PLEASE REDISTRIBUTE
September 4, 2008
Mimi Hull, AUSWR President
Nelson Phelps, AUSWR Executive Director
ASSOCIATION OF US WEST RETIREES Board members
3rd Circuit Appeals Court Rules
Lucent
Pension Death Benefits Are Not Protected Under ERISA
As you know in January 2003 Lucent ended the long standing Bell
System practice of paying Pension Death Benefits to the
mandatory beneficiaries of Lucent retirees. In the case of
Foss v. Lucent filed in Newark Federal Court, a
group of retirees who were transferred to Lucent when the
spin-off of Lucent from AT&T occurred filed suit seeking to have
the Pension Death Benefit restored. In November 2006, the
federal trial court judge ruled that the
Foss case must be dismissed on the grounds that the
Pension Death Benefit was not a protected benefit under federal
law ERISA. The Plaintiffs/Retirees appealed to the 3rd
Circuit Federal Court of Appeals based in Philadelphia.
The National Retiree Legislative Network filed an amicus brief
arguing on behalf of the Plaintiffs/Retirees and that brief is
posted at the AUSWR website:
http://www.uswestretiree.org/NRLNAmicusBriefCLKSigned.pdf
In mid-April of this year, a panel of three appellate judges
heard oral argument. Just over 4 months later on August
28, 2008 the appellate court published its unanimous decision.
The appellate court ruled to uphold dismissal of the lawsuit on
the grounds that the Pension Death Benefit were
welfare benefits, not protected by ERISA, and there
was no evidence that the pension plan sponsor intended give
special protection or vest the welfare benefits.
Therefore, the appellate court ruled that Lucent was free to end
the practice of paying Pension Death Benefits from the pension
plan. The ruling adversely affects thousands of Lucent
retirees and their families.
The
Foss appellate court decision is posted at the
federal appeals court website:
http://www.ca3.uscourts.gov/opinarch/065008p.pdf
The Lucent Plaintiffs/Retirees' attorneys had argued that the
Pension Death Benefit, established by AT&T long prior to the
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. The attorneys
argued that the Pension Death Benefit provided retirement income
and that “it was described in the plan … in mandatory language.
The plan said it ’shall be paid.”
But the appellate judges disagreed, ruling that the evidence
showed that the Lucent Pension 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,” U.S. Circuit
Judge Thomas L. Ambro wrote in the 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,’” Judge Ambro wrote.
Instead, the appellate judges found that because the Pension
Death Benefit does not “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.”
Judge Ambro wrote, “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,” Judge Ambro wrote.
In the 17 page opinion, the appellate judges re-iterated the
ruling expressed in many cases that “ERISA provides elaborate
requirements for the vesting of pension benefits, but it does
not provide automatic vesting of welfare benefits.”
Judge Ambro wrote that while an accrued pension benefit is
protected by ERISA’s anti-cutback provision without any showing
that it has vested, a welfare benefit, such as the Pension
Death 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.”
Then, looking at the evidence and allegations made in the
Plaintiffs/Retirees’ complaint that had been dismissed, the
appellate judges turned to the question of whether the Pension
Death Benefit was nonetheless protected by virtue of the Plan
sponsor taking action or intending that the benefit be vested.
The appellate judges concluded that it was not. The
opinion states, “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.”
In the case of the Pension Death Benefit paid out of the Lucent
pension plan, the appellate judges 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, Judge
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.”
How Might the
Foss Appellate
Court Ruling Affect the Outcome of the
Kerber v. Qwest Pension Plan
Case Pending in Denver Federal Court Before Judge Boland?
The facts and claims in the
Kerber v. Qwest Pension Plan case are remarkably
different than those facts and claims in the
Foss case. As repeatedly explained in
court filings, including Plaintiffs/Retirees' legal brief
opposing Qwest Defendants’ pending motion for summary judgment,
unlike the situation in
Foss, the Pension Death Benefit at issue in
Kerber was represented and treated by Plan sponsor U
S WEST to be a protected defined pension benefit. For
instance, when U S WEST created a new optional form of early
retirement benefit - a single sum payment - the Pension Death
Benefit was made an integral part of the lump sum payment.
That option was first extended to thousands of managers during
the 5+5 early retirement offering made in December 1989 through
February 1990. Then, the optional form of early
retirement distribution was made permanent. From
1997 through 2003, the U S WEST/Qwest Pension Plan stated:
If a Participant . . . elects a lump sum (or a partial lump
sum) benefit at his retirement, then
the lump sum paid to the Participant
shall be increased by the DLS Equivalent of the Death Benefit
described in Section 7.3(a). For this purpose, only, the DLS
Equivalent shall include an assumption that the Participant will
be survived by a Beneficiary. . . If such an increase is paid,
no other Death Benefit shall be payable pursuant to this Article
VII at any time, including the Participant’s death. . .
With respect to the Lucent retirees, they were never
given the option of electing a lump sum early retirement
distribution. Lucent retirees receive their pension
benefit only in the form of a monthly annuity. Therefore,
we strenuously argue in our
Kerber case that, since the formula devised by U S
WEST for calculating the optional form of benefit required the
added dollar value of the Pension Death Benefit, U S WEST
considered and treated the Pension Death Benefit as a protected
benefit. Furthermore, the Pension Death Benefit,
upon becoming a necessary component of the optional early
retirement benefit, became protected by operation of both IRS
Section 411(d)(6) and ERISA Section 204(g).
During a 7 year span (1997-2003), the optional lump sum early
retirement benefit, which included the present dollar value of
the Pension Death Benefit, was provided to well over 15,000
pension plan participants regardless of whether they were
married or would have mandatory beneficiaries.
In short,
we contend in our pending
Kerber case that, certainly, we can meet the
necessary standard as reiterated in the
Foss appellate decision of “showing by a
preponderance of evidence that the plan provider [U S WEST]
had intended the welfare benefit to have vested — despite not
being obliged to do so by ERISA.”
That is the major difference between our
Kerber case and the Lucent retirees’
Foss case. And, we expect Judge Boland, after
considering the
Foss appellate decision, will enter a ruling in
favor of U S WEST/Qwest retirees.
Curtis
Curtis L. Kennedy
Attorney-at-law
8405 E. Princeton Ave.
Denver, CO 80237-1741
Tele: 303-770-0440
Fax: 303-843-0360
CurtisLKennedy@aol.com
