American Stores Co. v. American Stores Co. Retirement Plan

• Decision Date: 26 March 1991
• Docket Number: No. 89-4083,89-4083
• Citation: 928 F.2d 986
• Parties: , 13 Employee Benefits Ca 1809 AMERICAN STORES COMPANY, a Delaware Corporation; William B. Coon, an individual; and John P. Stransky, an individual, Plaintiffs-Appellants, v. AMERICAN STORES COMPANY RETIREMENT PLAN; American Stores Company Benefit Plans Committee, Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 986

928 F.2d 986

59 USLW 2620, 13 Employee Benefits Ca 1809

AMERICAN STORES COMPANY, a Delaware Corporation; William B. Coon, an individual; and John P. Stransky, an individual, Plaintiffs-Appellants, v. AMERICAN STORES COMPANY RETIREMENT PLAN; American Stores

Company Benefit Plans Committee, Defendants-Appellees.

No. 89-4083.

United States Court of Appeals, Tenth Circuit.

March 26, 1991.

Martin C. Washton of Gibson, Dunn & Crutcher, Los Angeles, Cal., (David E. West, David P. Restaino, and Joseph J. Bader of Gibson, Dunn & Crutcher, Los Angeles, Cal., and Craig R. Mariger of Jones, Waldo, Holbrook & McDonough, Salt Lake City, Utah, with him on the briefs), for plaintiffs-appellants.

David A. Greenwood (Steven D. Woodland, with him on the brief) of Van Cott, Bagley, Cornwall & McCarthy, Salt Lake City, Utah, for defendants-appellees.

Steven S. Zaleznick, Cathy Ventrell-Monsees, and Robert L. Liebross, (William K. Carr of Ireland, Stapleton, Pryor & Pascoe, P.C., Denver, Colo., of counsel), filed a brief for amicus curiae, American Ass'n of Retired Persons.

Before MOORE, BRORBY, and EBEL, Circuit Judges.

EBEL, Circuit Judge.

In this case, we consider whether the district court erred in concluding that plaintiffs-appellants, American Stores Company, William B. Coon, ¹ and John P. Stransky ² ("American Stores"), violated Sec. 204(g) of the Employee Retirement Income Security Act ("ERISA"), Pub.L. No. 93-406, 88 Stat. 858 (codified as amended in 29 U.S.C. Sec. 1054(g)), as that provision read prior to its amendment in 1984, by amending the American Stores defined benefit pension plan so as to eliminate the plan's unreduced early retirement benefit provision. We conclude that the unreduced early retirement benefit is not an "accrued benefit" within the meaning of ERISA and that American Stores therefore did not violate Sec. 204(g). Accordingly, we reverse the judgment of the district court and remand the case for further proceedings consistent with this opinion.

Facts

American Stores created the American Stores Company Retirement Plan ("Retirement Plan") on or about December 1, 1946. Prior to August, 1981 the Retirement Plan contained two different retirement provisions: (1) a "Normal Retirement Pension," which would take effect on the first day of the month following the plan member's 65th birthday; and (2) an "Early Retirement Pension," under which a plan member who accumulated at least ten years of service with the company and who terminated his employment after reaching age 55 could retire and receive early retirement benefits. The annual early retirement benefits were calculated by reducing the normal retirement benefit by 1/2% for each month that the commencement date of such pension preceded the first day of the month following the member's 62nd birthday.

On September 2, 1981, the Board of Directors of American Stores authorized defendants-appellees, American Stores Company Retirement Plan and American Stores Company Benefit Plans Committee (the Plan), to amend the Retirement Plan in order to add a special early retirement provision. Under that provision, which was known as the "Rule of 80 Pension," plan members who reached a minimum age of fifty-five years and whose age and years of service totaled eighty or more became eligible to receive the full pension without any actuarial reduction for retirement prior to the attainment of age 62 (unlike the Early Retirement Pension). The Rule of 80 Pension was calculated using the same formula as the Normal Retirement Pension.

The Rule of 80 Pension became effective on October 1, 1981. On March 13, 1984, the Board of Directors of American Stores unanimously approved a recommendation to eliminate the Rule of 80 Pension from the Retirement Plan for any participant who qualified after February 2, 1985. American Stores then requested its attorneys to draft an amendment to the plan incorporating this recommendation. The amendment was delivered to American Stores on June 1, 1984, but was backdated to March 12, 1984. In September 1984, it was discovered that the amendment did not provide that an employee must qualify by February 2, 1985, in order to receive unreduced early retirement benefits under the Rule of 80 Pension. Therefore, a second amendment was drafted to correct that oversight. The Retirement Plan was accordingly revised on July 29, 1985, but the second amendment was considered effective as of January 1, 1984. ³

