United States District Court, Western District of New York
March 7, 2002
ALAN R. MELVIN, ET AL., PLAINTIFFS, -VS- UA LOCAL 13 PENSION PLAN, ET AL., DEFENDANTS.
The opinion of the court was delivered by: Charles J. Siragusa, United States District Judge
DECISION and ORDER
This is a pension benefit case in which plaintiff*fn1 sought to have
his fourteen years of pre-break service treated the same as his eleven
years of post-break service in calculating his pension benefit under the
U.A. Local 13 Pension Plan ("Plan"). Five causes of action remain in
plaintiff's Amended Complaint. They are as follows:
First cause of action — in which plaintiff seeks enforcement of
the plain meaning of § 3.3 of the Plan, reinstating his prior years
of service for the purpose of calculating the benefits due to him;
Second cause of action — plaintiff claims that defendants'
interpretation of § 3.3 of the Plan violates the Employee Retirement
Income Security Act of 1974 ("ERISA"), § 204(b)(3), 29 U.S. Code
§ 1054(b)(3) and regulations thereunder, specifically 29 C.F.R.
§ 2530.204-1, by including the pre-break years only for measurement
of vesting and not for accrual of benefits;
Third cause of action — plaintiff claims that defendants'
interpretation of the Plan provisions concerning break in service and
reinstatement of prior years of service violates ERISA's anti-backloading
of accruals rule under 29 U.S. Code § 1054;
Seventh cause of action — plaintiff claims defendants breached
their fiduciary duties under ERISA § 404, 29 U.S. Code § 1104, by
failing to award plaintiff pension benefits without regard to any break
in service; and
Ninth cause of action — plaintiff claims that defendants' delay
in disclosing the trust agreement (the Plan) and pages 12 and 13 of the
Plan Trust Agreement within 30 days of plaintiff's request, are in
violation of ERISA § 504(b)(4), 29 U.S. Code § 1104(b)(4).
The case is before the Court for decisions on both parties' separate
motions for summary judgment and ancillary motions for relief. For the
reasons stated below, the Court grants plaintiff's and defendants'
motions in part and denies them in part.
Plaintiff, who is now deceased, was a member of UA Local 13 and
employed within the plumbing and pipefitting industry from 1967 until his
retirement in 1998. For most of this time plaintiff was employed under
the terms of a collective bargaining agreement negotiated between UA
Local 13 and plaintiff's employers. However, for thirty-nine months, from
November 23, 1981 to March 1, 1985, plaintiff worked as a salesman for a
plumbing contractor, a position not covered by the collective bargaining
agreement. Prior to accepting that position, plaintiff was told by UA
Local 13 that this position would not adversely affect his retirement
benefits. Plaintiff further maintained that he was also told by defendant
that his employment as a salesman would not adversely affect his
retirement benefits, although defendants dispute this.
In January of 1998, when plaintiff was considering retirement, he was
informed by the UA Local 13 Pension Plan ("Plan") that if he retired
March 1, 1998, his pension benefits were not going to be as much as he
had anticipated. The Plan took the position that the thirty-nine month
period from November 23, 1981 to March 1, 1985, during which he was
employed as a salesman for the plumbing contractor, constituted a break
in service for the purpose of
determining his accrued pension benefits.
In calculating plaintiff's pension benefits, the Plan gave him credit for
fourteen years service at the rate in effect in 1981, i.e., $20.00 per
month per year of service, and for eleven years of service at the rate in
effect in 1998, i.e., $116.00 per month per year of service. The total
monthly benefit to which plaintiff was entitled, according to the Plan,
was $1,571.30*fn2 per month. Plaintiff, however, contended that his
entire monthly benefit should be calculated at the rate of $116.00 per
month per year of service, entitling him to a total monthly benefit of
Counsel agree that the Plan, as amended on January 1, 1989, is the Plan
under consideration in this case. Amended Complaint*fn3 at Exhibit C;
Defendants' Memorandum of Law (# 50) at 4. Plan § 3.3 discusses a
break in service and defines it as any Plan year after July 31, 1976, in
which an employee fails to accrue at least 81 hours of service.
