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AMATO v. WESTERN UNION INTL.

October 31, 1984

FRANK J. AMATO, et al., Plaintiffs, against WESTERN UNION INTERNATIONAL, INC., et al., Defendants.


The opinion of the court was delivered by: SPRIZZO

OPINION & ORDER

SPRIZZO, D.J.:

 Defendants, Western Union International, Inc. ("Western Union"), M.C.I. Communications Corp. ("MCI"), and Microwave Maintenance Corp. ("Microwave"), move pursuant to Fed. R. Civ. P. Rules 12(b)(1) and 12(b)(6) to dismiss twelve of the fifteen causes of action alleged in plaintiffs' complaint. Plaintiffs are long-term employees of Western Union who are not covered by a collective bargaining agreement and are participants in the Western Union International, Inc. Pension Plan ("the Plan"). *fn1" Their complaint alleges causes of action under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1101-1368 (1982), and under federal and state common law.

 FACTS

 The complaint alleges the following facts. In July 1982, MCI, through its subsidiary Microwave, purchased from Xerox Corporation all of the capital stock of WUI, Inc., a holding company whose operating subsidiaries included Western Union. The purchase was accomplished pursuant to a "Purchase and Sale Agreement" dated January 5, 1982. Thereafter, in or about November 1982, MCI caused Western Union's board of directors to pass an amendment to the Plan (the "November 16, 1982 Amendment") that had the effect of preventing plaintiffs, and other non-bargaining unit employees, from continuing to accumulate unreduced early retirement benefits.

 The Plan provides for four different types of pensions. With respect to each, the amount of the pension benefit payable per year is computed by multiplying one and two thirds percent times the average of the participant's three highest salary years, times his years of service. A "Class A Pension" provides for a full pension at age 55 to a participating employee who has completed 20 or more years of credited service. A "Class 75 Pension" provides for a full pension to a participating employee who has 20 or more years of credited service, and whose years of age plus years of service total 75 at the time of retirement. The third type, "Age 65 Pension," provides a full pension at age 65 for a participating employee who is ineligible for a Class A or Class 75 Pension. The fourth type, "Deferred Vested Pension," is provided for a terminated employee who has completed 10 years of credited service but is ineligible for a Class A, Class 75, or Age 65 Pension. Such former employees can elect to receive a full pension at age 65, or an actuarially reduced pension between the ages of 55 and 65.

 The November 16, 1982 Amendment provided that, as of January 1, 1983, all Western Union non-bargaining unit employees would cease to accrue benefits under the Plan or to become eligible for Class A or Class 75 Pensions. Rather, those employees would begin to accrue benefits under MCi's plan in the same manner as other MCI personnel. *fn2"

 In short, the effect of the November 16, 1982 Amendment was to deprive plaintiffs of the opportunity, previously afforded to them under the Plan, to retire prior to age 65 with full benefits. Although plaintiffs may still elect to retire before age 65, their early retirement benefit will now be the actuarial equivalent of the benefit payable at age 65, instead of a full (i.e., actuarially unreduced) benefit.

 I

 ERISA CLAIMS

 A. Reduction in Accrued Benefits

 In their fifth cause of action, plaintiffs argue that their Class A and Class 75 pension benefits were "accrued benefits" within the meaning of ERISA and that the November 16, 1982 Amendment impermissibly decreased those benefits. *fn3" The defendants do not dispute that accrued benefits may not be reduced, but contend that the November 16, 1982 Amendment did not have that effect.

 ERISA defines an "accrued benefit" as either "an annual benefit commencing at normal retirement age [which is 65 under Western Union's Plan]," 29 U.S.C. § 1002(23)(A); see I.R.C. § 411(a)(8)(A)(i), or "the actuarial equivalent of such benefit or amount . . .," 29 U.S.C. § 1054(c)(3); see I.R.C. § 411(c)(3). It is clear, therefore, that ERISA does not foreclose a plan amendment which eliminates a right to the payment of a full pension prior to the normal retirement age. It requires only that the early retirement benefit be the actuarial equivalent of the sum payable at the normal retirement age and that the actuarial method for determining this equivalence may not be changed. Indeed, the legislative history specifically states that "the accrued benefit to which the vesting rules apply is not to include such items as the value of the right to receive benefits commencing at an age before normal retirement age. . . ." H.R. Rep. No. 93-807, 93d Cong., 2d Sess., reprinted in 1974 U.S. Code Cong. & Ad. News 4670, 4726.

