Hoover v. Cumberland, Maryland Area Teamsters Pension Fund

• Decision Date: 17 September 1984
• Citation: 756 F.2d 977
• Parties: 6 Employee Benefits Ca 1401 Kenneth HOOVER, Albert Guyton and Alex Guyer v. CUMBERLAND, MARYLAND AREA TEAMSTERS PENSION FUND Joseph Freno, James Hutchinson, William Peterson and William Lemon, Trustees of Cumberland, Maryland Area Teamsters Pension Fund Western Pennsylvania Teamsters and Employers Pension Fund (withdrawn, see order of
• Court: U.S. Court of Appeals — Third Circuit

Page 977

756 F.2d 977

6 Employee Benefits Ca 1401

Kenneth HOOVER, Albert Guyton and Alex Guyer v. CUMBERLAND, MARYLAND AREA TEAMSTERS PENSION FUND Joseph Freno, James Hutchinson, William Peterson and William Lemon, Trustees of Cumberland, Maryland Area Teamsters Pension Fund Western Pennsylvania Teamsters and Employers Pension Fund (withdrawn, see order of 9/17/84) and James Beros, Charles M. Byrnes, William M. Gherilla, Walter Chrzan, John Puskarish, Leslie Breman, Julius R. Casali John W. Flanigan, James H. Hutchinson, Jr. and Joseph E Zaucha, Trustees of W. Pa. Teamsters and Employers Pension Fund (withdrawn per order of 9/17/84) Appeal of Kenneth S. HOOVER, et al., for themselves and the certified class.

No. 84-3116.

United States Court of Appeals Third Circuit.

Argued Dec. 4, 1984.

Decided March 19, 1985.

Thomas H. Geoghegan (Argued), Despres, Schwartz & Geoghegan, Chicago, Ill., for appellants.

David L. Beck (Argued), Weis & Weis, Pittsburgh, Pa., for appellees, Cumberland, Maryland Area Teamsters Pension Fund; Frederick N. Egler, Jr., Claire A. Kimmel, Egler, Anstandig, Garrett & Riley, Pittsburgh, Pa., of counsel.

Charles J. Streiff, Wick, Rich, Fluke & Streiff, Pittsburgh, Pa., for appellees, Western Pennsylvania Teamsters and Employers Pension Fund and its Trustees; Glenn L. Archer, Jr., Asst. Atty. Gen., Michael L. Paup, Richard Farber, Michael J. Roach, Tax Div., Dept. of Justice, Washington, D.C., of counsel.

J. Alan Johnson, U.S. Atty., Pittsburgh, Pa., for amicus curiae, The United States.

Before ALDISERT, Chief Judge, BECKER, Circuit Judge and CAHN, District Judge. ^*

OPINION OF THE COURT

CAHN, District Judge.

This is an appeal by plaintiffs, former participants in the Cumberland, Maryland Area Teamsters Pension Fund ("Cumberland Fund"), from a judgment of the United States District Court for the Western District of Pennsylvania holding that the adoption of a plan amendment altering the calculation of partial pension benefits did not violate the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. Secs. 1001-1381 (1982). ¹ Plaintiffs argue that the plan amendment decreased accrued benefits in contravention of an explicit prohibition set forth in section 204(g) of ERISA, 29 U.S.C. Sec. 1054(g)(1982), as amended by Retirement Equity Act of 1984, Pub.L. No. 98-397, Sec. 301, 98 Stat. 1426, 1451 (1984), and its counterpart in the Internal Revenue Code of 1954, 26 U.S.C. Sec. 411(d)(6)(1982), as amended by Retirement Equity Act of 1984, Pub.L. No. 98-397, Sec. 301, 98 Stat. 1426, 1450 (1984). The district court held that no violation occurred because the partial pension benefits reduced by the amendment are ancillary benefits not protected from diminution or elimination under ERISA. Because we hold that plaintiffs' benefits reduced by the plan amendment are accrued benefits subject to the protection of section 204(g), we reverse as to defendants Cumberland Fund and the individually named trustees of that Fund. ²

I.

Prior to 1967, plaintiffs worked as truck drivers in the Bedford, Pennsylvania area, and belonged to Local Union 453 of the International Brotherhood of Teamsters. As members of Local 453, they participated in the Cumberland Fund, a multiemployer pension plan established by the local union and employers engaged in collective bargaining with the local. The Cumberland Fund is a qualified plan subject to the vesting, funding, and participation requirements of the Internal Revenue Code of 1954 and ERISA. Starting in 1967, the trucking companies employing plaintiffs began moving their terminals from the Bedford area to Pittsburgh, Pennsylvania, because of changes in interstate highway routes. The drivers affected by these relocations, including plaintiffs, moved with their employers to Pittsburgh. These drivers transferred to Teamsters Local 249, serving the Pittsburgh area, whose members participated in the Western Pennsylvania Teamsters and Employers Pension Fund ("Western Fund"). As a result of the move, these drivers terminated their participation in the Cumberland Fund and joined the Western Fund, although they remained with the same employer and with the same international union.

