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September 17, 1984

ROBERT A. EARDMAN, CARROLL G. HECK, WESLEY H. PRINE, RICHARD D. WOMER, WILLIAM DIEHL, ODELON W. FECTEAU, BARBARA McGEEVER, FRANK A. RANDAZZO, On Behalf of Themselves and as Representatives of a Class of Persons Similarly Situated, Plaintiffs,


In this action arising under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq., alleging inter alia a violation of the terms of an employee welfare benefit plan, *fn1" a hearing for the presentation of evidence pertinent to the construction of certain provisions of such plan's documents upon which plaintiffs' first cause of action is premised was held July 18th through 26th. *fn2" In an Order filed June 22, 1984 I had denied both parties' motions for partial summary judgment concerning plaintiffs' initial claim inasmuch as it was found that the plan's "amendment or termination" provisions were not so unambiguous as to warrant such drastic procedural remedy. The evidentiary hearing was directed in order to permit the parties to present extrinsic evidence with respect to the interpretation of any plan documents relevant to the disputed authority of defendants to alter or cancel the health benefits in issue.

Many of the background facts pertinent to plaintiffs' first cause of action are not disputed. On December 8, 1976 the Board of Directors of Bethlehem Steel Corporation (hereinafter "Bethlehem") adopted the Social Insurance Plan of Bethlehem Steel Corporation and Subsidiary Companies, as Amended Effective as of December 1, 1976 ("the Plan") (Plaintiffs' exhibit 37). *fn3" Such plan is an employee welfare benefit plan as defined under ERISA, 29 U.S.C. § 1002(1), *fn4" authorizing the establishment of medical, life insurance and similar benefits programs for eligible employees and pensioners. Pursuant to the Plan and its earlier versions numerous benefits programs had been instituted by Bethlehem over the years for active union and non-represented employees as well as for pensioners.

On or about March 6, 1984 Bethlehem caused to be mailed to members of the plaintiff class a communication notifying them that changes in their medical care coverage under benefits programs established pursuant to the Plan would become effective April 1, 1984. Among the major changes were the institution of premiums to be paid by participants, deductibles prior to the reimbursement for hospital and physicians' services, precertification requirements for certain types of inpatient care, and lifetime limitations on company-paid benefits for each participant and dependent (Plaintiffs' exhibit 12).

 The sole question before the Court at this juncture is whether under the terms of the Plan documents Bethlehem had reserved the right to reduce the terms of pensioner health care programs' coverage and to require the payment of contributions by participants in these programs.

 Plaintiffs have consistently asserted that, according to the terms of the Plan documents and specifically Section 2 of Article XI thereof, Bethlehem was precluded from terminating or reducing the terms of coverage of any benefits program of a class member once he or she had retired with a sufficient number of years of continuous service or had otherwise become eligible for participation under the specific provisions of a benefits program .

 Bethlehem has contended that, pursuant to the amendment and termination provisions contained in Article XI of the Plan it has always retained the right to amend or terminate the Plan or any benefits program thereunder, provided that a participant was fully reimbursed with respect to a claim incurred or "in the pipeline" prior to the effective date of amendment or termination of coverage.

 Twelve witnesses testified during the course of the evidentiary hearing. *fn5" Jere Y. Heisler, who had worked for Bethlehem for thirty-six years prior to his July 31, 1983 retirement from the position of Manager of Production Scheduling at the Bethlehem, Pa. plant, testified regarding an April 1980 meeting of the top management personnel of the corporation at the Boca Raton Hotel in Florida. Heisler testified that on the final day of such meeting Bethlehem's outgoing Chief Executive Officer Lewis W. Foy had given some general farewell remarks and that each member of the Bethlehem Management Group was then presented with a personalized looseleaf book entitled "Your Financial Security." Heisler recalled that Ben Boyleston of the Employee Benefits, Human Resources Office had given a presentation in which he outlined the contents of the book for the group and had explained the benefits that "Management Group" members would receive as active employees and later as retirees. Heisler noted at the hearing that page 3 of the Medical Benefits section contained the statement, "Following your retirement, you and your dependents will continue to receive Blue Cross and Blue Shield coverages at no cost to you." (Plaintiffs' exhibit 4). Heisler testified that the book did not mention any right of Bethlehem to cancel benefits although it was explained therein that specific benefits -- namely, vision, dental care and annual physical examinations would terminate upon retirement.