 The relevant case authorities support this conclusion that unreduced early retirement benefits do not constitute "accrued benefits" within the meaning of ERISA. See Bencivenga v. Western Pennsylvania Teamsters and Employers Pension Fund, No. 83 Civ. 1868 slip op. at 11 (W.D. Pa. May 14, 1984); Sutton v. Weirton Steel Division of National Steel Corp., 567 F. Supp. 1184, 1196 (N.D. W.Va.), aff'd, 724 F.2d 406 (4th Cir. 1983), cert. denied, 467 U.S. 1205, 104 S. Ct. 2387, 81 L. Ed. 2d 345 (1984); Petrella v. NL Industries, Inc., 529 F. Supp. 1357, 1364-66 (D.N.J. 1982); see also Treas. Reg. § 1.411(c)-1(e)(1); Treas. Reg. § 1.411(a)-7(a)(1).

 The Court is not persuaded by plaintiffs' argument that Treasury Regulation section 1.411(d)-3(b) and Revenue Ruling 81-12, which discusses that regulation, support their claim that the November 16, 1982 Amendment violates ERISA. Section 1.411(d)-3(b) provides:

 Prohibition against accrued benefit decrease. Under section 411(d)(6) a plan is not a qualified plan . . . if a plan amendment decreases the accrued benefit of any plan participant. . . . For purposes of determining whether or not any participant's accured benefit is decreased, all the provisions of a plan affecting directly or indirectly the computation of accrued benefits which are amended with the same adoption and effective dates shall be treated as one plan amendment. Plan provisions indirectly affecting accrued benefits include, for example, provisions relating to . . . actuarial factors for determining optional or early retirement benefits. (emphasis added)

 Revenue Ruling 81-12 also gives advice as to: (1) what constitutes a change in actuarial factors indirectly affecting accrued benefits; and (2) how, in the case of a plan amendment that changes actuarial factors so as to indirectly affect an accrued benefit, the requirements of I.R.C. section 411(d)(6) can be satisfied.

 Plaintiffs argue that the November 16, 1982 Amendment reduced the actuarial factor applied to compute their early retirement benefits. This argument is predicated solely upon the fact that their early retirement benefits are now less than the sum payable at normal retirement age. However, the proscribed change in the actuarial formula contemplated by the regulation and revenue ruling is that which is used to determine the actuarial equivalent of an accrued benefit within the meaning of ERISA, which is a benefit payable at normal retirement age. The regulation and revenue ruling cited simply mean that, since an "accrued benefit" under the statute, regulations, and legislative history is defined as a benefit commencing at a normal retirement age or the actuarial equivalent thereof, an employer may not amend a plan to change the actuarial factors applied in determining that actuarial equivalent.

 In other words, if the normal retirement age under a plan is 65, but the plan provides for a reduced benefit commencing at age 55, an employer may not change the actuarial factors used to determine the amount of the reduced, age 55 benefit if such a change in the formula decreases the amount of that benefit. It therefore begs the question to focus merely on the dollar amount payable at early retirement and conclude, as plaintiffs do, that because that amount is reduced there has been a change in the factors used in computing the actuarial equivalent of an accrued benefit. *fn4"

 Since the November 16, 1982 Amendment did not reduce plaintiffs' accrued benefits, their fifth cause of action is dismissed. *fn5"

 B. Fiduciary Standards

 1. General Standards

 Plaintiffs' first cause of action alleges that Western Union is a fiduciary to the Plan, and that by amending the Plan to eliminate plaintiffs' early retirement benefits it violated the general standards of section 404 of ERISA, which require a fiduciary to discharge its duties solely in the interests of the Plan's participants and beneficiaries. 29 U.S.C. § 1104(a)(1). This argument, however, presupposes that an employer that is also a plan admministrator functions in its capacity as plan fiduciary when it amends a plan to reduce unaccrued benefits, a proposition that this Court declines to accept.

 Section 3(21)(A) of ERISA provides that:

 [A] person is a fiduciary with respect to a plan to the extent (i) he exercises any discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, (ii) he renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so, or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan.

 29 U.S.C. § 1002(21)(A) (emphasis added). Thus, an employer that also acts as plan administrator "wears two hats." The employer assumes fiduciary status only when and to the extent that it functions in its capacity as plan administrator, and not when it is conducting business not otherwise regulated by ERISA.

 As the district court stated in Sutton, supra, 567 F. Supp. at 1201,

 When acting on behalf of the pension fund, there is no doubt that [an employer] must act solely to benefit participants and beneficiaries. However . . . when a corporate employer negotiates the terms of sale of a division, whose employoees are participants in a pension plan, the negotiations that affect the terms and conditions of future pension benefits (at least those that are not protected by ERISA's vesting and nonforfeitability provisions), do not implicate fiduciary duties as to the pension fund. . . . [T]he mere fact that a company has named itself as pension plan administrator or trustee does not restrict it ...


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