Arndt v. Bank, 98-3943

• Decision Date: 27 July 1999
• Docket Number: No. 98-3943,98-3943
• Citation: 182 F.3d 538
• Parties: (7th Cir. 1999) DENNIS ARNDT, Plaintiff-Appellant, v. SECURITY BANK S.S.B. EMPLOYEES' PENSION PLAN and MARSHALL & ILSLEY CORPORATION, Defendants-Appellees
• Court: U.S. Court of Appeals — Seventh Circuit

Page 538

182 F.3d 538 (7th Cir. 1999)

DENNIS ARNDT, Plaintiff-Appellant, v. SECURITY BANK S.S.B. EMPLOYEES' PENSION PLAN and MARSHALL & ILSLEY CORPORATION, Defendants-Appellees.

No. 98-3943

United States Court of Appeals, Seventh Circuit

ARGUED March 29, 1999

DECIDED JUNE 24, 1999

Rehearing and Suggestion for Rehearing En Banc Denied July 27, 1999

Appeal from the United States District Court for the Western District of Wisconsin. No. 98 C 450 S--John C. Shabaz, Chief Judge.

Before RIPPLE, ROVNER, and EVANS, Circuit Judges.

TERENCE T. EVANS, Circuit Judge.

In this case, brought under the Employee Retirement Income Security Act (ERISA), 29 U.S.C. sec. 1132, we must decide whether the benefits at issue are retirement benefits or disability benefits.

Dennis Arndt worked for Security Bank from 1967, when he was 20 years old, until 1990, when as a result of an automobile accident he became permanently disabled at the age of 43. As of December 31, 1992, his employment with Security terminated and, under a written agreement, he was deemed to be a disabled, inactive employee on a permanent leave of absence.

At that time he was a fully vested participant in the Security Bank S.S.B. Employees' Pension Plan. As relevant here the plan provided in section 4.4 that, if a participant's employment terminated because of a disability, the participant would receive a pension benefit calculated as if he had continued to work for the bank until either his normal retirement date, which under the plan is age 65, or the termination of his disability:

If a Participant terminates Employment because of a Disability, he shall receive at his Normal Retirement Date a Normal Retirement Benefit calculated as if the Participant continued to work for the Company at the level of his Compensation upon the commencement of such Disability until the earlier of his Normal Retirement Date or the cessation of his Disability.

On October 1, 1997, Security merged into Marshall & Ilsley Corporation (M&I), which then became the sole trustee of the plan. In connection with the merger, Security amended the plan to freeze the accrual of benefits effective December 31, 1997. Employees of Security Bank who became employees of M&I were then covered by the M&I Retirement Program beginning January 1, 1998. On May 1, 1998, M&I gave notice of its intent to terminate the Security plan effective July 1, 1998.

As a result, M&I informed Arndt that it would calculate his benefits as if he had continued to work until December 31, 1997, rather than either his normal retirement date, which would be November 16, 2011, or the termination of his disability. Calculated up to December 31, 1997, his benefits were $5,620.58 per month for life or a lump sum of $522,778.42. If his benefits were calculated based on imputed years of service to a normal retirement date, he would receive $8,718.30 per month or a lump sum benefit of $858,419.58. Parenthetically, we note that Arndt also received separate pre-retirement disability benefits when he became disabled.

Arndt sought a determination from the Plan's Administrative Committee that he is entitled to have his pension benefits calculated as they would have been under the Security plan. The committee found against him. He then filed this lawsuit seeking a determination of benefits and an injunction preventing the defendants from terminating the plan assets without providing for payment of what he saw as his accrued pension benefit. He characterizes the benefit as either an accrued pension benefit or a retirement-type subsidy. M&I (for efficiency's sake we will refer to the appellees collectively as M&I) says that what he is receiving is a disability benefit. The dispute was presented to the district court on defendants' motion to dismiss. The motion was granted on October 13, 1998. We review a decision on a motion to dismiss de novo, accepting as true the well-pleaded factual allegations in the complaint and drawing all reasonable inference in Arndt's favor. Gould v. Artisoft, Inc., 1 F.3d 544 (7th Cir. 1993).

It is important to note, and undisputed in this case, that M&I is permitted by 29 U.S.C. sec. 1054(h) to amend the plan to reduce or eliminate benefits and by sec.1344(d) to terminate the plan and recover its excess assets. Article 12 of the plan itself sets out the power of the trustees to amend or terminate the Security plan. But, under ERISA, the bank may not reduce accrued retirement benefits, which is what Arndt says it is doing.