 Heisler further pointed out that page 2 of the life insurance section of the so-called "Boca book" contained the following representation: "After your retirement, the cost of your life insurance will continue to be paid in full by Bethlehem." The book further explained that reductions in the amount of life insurance coverage would occur when the retiree had reached certain ages but that, at the end of these periods, "the amount of your insurance under each policy will be 50% of that in effect immediately prior to your retirement and will then remain unchanged until your death."

 Heisler additionally testified that he had considered these benefits when he had opted for early retirement in 1983 and that he had also cancelled his own life insurance coverage due to his understanding that Bethlehem had undertaken to continue his company-paid life insurance indefinitely after his retirement.

 Subsequent to his decision to take early retirement, Heisler had received an "exit interview" from Bethlehem employee Joanne Refscher during which his pension, accrued vacation, life insurance and medical benefits had been explained to him. *fn6" Heisler testified that he had been advised during the interview that Bethlehem would continue to pay for his life insurance, that his medical benefits would remain in the same posture and that, should his spouse survive him, she would continue to receive medical benefits.

 Heisler additionally testified that in 1980 the Bethlehem Management Group consisted of approximately 250 members, that such individuals had received special benefits as opposed to other non-union employees and that he believed Bethlehem had retained the right to change benefits of active employees.

 William E. Diehl, who had worked for Bethlehem for thirty-two years and had retired June 30, 1981 from the position of Manager of Sales for the Reinforcing Bars Fabrication Division of Bethlehem, testified regarding information he had received prior to retiring with respect to benefits. He stated that he had received inter-office correspondence from Tom Mohr, Assistant Vice President for Sales Personnel, which provided information regarding, inter alia, life insurance and Blue Cross/Blue Shield coverage following retirement. This document (Plaintiffs' exhibit 16) stated in part that Diehl's two life insurance policies would continue after retirement with certain yearly reductions when he would reach sixty-five and seventy years of age. The "last reduction" was to occur at age sixty-nine under one policy and at age seventy-four under the other, with the coverage to then remain at 50% of the amount respectively in effect at the date of retirement. The correspondence also indicated that Blue Cross/Blue Shield and Major Medical coverage would be company-paid for Diehl and his eligible dependents but that dental and vision care expense coverage would be discontinued at retirement.

 Carroll G. Heck, a Bethlehem employee for thirty-one years who had retired July 31, 1980 from the position of Assistant General Manager of the Lackawanna (N.Y.) Plant, also testified regarding the Boca Raton meeting. He recalled that none of the speakers at the meeting wherein benefits had been discussed had said that Bethlehem could cancel or diminish any of the benefits after the retirement of an employee. Heck also testified regarding a July 8, 1980 letter he had received from David W. Kempken, Manager of the Employee Benefit Programs, which explained the "lump-sum" retirement option. The letter (Plaintiffs' exhibit 43) contained the statement:

 "If you receive a lump-sum payment as opposed to a regular monthly Bethlehem pension, you will still be enrolled in both the Program of Hospital and Physicians' Services Benefits for Eligible Pensioners and Surviving Spouses (Blue Cross-Blue Shield) as well as in the Major Medical Expense Insurance Program for Retired Members of the Bethlehem Management Group and Their Eligible Dependents. Both of those Program coverages will be provided by Bethlehem at no cost to you. In addition, your Metropolitan and John Hancock life insurance coverages will be continued in the same manner as if you would be receiving a regular monthly Bethlehem pension."

 Heck further testified regarding the circumstances leading to the institution of this action. He said that all of the pensioners with whom he has spoken believe that Bethlehem did not have the right to reduce their benefits. He further averred that he had interpreted the reference in the Boca book to possible future changes of benefits to have permitted reductions in benefits of active employees and only additions to benefits of pensioners.

 C. Thomas Mitchell, who had worked for Bethlehem for approximately twenty-three years and had retired July 30, 1983 as Manager of Bethlehem's Field Printing Department testified with respect to an "exit interview" he had received June 30, 1983 after he had decided to retire. Mitchell recalled that at such interview he had asked Jacqueline Coyle, the Bethlehem representative, what would happen to his Blue Cross/Blue Shield coverage upon his reaching sixty-five years of age. Mitchell testified that Coyle had told him that those medical benefits would continue for his life.

