Thomas v. Marshall, Civ. A. No. 78-359-H.

• Decision Date: 28 December 1979
• Docket Number: Civ. A. No. 78-359-H.
• Citation: 482 F. Supp. 160
• Court: U.S. District Court — Southern District of Alabama
• Parties: C. L. THOMAS, Plaintiff, v. John T. MARSHALL, C. Warren Stone and Pat T. McInnis, Trustees of Palmer & Baker Engineering Associates Retirement Plan, jointly and severally, Defendants.

482 F. Supp. 160

C. L. THOMAS, Plaintiff, v. John T. MARSHALL, C. Warren Stone and Pat T. McInnis, Trustees of Palmer & Baker Engineering Associates Retirement Plan, jointly and severally, Defendants.

Civ. A. No. 78-359-H.

United States District Court, S. D. Alabama, S. D.

December 4, 1979.

As Amended December 28, 1979.

B. Pratt Gasque, Jr., Mobile, Ala., for plaintiff.

James E. Moore, William B. Harvey, and James Donald Hughes, Mobile, Ala., for defendants.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

HAND, District Judge.

This case involves a claim for pension benefits beyond those which the trustees have tendered to the plaintiff. The trustees, in the answer, deny that any amount is owing except that which has been tendered to the plaintiff and ask for a declaratory judgment to that effect. After taking evidence during a short, non-jury trial, after hearing argument from counsel, after considering their briefs, and after considering the applicable law the Court makes the following findings of fact and conclusions of law. Fed.R.Civ.P. 52(a).

I. FINDINGS OF FACT

1. The plaintiff, C. L. Thomas, was an employee of Palmer & Baker Engineers, Inc. for nearly twenty-five years. He began working for the company on January 8, 1949 and continued working without a break until May 31, 1975. The defendants are trustees of the Palmer & Baker Engineering Associates Retirement Plan.¹

2. On December 1, 1951 Palmer & Baker Engineering Company began a defined benefit pension plan for its employees. The plaintiff was a participant in the defined benefit plan² from its inception on December 1, 1951. And, until the time he left the employment of Palmer & Baker, the plaintiff was always a participant in a pension plan administered for Palmer & Baker employees. Under the original, defined benefit pension plan each participant accrued benefits which were to be paid to the participant in the form of an annuity beginning at age 65. The amount of the annuity depended upon the highest annual, average salary and upon the years of service which the participant had with Palmer & Baker Engineers, Inc. The defined benefit plan was funded by contributions made by Palmer & Baker Engineers, Inc. At the time the defined benefit plan was amended the plaintiff was not vested under the terms of the defined benefit plan.³

3. The date on which the defined benefit plan was amended was the subject of great dispute at trial and, indeed, in the post-trial briefs. That the original defined benefit plan was amended, because the company was unable to meet the funding requirements, is clear. The only important question with legal significance is: when was the defined benefit plan amended.

4. The position of the defendants with regard to the date on which the defined benefit plan was amended shifted during the course of the litigation. In their pretrial brief the defendants asserted that the trustees amended the pension plan in 1975 after recognizing that the company would not be able to meet its funding obligations under the funding schedule. At trial the defendants argued that trustees modified the original defined benefit plan on November 12, 1974 and that that action served to retroactively amend the original pension plan as of December 1, 1973. The new pension plan, a money purchase pension plan,⁴ relieved the company of its funding requirement, a funding requirement which had become onerous as the company moved toward bankruptcy. And, despite putting on evidence at trial showing that the defined benefit plan was amended on November 12, 1974, the post-trial brief of the defendants urged that the real date which the Court should consider to be the date upon which the original pension plan terminated was August 7, 1974.⁵ The Court finds that November 12, 1974 was the date on which the trustees acted to modify the original defined benefit plan by adopting a money purchase plan.

5. After adopting the money purchase pension plan the trustees applied the funds which had been contributed to fund the defined benefit plan into a general account for the participants of the money purchase pension plan. The money purchase plan called for the establishment of separate accounts, the usual practice for that type of pension plan. See Plaintiff's Exhibit No. 2 at p. 11 (participant's accounts). The separate accounts were never established.^5.1

6. After the defined benefit plan was amended the plaintiff participated in the money purchase pension plan until he left the employment of Palmer & Baker Engineers, Inc. on May 31, 1975. On August 20, 1976 the plaintiff made a written request to the trustees asking that all of the monies in his money-purchase-pension-plan account be transferred to an independent-retirement account which the plaintiff maintained. The trustees refused to transfer the plaintiff's retirement benefits unless the plaintiff executed a release-and-indemnity agreement, which agreement had the effect of relieving the trustees from all liability and claims for benefits which the plaintiff might make. The plaintiff refused to sign this release-and-indemnity agreement. When negotiations between the parties collapsed this law suit was initiated.