Exceptions are made for an employee on active duty in the armed forces of
the United States, or for one serving as a union official. Section
3.3(c)*fn4 reads in pertinent part as follows:
If a Participant incurs a Break in Service on or after
August 1, 1976 and, subsequently, becomes an Active
Participant and eligible to participate in this Plan
as set forth in Article II, his prior service shall be
reinstated if (1) the Participant was Vested in his
Accrued Benefit when he became a Nonactive
Participant, or (2) the Break in Service is less than
the Participant's prior service plus one. For Active
Participants who have had an hour of service on or
after January 1, 1988, and who have had a Break in
Service after that date, and subsequently, become an
Active Participant and eligible to participate in this
Plan as set forth in Article II, his prior service
shall be reinstated if he either meets the above
conditions or if his Break in Service is (5) years or
In addition to the break in service provision, the Plan also contains
Article IV, Accrued Benefit, section 4.4, which reads as follows:
If an Active Participant has incurred a Break in
Service, the Accrued Benefit for any Credited Service
earned prior to the Break in Service is equal to the
Monthly Unit of Benefit in effect at the time the
Break in Service occurred times the Credited Service
at that date.
A. SUMMARY JUDGMENT STANDARD
The law on summary judgment is well settled. Summary judgment may only
be granted if "the pleadings, depositions, answers to interrogatories,
and admissions on file, together with the affidavits, if any, show that
there is no genuine issue as to any material fact and that the moving
party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c).
That is, the
burden is on the moving party to demonstrate that the
evidence creates no genuine issue of material fact. Chipollini v. Spencer
Gifts, Inc., 814 F.2d 893 (3rd Cir. 1987) (en banc). Where the non-moving
party will bear the burden of proof at trial, the party moving for summary
judgment may meet its burden by showing the "evidentiary materials of
record, if reduced to admissible evidence, would be insufficient to carry
the non-movant's burden of proof at trial." Celotex Corp. v. Catrett,
477 U.S. 317, 327 (1986). Once the moving party has met its initial
obligation, the opposing party must produce evidentiary proof in
admissible form sufficient to raise a material question of fact to defeat
a motion for summary judgment, or in the alternative, demonstrate an
acceptable excuse for its failure to meet this requirement. Duplantis v.
Shell Off-Shore, Inc., 948 F.2d 187 (5th Cir. 1991); Fed.R.Civ.P. 56(f).
Once the moving party has met its burden, mere conclusions or
unsubstantiated allegations or assertions on the part of the opposing
party are insufficient to defeat a motion for summary judgment. Knight v.
United States Fire Ins. Co., 804 F.2d 9 (2d Cir. 1986). The court, of
course, must examine the facts in the light most favorable to the party
opposing summary judgment, according the non-moving party every inference
which may be drawn from the facts presented. International Raw
Materials, Ltd. v. Stauffer Chemical Co., 898 F.2d 946 (3d Cir. 1990).
However, the party opposing summary judgment "may not create an issue of
fact by submitting an affidavit in opposition to a summary judgment
motion that, by omission or addition, contradicts the affiant's previous
deposition testimony." Hayes v. New York City, Department of
Corrections, 84 F.3d 614, 619 (2d Cir. 1996).
B. PLAINTIFF'S CROSS-MOTIONS TO STRIKE AND DEFENDANTS' MOTION FOR
Before considering the parties' motions for summary judgment, the Court
must address plaintiff's cross-motion to strike and defendants'
cross-motion to take judicial notice. Plaintiff sought to strike the
affidavit of defendants' witness, Charles McLaughlin, the Plan's
actuary, on the basis that he will testify only about legal opinions
concerning plaintiff's claims and lacks personal knowledge. Plaintiff
also sought to strike the affidavit of defendants' witness, David Peck,
the Plan Trust Manager, whom plaintiff claimed also has no personal
knowledge of the case. In both instances, defendants argue that each is
experienced in interpreting the Plan and, specifically, that McLaughlin
can discuss the anti-back end loading rules of ERISA § 204(b)(1),
whereas Peck can testify about how the break in service rules are
communicated to "the ordinary Plan participant," and with regard to the
calculation of pension benefits.
It is well settled in a summary judgement motion that only evidentiary
proof in admissible form can be considered. Celotex Corp. v. Catrett, 477
U.S. at 327. Since the Court finds that the affidavits of Charles
McLaughlin and David Peck do not constitute "evidentiary proof in
admissible form," plaintiff's application to strike them is granted.
