the length of their employment. Participants receive specific benefits at retirement based on a formula focusing on years of participation in the plan. Nonvested participants do not receive benefits.
Owners. It is administered by a board of trustees comprised of an equal number of employer and union representatives. The trustees determine pension eligibility requirements and benefit levels
An employee's pension benefits vest when he or she has attained a certain number of hours or years of credited service. Over the years, the Fund has refined its vesting requirements. Its rules have at all times complied with the minimum vesting standards required under the Employee Retirement Income Security Act of 1974 (ERISA).
From 1973 to 1986, ten years of credited service were required before pension rights vested. Before 1976, a participant was required to work at least 500 hours in a calendar year to obtain one year of credited service; in 1976, this minimum was reduced to 435 hours. Effective May 1, 1976, and continuing to the present, an alternative provision enables a participant to vest after 15,000 hours of credited service, regardless of his or her years of credited service. Vesting was further liberalized after this action was filed: the trustees amended the plan to grant benefits to active participants with five or more years of credited service as of May 1, 1986.
The culinary trade in Alaska provides jobs in two very different environments: "town" jobs in the hotels and restaurants of populated areas, and "camp" jobs in the dining halls of remote construction sites. Workers in both types of jobs are participants in the Fund.
During construction of the Trans-Alaska pipeline, the number of camp employees increased markedly. The surge in pipeline-related employment nearly trebled the total number of plan participants between 1973-74 and 1976-77, from 2,791 to 7,004. When pipeline construction ended in 1978-79, the number of participants decreased to 2,683.
This sharp drop represented primarily pipeline workers who had less than three years of service. Many of these former camp employees could not find employment after the pipeline was completed that would have allowed them to remain covered by the Fund. The Fund has always had a "break-in-service" rule under which a participant forfeits all years and hours of credited service if he or she fails to work the annual minimum number of hours (435 hours since 1976) over a given number of years. The district court found that many members of the plaintiff class suffered involuntary breaks in service when their jobs ended and they were unable to find employment covered by the Fund.
The exodus of large numbers of pipeline workers with relatively few years of service increased the number of former participants whose benefits never vested. As of 1970-71, 4.28 percent of Fund participants ultimately qualified for a pension benefit. By 1979-80, this percentage had dropped to 1.31. When this lawsuit was initiated in 1986, 2.67 percent of the Fund's 58,042 participants had qualified for benefits. The Fund's "exclusion rate" was thus 97.33 percent.
The Fund reached "full funding" in 1979, 1986, 1987 and 1988. Full funding exists when plan assets exceed the sum of its actuarial liabilities and the year's expected costs. Full funding may result in the loss of income tax deductibility for employer contributions and the imposition of an excise tax. The trustees voted to increase benefits to those already eligible in 1975, 1976, and 1980. They provided additional increases after this suit was filed.
Three named plaintiffs brought this class action in 1986 charging that the Fund's maintenance of restrictive vesting rules violated both § 302(c)(5) of the LMRA and § 404 of ERISA. The district court certified a plaintiff class consisting of all non-vested participants on whose behalf contributions were made to the Fund after January 1, 1973, and who had three or more Evidence was presented at trial that contributions to the Fund made on behalf of camp workers averaged $2.00 or more per hour from 1974-86. During this same period, contributions for town workers averaged $.30 to $.55 per hour. The district court found that class members were responsible for contributions of approximately $23,900,000 ($47,000,000 with interest).
years of credited service, exclusive of any breaks in service of less than five years. 1
The district court concluded that as early as 1974, the trustees knew or should have known that the pipeline project would dramatically increase the Fund's population, and that by 1977 many of the new participants would lose their camp jobs and probably forfeit their credited service under the Fund's then-existing rules. Focusing on the exclusion rate and the trustees' decisions to increase benefits rather than relax eligibility rules, the court found the trustees' conduct arbitrary and capricious. It held that maintenance of the 10-year/15,000-hour requirement was a structural defect that violated the LMRA. It concluded that neither the reduction of the annual service requirement to 435 hours nor the adoption of the 15,000-hour alternative materially improved the exclusion rate.
The court also examined the income-replacement ratio of those employees who ultimately received pensions. This ratio compares a retiree's pension income plus Social Security to his or her net income while last employed. The court found a LMRA violation partly because it concluded that a "significant number" of fund retirees receive benefits exceeding 100 percent of what they last earned. The court's holding was also based on the Fund's lack of reciprocity 2 or self-pay 3 provisions.
The court's remedy was premised on its conclusion that since at least 1979 the trustees owed class members the duty of easing eligibility rules. To remedy the structural defect, the court revised the Fund's eligibility rules, ordering five-year vesting retroactive to January 1, 1973. It also required the Fund to offer a self-pay option that would permit workers with four years of service to pay for the additional year needed to vest. Although the revisions were to be retroactive, the court did not award plaintiff class members past unpaid benefits. It simply granted full vesting from the date of judgment to those class members who qualified under the new rules.
Before turning to the merits of the case and the statute of limitation issue, we address the Fund's argument that the court lacks subject matter jurisdiction over the LMRA and ERISA claims.
The Fund argues that a federal court lacks subject matter jurisdiction over an action to prove a structural defect under the LMRA when there is no evidence that the plan violated ERISA's minimum vesting standards. For that reason, it also contends that the court lacks jurisdiction over plaintiffs' claim that the trustees breached their fiduciary duties under ERISA.
Although the Supreme Court has yet to address the issue directly, see United Mine Workers Health & Retirement Funds v....
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