Mahoney v. Board of Trustees, Boston Shipping Association-International Longshoremen's Ass'n, AFL-CIO Pension Plan

Decision Date05 May 1992
Docket NumberAFL-CIO,No. 91-2202,91-2202
Citation973 F.2d 968
Parties, 15 Employee Benefits Cas. 2393 William MAHONEY, et al., Plaintiffs, Appellants, v. BOARD OF TRUSTEES, Boston Shipping Association-International Longshoremen's Association,Pension Plan, Defendants, Appellees. . Heard
CourtU.S. Court of Appeals — First Circuit

Paul A. Manoff, Boston, Mass., for plaintiffs, appellants.

Henry C. Dinger with whom Daniel P. Condon, Donna Stoehr Hanlon and Goodwin, Procter & Hoar, Boston, Mass., were on brief, for defendants, appellees.

Before BREYER, Chief Judge, CYR, Circuit Judge, and BOYLE, * District Judge.

BREYER, Chief Judge.

Between 1986 and 1990 the trustees of the Boston longshoremen's pension plan significantly increased the size of retirement pensions. In doing so, they divided the increases unevenly, treating longshoremen who had already retired less favorably than those who were still working. Members of the former group claim that the trustees thereby violated the fiduciary duty they owe to already-retired longshoremen. See 29 U.S.C. §§ 1001-1461 (Employee Retirement Income Security Act ("ERISA")). The district court granted summary judgment for the trustees. We affirm.

I Facts

The record, read appropriately in appellants' favor, Fed.R.Civ.P. 56; Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 250-52, 255, 106 S.Ct. 2505, 2510, 2511-12, 2513-14, 91 L.Ed.2d 202 (1986); Rodriques v. Furtado, 950 F.2d 805, 809 (1st Cir.1991), indicates the following:

1. The longshoremen's pension plan has fourteen trustees. Working members of the longshoremen's union elect seven; representatives of Port of Boston shipping companies, which employ longshoremen, select the other seven.

2. From 1976 (when the pension plan was reorganized as an ERISA plan) through 1983, the pension plan was "underfunded." That is to say, the plan did not have sufficient assets to pay for the benefits it already owed or had promised. The shipping companies increased the level of contributions. Also, the value of the plan's investments began to rise much more rapidly than predicted.

3. After 1983, the plan became "overfunded." That is to say, the plan had significantly more assets than it needed to pay for the benefits it then owed or had promised. The plan's actuary concluded that the plan risked tax penalties applicable to pension plans with excess contributions. See 26 U.S.C. §§ 401-417.

4. The trustees then began to raise benefits. They did so in a series of changes approved in March 1987, April 1988, April 1989, and March 1990.

5. The changes increased both (a) existing pensions paid to longshoremen already retired, and (b) future pensions promised to longshoremen still at work. The increases paid to members of the former group were much smaller than those promised to members of the latter group. Take, for example, the pension paid a longshoreman retiring after thirty years of service. The changes meant that the monthly pension of such a longshoreman who retired before 1986 went from $750 to $800, then to $825, then to $835, and then to $875. The monthly pension promised to such a longshoreman who was still at work in 1990 went from $750 to $1050, then to $1200, then to $1320, then to $1575. Moreover, the monthly pension paid to already-retired longshoremen had a "cap" of $875 (even for those who retired after more than thirty years of work). But, the monthly pension promised to longshoremen still at work had a "cap" of $2100 (the amount paid to those retiring after forty or more years of work). (See Appendix.)

6. The changes "solved" the overfunding problem. From 1986 to 1989, the value of the plan's assets had risen by $12 million more than the plan's actuary had originally projected. The pension changes that the trustees voted used $8 million of this $12 million to pay for increased benefits for the approximately 600 already-retired longshoremen. The remaining $4 million would help pay for the increased benefits promised to the approximately 350 to 500 longshoremen still at work.

7. The record reveals that, when asked why the trustees gave smaller increases to longshoremen who had already retired:

--three trustees said they did not remember any discussion of the matter or know why the trustees voted as they did;

--one trustee said they had simply followed recommendations of the union and the plan's actuary;

--the plan's actuary said that trustees, in fixing pensions for working longshoremen, looked to pensions paid at other competitive ports;

--the plan's administrator (present at the trustees' meetings) said that the trustees set working longshoremen's pensions with an eye toward pensions being paid elsewhere, and that the trustees had not discussed why they voted lesser increases to already-retired longshoremen; and

--one trustee said that he believed they need give no increases to those who had already retired as they were already receiving everything they had been promised when they retired.