Certain other principles are undisputed. Section 204(g)(1) of ERISA, 29 U.S.C. sec. 1054(g)(1), provides, with exceptions not relevant here, that the "accrued benefit of a participant under a plan may not be decreased by an amendment of the plan . . . ." Under sec. 1002(23) the definition for "accrued benefit" is "the individual's accrued benefit determined under the plan . . . expressed in the form of an annual benefit commencing at normal retirement age." In addition, under sec. 204(g)(2), 29 U.S.C. sec. 1054(g)(2), eliminating or reducing an "early retirement benefit" or a "retirement-type subsidy" is to be treated as reducing accrued benefits, which as we just said is forbidden under subsection (1). On the other hand, it is also undisputed that disability benefits can be changed by plan amendment. Williams v. Plumbers & Steamfitters Local 60, 48 F.3d 923 (5th Cir. 1995).

What we need to decide is whether under ERISA Arndt's benefits are accrued; are a retirement subsidy; or, on the other hand, whether they are disability benefits. Then we will look to the plan itself to see whether somehow it independently prevents M&I's actions. The issues are simply stated, but not easily resolved.

Tackling the easier of the issues first, we find that for a number of reasons the benefits beyond December 1997 are not accrued pursuant to sec. 204(g)(1). Arndt argues that we should take a broad view of accrued benefits that would include a right to have his benefit calculated as if he worked to his normal retirement date. He claims that the right accrued when he became disabled. At that time no further action on his part--such as working year after year--was required for him to have his benefits accrue. To take that right away violates sec. 204(g)(1), he says. M&I does not dispute that up until December of 1997 the benefits were accrued; they had accrued as each year of disability passed. For that reason, benefits were paid through the date of the plan termination. But, M&I says, the plan simply created a rule for imputing service--that is, imputing to him the years--one by one as they passed--even though he was not working. In this view, his accrued benefit in 1997 was the number of years he had worked prior to disability plus the years that passed between the onset of the disability and 1997--his imputed and actual service.

There is no dispute that Arndt is permanently disabled; there is no chance that he will be able to return to work. In that circumstance, to say that he has done everything necessary to obtain the benefits makes some sense. However, the plan is written to apply to all disabled persons, including those who may eventually return to work. The latter would accrue imputed years of service for the years during which they were disabled, but the imputed service would cease when they become able to return to work. In that circumstance, the plan makes better sense only if each year of imputed service is accrued as it passes. In order to continue the accrual, the person must continue to be disabled.

The situation bears some similarity to the one set out in Blessitt v. Retirement Plan for Employees of Dixie Engine Co., 848 F.2d 1164 (11th Cir. 1988). When the Dixie Engine plan terminated, Blessitt had not yet reached normal retirement age. He argued, however, that his retirement benefit should be based on the future years of service he would have performed under the plan up to his retirement age because "this is the retirement benefit he expected to receive when he retired . . . ." The argument was soundly rejected. Arndt's case involves imputed, not actual, years of service, but, without intending to be insensitive to Arndt's plight, we find his case is not significantly different from the rejected claim in Blessitt. So long as the plan is in effect and he remains disabled, he would continue to accrue years of service. In Blessitt's case, so long as the plan was in effect and he continued to work for the company, he would accrue years of service. Arndt says that when he became disabled he had an expectation that he would continue to accrue years of service toward retirement; Blessitt said that when he began to work for the company, he expected that he also would continue to accrue years of service toward retirement. The Blessitt court found his expectation untenable. ERISA plans do not make such rash promises, nor are they required to.

Arndt would distinguish his situation from Blessitt's: Arndt has done all he could to obtain the benefit--i.e., he had become disabled--and therefore, he argues, the right to his benefit had accrued. But the plan does not say that once a person becomes disabled he will immediately become vested in his normal retirement benefit. If that were what the plan intended, any discussion of imputed years of service could be eliminated. Once again, such a provision also would not be easy to apply to a disabled person who may recover.

It is important that the plan be applied in a nondiscriminatory way, so as not to provide a benefit to Arndt, who was a highly compensated employee, which might not be equally provided to another employee. M&I has a fiduciary duty toward all plan participants. Specifically, under 26 U.S.C. sec. 401(a)(4), benefits provided under a tax-qualified retirement plan may not discriminate in favor of highly compensated employees or former highly compensated employees. See also 26 U.S.C. sec. 414(q). Arndt's 1991 compensation was...