 Robert E. Cooper, who had worked for Bethlehem for over eighteen years as its Coordinator of Electrical Testing and Training and in its Pension Office from August 1981 until his retirement July 31, 1983, testified regarding the procedures he had utilized in giving exit interviews to non-unionized employees. Cooper stated there had been a packet of forms which had to be explained to and be signed by the employee and that a booklet explaining benefits also had been given to the employee. Cooper testified that he had given at least two hundred of such interviews and tht he had always told the employee that he or she would receive Blue Cross/Blue Shield coverage for life, life insurance coverage for life with certain yearly reductions upon reaching age sixty-five and that dental and vision care coverage would end upon retirement. Cooper stated that he had not received any formal training from Bethlehem as to conducting exit interviews but that he had observed interviews conducted by Emmet Moyer, Coordinator of the Pension Office, and Tom Lohr and Judy North of such office for approximately two weeks when he had first started working in the Pension Office. Cooper recalled that during the course of interviews these interviewers had told retiring workers that they would have free Blue Cross/Blue Shield coverage for the rest of their lives. Cooper also recalled that, when Moyer had advised retirees regarding eligibility for Blue Cross/Blue shield coverage and the provisions with respect to a retiree's surviving spouse's coverage, it had been explained that such provisions meant that the retiree would receive such for all of his or her life. Cooper further testified that he had never been instructed to advise retirees that downward changes in their benefits could occur after the date of retirement.

 George W. Lutz, who had retired July 31, 1983 after twenty-five years as Bethlehem's Supervisor of Salary Administration, also testified regarding the administration of exit interviews. Lutz had worked under William Churn in 1976 and for two years had observed numerous exit interviews conducted by Churn. From 1978 to January 1983 Lutz himself gave exit interviews to non-union employees. He testified that a copy of a booklet entitled "Program of Hospital, Physicians' Services and Major Medical Benefits for Eligible Exempt Salaried Pensioners and Surviving Spouses of Bethlehem Steel Corporation and Subsidiary Companies, effective January 1, 1981" (Plaintiffs' exhibit 5) had been given and explained by him to salaried employees at the interviews. *fn7" Lutz had informed such employees, among other things, that their health benefits would continue to the age of sixty-five with certain changes occurring upon their eligibility for Medicare and that their life insurance coverage would continue following retirement with designated reductions upon their reaching certain ages. He had never told these retirees of a possible diminishment of life insurance or health benefits and he testified that the documents which had been provided to retirees did not warn of such.

 Lutz further testified that a different booklet, entitled "Program of Hospital and Physicians' Services Benefits for Eligible Pensioners, effective August 1, 1975" (Defendants' exhibit 35), had probably been utilized prior to August 1, 1979 until Plaintiffs' exhibit 44, similarly titled yet effective August 1, 1979, had become the pertinent booklet. Lutz recalled that prior to August 1979 retirees had been told that their health coverage would cease at age sixty-five (when they would become eligible for Medicare) and that subsequent to August 1, 1979 retirees had been instructed to enroll for Parts A and B of Medicare upon reaching sixty-five inasmuch as the company-paid benefits were merely supplemental to Medicare benefits after such age. He had examined Plaintiffs' exhibits 5 and 44 and had found no provisions therein with respect to Bethlehem's right to change or terminate the benefits programs described therein.

 John Clyde Overdurf, Jr., who retired April 1, 1978 from the position of Assistant Supervisor of Bethlehem's Wire Mill, Williamsport (Pa.) Plant, testified regarding pension and health benefits information imparted to him prior and subsequent to his retirement. Overdurf recalled being told that the company would pay for his and his wife's medical coverage until he reached sixty-five, that his widow would remain covered and that his life insurance coverage would continue to sixty-five when certain yearly reductions would commence until he became seventy-one. He had received a benefits booklet in the mail in the early part of 1981 and, when he had inquired regarding such, had been told by an employee of Bethlehem that coverage under such program was automatic for him and his spouse and that he therefore did not need to take any action at that point. Overdurf also recalled receiving a number of benefits booklets over the years and further testified that he had never been told that Bethlehem could reduce or terminate his benefits after his retirement.

 Kempken, presently Bethlehem's Division Comptroller, Capital Budgeting, Planning and Analysis, had been the Manager of Employee Benefits in Bethlehem's Human Resources Department prior to June 1, 1984. He had also acted as Secretary of the Insurance Board created by the Social Insurance Plan and as the Plan's Administrator from January 1, 1979 until May 31, 1984. During the hearing Kempken acknowledged that ERISA had imposed certain administrative and fiduciary duties upon him in his capacity as Plan Administrator. He also testified that as Manager of Employee Benefits in 1983 he was a primary actor in the design of the new Comprehensive Medical Program ("CMP"), the implementation of which is this litigation's raison d'etre.

 Kempken had been a member of a company task force created in the Spring of 1983 to study health care costs containment. The task force had submitted a report to John A. Jordan, Jr., Vice President of Planning and Human Resources, in December 1983 and as a result of the study certain reductions in the benefits coverage of active employees had been instituted January 1, 1983 and during 1983.