II. CONCLUSIONS OF LAW

1. This Court has jurisdiction over this action under section 502(e)(1) of ERISA. 29 U.S.C. § 1132(e)(1).

2. As of September 2, 1974 freedom of contract was largely eliminated from the world of pension agreements. On that date the Employee Retirement Income Security Act of 1974 became effective. 29 U.S.C. §§ 1001-1381. ERISA was designed to curb abuses which had become commonplace in the pension world, threatening the retirement income of millions of employees and their dependents. ERISA § 2, 29 U.S.C. § 1001 (congressional findings and declaration of policy). The Act represents an effort by Congress to implement a comprehensive law regulating all major aspects of pension agreements and pension administration. Some of the stringent regulatory provisions in the Act deal with reporting and disclosure,⁶ participation and vesting,⁷ funding,⁸ fiduciary responsibility,⁹ and administration and enforcement.¹⁰ To insure both implementation of and compliance with this comprehensive legislation, Congress made extensive amendments to portions of the Internal Revenue Code¹¹ and provided for executive oversight of pension plans by the Departments of Treasury and Labor.¹² And, in order to protect the retirement income of those who are dependent upon pension benefits, Congress set up a system of pension insurance whereby pensioners' benefits would be insured under an insurance program which was funded by the employers themselves.¹³ It is against this legal background that the Court must decide this case.

A. Applicability of ERISA

3. Before the Court can decide how much Mr. Thomas is entitled to recover under the defined benefit plan the Court must consider whether ERISA applies. In passing on this the Court notes that the defined benefit plan existed after September 2, 1974. The argument that the resolution of the trustees on August 7, 1974 changed the pension plan from the defined benefit plan into a money purchase plan is not persuasive. Action is effective as of the date upon which it is taken. In this case the defined benefit plan was not amended until November 12, 1974, the date the amended pension plan was executed. Therefore, it is the conclusion of this Court that whatever the outcome is in this case ERISA must be considered.

B. Defined Benefit Plan

1. Vested Benefits or Not?

4. Under ERISA the outcome in this case is radically different depending on whether the benefits which were accruing under the defined benefit were vested.¹⁴ In determining whether Mr. Thomas' benefits under the defined benefit plan were vested or not, the first place to turn is to the four corners of the pension plan itself. Article VI of the pension plan — entitled "Retirement Benefits" — defines the conditions under which a participant is entitled to vested benefits.¹⁵ Generally, under the terms of the defined benefit plan a participant was required to work until his sixty-fifth birthday before benefits vested.¹⁶ In limited circumstances, where the participant became disabled because of some physical or mental illness or injury, early retirement with vesting was permitted.¹⁷ The defined benefit plan specifically excludes vesting where the participant voluntarily quits.¹⁸ Thus, under the terms of the pension plan, the usual circumstances under which benefits vested were upon normal retirement at age sixty-five.

5. In this case there is no evidence that Mr. Thomas was entitled to any early retirement because of some physical or mental illness or injury—one circumstance under which benefits could vest. Neither did the plaintiff participate in the defined benefit plan until age sixty-five, his normal retirement age under the terms of the pension plan, because the pension plan was amended before the plaintiff reached age sixty-five. Thus, the plaintiff's rights did not vest under any of the alternative vesting provisions allowed under the terms of the pension plan. Accordingly, it is the conclusion of the Court that the plaintiff did not have any vested benefits under the terms of the pension plan itself.

6. However, one must go further than the four corners of the pension agreement in order to determine whether benefits are vested once it is determined that ERISA applies to the pension plan. Title I of ERISA¹⁹ imposes certain vesting requirements on pension agreements, which requirements, as a matter of law, supercede the terms of the pension agreement. In this case, however, the vesting provisions of Title I do not act to vest benefits in the plaintiff because the vesting provisions of Title I were not yet effective while the defined benefit plan was in existence. Section 211(a)²⁰ generally provides that the vesting provisions of Title I apply immediately to plan years beginning after September 2, 1974....