Cook v. Pension Plan for Salaried Employees of Cyclops Corp., 85-3011

• Decision Date: 18 November 1986
• Docket Number: No. 85-3011,85-3011
• Citation: 801 F.2d 865
• Parties: 7 Employee Benefits Ca 2278 Robert W. COOK and David L. Marting, Plaintiffs-Appellees, v. PENSION PLAN FOR SALARIED EMPLOYEES OF CYCLOPS CORPORATION and Robert A. Kushner and Donald L. Mitchell and William D. Dickey and Cyclops Corporation, Defendants-Appellants.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 865

801 F.2d 865

7 Employee Benefits Ca 2278

Robert W. COOK and David L. Marting, Plaintiffs-Appellees, v. PENSION PLAN FOR SALARIED EMPLOYEES OF CYCLOPS CORPORATION and Robert A. Kushner and Donald L. Mitchell and William D. Dickey and Cyclops Corporation, Defendants-Appellants.

No. 85-3011.

United States Court of Appeals Sixth Circuit.

Argued Dec. 11, 1985.

Decided Sept. 25, 1986.

Rehearing and Rehearing En Banc Denied Nov. 18, 1986.

Donald E. Seymour, argued, Kirkpatrick & Lockhart, Pittsburgh, Pa., Daniel O. Berger, Paxton & Seasongood, Cincinnati, Ohio, Larry Glassmann, for defendants-appellants.

R. William Eisnaugle, Glenn B. Redick, argued, Columbus, Ohio, for plaintiffs-appellees.

Before ENGEL and KRUPANSKY, Circuit Judges, and SUHRHEINRICH, ^* District Judge.

ENGEL, Circuit Judge.

The Pension Plan for Salaried Employees of Cyclops Corporation ("the Plan"), the members of the Pension Board as administrators of the Plan and the Cyclops Corporation appeal a district court judgment reversing the administrators' interpretation of the Plan and holding that plaintiffs are entitled to immediate pension benefits under the Rule of 65. Under this rule an employee who has been employed at Cyclops for a continuous 20-year period, whose employment terminates due to, among other reasons, plant closure and whose combined age and continuous years of service equal or exceed 65 is entitled to immediate payment of his or her pension benefits. Plaintiffs sought immediate benefits under the Rule of 65 and the Plan administrators concluded that they were ineligible.

Plaintiffs brought suit in the United States District Court for the Southern District of Ohio under section 1132(a)(1) of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. Secs. 1001-1461 (1982), to recover the pension benefits claimed to be due them under the Plan. In a Memorandum and Order dated October 5, 1984, the district court ruled that the administrators' denial of benefits "ignores the plain wording of the Plan and therefore must be found to be arbitrary and capricious." Cook, et al., v. Pension Plan for Salaried Employees of Cyclops Corp. et al., Nos. C-1-82-615/C-1-82-616, slip op. (S.D.Ohio October 5, 1984).

We conclude that the Plan provisions construed by the administrators contain an ambiguity, and that the provisions are susceptible of the construction given by the administrators. Because the administrators' interpretation is rationally related to a valid plan purpose, we hold that the courts are obligated as a matter of law to respect it. We therefore reverse.

I.

Appellees Robert W. Cook and David L. Marting were terminated in 1980 when the Cyclops Corporation closed its Portsmouth, Ohio, plant. They petitioned the Pension Board of the Pension Plan for Salaried Employees of the Cyclops Corporation for treatment under the Rule of 65. At the time of the plant's closure, Cook was 42 years and 8 months old and had been employed at Cyclops for 20 years and 6 months. His combined age and continuous service was 63 years and 2 months. Marting was 42 years and 6 months old and had been employed at Cyclops for 20 years and 6 months. Marting's combined age and service was 63 years. Cook and Marting would be entitled to count an additional 2 years toward their Rule of 65 eligibility if they could tack on the 12-month period to their ages and their years of service under section 10.1(g) of the Plan. Section 10.1(g) provides:

Notwithstanding any other provision in (e) of this Section 10.1, an Employee shall not be deemed to incur a break in continuous service until the expiration of the 12-consecutive month period following the date the Employee was first absent from work for any reason other than retirement, quit or discharge, during which he did not perform an Hour of Service for the Company or any subsidiary or affiliated company. (Amended effective August 1, 1977).