Additionally, plaintiff moved to strike a portion of the affidavit of
defendants' counsel, Robert T. DiGiulio, Esq. Plaintiff claimed that ¶ 32
through ¶ 39 of DiGiulio's affidavit were nothing more than a reply to
plaintiff's opposition to defendants' motion for summary judgment and,
under Local Rules of Civil Procedure for the Western District of New York
§ 7.1(c), defendants did not reserve the right reply. The Court
agrees. Therefore, the Court will strike
and not consider those
paragraphs in determining the motions before it.
Plaintiff did not oppose defendants' cross-motion for the Court to take
judicial notice of a proceeding before the Honorable Jonathan W.
Feldman, United States Magistrate Judge, on February 4, 1999, regarding a
stipulation between the parties limiting the amount of damages that could
be awarded under the ninth cause of action of the Amended Complaint. The
Court will grant defendants' motion and take judicial notice of the
C. THEORIES ENCOMPASSED BY THE SEVENTH CAUSE OF ACTION OF THE AMENDED
In accordance with the Court's direction at oral argument, see
Transcript of Oral Argument ("Transcript") at 41, plaintiff's counsel
sent the Court a letter outlining the theories of recovery encompassed by
the seventh cause of action. Michael A. Rosenhouse letter (Apr. 30,
2001). In the letter, counsel maintains that "[t]he Amended Complaint
sets forth both the factual elements and the legal theory of estoppel. .
." and "that under the rules of pleading the claims are properly before
the Court even without an amendment, and that the defendants cannot
reasonably claim any prejudice." Id. at 3. The fourth cause of action
reads in total as follows:
45. Under section 404 of ERISA, 29 U.S. Code §
1104, defendants Board and trustees at all relevant
times have had an obligation to administer the Plan
solely in the interest of the participants and
beneficiaries, and they continue to have such an
46. Under the terms of the Plan, there is ample
opportunity for the Plan fiduciaries to avoid unjust
enrichment of the Plan and Local 13 at plaintiff's
expense without in the least violating their fiduciary
duties even under their own interpretation of the
break-in-service provisions of the Plan.
47. Under the circumstances, failure to award
plaintiff his pension without regard to any supposed
break in service, is arbitrary and capricious and
constitutes a violation of said defendants' fiduciary
duties under section 404 of ERISA, 29 U.S. Code §
Amended Complaint at 11.
Plaintiff argued that the seventh cause of action, along with
paragraphs 30, 31, 40, 43 and 49 of the Amended Complaint, set forth the
necessary factual elements to claim a material misrepresentation,
reliance, and damages.
"[P]rinciples of estoppel can apply in ERISA cases
under extraordinary circumstances." Schonholz[v. Long
Island Jewish Medical Center, 87 F.3d  at 78 [(2d
Cir. 1996)]. A plaintiff must satisfy four elements to
succeed on a claim of promissory estoppel: "'(1) a
promise, (2) reliance on the promise, (3) injury
caused by the reliance, and (4) an injustice if the
promise is not enforced.'" Aramony v. United Way
Replacement Benefit Plan, 191 F.3d 140, 151 (2d Cir.
1999) (quoting Schonholz, 87 F.3d at 79).
Additionally, "an ERISA plaintiff must `adduce  not
only facts sufficient to support the four basic
elements of promissory estoppel, but facts sufficient
to [satisfy an] `extraordinary circumstances'
requirement as well.' " Aramony, 191 F.3d at 151
(quoting Devlin v. Transp. Comms. Int'l Union,
173 F.3d 94, 102 (2d Cir. 1999)).
Devlin v. Empire Blue Cross and Blue Shield, 274 F.3d 76
, 85 (2d Cir.
2001). The Court finds that the factual statements in paragraphs 29-31and
49 set forth a sufficient factual basis for plaintiff's claim of
equitable estoppel based on the misrepresentations of an alleged agent of
the Plan, and extraordinary circumstances (plaintiff's
employment based on this advice). However, the Court finds that material
factual issues exist as to whether the alleged agent of the Plan, Chris
Farrell, was or represented himself as an agent for the Plan; thus,
summary judgment on the seventh cause of action is precluded for both
plaintiff and defendants.
