Former employees of AT&T Corp. and Lucent Technologies who claimed they were cheated out of death benefits have lost their bid to revive an ERISA suit now that the 3rd U.S. Circuit Court of Appeals has ruled that the benefits were unvested and therefore could be terminated by Lucent.
In its 17 page opinion in In Re Lucent Death Benefits ERISA Litigation, a unanimous three-judge panel upheld the dismissal of a proposed class action after concluding that the death benefit — a lump sum payment made to a worker’s survivors — was not a protected pension benefit, but an unprotected welfare benefit.
“ERISA provides elaborate requirements for the vesting of pension benefits, but it does not provide automatic vesting of welfare benefits,” U.S. Circuit Judge Thomas L. Ambro wrote.
Ambro found that while an accrued pension benefit is protected by ERISA’s anti-cutback provision without any showing that it has vested, a welfare benefit is “protected from elimination only if the plaintiff proves by a preponderance of the evidence that the plan provider had intended the welfare benefit to have vested — despite not being obliged to do so by ERISA.”
Plaintiffs attorney James R. Malone Jr. argued that the death benefit, established by AT&T prior to its spin-off of Lucent in 1996, was “designed and treated as a defined pension benefit for nearly 40 years,” and that Lucent therefore had no right to eliminate it. “It provided retirement income,” Malone said when the case was argued in April. “It was described in the plan … in mandatory language. The plan said it ’shall be paid.’”
Ambro disagreed, saying the evidence showed that the Lucent death benefit does not meet ERISA’s definition of a pension benefit. “The pensioner death benefit neither provides retirement income to employees nor results in a deferral of income by employees,” Ambro wrote in an opinion joined by 3rd Circuit Judge D. Michael Fisher and visiting Federal Circuit Chief Judge Paul R. Michel.
“Moreover, it could not be an accrued pension benefit since it is not ‘an annual benefit’ and it does not ‘commence at normal retirement age,’” Ambro wrote.
The ruling is a victory for attorneys John Houston Pope, Frank C. Morris Jr., Helen P. Lucas and Joseph D. Guarino of Epstein Becker & Green in New York.
Ambro found that because the death benefit doesn’t “directly relate to an accrued benefit” by paying out an accumulated amount of accrued benefits, it “fits readily within the definition of a welfare benefit.”
In so ruling, Ambro said he agreed with the observation of the 2nd Circuit that “the fact that a welfare benefit appears in a larger plan that also provides pension benefits does not change the character of that welfare benefit.”
Ambro also rejected the plaintiffs’ arguments that the death benefit has characteristics that are “consistent with” or “not inconsistent with” a pension benefit, finding that none of those facts would “change its character.”
“The amount and calculation method of the pensioner death benefit, the identity of the recipient of payment, and the treatment of the pensioner death benefit for tax, accounting, and plan termination purposes, are relevant details for administrators of the plan, but they do not change the fundamental character of the benefit,” Ambro wrote.
Instead, Ambro said, “the type of benefit provided, not other considerations, determines whether a plan is a pension plan or a welfare plan.”
Ambro also found that it was irrelevant that some of the former workers may have relied on a belief that the death benefit was a pension benefit.
“The pensioners identify no authority stating that such detrimental reliance has significance under the facts of this case,” Ambro wrote.
Turning to the question of whether the death benefit was nonetheless protected by virtue of being vested, Ambro concluded that it was not.
Although the plan provided that some workers were “mandatory” recipients while others were “discretionary,” Ambro found that vesting would not occur for either group until the time of the worker’s death.
“Nothing in the plan documents suggests that the pensioner death benefit vests during the life of the pensioner and the plan documents certainly do not state such vesting in clear and express language,” Ambro wrote.
In arguing otherwise, Ambro said, the plaintiffs lawyers had “over-read the plan’s language” by claiming that the company’s payments of death benefits for some of the mandatory recipients had effectively vested the benefits for the entire group.
Instead, Ambro found that although the plan states that the death benefit payment “shall be made,” it was also clear from the plan’s language that “the vesting event remains the pensioner’s death.”
In other words, Ambro said, “the pensioner death benefit does not belong irrevocably to living pensioners. The mandatory language merely indicates how the pensioner death benefit should be distributed once death causes the benefit to vest.”