Ponce v. Construction Laborers Pension Trust for Southern California

• Decision Date: 22 September 1980
• Docket Number: 79-3274,Nos. 79-3109,s. 79-3109
• Citation: 628 F.2d 537
• Parties: 105 L.R.R.M. (BNA) 2868, 58 A.L.R.Fed. 157, 89 Lab.Cas. P 12,325, 2 Employee Benefits Ca 1777 Augustine PONCE et al., Plaintiffs-Appellants, v. CONSTRUCTION LABORERS PENSION TRUST FOR SOUTHERN CALIFORNIA et al., Defendants-Appellees. Tom GILCHRIST, Plaintiff-Appellant, v. CONSTRUCTION LABORERS PENSION TRUST FOR SOUTHERN CALIFORNIA et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 537

628 F.2d 537

105 L.R.R.M. (BNA) 2868, 58 A.L.R.Fed. 157,

89 Lab.Cas. P 12,325,

2 Employee Benefits Ca 1777

Augustine PONCE et al., Plaintiffs-Appellants,

v.

CONSTRUCTION LABORERS PENSION TRUST FOR SOUTHERN CALIFORNIA

et al., Defendants-Appellees.

Tom GILCHRIST, Plaintiff-Appellant,

v.

CONSTRUCTION LABORERS PENSION TRUST FOR SOUTHERN CALIFORNIA

et al., Defendants-Appellees.

Nos. 79-3109, 79-3274.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 4, 1980.

Decided Sept. 22, 1980.

Bruce K. Miller, Los Angeles, Cal., for plaintiffs-appellants.

Kenneth J. Sackman, Beverly Hills, Cal., Lionel Richman, Los Angeles, Cal., argued, for defendants-appellees; James Wolf, Los Angeles, Cal., on brief.

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

Before PECK ^*, ANDERSON and FERGUSON, Circuit Judges.

PECK, Circuit Judge.

The two cases now before the Court have been consolidated for disposition. The plaintiffs in these cases challenge as "arbitrary and capricious" certain vesting requirements (specifically, the "15-year credited service" requirement and the "break-in-service" rule) of the Construction Laborers Pension Trust for Southern California. Plaintiffs brought these appeals after the district court had entered summary judgments in favor of defendants.

INTRODUCTION

The Construction Laborers Pension Trust for Southern California (Trust; Pension Trust) is an irrevocable trust fund that was established on June 15, 1962, pursuant to an agreement and declaration of trust among the Southern California District Council of Laborers, certain affiliated locals, and the contractors with whom the District Council engaged in collective bargaining. For the purposes of this appeal, the Trust is governed by the requirements of section 302(c)(5) of the Taft-Hartley Act, 29 U.S.C. § 186(c)(5). In general terms, that section requires that a trust fund be operated for the "sole and exclusive benefit" of employees of contributing employers. The declared purpose of the Trust is the payment of retirement and disability pension benefits to employees of employers who are parties to the Trust and to the dependents of those employees. The Trust derives its revenues exclusively from the contributions that are made by each member employer for each hour that is worked by his employees. In other words, the Trust is exclusively employer-funded.

By resolution dated October 16, 1962, the Board of Trustees of the Pension Trust was empowered to promulgate rules and regulations to govern the distribution of pension benefits that are to be paid by the Trust. On December 27, 1962, the Board of Trustees, acting in accordance with its authority, adopted a pension plan which set out various requirements for eligibility to receive pension benefits. At all times, from the initial adoption of the pension plan in December 1962 through the close of calendar year 1975, the eligibility requirements for benefits under the Trust included the following two conditions:

(a) The 15-Year Credited Service Requirement.

The minimum period of work in employment covered by the Plan required to be completed by an employee claiming any kind of pension is 15 (b) The Break-in-Service Rule.

years. In addition, the minimum period of employment required to secure a vested or a nonforfeitable right to a deferred pension benefit is similarly 15 years;

Any employee who has accumulated less than 15 years of employment covered by the Plan suffers a complete cancellation of credit for such employment (subject to certain exceptions not at issue in the present action) in the event that he fails to complete at least 300 hours of work in covered employment in each of two consecutive years.

The Ponce Case

Plaintiffs in the Ponce case are eighteen retired or disabled construction workers who completed at least ten years of employment that are recognized as credited service under the Pension Trust. (Each plaintiff completed his last period of work in covered employment before January 1, 1976.) Plaintiffs applied to the Trust for either normal retirement pensions, early retirement pensions, or disability pensions; however, all of their applications were denied by the defendant Board of Trustees. The sole basis for such denials was the Trustees' conclusion that plaintiffs had failed to satisfy the Trust's 15-year minimum service requirement, either because plaintiffs had failed to complete 15 years of covered employment or because some portion of plaintiffs' employment was not recognized due to the operation of the break in service rule.