D. Plaintiff's and Defendants' Motions for Summary Judgment
1. Standard of review
ERISA restricts a court's ability to review the decisions of a plan
administrator if the plan gives the administrator discretionary authority
to construe and interpret the terms of the plan. In such a situation, a
court is limited to the "arbitrary and capricious" standard of review.
Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989). In this case,
however, the Plan does not give that discretion to the plan
administrator. Defendants contend that the 1976 Plan § 1.6 vests the
plan administrator with the necessary discretion to avoid de novo review.
Memorandum of Law in Opposition to Plaintiffs' [sic.] Motion for Summary
Judgment ("Defendant's Memorandum in Opposition") (# 70), at 13.
However, at issue before the Court is the Plan as amended in 1989, not
the 1976 one from which defendants quote, and the 1989 Plan, in its
Preamble, states that, "[e]ffective January 1, 1989, the Plan has been
amended and restated in its entirety." Plan at 1; c.f. Van Wuyckhuyse v.
Metropolitan Life Ins. Co., 131 F. Supp.2d 384 (W.D.N.Y. 2001). In Van
Wuyckhuyse, the plan specifically gave the plan administrator "the
exclusive right: to interpret the Plan; to determine eligibility for
Coverage; to determine eligibility for Benefits; to construe any
ambiguous provision of the Plan; to correct any default; to supply any
omission; to reconcile any inconsistency; and to decide any and all
questions arising in the administration; interpretation; and application
of the Plan." Id. at 386. There is no such provision in the plan at issue
here and parol evidence is not admissible on this point. See Cable
Science Corp. v. Rochdale Village, Inc., 920 F.2d 147, 151 (2d Cir.
1990). Therefore, the Court must review the plan administrator's decision
de novo. Firestone Tire & Ruber Co., 489 U.S. at 108-15.
2. THE PLAN AS A CONTRACT
During oral argument, both counsel agreed that the Plan is a contract
and, under the rules of contract construction, if the contract's
provisions are clear, the Court would not need any parole evidence. The
Supreme Court, in Firestone Tire and Rubber, stated, with respect to the
interpretation of plan agreements:
As they do with contractual provisions, courts
construe terms in trust agreements without deferring
to either party's interpretation. "The extent of the
duties and powers of a trustee is determined by the
rules of law that are applicable to the situation, and
not the rules that the trustee or his attorney
believes to be applicable, and by the terms of the
trust as the court may interpret them, and not as they
may be interpreted by the trustee himself or by his
attorney." 3 W. Fratcher, Scott on Trusts § 201,
at 221 (emphasis added). A trustee who is in doubt as
to the interpretation of the instrument can protect
himself by obtaining instructions from the court.
Bogert & Bogert, supra, § 559, at 162-168;
Restatement (Second) of Trusts § 201, Comment b
(1959). See also United States v. Mason, 412 U.S. 391,
399 (1973). The terms of trusts created by written
instruments are "determined by the provisions of the
instrument as interpreted in light of all the
circumstances and such other evidence of the intention
settlor with respect to the trust as is not
inadmissible." Restatement (Second) of Trusts §
4, Comment d (1959).
Firestone Tire & Rubber Co., 489 U.S. at 112. Thus, if the Court can make
sense of both section 3.3(c) and section 4.4 of the Plan, there would be
no ambiguity and, therefore, no need to consider evidence outside the
plain words of the contract itself. See Cable Science Corp. v. Rochdale
Village, Inc., 920 F.2d 147
, 151 (2d Cir. 1990).
At first glance, it may appear that an ambiguity exists between Plan
sections 4.4 and 3.3(c). Plan section 3.3(c) restores all pre-break
service (under the conditions existing for this plaintiff), but section
4.4 creates an "Accrued Benefit" equal to the pre-break years times the
Monthly Unit of Benefit in effect at the time of the break. The term
"Accrued Benefit" is not defined in Plan Article I, Definitions, but is
discussed in Article IV, specifically section 4.3. That section, in
turn, refers to section 4.4, which freezes the Accrued Benefit at the
monthly rate in effect at the time of the break. Thus, Plan section
3.3(c), which restores an employee's pre-break service, appears to
conflict with section 4.4, which severely limits the restoration.
