Oster v. Barco of California Employees' Retirement Plan

• Decision Date: 15 March 1989
• Docket Number: No. 86-5696,86-5696
• Parties: 10 Employee Benefits Ca 2210 Sam OSTER, Plaintiff-Appellant, v. BARCO OF CALIFORNIA EMPLOYEES' RETIREMENT PLAN; Managing Committee of the Barco of California Employees' Retirement Plan; Barco of California; Michael Ferguson, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1215

869 F.2d 1215

10 Employee Benefits Ca 2210

Sam OSTER, Plaintiff-Appellant, v. BARCO OF CALIFORNIA EMPLOYEES' RETIREMENT PLAN; Managing

Committee of the Barco of California Employees'

Retirement Plan; Barco of California;

Michael Ferguson, Defendants-Appellees.

No. 86-5696.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted July 9, 1987.

Decided Oct. 11, 1988.

As Amended on Denial of Rehearing March 15, 1989.

Ronald Dean, Pacific Palisades, Cal., for plaintiff-appellant.

Jay R. Ziegler, Buchalter, Nemer, Fields, Chrystie & Younger, Los Angeles, Cal., for defendants-appellees.

Appeal from the United States District Court for the Central District of California.

Before NELSON, HALL and THOMPSON, Circuit Judges.

CYNTHIA HOLCOMB HALL, Circuit Judge:

Sam Oster, a former employee of Barco of California (Barco), brought this action against Barco, the Barco Employees' Retirement Plan (the Plan), and the Barco Plan's Managing Committee (the Committee), alleging that the Committee's denial of his request for payment of his retirement benefits in a lump sum was arbitrary, capricious, and unreasonable. The district court granted defendants' motion for summary judgment on the grounds that the Committee was exercising its discretion as provided for in the Plan, that the decision not to pay retirement benefits in lump sums was made to make the Plan more financially sound for the benefit of all beneficiaries, and that there was no evidence that the Committee's decision was made in bad faith. Oster timely appeals. We have jurisdiction under 28 U.S.C. Sec. 1291; we affirm.

I

Oster was employed by Barco from January 2, 1972, to February 1, 1985. During that time, Barco maintained the Plan for the benefit of its employees, including Oster. The Plan, which is a defined benefit plan subject to the provisions of the Employee Retirement Income Security Act (ERISA) of 1974, Pub.L. 93-406, 88 Stat. 832 (codified as amended in scattered sections of 26 U.S.C., 29 U.S.C., 31 U.S.C., and 42 U.S.C.), provides for an annuity to be paid to the participant or his beneficiary upon the participant's death, disability, retirement, or termination of employment. When Oster terminated his employment with Barco on February 1, 1985, he was 90% vested in the Plan. The present value of Oster's vested benefit in the Plan was $133,320.47.

Both the Plan itself and the summary plan description (copies of which were distributed to all plan participants) provided that the normal form of retirement benefit under the Plan was an annuity for life or 120 months. These monthly payments were to commence at age 65. ¹ However, under the "optional benefit" request provision of the Plan, an employee could request a lump-sum distribution of the actuarial equivalent of his accumulated benefit. Although the Plan, the summary plan description, and the pension application form filed by Oster described the optional payment forms available, these three documents also pointed out that the final determination as to the manner in which benefits are distributed is within the sole discretion of the Committee and that no employee's preference is binding on the Committee.

On January 23, 1985, Oster applied to the Committee for a lump-sum distribution of his accumulated pension benefits. In Oster's signed application, the following provision appears:

I understand that this request [for a lump-sum distribution] is not binding on the Committee and that the Committee has the right to select any method of settlement it deems in the best interests of the recipients and the Fund.

In spite of the fact that virtually every other request for a lump-sum distribution of benefits had been granted by the Committee in the 22-year history of the Plan, the Committee denied Oster's request. ² On January 29, 1985, approximately two months after Oster had tendered his resignation, the Committee decided that as a matter of general policy no lump-sum distributions exceeding $3,500 would be made to any participant of the Plan terminating his employment after January 2, 1985. The Committee claims the policy change was based on the recommendation of the Plan's actuary that the routine lump-sum distribution policy should be so modified and on the committee's decision to make the plan more of a retirement program rather than a severance pay program.