As we have said, a group of longshoremen who retired before the trustees voted the changes challenged the allocation of benefits that the trustees chose, an allocation that gave them smaller pension increases than it promised to longshoremen who were still at work. As we have also said, the district court rejected this challenge and granted summary judgment in the trustees' favor.

II The Law
A The Legal Standard

The appellants concede that ordinarily a court, in deciding whether trustees have violated the common law-based fiduciary obligations that ERISA imposes, 29 U.S.C. § 1104, will simply ask whether their decisions are "arbitrary and capricious in light of the trustees' responsibilities to all potential beneficiaries." Cleary v. Graphic Communications Int'l Union Supplemental Retirement and Disability Fund, 841 F.2d 444, 449 (1st Cir.1988); Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 110, 109 S.Ct. 948, 954, 103 L.Ed.2d 80 (1989) (standards from common law of trusts " 'applicable to [ERISA] fiduciaries' ") (citation omitted); see also Palino v. Casey, 664 F.2d 854, 858 (1st Cir.1981). They point out that here, however, seven of the plan's trustees (those selected by the union) were themselves working longshoremen, not retired longshoremen. These seven trustees therefore benefitted personally from a decision that gave larger increases to the former group. And, for that reason, the appellants argue, we should apply an especially strict standard of review. They point to several cases which, they say, support their claim. See Pilon v. Retirement Plan for Salaried Employees of Great N. Nekoosa Corp., 861 F.2d 217, 219 (9th Cir.1988); Deak v. Masters, Mates and Pilots Pension Plan, 821 F.2d 572, 578-80 (11th Cir.1987), cert. denied, 484 U.S. 1005, 108 S.Ct. 698, 98 L.Ed.2d 650 (1988); Struble v. New Jersey Brewery Employees' Welfare Trust Fund, 732 F.2d 325, 333 (3d Cir.1984); Donovan v. Bierwirth, 538 F.Supp. 463, 470 (E.D.N.Y.1981); Winpisinger v. Aurora Corp. of Illinois, Precision Castings Div., 456 F.Supp. 559, 562 (N.D.Ohio 1978).

We conclude, however, that no special, strict standard of review is appropriate in this case, for several reasons. First, we have examined the ordinary law of trusts--law that guides, but does not control, our decision. See Firestone Tire & Rubber Co., 489 U.S. at 110, 109 S.Ct. at 954 ("legislative history confirms" that " 'certain principles developed in the evolution of the law of trusts' " apply to ERISA fiduciaries) (citation omitted); Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 56, 107 S.Ct. 1549, 1557-58, 95 L.Ed.2d 39 (1987) (Congress intended development of a "federal common law of rights and obligations under ERISA-regulated plans"). We have found that, under the common law of trusts, trustees may be included among the beneficiaries of a trust. Restatement (Second) of Trusts §§ 99, 115 (1959); see also William F. Fratcher, 2 Scott on Trusts §§ 99.2, 115 (4th ed. 1988). Such trustees, like trustees generally, have the power to do acts that are "necessary or appropriate to carry out the purposes of the trust and are not forbidden by the terms of the trust." Restatement (Second) of Trusts § 186. Moreover, "[w]here discretion is conferred upon the trustee with respect to the exercise of a power," including the "power[ ] to allocate the beneficial interest among various beneficiaries," ordinarily the trustee's "exercise is not subject to control by the court, except to prevent an abuse by the trustee of his discretion." Id. § 187 & cmt. c; see also id. § 183 cmt. a ("By the terms of the trust the trustee may have discretion to favor one beneficiary over another."); 3A Scott on Trusts § 232 (trustee's "duty of impartiality ... ordinarily" gives him "considerable discretion" in deciding the "balance" between successive beneficiaries).

We have also found four state court cases that consider specifically whether the ordinary, trust law standard of review applies where (as here) the trustee exercises his discretionary powers to favor a group of beneficiaries of which he is a member. Two of these cases say that the ordinary standard does apply. Deal v. Huddleston, 288 Ark. 96, 702 S.W.2d 404, 405-06 (1986) (where settlor "meant to have benefit of the [two trustee-beneficiaries'] best judgment," court reviews distribution of assets among the four beneficiaries only to ensure distribution was not "arbitrary" but was " 'appropriate, fair, just, and equitable' "); Bracken v. Block, 204 Ill.App.3d 23, 149 Ill.Dec. 577, 578-79, 561 N.E.2d 1273, 1274-75 (1990) (trustee-"primary beneficiary," with "broad powers ... to do all ... acts as she judged necessary or desirable to carry out the purposes of the trust," engaged in "proper exercise of her discretion as trustee" when she sold trust's "only asset remaining" to provide for her support); see also Maytag v. United States, 493 F.2d 995, 999 (10th Cir.1974).

The other two cases applied a stricter-than ordinary...

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