American Stores terminated the entire Retirement Plan effective January 1, 1985, and replaced it with a profit-sharing plan pursuant to Sec. 401(k) of the Internal Revenue Code. In connection with the termination of the Retirement Plan, American Stores' actuaries calculated the benefits earned by the plan members through December 31, 1984. This calculation did not take into account the benefits prescribed in the Rule of 80 Pension, except for those participants who, as of February 2, 1985, would reach age fifty-five and whose age and years of service would total at least eighty. According to the district court, "[i]f the value of the Rule of 80 Pension had been included [for the remaining plan members], Plan participants would be entitled to an additional $33,000,000 in benefits." American Stores Co. v. American Stores Co. Retirement Plan, 716 F.Supp. 1392, 1394 (D.Utah 1989). ⁴

Prior to its amendment in August 1984, Sec. 204(g) of ERISA provided only that "[t]he accrued benefit of a participant under a plan may not be decreased by an amendment of the plan...." 29 U.S.C. Sec. 1054(g) (1982). The Retirement Equity Act of 1984 ("REA"), Pub.L. No. 98-397, Sec. 301(a)(2), 98 Stat. 1426, 1451 (codified at 29 U.S.C. Sec. 1054(g)(2)) made substantial revisions to Sec. 204(g) of ERISA and the corresponding provisions of the Internal Revenue Code. In particular, REA provided that a plan amendment made after July 30, 1984, to "eliminat[e] or reduc[e] an early retirement benefit or a retirement-type subsidy ... with respect to benefits attributable to service [performed] before the amendment shall be treated as reducing accrued benefits." Id. ⁵

On June 23, 1986, American Stores filed this action in the United States District Court for the District of Utah, seeking a declaratory judgment that the amendment terminating the Rule of 80 Pension did not violate Sec. 204(g) of ERISA. American Stores argued that Sec. 204(g) was not violated because unreduced early retirement benefits, such as the Rule of 80 Pension, are not "accrued benefits" as that term is defined in Sec. 3(23) of ERISA, 29 U.S.C. Sec. 1002(23), and, prior to REA, were not to be treated as accrued benefits. Following discovery, American Stores and the Plan moved for summary judgment. On June 7, 1989, the district court issued a written opinion granting summary judgment in favor of the Plan. The court concluded that the elimination of the Rule of 80 Pension from the American Stores Retirement Plan was an impermissible reduction of "accrued benefits" within the meaning of Sec. 204(g) of ERISA and the relevant portions of the Internal Revenue Code. 716 F.Supp. 1392. American Stores then filed this appeal.

Discussion

We review de novo the district court's order granting summary judgment, applying the same standard as the district court under Fed.R.Civ.P. 56(c). Abercrombie v. City of Catoosa, 896 F.2d 1228, 1230 (10th Cir.1990). Under Rule 56(c), summary judgment is appropriate only if "there is no genuine issue as to any material fact and ... the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). In light of the analysis described below, we conclude that the Rule of 80 Pension is not an accrued benefit under pre-REA law and that therefore the Plan is not entitled to judgment as a matter of law.

I. Statutory Language

In examining the language of ERISA, the starting point is Sec. 204(g). Prior to its amendment in 1984 by REA, Sec. 204(g) of ERISA provided, in relevant part:

A plan shall be treated as not satisfying the requirements of this section if the accrued benefit of a participant is decreased by an amendment of the plan....

26 U.S.C. Sec. 411(d)(6) (1982).

ERISA defines the term "accrued benefit" as follows:

The term "accrued benefit" means--

(A) in the case of a defined benefit plan, the individual's accrued benefit determined under the plan and, except as provided in section 1054(c)(3) of this title [Sec. 204(c)(3) of ERISA], expressed in the form of an annual benefit commencing at normal retirement age....

29 U.S.C. Sec. 1002(23) (emphasis added).

Courts have differed in their interpretations of ERISA's definition of "accrued benefit." The Third and Fourth Circuits have concluded that unreduced early retirement benefits that can be obtained before an employee reaches normal retirement age are not "accrued benefits" under ERISA. ⁶ See Tilley v. Mead Corporation, 927 F.2d 756, 759 (4th Cir.1991); Bencivenga v. Western Pennsylvania Teamsters and Employers Pension Fund, 763 F.2d 574, 577 (3d Cir.1985).

In contrast, the Second Circuit has concluded that to interpret the definition of "accrued benefit" as referring only to the actuarially-reduced amount of money payable at normal retirement age would ignore the fact that under 29 U.S.C. Sec. 1002(23) an accrued benefit is defined not just as a benefit payable at normal retirement age, but as a benefit " 'expressed in the form of an annual benefit commencing at normal retirement age.' " Amato v. Western Union Int'l, Inc., 773 F.2d 1402, 1407-08 (2d Cir.1985), cert. dismissed, 474 U.S. 1113, 106 S.Ct. 1167, 89 L.Ed.2d 288 (1986) (quoting 29 U.S.C. Sec. 1002(23)) (emphasis in original). The district court in this case adopted the reasoning in Amato and held that the benefits under the Rule of 80 Pension are accrued. The court noted that the benefits under the Rule of 80 Pension are "expressed in the form of" benefits commencing at normal retirement age because the Rule of 80 benefits are...