The first contention of the Ponce plaintiffs focuses on the 1970 decision of the Board of Trustees to increase the monthly benefit level of the Trust from $13.75 per month for each year of credited service to $32.40 per month for each year of credited service. In essence, plaintiffs contend that this decision of the Trustees to more than double the monthly benefits was arbitrary and capricious, and that the Trustees should have disbursed the pension funds by including more plan participants in the class of beneficiaries. According to plaintiffs, the Trustees could have realized such inclusion by lowering the number of years of credited service that is required for pension vesting. In their second contention, the Ponce plaintiffs argue that the break-in-service rule is not related to any legitimate trust purpose because it applies to a negligible percentage of otherwise eligible plan participants.

The Gilchrist Case

Plaintiff Thomas Gilchrist was a construction laborer who had worked in Southern California from 1942 through 1973, at which time he became disabled. From 1952 through 1973, Gilchrist's work was continuous and produced 13 and 8/12 years of service that was credited toward his entitlement to a pension from the Pension Trust. In addition to such credited service, Gilchrist performed an additional 2 and 10/12 years of construction work during the period from 1942 to 1949. In February of 1972, Gilchrist applied to the Pension Trust for an early retirement pension; however, his application was denied by the Board of Trustees on the ground that Gilchrist had failed to satisfy the 15-year minimum service requirement. The Trustees concluded that Gilchrist's 2 and 10/12 years of service between 1942 and 1949 could not be considered for purposes of the minimum service requirement because Gilchrist had failed to earn any pension credit during the years 1950 and 1951. Under the terms of the Trust's break-in-service rule, the absence of pension credit for two consecutive years required automatic cancellation of any previous credits Gilchrist might have otherwise earned. Such cancellation left Gilchrist with only 13 and 8/12 years of credited service, a period that did not satisfy the 15-year minimum service requirement. Gilchrist attacks as arbitrary and capricious the application of the break-in-service rule to his construction work during 1942 to 1949. (As indicated above, the break in service rule was adopted by the Board of Trustees in 1962.) Gilchrist contends that the application of the break-in-service rule to his work record from 1942 to 1951, a period when neither he nor any other worker had notice of the rule's requirements, was arbitrary, capricious, and

not rationally related to any legitimate trust purpose.

THE STANDARD OF REVIEW

Initially, we note that the mandatory vesting provisions of the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001 et seq., are not applicable to either of the cases now on appeal. In regard to the contentions of the Ponce plaintiffs, the provisions of ERISA protect only the pension rights of workers who were working at the beginning of calendar year 1976, the effective date of the Act. In other words, Congress chose not to make ERISA's minimum eligibility standards retroactive. See 29 U.S.C. § 1061(b) (2). See, e. g., Wilson v. Board of Trustees, 564 F.2d 1299, 1302 (9th Cir. 1977). As previously noted, each of the plaintiffs in Ponce completed his last period of work in covered employment before January 1, 1976. In regard to the contentions of plaintiff Gilchrist, ERISA does not require pension plans to give credit for service that was completed prior to the inception of the plan. Further, ERISA specifically permits a pension plan to give effect to a break in service that occurred prior to January 1, 1976. See 29 U.S.C. § 1053(b)(1)(C); 29 U.S.C. § 1053(b)(1)(F). See, e. g., Wilson, supra, 564 F.2d at 1302.

Although the provisions of ERISA are not applicable to the present cases, the actions of the defendant Board of Trustees are nonetheless subject to judicial review pursuant to the provisions of section 302(c)(5) of the Taft-Hartley Act. Section 302 of that Act, 29 U.S.C. § 186, prohibits employers and their representatives from making payments of money "or other thing of value" to employee representatives; however, section 302(c)(5) of the Act sets forth an exception to this general prohibition in relation to employee welfare or pension plans. Section 302(c)(5) provides that the provisions of Section 302 are not applicable,

with respect to money or other thing of value paid to a trust fund established by such representative, for the sole and exclusive benefit of the employees of such employer, and their families and dependents (or of such employees, families, and dependents jointly with the employees of other employers making similar payments, and their families and dependents).

29 U.S.C. § 186(c)(5) (emphasis added). Under section 302(e) of the Act, 29 U.S.C. § 186(e), the federal district courts have jurisdiction "to restrain violations of this section."

The language of section 302(c)(5) (trust funds shall be operated ". . . for the sole and exclusive benefit of the employees . . ."), and the standard of judicial review to which such language gives rise, have been the subject of interpretation. Many courts have...