Section 10.1(g), Pension Plan for Salaried Employees of Cyclops Corp. (eff. January 1, 1976, to July 31, 1980). ¹

By its terms, section 10.1(g) does not apply to breaks in continuous service when such breaks are due to "retirement, quit or discharge." The issue before the district court was whether the plan administrators acted within their authority in determining that termination for plant closure was a discharge as contemplated by section 10.1(g).

A. The Reasoning of the Pension Board.

The Pension Board's rationale for its refusal to treat plaintiffs' terminations under section 10.1(g) of the Plan is set forth in letters to each plaintiff written on behalf of the Pension Board by Robert A. Kushner, secretary of the Board, dated October 20, 1981. Mr. Kushner stated in his letters that discharge due to plant closure is an event constituting an immediate break in continuous service under the Plan's "elapsed time" method of crediting service. ² Under this method, an employee's service commences on the date he or she first performs an hour of service for the employer and terminates on the date he or she "severs from service."

The Kushner letters quote the definition of severance contained in the Internal Revenue Service regulations governing ERISA-qualified plans:

The date the employee severs from service is the earlier of the date the employee quits, is discharged, retires or dies, or the first anniversary of the date the employee is absent from service for any other reason (e.g., disability, vacation, leave of absence, layoff, etc.). Thus, for example, if an employee quits, the severance from service date is the date the employee quits. On the other hand, if an employee is granted a leave of absence (and if no intervening event occurs), the severance from service date will occur one year after the date the employee was first absent on leave, and this one year of absence is required to be taken into account as service for the employer or employers maintaining the plan. Because the severance from service date occurs on the earlier of two possible dates (i.e., quit, discharge, retirement or death or the first anniversary of an absence from service for any other reason), a quit, discharge, retirement or death within the year after the beginning of an absence for any other reason results in an immediate severance from service. Thus, for example, if an employee dies at the end of a four-week absence resulting from illness, the severance from service date is the date of death, rather than the first anniversary date of the first day of absence for illness.

26 C.F.R. Sec. 1.410(a)-7(a)(2)(ii).

In his testimony before the district court, Mr. Kushner, speaking for the Pension Board, stated that the addition in 1977 of section 10.1(g) was an attempt to incorporate the elapsed time method into the pension plan. In response to the question why the Board determined that section 10.1(g) did not apply, Mr. Kushner stated:

Section 10.1(g) is in the pension plan in response to the Department of Labor regulations relating to the so called elapsed time concept. And the elapsed time concept is one which determines what the length of employment is. It starts with the date of employment of an individual, and terminates at the point in time where there is a termination of the employment relationship. That interval is measured and that determines the employment period. There are several circumstances which make it very clear as to when the employment period terminates. For example, a quit, a retirement, a discharge, death, those are very clear, they are finite, they are ascertainable. There are other circumstances where it is not clear at what point in time the employment relationship terminates and the Department of Labor promulgated a set of regulations to deal with those socalled [sic] gray areas. If an individual is off on a leave of absence, if he's off on a disability, if he's off on a vacation at no point in time is there a termination of the employment relationship. And the Department of Labor established an arbitrary full 12 month period and they said, if someone is within that socalled [sic] gray area, leave of absence, vacation, disability, what have you, there will be no termination of the employment relationship, absent some intervening cause, until the expiration of a 12 month period. And it was in response to that Department of Labor regulation that 10.1(g) was put into the Cyclops Pension Plan.

Later in his testimony, Mr. Kushner candidly admits that section 10.1(g) is inconsistent with section 10.1(e) which enumerates situations constituting breaks in continuous service ³ and lists "discharges or other termination by action of the company" separately from "termination due to permanent shutdown of a division, plant, office or department." He explains that section 10.1(g), added to the Plan in 1977, is a standard provision in steel industry labor contracts and was not drafted specifically to conform to the Cyclops Plan.

The language is in there [section 10.1(g) ] and it is admittedly a redundancy of [section 10.1(e)(2) ], but it is in there because that language is also used in 70/80 Pensions, it is used in Rule of 65 Pensions and it stems from the negotiations of those types of pensions with the bargaining unit. It is industry language, if you will. The steel industry negotiates labor contracts between the union and so called coordinating companies. The number has changed over time. It was as many at one time as perhaps a dozen companies, more recently it's been 8 or 7 companies. And they negotiate, among other things, pension provisions. We are what is commonly referred to as a me too company. We do not sit in the negotiations but we do pick up the same sorts of benefits and pension changes. We pick up the same language for the hourly employees. We typically take those benefits and put them into our salary pension plan as well and we follow the same language because we don't want our employees to feel, by changing the language, we've given them...