Responding to the disruption in local union jurisdiction and pension fund affiliation, a number of teamster pension funds prepared a reciprocal agreement which the trustees of the Cumberland Fund signed in 1968. The purpose of the reciprocal agreement was to provide full pensions for workers with continuous membership in the international union, but who, because of transfers to different locals, might not accrue sufficient work credit under any one plan to entitle them to full pension benefits. ³ See Bianco v. Board of Trustees of Local 816 Labor and Management Pension Trust, 494 F.Supp. 206, 208 (E.D.N.Y.1980). Under the reciprocal agreement, a union member who transferred from the Cumberland Fund to the Western Fund could cumulate his service credit from each fund, and if his total combined service credit was sufficient on retirement, he would receive proportional pension benefits from each fund. The reciprocal agreement did not specify a particular benefit rate, but rather required each fund to include in its plan documents a method for calculating the partial pensions. The Cumberland Fund Plan accordingly provided a partial pension formula:

Article X.

Partial Pensions

Section 10.08 Partial Pension Amount--The amount of the Partial Pension shall be determined as follows:

(a) The amount of the pension to which the employee would be entitled under this Plan taking into account his Combined Service Credit shall be determined, then

(b) The amount of service credit earned with this Plan since January 1, 1955, shall be divided by the total amount of Combined Service Credit earned by the employee since January 1, 1955, then

(c) The fraction so determined in (b) shall be multiplied by the pension amount determined in (a) and the result shall be the Partial Pension Amount payable by this Plan.

Under this formula each fund to which contributions have been made pays a partial pension based on service credit for the period of time that an employer made contributions on behalf of a participant.

To calculate the amount of the pension referred to in section 10.08(a), a "unit multiplier" in a dollar amount specified in the Plan, is multiplied by the number of years of combined service credit accumulated. The product of this multiplication is then reduced by the fraction derived from section 10.08(b) to determine the partial pension payable by the Cumberland Fund. At the time plaintiffs transferred out of the Cumberland Fund, the unit multiplier applicable in computing plan benefits was $6.00 of pension per month for each year of credited service. Initially, the Cumberland Fund Plan provided for the computation of pensions using the $6.00 unit multiplier rate. On June 13, 1972, the trustees of the Cumberland Fund amended the Plan to increase the unit multiplier used in calculating pensions to the higher of 1) the multiplier in effect at the participant's termination (or transfer) date or 2) the multiplier in effect at the participant's retirement date. Thus, when the unit multiplier increased in 1972, the calculation of partial pensions for drivers retiring thereafter was made with the new $25.00 unit multiplier, rather than the 1967 $6.00 rate.

On October 3, 1978, however, the trustees of the Cumberland Fund again amended the Plan. Amendment No. 5, formally adopted on January 18, 1979, changed the method for calculating pension benefits. The amendment provided for calculation of pensions with the unit multiplier in effect on a participant's termination date. Consequently, plaintiffs' partial pensions from the Cumberland Fund would be calculated using the $6.00 unit multiplier in effect on the date of their terminations (transfers), which for plaintiffs occurred before June 13, 1972, instead of the higher rate in effect thereafter. ⁴ The trustees applied the 1979 amendment retroactively to June 1, 1978. ⁵

Plaintiffs brought this action, challenging the legality of the 1979 amendment under ERISA. ⁶ Plaintiffs now appeal from a judgment of the district court that no violation of ERISA occurred. The issue before us is whether the adoption of an amendment changing the method of calculating partial pension benefits under the reciprocal agreement reduced benefits in contravention of section 204(g) of ERISA. ⁷

II.

Section 204(g) unequivocally states that the "accrued benefit of a participant under a plan may not be decreased by an amendment of the plan, other than an amendment described in section [302(c)(8) ]." 29 U.S.C. Sec. 1054(g)(1). ⁸ Thus, the focus of our inquiry is whether the partial pension benefits involved here qualify as accrued benefits within the meaning of that term under ERISA. ERISA's statutory definition of "accrued benefit" imparts a specific meaning to the word accrued, connoting a set periodic increase or accumulation. Section 3(23) states that an accrued benefit is an individual's benefit "expressed in the form of an annual benefit commencing at normal retirement age." 29 U.S.C. Sec. 1002(23)(A). ERISA's definitional counterpart for accrued benefit in the Internal Revenue Code, 26 U.S.C. Sec. 411(a)(7)(A)(i), is identical, and has been interpreted by the Internal Revenue Service in a Technical Information Release:

[I]n the case of a defined benefit plan, the "accrued benefit" must be expressed in the form of an annual benefit commencing at normal retirement age. The plan must provide a formula under which each participant's actual accrued benefit under the plan can be determined in each plan year.

Internal Revenue Service T.I.R. No. 1403 (Sept. 17, 1975). ⁹ An accrued benefit, then, represents the interest in a retirement benefit that a participant earns each year, and a plan must state a method or formula for determining a participant's annual accrual rate. ¹⁰ ...