Employee Benefits Committee of Retirement System of Hawaiian Telephone Co. v. Pascoe

• Decision Date: 23 June 1982
• Docket Number: No. 81-4014,81-4014
• Citation: 679 F.2d 1319
• Parties: 3 Employee Benefits Ca 1721 The EMPLOYEE BENEFITS COMMITTEE OF the RETIREMENT SYSTEM OF HAWAIIAN TELEPHONE COMPANY, and The Hawaiian Telephone Company, Plaintiff/Appellants, v. Eleanor PASCOE, Edward Young, Edmund Lin, Frank Yee, Cornelio Kaai, James Jeremiah, and Local 1357, IBEW, Defendants/Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1319

679 F.2d 1319

3 Employee Benefits Ca 1721

The EMPLOYEE BENEFITS COMMITTEE OF the RETIREMENT SYSTEM OF HAWAIIAN TELEPHONE COMPANY, and The Hawaiian Telephone Company, Plaintiff/Appellants, v. Eleanor PASCOE, Edward Young, Edmund Lin, Frank Yee Cornelio Kaai, James Jeremiah, and Local 1357 IBEW, Defendants/Appellees.

No. 81-4014.

United States Court of Appeals Ninth Circuit.

Submitted Feb. 11, 1982.

Decided June 23, 1982.

Jared H. Jossem, Roger W. Fonseca, J. George Hetherington, Honolulu, Hawaii, for plaintiffs/appellants.

Herbert R. Takahashi, Dwight Takamine, Honolulu, Hawaii, for defendants/appellees.

Appeal from the United States District Court for the District of Hawaii.

Before SNEED, PREGERSON and POOLE, Circuit Judges.

POOLE, Circuit Judge:

Appellants, the Employee Benefits Committee of the Retirement System of the Hawaiian Telephone Company (the Committee) and the Hawaiian Telephone Company (the Company), appeal from a grant of summary judgment in favor of the appellees entered by the district court. The district court found, that, as a matter of law, the provision in the appellants' pension plan permitting offset of workers' compensation benefits against benefits provided under the Company plan violated the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001, et seq. The court also found that the Hawaii Workers' Compensation Law prevents such offsets. In light of the Supreme Court's decision in Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 101 S.Ct. 1895, 68 L.Ed.2d 402 (1981), we reverse.

I. Facts

Appellees are individuals who have received or are receiving benefits derived from the Company's contributions to the pension plan. Eleanor Pascoe, the widow of a Company employee, received a lump sum payment of $30,227.28 as an Accidental Death Benefit. Edmund Lin, Cornelio Kaai, Frank Yee and James Jeremiah each retired from the Company because of permanent disability and received Accidental Disability Retirement Benefits under the plan. Edward Young retired from the Company at the age of 61 and received a Service Retirement Benefit in the form of an annuity.

Subsequently, each appellee was awarded benefits under the Hawaii Workers' Compensation Law, Haw.Rev.Stat. §§ 386-1 to 386-142 (1976). Lin and Young were awarded temporary total disability payments. Kaai, Yee and Jeremiah were awarded permanent total disability payments. Pascoe received workers' compensation dependency benefits. All appellees except Pascoe received medical benefits and Yee and Kaai received lump sum disfigurement awards.

The Committee and the Company brought this action under ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3), for a declaration that they were entitled to offset the appellees' workers' compensation benefits against the benefits they would receive under the pension plan. The offset provision of the Company plan provides as follows:

Compensation Benefits-Any amounts paid or payable by the Company, or as the result of premiums or taxes paid therefore by the Company, under the provisions of the Hawaii Workers' Compensation Law or any similar law, to an employee or Retired Employee or to his dependents on account of his service, any Disability or death shall be offset against and payable in lieu of any benefits payable out of the funds provided from contributions of the Company under the provisions of this System on account of the same service, disability or death. In case the present value of the total commuted benefits under the Hawaii Workers' Compensation Law or any similar law is less than the present value of any benefits otherwise payable from funds provided from contributions of the Company under the provisions of the System, then the present value of the commuted payments under the Hawaii Workers' Compensation Law or any similar law shall be deducted from the present value of these benefits and such benefits as may be provided by the remainder shall be payable under the provisions of these Rules.

The district court, on cross motions for summary judgment, granted appellees' motion for summary judgment, finding as a matter of law, that as to appellees Young, Yee and Jeremiah, the offset provision constituted a prohibited forfeiture of vested pension benefits under § 203(a) of ERISA, 29 U.S.C. 1053(a). ¹ The court held that Treasury Regulation 26 C.F.R. § 1.411(a)-4(a) was void to the extent it permitted such offsets. In addition, the court found, as to all individual appellees, that the offset provision violated Section 386-9 of the Hawaii Workers' Compensation Law, which prohibits any "contract, rule or regulation" which relieves the employer of an obligation to pay workers' compensation.