Plaintiff urged the Court to interpret Plan section 4.4 as applicable
only to those who experience a break in service, but whose pre-break
years are not restored pursuant to the terms of Plan section 3.3(c). This
would resolve any apparent ambiguity and give meaning to all the terms of
the Plan. Plaintiff also argued that this interpretation is supported by
the plan administrator's letter to plaintiff, dated September 25, 2000. A
copy of the letter is located in Exhibit F of the Affirmation of Michael
A. Rosenhouse, Esq. (# 59). That letter refers to a "second break in
service" which is how the writer, David Peck, Benefit Administrator,
referred to plaintiff's ceasing to work on January 1, 1998. Mr. Peck used
the term "break in service" to describe what was, essentially,
plaintiff's retirement. Plaintiff performed no further covered employment
after his "second break in service" in January 1998. Thus, if the plan
administrator can interpret "break in service" to mean no further
service, then the Court can reconcile the apparent conflict between
sections 3.3(c) and 4.4 by finding that the plain meaning of the two
provisions is that if prior service is restored under section 3.3(c), then
section 4.4 is not applicable.
Defendants' opposition to plaintiff's proposed interpretation is based
solely on their faulty premise that the Court must review the
administrator's decision under the "arbitrary and capricious" standard.
See Defendant's Memorandum in Opposition at 12. As explained above, the
Court reviews the plan administrator's decision in this case de novo. In
the face of such review, defendants have not offered any persuasive
reason not to interpret the two Plan sections in the manner suggested by
plaintiff. Therefore, the Court finds that Plan section 4.4 applies only
to those plan participants who have a break in service and whose prior
service is not reinstated pursuant to Plan section 3.3(c).
3. ERISA CONSIDERATIONS
The Court will also address plaintiff's and defendants' arguments as to
the legality of the plan administrator's interpretation of the freezing
effect of Plan section 4.4 as applied to plaintiff. At oral argument, the
Court addressed plaintiff's contention that even if the Plan's provisions
in sections 3.3(c) and 4.4 were clearly unambiguous in defendants'
favor, calculating plaintiff's pre-break retirement benefits at $20 per
month per year of service would nonetheless be illegal under ERISA.
Specifically, plaintiff claimed that, to do so,
would violate the anti-backloading provisions of ERISA.
However, defendants argue that section 4.4, with its "freezing" of the
rate for the years prior to the break in service, is legal under ERISA,
since "the Plan here does not provide a windfall to those participants
who have worked for a long period of time and who have not incurred a
break in service. Rather, the rate increases gradually based upon other
permissible `externalities.'" Defendants' Memorandum of Law (# 50) at 9.
Defendants contend that during the two year break in service, an
employee's employer is not making any contributions to the pension plan.
For that reason, defendants maintain the Plan was drafted to limit
benefits accrued prior to a break in service to the rate in effect at the
time of the break in service. However, the Plan also provides relief from
this rule-if the employee works just 81 hours of service in a Plan year,
he will not have incurred a break in service. Plan § 3.3(a). Had
plaintiff worked only 161 hours*fn5 during the two break years, then
defendants agree his pre-break and post-break service would have all
counted towards the monthly rate in effect at the time of his
retirement. See Plan § 3.3(a).
ERISA is "an intricate, comprehensive statute." Boggs v. Boggs,
520 U.S. 833, 849 (1997). The first step in an analysis of ERISA "begins
with `the language of the statue.'" Hughes Aircraft Co. v. Jacobson,
525 U.S. 432, 438 (1999), and requires the Court to determine whether the
language at issue has a "plain and unambiguous meaning with regard to the
particular dispute in the case" as determined "by reference to the
language itself, the specific context in which that language is used, and
the broader context of the statute as a whole. Where the meaning of a
statute is textually ambiguous we may consult its legislative history."
Washington v. Schriver, 240 F.3d 101, 108 (2d Cir. 2001) (citations and
internal quotation marks omitted).
