Dameron v. Sinai Hosp. of Baltimore, Inc., AFL-CIO

CourtUnited States Courts of Appeals. United States Court of Appeals (4th Circuit)
Citation815 F.2d 975
Docket NumberNo. 86-2578,AFL-CIO,86-2578
Parties, 9 Employee Benefits Ca 1246 Rebecca DAMERON; Florence McLean; Pinkie Ricks, on behalf of themselves and all others similarly situated, Plaintiffs-Appellees, v. SINAI HOSPITAL OF BALTIMORE, INC.; Administrative Committee of Sinai Hospital of Baltimore, Inc.; Grace Pryor; Sinai Hospital of Baltimore, Inc. Pension Plan, for Employees Covered Under the Collective Bargaining Agreement between the National Union of Hospital and Health Care Employees, Division of R.W.D.S.W.,, and its affiliate Local District 1119 E, and Sinai Hospital of Baltimore, Inc., Defendants-Appellants.
Decision Date07 April 1987

Jeffrey Elliot Rockman, Leonard E. Cohen (Frank, Bernstein, Conaway & Goldman, Baltimore, Md., on brief), for defendants-appellants.

Gill Wylie Deford (Neal S. Dudovitz, Nat. Sr. Citizens Law Center, Los Angeles, Cal., Luther Blackiston, Legal Aid Bureau, Inc., Legal Services for Sr. Citizens, Baltimore, Md., on brief), for plaintiffs-appellees.

Before WINTER, Chief Judge, SPROUSE, Circuit Judge, and MERHIGE, Senior United States District Judge for the Eastern District of Virginia, sitting by designation.


Defendants Sinai Hospital of Baltimore, Inc. (Sinai Hospital), the Administrative Committee of Sinai Hospital of Baltimore, Inc., the Sinai Hospital of Baltimore, Inc. Pension Plan, and an individual administrator of Sinai Hospital (collectively Sinai) appeal from a summary judgment entered by the United States District Court for the District of Maryland in favor of plaintiffs Rebecca Dameron, Florence McLean, Pinkie Ricks and other similarly situated employees of Sinai Hospital. The district court granted the plaintiffs' motion for summary judgment because it found that Sinai had violated the nonforfeiture provisions of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. Secs. 1001 et seq. The district court also subsequently certified a class of current and future retirees under the pension plan 1, 626 F.Supp. 1012, and awarded attorneys' fees to the plaintiffs. 644 F.Supp. 551. We affirm except with respect to the district court's application of the appropriate limitations period to the claim of plaintiff Dameron.


Pursuant to a collective bargaining agreement, defendant Sinai Hospital and the National Union of Hospital and Health Care employees, Local 1199E (the union) established the Sinai Hospital of Baltimore, Inc. Pension Plan (the plan), a defined benefit plan for employees covered under the collective bargaining agreement. The plan became effective January 1, 1976.

The plan states that eligible employees are entitled to receive a pension each year after age 65 of an amount equal to "50% of his final average compensation, less eighty-three and one-third percent of his annualized primary Social Security Benefit." The plan defines a primary Social Security Benefit as "[t]he estimated primary Social Security Benefit to which an eligible Employee (assuming he has always been a covered Employee under the Social Security Act ) was or would become entitled upon reaching the age of sixty-five." (emphasis added) Thus, the plan integrates Social Security benefits into the formula for computing pension benefits by deducting a percentage of the estimated primary Social Security benefit which an employee is entitled to receive. 2 Sinai uses tables which provide an estimate of an individual's wage history, adjusted for inflation, based on the employee's date of birth and his "current monthly compensation" in order to derive a figure for the estimated Social Security benefit.

Since the plan's inception, more than fifty employees have retired under the terms of the plan, including the plaintiffs in this action. When these persons applied for benefits from the plan, they found that their pension benefits were being offset by amounts greater than the actual Social Security benefits which they were receiving. Subsequently, plaintiff Rebecca Dameron filed this action challenging the plan's use of the estimated Social Security offset under ERISA and the Taft-Hartley Act on behalf of herself and all other persons similarly situated. 3


Sinai's method of estimating actual Social Security benefits abridges the nonforfeitable rights which are guaranteed by the plan, and violates the provisions of ERISA regarding integration of Social Security benefits. Under ERISA, an employer's pension plan must guarantee that an employee's right to a "normal retirement benefit is nonforfeitable." 29 U.S.C. Sec. 1053(a). The plan must also insure that an employee's claim to a benefit derived from his own contributions is nonforfeitable and that the plan satisfies one of three alternative vesting and accrual schedules set forth in the statute. Sec. 1053(a)(1)(2). The concept of vested nonforfeitable rights is "critical to the ERISA scheme." Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 510, 101 S.Ct. 1895, 1899, 68 L.Ed.2d 402 (1981). Congress intended through these provisions to guarantee that a worker who was promised a right to pension benefits upon retirement actually receives those benefits. Id.; Nachman Corp. v. Pension Benefit Guaranty Corp., 446 U.S. 359, 375, 100 S.Ct. 1723, 1733, 64 L.Ed.2d 354 (1980).