II. Forfeiture under ERISA

At the time the district court rendered its decision it did not have the benefit of the Supreme Court's decision in Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 101 S.Ct. 1895, 68 L.Ed.2d 402 (1981). Affirming the Third Circuit, the Court held that the offset of workers' compensation benefits does not constitute a forfeiture under § 203 of ERISA and therefore the Treasury Regulation 26 C.F.R. § 1.411(a)-4(a) permitting such offsets is valid. See also Server v. Interpace Corp., 657 F.2d 1115 (9th Cir. 1981). ²

The Supreme Court initially noted that while Section 203 prohibits forfeitures of benefits, the amount of benefits provided under a pension plan is specifically left to the determination of the parties through the collective bargaining process. Thus, the "statutory definition of 'non-forfeitable' assures that an employee's claim to the protected benefit is legally enforceable, but it does not guarantee a particular amount or a method for calculating the benefit." 451 U.S. at 512, 101 S.Ct. at 1900. The Court pointed out that although Congress set certain limits on permissible accrual practices, 29 U.S.C. § 1054(b)(1), and vesting schedules, 29 U.S.C. § 1053(a) (2), it specifically did not prohibit "integration," a calculation practice in which other income sources available to retired employees are included in determining pension benefits. 451 U.S. at 514, 101 S.Ct. at 1901. Indeed, the Court noted, Congress specifically permitted pooling of Social Security Act and Railroad Retirement Act Benefits in calculating pension benefits, 29 U.S.C. §§ 1054(b)(1)(B)(iv), 1054(b)(1)(C), and 1054(b)(1)(G), without providing a specific exception to the § 203(a) forfeiture provision. 451 U.S. at 514-15, 101 S.Ct. at 1901.

No specific provision in ERISA permits integration with workers' compensation, but the Court concluded that Treasury Regulation 26 C.F.R. § 1.411(a)-4(a), which permits such offsets, was consistent with the Act. The Court observed that when Congress enacted ERISA, IRS rulings already permitted integration of workers' compensation payments in calculating pension benefits, if such benefits corresponded to benefits paid under the pension plan. See Rev.Rul. 68-243, 1968 C.B. 157; Rev.Rul. 69-421, 1969-2 C.B. 72. Since the legislative history of ERISA reveals that Congress approved those rulings, see H.R.Conf.Rep.No. 93-1280, 93rd Cong., 2d Sess., 277 (1974), U.S.Code Cong. & Admin.News, p. 5038, the Court reasoned that Congress intended to sanction offset of workers' compensation benefits. 451 U.S. at 521, 101 S.Ct. at 1905.

The arguments raised by appellees in this case, and accepted by the district court, were specifically rejected in Alessi. But even while acknowledging the impact of Alessi, appellees argue that it does not apply to payments under a workers' compensation scheme which are unrelated to reimbursement of lost wages, such as medical expenses or compensation for disfigurement or bodily impairment. They point to the Court's statement in Alessi that the IRS permitted integration on the basis that workers' compensation "is as much as income maintenance program, responding to wage loss, as it is remuneration for injury, and therefore it may be integrated with pension benefits to the advantage of the entire group." 451 U.S. at 520 n.16, 101 S.Ct. at 1904 n.16. On the other hand, as the Court noted, IRS did not permit integration of workers' benefits concerned with compensating for the direct effects of the injury itself such as remuneration for medical expenses and bodily impairment awards. 451 U.S. at 520-21, 101 S.Ct. at 1904.

Since the offset provision in the company plan refers to workers' compensation benefits in general, appellees urge us to remand to the district court to determine which portion of appellees' workers' compensation benefits constitute non-income replacement items, and thus are not subject to offset.

In this case, however, as the district court recognized, the company has offset only those payments which Hawaii law recognizes as intended to provide income replacement. Under the Hawaii Workers' Compensation system temporary and permanent total disability benefits paid under Haw.Rev.Stat. § 386-31 (1976) serve as compensation for loss of earning capacity. See Cuarisma v. Urban Painters, Ltd., 59 Haw. 409, 583 P.2d 321 (1978). Similarly, death benefits authorized under Haw.Rev.Stat. § 386-41 (1976) are designed to replace the contribution of the deceased worker towards the maintenance of his dependents. See Hawaiian Canneries Co. v. Dependents of Clara Kali, 43 Haw. 173 (1959); 2A Larsen, The Law of Workmen's Compensation § 6300 (1981). On the other hand, partial permanent disability benefits set out in Haw.Rev.Stat. § 386-32 (1976), including disfigurement awards, compensate for impairment of bodily integrity and may be awarded in addition to total disability payments. Cuarisma, 59 Hawaii at 421, 583 P.2d at 327. The company offset only temporary and permanent total disability benefits paid to appellees Lin, Yee, Young, Kaai and Jeremiah, and death benefits paid to Mrs. Pascoe. It did not offset reimbursement of medical expenses, disfigurement awards and other payments made to appellees which do not "match up" with...