Two particular sections of ERISA are pertinent to the consideration of
the matter before the Court. In ERISA § 203, 29 U.S. Code §
1053, the statute sets forth minimum vesting standards and
nonforfeitability requirements. Section 203 contains a break in service
rule at sub-paragraph (b)(3)(B). In pertinent part, it states "in the
case of any employee who had any 1-year break in service, years of
service before such break shall not be required to be taken into account
until he has completed a year of service after his return." 29 U.S. Code
§ 1053(b)(3)(B) (emphasis added). In contrast, ERISA § 204, 29
U.S. Code § 1054, Benefit Accrual Requirements, does not contain a
break in service rule. However, plaintiff argued, and the Court agrees,
that the regulations promulgated
by the Secretary pursuant to 29 U.S.
Code § 1054, specifically 29 C.F.R. § 2530.204-1(b)(1),
incorporate ERISA § 203's break in service rules into ERISA §
204. The Eastern District of New York has also reached this conclusion.
See, Carollo v. Cement and Concrete Workers District Counsel Pension
Plan, 964 F. Supp. 677, 683 (E.D.N.Y. 1997). Although the pension plan in
Carollo used a different method for calculating benefits, the basic
principles apply equally to this case. In Carollo, an employee who worked
25 years without a break in service greater than two years, would, in his
25th year, have his pension benefit recalculated for all previous years
of service at two percent of final average monthly earnings. As the court
in Carollo found, Congress's intent in enacting ERISA was to provide
minimum vesting standards and minimum accrual rates "to prevent the
employer from backloading benefits-making benefits accrue very slowly
until the employee is near retirement age." Carollo, 964 F. Supp. at 681
(citation omitted). The plan in Carollo calculated the retirement benefit
of an employee with 25 year of continuous service at 2% of a
participant's highest five years of earnings in the ten years prior to
retirement. However, for a participant who incurred a break in service
longer than two years, the benefit was calculated only at 2% of the
average of a participant's entire career earnings. The Eastern District
found that by changing the "base," in that case the average monthly pay,
"solely" by reason of a participant's increased service, violated 26
C.F.R. § 1.411(b)-1(b)(2)(ii)(F).
In the case at bar, as in Carollo, a participant with a break in
service of two years or more is penalized for that break in service by
having his retirement benefit calculated using two different bases: (1) a
pre-break base (years of service prior to the break times the monthly
benefit in effect at the beginning of the break); and (2) a post-break
base (years of service following the break times the monthly benefit at
the beginning of the second break in service, that is, retirement). The
change in base here also violates 26 C.F.R. §
1.411(b)-1(b)(2)(ii)(F) (the 133 1/3 percent rule).
ERISA sets out three backloading tests: (1) the 3 percent rule; (2) the
133 1/3 percent rule; and (3) the fractional rule. 29 U.S. Code §
1054. ERISA requires that a plan must satisfy one of these three rules.
*fn6 At oral argument, counsel for defendants argued that the Plan here
satisfied the 133 1/3 percent rule. Transcript at 25-26.That rule is met
(1) pension benefits accrue ratably such that
participants receive, each year, a definite portion of
their projected retirement benefit, and (2) the rate
of accrual does not, in any given year, increase by
more than 33 1/3%.
Corollo, 964 F. Supp. at 681; 29 U.S. Code § 1054(b)(1)(B).
In the case at bar, the Plan locked plaintiff into a benefit rate of
$20 per month per year of service on November 1, 1981, the start of his
break in service. On March 1, 1985, when plaintiff returned to
he was entitled to a benefit rate of $40 per month per year of service
(after achieving a minimum of 500 hours of service in that year). Plan
Exhibit A & § 2.1. That represents a 200 percent increase in three
years, three months and 30 days, or approximately a 66 percent increase
per year. Defendants argue that, "[c]learly, the Plan does not provide a
windfall to those participants who have worked for a long period of time
and who have not incurred a break in service. Rather, the rate increases
gradually based upon other permissible `externalities.'" Defendants'
Memorandum of Law at 9. Defendants then attach a chart showing the
monthly unit of benefit from August 1, 1954 until December 31, 1981. Id.
at Exhibit B. Though the chart is relevant to plaintiff's pre-break
years' rates of benefits, it does not address the post-break years.