A nonforfeitable right under ERISA means a right under a pension plan which is unconditional and which is legally enforceable against the plan. 29 U.S.C. Sec. 1002(19). Thus, ERISA leaves the question of what rights are vested by a plan largely to private parties to decide. Alessi, supra, 451 U.S. at 511, 101 S.Ct. at 1900. The question of what rights are vested in employees by this plan thus depends in part on the language of the plan itself.

The plan in this case provides for offsetting a percentage of the annualized primary Social Security Benefit against the benefits payable under the plan. The plan's definition of the primary Social Security benefit sets forth that Sinai will estimate the primary Social Security benefit to which an eligible employee is entitled. The plan also explicitly authorizes Sinai to assume that an employee has always been a covered employee under the Social Security Act. The language of the plan itself thus notifies employees that the plan will use reasonable methods of estimating actual Social Security benefits, with the single proviso that an employee who has not always been covered by the Social Security Act will be assumed to have always been covered. 4 Employees have a legitimate expectation, based on the language of the plan, that Sinai will use methods of calculation which are reasonably intended to estimate the employee's actual primary Social Security benefit.

The legitimate expectations of employees that the plan would use reasonable methods of integrating the income stream received from Social Security benefits is explicitly guaranteed by the provisions of ERISA as well as the plan. Congress, in adopting ERISA, expressly preserved the option of integration of Social Security benefits into the income streams available under private pension plans. Alessi, supra, 451 U.S. 514-16, 101 S.Ct. at 1901-02. See, e.g., 29 U.S.C. Secs. 1054(b)(1)(B)(iv); 1054(b)(1)(C); 1054(b)(1)(G); 1056(b). Congress first acknowledged the concept of integration in the Internal Revenue Code. Congress amended the 1939 Code, 26 U.S.C. Sec. 401(a)(4) and (5), to state that, to be tax qualified, a pension plan must not discriminate in favor of officers, shareholders, supervisors or highly compensated employees; but that a plan was not discriminatory merely because it excluded employees the whole of whose remuneration constitutes wages for Social Security purposes. IRS regulations and Revenue Rulings implementing this provision have defined what constitutes a valid or invalid integration for purposes of the Code. See Alessi, supra, 451 U.S. at 519 n. 15, 101 S.Ct. at 1904 n. 15. In addition, the Code, and accompanying IRS regulations, also establish nonforfeiture provisions for pensions plans which are substantially identical to the nonforfeiture provisions of ERISA. 26 U.S.C. Sec. 411(a). Although ERISA omits the nondiscrimination provisions of the Code, both ERISA and the Internal Revenue Code thus bar an employer from causing forfeiture of vested pension benefits. 29 U.S.C. Sec. 1202(c); III Legislative History 4543-44 (Conference Report). When it adopted ERISA, "Congress thereby permitted integration along the lines approved by the IRS." Alessi, supra, 451 U.S. at 521, 101 S.Ct. at 1905; III Legislative History 4547-48 (Conference Report).

The regulations implementing ERISA exempt from the nonforfeiture provisions pension benefits which are reduced "to take into account benefits which are provided under the Social Security Act and which are taken into account in determining plan benefits." 26 C.F.R. Sec. 1.411(a)-4(a). Reductions in pension benefits may be based on reasonable estimates of Social Security benefits. But estimates which are not reasonable calculations of actual Social Security benefits, by implication, violate the nonforfeiture provisions of ERISA. In so doing, ERISA forces employers to inform employees of their true intentions regarding integration and thereby improves the chances for informed decisionmaking and bargaining by employers and employees. 29 U.S.C. Sec. 1001(a); H.Rep. No. 93-533, 93d Cong., 2d Sess., reprinted in 1974 U.S. Code Cong. & Ad. News 4639; H.Rep. No. 93-807, Id., at 4682.

This conclusion also finds support in the rules governing tax qualified pension plans which are set forth in part in Revenue Ruling 84-45. The ruling states that forfeiture does not occur when pension benefits are offset by actual Social Security benefits. But the Ruling also states that "[i]f a plan calculates offsets on the basis of estimated compensation, it is possible for a participant to suffer an impermissible...

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