 Kempken testified that it was his interpretation of the Plan, and specifically of Article XI, Section 2 thereof, that Bethlehem had reserved the right to alter or even to terminate medical or life insurance coverage of both active and retired employees. He construed the "proviso" language of Section 2 merely as precluding a procedure whereby termination of benefits would adversely affect pretermination incurred expenses, such as expenses stemming from a period of hospitalization that had commenced prior to the date of the termination of coverage even though extending past such date. According to Kempken, the Plan's terminology was meant to insure reimbursement to an employee or retiree of such expenses if the hospitalization had begun prior to termination. However a re-admission to the hospital thereafter would not be covered by a program even if it were related to the prior illness inasmuch as such claim would not be considered as having been "incurred" prior to termination of coverage.

 Kempken stated that he believed that Bethlehem had complied with ERISA with respect to the Plan and the statute's requirement of a summary plan description ("SPD") of any plan. However he confessed that there was some uncertainty regarding certain programs' SPDs' denial and termination provisions. He stated that ten years after the enactment of ERISA the Department of Labor had finally concluded that a plan's possible termination was a circumstance which had to be included in a SPD. *fn8"

 Kempken further testified that the notification of the possibility of the amendability or cancelability contained in Defendant's exhibit 35 had been inadvertently omitted from 1979 and 1981 SPDs for retiree benefits programs but that such would be contained in all future SPDs.

 With respect to the Plan itself, Kempken testified that such documents did not actually describe eligibility requirements for participation in a hospital or physicians' services benefits program. The Plan did however define the Plan Administrator's duties. He stated that the Plan had been adopted in 1950 and had been amended in 1951 and again December 1, 1976, that the CMP does not alter the Plan but is merely a benefits program under it and that the term "employee" as defined in Article I of the Plan includes both active and retired workers.

 Kempken testified that Bethlehem first provided company-paid health benefits for exempt salaried pensioners in 1966 under a program which allowed an individual to receive more extensive coverage by paying a monthly premium. (Defendants' exhibit 31). Thereafter, other programs were instituted for pensioners not eligible for Medicare and later also including Medicare-eligible pensioners with an exclusion of coverage of certain services that would be paid for by Medicare. Kempken testified that in 1981 an optional Major Medical program was introduced for non-exempt salaried pensioners with the entire cost therefor paid by program participants. He also stated that in 1983 the programs for both active employees and pensioners were administratively altered to screen more tightly the services paid for or to eliminate services that were no longer state-mandated.

 He further testified that it had been intended that the SPDs, Plaintiffs' exhibits 5 and 44, would be relied upon by retirees, yet he acknowledged that the language regarding possible termination of medical benefits contained in the prior SPD, Defendants' exhibit 35, had been inadvertently omitted from such. He had become aware of such omission prior to 1983.

 Additionally Kempken asserted that Plaintiffs' exhibit 44, which was effective August 1, 1979, had been the first post-ERISA booklet for retirees, that retirees had received no advice that their benefits were terminable other than information set forth in the SPDs and in life insurance certificates and that the group insurance certificate had clearly indicated that such was terminable. He conceded that, from the language contained in Plaintiffs' exhibit 16 (the March 16, 1981 memorandum from T. H. Mohr to William Diehl stating "last reduction" in life insurance coverage "at age 69"), an average Plan participant could infer that such benefits were not terminable.

 In further explaining his interpretation of the disputed "provided, however" language of the Plan, Kempken explained that the Plan had been administered on the basis that the costs of incurred covered services would be paid despite termination of a program. For example, a life insurance beneficiary would be entitled to payment if the insured's death had occurred while coverage was in place and, if death had occurred within a specified time after termination, it would be assumed that the individual would have opted to have converted the policy to an individual policy with premiums paid at his or her own expense. Kempken asserted that the concept of entitlement to benefits under a program, as set forth in the disputed clause, required an admission to a hospital or the receipt of a service before a "benefit" was deemed to have arisen under such program.

 John C. Dakes, who had worked for Bethlehem from 1951 until his retirement December 12, 1982 from the position of Industrial Relations Coordinator for Steel Operations, testified with respect to "plant shutdown presentations" that were given to large groups of employees during 1975 and 1976 prior to the closings of particular plants. He testified that he and Dick Kyte, from the Corporate Personnel Department, would conduct such presentations in plant auditoriums as soon as possible after the announcement of the anticipated shutdown in order to relieve tensions and to assure the workers that certain benefits would be made available to them. Dakes indicated that he had given approximately 150 such presentations to over 19,000 employees, including approximately 6,000 ...

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