The purpose of the anti-backloading provision, which is also contained
in the Internal Revenue Code*fn7, was explained in a House Report from
the Committee on Ways and Means:
The primary purpose of [minimum accrual rates] is to
prevent attempts to defeat the objectives of the
minimum vesting provisions by providing undue
"backloading," i.e., by providing inordinately low
rates of accrual in the employee's early years of
service when he is most likely to leave the firm and
by concentrating the accrual of benefits in the
employee's later years of service when he is most
likely to remain with the firm until retirement.
H.R. Rep. No. 93-807 (Feb. 21, 1974), 1974 U.S.C.C.A.N. 4670, 4688. The
Internal Revenue Code also governs this area and in particular,
regulations promulgated by the Commissioner of Internal revenue state
(F) Computation of benefit. A plan shall not satisfy
the requirements of this subparagraph if the base for
the computation of retirement benefits changes solely
by reason of an increase in the number of years of
participation. Thus, for example, a plan will not
satisfy the requirements of this subparagraph if it
provides a benefit, commencing at normal retirement
age, of the sum of (1) 1 percent of average
compensation for a participant's first 3 years of
participation multiplied by his first 10 years of
participation (or, if less than 10 his total years of
participation) and (2) 1 percent of average
compensation for a participant's 3 highest years of
participation multiplied by each year of participation
subsequent to the 10th year.
26 C.F.R. § 1.41(b)-1(b)(2)(ii)(F). In support of his contention,
that the interpretation urged by defendant violates the anti-backloading
provisions of provisions of ERISA, plaintiff has cited to
26 C.F.R. § 1.411(a)-3T*fn8 (emphasis added), "[a] plan will not be
considered to satisfy the requirements of paragraph (b), (c), or (d) of
this section [pertaining to qualifying as a qualified trust under 26
U.S. Code § 401] unless it satisfies all requirements of a particular
one of such paragraphs with respect to all of an employee's years of
service." This regulation is pursuant to 26 U.S. Code § 411 which
defines minimum vesting standards of a qualified trust under
plan. Paragraph (b) of section 411 contains the 133 1/3 percent rule. 26
U.S. Code § 411(b)(1)(B).
In addition to the rules cited above, the Ways and Means Committee
Report on H.R. 12855*fn9, stated the following:
The bill also provides guidance to the Secretary or
his delegate in issuing regulations in regard to the
computation of the years of service of an employee who
has a break in service. This is of significance since
an employee will generally receive greater vested
rights if all his periods of service with the employer
are combined and treated as one period of service than
if each period of service interrupted by a break is
treated separately. This matter involves difficult
issues. On the one hand, it appears desirable not to
require service prior to the break to be merged with
service after the break where the break in service is
of substantial duration and the period of prior
service is relatively short. This is because in such
cases, the plan frequently will not have records
regarding the employee's prior service and the
administrative difficulties resulting from any
requirement to merge service prior to the break with
service after the break might make employers reluctant
to rehire employees and yet at the same time would not
provide substantial benefits for the latter. On the
other hand, where the break in service is of
relatively moderate duration, treating each period of
service as a separate period could give rise to abuses
by giving employers an inducement to discharge covered
employees and then rehire them after a short time in
order to reduce the cost of financing plan benefits.
An additional consideration is that where an employee
has acquired an attachment to the firm by serving a
substantial number of years, and particularly where he
has accumulated substantial vested rights to
benefits, it seems reasonable that all his service
including service prior to the break should be taken
into consideration in determining his participation
under the plan.
1974 U.S.C.C.A.N. 4670, 4683. Although the bill was never enacted, the
House Conference Report on Public Law 93-406, the Employee Retirement
Income Security Act of 1974, contains this language:
The general rule is that all service with the employer
(pre-break and post-break) is to be taken into account
for purposes of determining whether the employee has
met the participation requirements. However, if an
employee has a 1-year break in service, the plan may
require a 1-year waiting period before reentry, at
which point the employee's pre-break and post- break
service are to be aggregated, and the employee is to
receive full credit for the waiting period service.
For example, if the plan is on a calendar year basis,
and an employee who has a 1-year break in service
reenters employment on November 1, 1976, works 200
hours in 1976, and 1700 hours by November 1, 1977, the
employee under this provision would be considered as
reentering the plan for 1977. As a result, his
pre-break and post-break service would be aggregated,
and he would advance one year on the vesting schedule
for 1977. He would also accrue benefits for that
year. (Other rules with respect to break-in-service
are explained below in connection with vesting and
H.Conf. Rep. 93-1280 (Aug. 12, 1974), 1974 U.S.C.C.A.N. 5038, 5046.