II

We must generally sustain a decision of an ERISA plan's trustee unless it was "arbitrary or capricious." ³ Fielding v. International Harvester Co., 815 F.2d 1254, 1256 (9th Cir.1987). In some ERISA cases where the employer administers its own plan, however, we have held that "[l]ess deference should be given to the trustee's decision." See Jung v. FMC Corp., 755 F.2d 708, 712 (9th Cir.1985). Oster relies on Jung and contends that less deference should be applied to the Committee's decision in this case. We only apply this "lesser deference" standard, however, if the Committee's decision implicates a serious conflict between the interests of the employer and the beneficiaries. See id. at 711-12; cf. Bruch v. Firestone Tire & Rubber Co., 828 F.2d 134 (3rd Cir.1987), cert. granted, --- U.S. ----, 108 S.Ct. 1288, 99 L.Ed.2d 498 (1988) (applying de novo review where administrator's interests are adverse to claimant's). This is not such a case: The conflict in this case is between past and future beneficiaries. Here, the Committee was not choosing between Oster and Barco, but rather, between Oster and future employees covered by the Plan. The decision was based not only on the financial viability of the Plan, but was intended to make the Plan more of a retirement vehicle for the employees by awarding them lifetime annuities.

That the change in policy also benefited Barco does not make the policy change the type of action which raises doubts as to the trustees' total loyalty to all plan participants. See Morse v. Stanley, 732 F.2d 1139, 1144-47 (2d Cir.1984). To some extent, a potential conflict of interest between the trustees and the company inheres in defined benefit plans such as Barco's. Any action that enhances the financial viability of the Plan tends to reduce the potential contributions of the company. Construing the evidence in the light most favorable to Oster, he has shown no more than the Committee's awareness of this inherent potential conflict. The Committee took steps to improve the Plan's financial soundness. The evidence Oster points to might support the inference that the Committee was aware that in taking these steps it might also reduce the amounts Barco would ultimately have to contribute. Such evidence is insufficient to create a genuine issue of material fact as to the Committee's loyalty to the Plan's beneficiaries. A contrary conclusion would mean that we must always consider trustees of a defined benefit plan as subject to a conflict of interest, which we are unwilling to do.

Moreover, we note that this is not a case in which the complaining beneficiary is suffering a reduction in benefits. Whether Oster received his benefits in the form of an annuity or a lump-sum distribution, the amount paid to him would be actuarially equivalent. All Oster protests is the form in which he will receive his benefits. It is true that disbursement of a large percentage of the Plan's assets would have an adverse effect on the Plan's stability and, as a result, might tend to increase Barco's potential contributions. Whether Oster receives his benefits in the form of a lump-sum distribution upon separation or in the form of an annuity with payments commencing at age 65, however, he will receive actuarial equivalent amounts. That the Committee's policy change effected only a delay and not a reduction in Oster's benefits buttresses our conclusion that its decision was not tainted by a serious conflict between Barco and the beneficiaries.

III

Applying the arbitrary and capricious standard of review, "affirmative participation" in the Committee's decisionmaking process is limited to decisions that are " 'so patently arbitrary and unreasonable as to lack foundation in factual basis and/or authority in governing case or statute law.' " Elser v. I.A.M. Nat'l Pension Fund, 684 F.2d 648, 655-56 (9th Cir.1982) (quoting Roark v. Lewis, 401 F.2d 425, 429 (D.C.Cir.1968)), cert. denied, 464 U.S. 813, 104 S.Ct. 67, 78 L.Ed.2d 82 (1983). We will not substitute our judgment for the judgment of the Committee unless " 'the actions of the [Committee] are not grounded on any reasonable basis.' " Elser, 684 F.2d at 656 (emphasis added) (quoting Ponce v. Construction Laborers Pension Trust, 628 F.2d 537, 542 (9th Cir.1980)). "A decision is not arbitrary or capricious if it is based on a reasonable interpretation of the plans terms and was made in good faith." Johnson v. District 2 Marine Engineers Beneficial Association-Associated Maritime Officers, Medical Plan, 857 F.2d 514, 516 (9th Cir.1988) (per curiam).

However, since the Committee's decision to deny Oster a benefit that the Committee had routinely granted to others appears to be arbitrary and capricious on its face, the Committee must advance some reason for its decision if it is to survive review under the arbitrary and capricious standard. See Hurn v. Retirement Fund Trust of the Plumbing, Heating & Piping Industry of So. Cal., 703 F.2d 386, 390 (9th Cir.1983). The critical inquiry in this case therefore is whether the Committee's denial of Oster's request for a lump-sum distribution of his accumulated benefits was based on a reasonable rationale or whether their decision was unreasonable, that is, arbitrary and capricious. See Brug v. Pension Plan of the Carpenters Pension Trust Fund, 669 F.2d 570, 573-74 (9th Cir.), cert. denied, 459 U.S. 861, 103 S.Ct. 135, 74 L.Ed.2d 116 (1982).

IV

ERISA does not mandate any specific mode of payment for retirement benefits. Pompano v. Michael Schiavone & Sons, Inc., 680 F.2d 911, 914 (2d Cir.1982). The trustees' actions in administering...