Further pertinent language contained in the Report discusses the
The rules with respect to breaks in service for
vesting and benefit accrual purposes may be summarized
(1) If an employee has a 1-year break in service,
the plan may require (for administrative reasons) a
1-year waiting period before his pre-break and
post-break service must be aggregated under the
plan. However, once the employee has completed this
waiting period, he must receive credit for that year
(for purposes of vesting and accrued benefit).
(3) Subject to rules (1) and (2), once an employee
has achieved any percentage of vesting, then all of
his pre-break and post-break service must be
aggregated for all purposes.
H.Conf. Rep. 93-1280 (Aug. 12, 1974), 1974 U.S.C.C.A.N. 5038, 5041
Based on the legislative history referred to above, the Court concludes
that Congress intended pre- and post-break service to be accumulated for
purposes of both vesting and accrual of benefits. Therefore, the plan
administrator's interpretation of the Plan here as requiring pre-break
service benefits to be frozen at the rate in effect at the time of the
break is contrary to the statute.
E. NINTH CAUSE OF ACTION LIMITATION
The parties' attorneys entered into a stipulation regarding plaintiff's
claims under the ninth cause of action of the Amended Complaint, as set
out in the partial transcript attached to the affidavit of Robert T.
DiGiulio, Esq., as Exhibit A. DiGuilio aff. (Apr. 18, 2001) (# 79) at
Exhibit A. In that stipulation, plaintiff agreed "to forego any statutory
penalty which might be due him under count nine of the complaint." Id. at
2. In addition, plaintiff's entitlement to attorney fees under the ninth
cause of action was limited to "fees which would be due by virtue of the
efforts exerted by plaintiff's counsel to obtain the documents sought in
count nine. . . ." Id. Plaintiff's claim on this cause of action is
conceded by defendants to the extent that plaintiff has preserved his
claim for attorney's fees from the date when plaintiff started to draft
the Complaint and up to February 4, 1999. However, defendants' concession
applies only if plaintiff is successful in proving his case under the
ninth cause of action. Affidavit in Opposition to Plaintiff's
Cross-Motion (# 82) at 11. Neither party appears to have moved for
summary judgment on this cause of action. The Court has not found any
evidentiary proof in admissible form with regard to the ninth cause of
action among the papers filed by plaintiff or defendants.
The Court grants summary judgment to plaintiff on the first cause of
action, that the plain meaning of the Plan's provisions must be read to
harmonize sections 3.3(c) and 4.4; the Court grants summary judgment to
plaintiff on the second cause of action, that the Plan §§ 3.3(c) and
4.4, as interpreted by defendants freezing plaintiff's benefits for the
first ten years of his service, is contrary to ERISA; the Court grants
summary judgment to plaintiff on the third cause of action regarding the
ERISA back end loading 133 1/3 percent rule; the Court denies summary
judgment to plaintiff on the seventh cause of action regarding
defendants' fiduciary duties under 29 U.S. Code § 1104 as there
remains a material issue of fact.
In light of the above, it is hereby
ORDERED, that defendants' motion (# 49) for summary judgment is denied;
ORDERED, that plaintiff's motion (# 56) for summary judgment is granted
in part, as detailed above;
ORDERED, that plaintiff's motion (# 65) to strike the affidavits of
Charles McLaughlin and David Peck is granted;
ORDERED, that the applications (## 76-1 & 79) for an expedited hearing
are denied as moot; and it is further
ORDERED, that plaintiff's motion (# 76-2) to strike ¶ 32 through ¶ 39
of the affidavit of Robert T. DiGiulio, Esq is granted pursuant to Local
Rules of Civil Procedure for the Western District of New York §
7.1(c); and it is further
ORDERED, that defendants' motion (# 78) that the Court take judicial
notice of the stipulation of the attorneys for plaintiff and defendants
entered before Magistrate Judge Jonathan Feldman as reflected in the
partial transcript of proceedings held before Judge Feldman on February
4, 1999 and contained in Robert T. DiGiulio's affidavit (# 79), filed on
April 18, 2001, as Exhibit A, is granted.