Professional Documents
Culture Documents
William F. Deak, Cross-Appellants v. Masters, Mates and Pilots Pension Plan, Cross, 821 F.2d 572, 11th Cir. (1987)
William F. Deak, Cross-Appellants v. Masters, Mates and Pilots Pension Plan, Cross, 821 F.2d 572, 11th Cir. (1987)
2d 572
56 USLW 2062, 9 Employee Benefits Ca 1306
MM & P Pension Plan, Frank E. Hamilton, III, Tampa, Fla., for defendantappellants, cross-appellees.
James E. Thompson, James J. Cusack, John W. Robinson, IV, Tampa,
Fla., David N. Dittmar, Weirton, W.Va., Joshua M. Morse, III,
Tallahassee, Fla., for plaintiffs-appellees, cross-appellants.
Appeals from the United States District Court for the Middle District of
Florida.
Before HILL, Circuit Judge, HENDERSON* and BROWN**, Senior
Circuit Judges.
JOHN R. BROWN, Senior Circuit Judge:
Introduction
1
Captain Deak brought this class action on behalf of 2,000 participants in the
Masters, Mates and Pilots Pension Plan (Plan) under the Employee Retirement
Income Security Act of 1974 (ERISA). 29 U.S.C. Secs. 1001-1461. The District
Court determined that the Trustees adopted Amendment 46 for the primary
purpose of benefitting the MM & P Union and therefore breached their
fiduciary duty under ERISA to act in the sole and exclusive interest of the
The central issue on this appeal is whether the Trustees' actions were arbitrary
and capricious in amending the Plan so that the length of time retirement
benefits are suspended when a retiree becomes re-employed depends on
whether the re-employment is with a contributing or non-contributing
employer.
The MM & P Pension Plan originally suspended retirement benefits for the
period of re-employment plus six months.1 In December 1975, in apparent
anticipation of the provisions of ERISA due to become effective on January 1,
1976, the Trustees adopted several amendments to the Plan.
Amendment 42,2 which is not contested in this appeal, changed the terminology
in the Plan to prevent confusion with the new terminology used in ERISA. It
changed the terminology in the Plan from "Normal Pension" to "Regular
Pension" and added a definition for "Normal Retirement Age" which is
identical to the definition used in ERISA. Amendment 463 revised the
"Retirement Defined Rule" regarding the suspension of pension benefits during
periods of re-employment. Following this amendment, pension benefits of
retirees who become re-employed with non-contributing employers4 are
suspended for a longer period of time than those of retirees who become reemployed with contributing employers.5 Prior to Amendment 46, retirees who
accepted re-employment within the industry all had their pensions suspended
for the same length of time regardless of whether their re-employment was with
a contributing or non-contributing employer. Thus, the effect of Amendment 46
is to suspend benefits longer if a retiree accepts employment with a company
who does not have a collective bargaining agreement with the MM & P Union.
Captain Deak contends that the Trustees enacted Amendment 46 for the sole
purpose of benefitting the Union and thereby violated their fiduciary duties
under ERISA. The Trustees, on the other hand, argued before both this Court
and the District Court that the primary purpose of Amendment 46 was to
enhance the financial integrity of the Plan. According to the Trustees, the
The District Court heard conflicting evidence on the Trustees' reasons behind
Amendment 46. Despite the Trustees' compelling contentions, the District
Court concluded that the amendment was for the primary benefit of the MM &
P Union and not the Plan's participants and beneficiaries:
8 trial and throughout their brief, the Defendants attempted to portray Amendment
At
No. 46 as a rational and even necessary measure designed to protect the financial
integrity of the Plan from the adverse consequences of certain developments in the
maritime industry and the weakening financial status of some contributing
employers.... [The Trustees argued that b]ecause the employment of other than MM
& P Pension Plan personnel on [new, technologically advanced] ships would result
in a loss of contributions to the Plan, Amendment No. 46 was adopted to encourage
new owners and employers to seek MM & P Pension Plan personnel. The
amendment would supposedly attract the new employers to MM & P Pension Plan
members by discouraging the most experienced pensioners from seeking
employment with non-contributing employers through the mechanism of a harsher
penalty for employment with non-contributory employers than for employment with
contributing ones.... The Defendants' after-the-fact explanations offered at trial
concerning their motivations for the adoption of Amendment No. 46 simply do not
mesh with the bulk of the evidence and inferences indicative of their intentions at
the time of actual passage.
9
Deak v. MM & P Pension Plan, No. 84-3651, unpublished slip op. at 15-16
(M.D.Fla. June 5, 1985) (emphasis added).
10
The District Court's fact finding that the Trustees enacted Amendment 46 for
the primary purpose of benefitting the MM & P Union is a plausible factual
conclusion with sufficient support in the record and is thus not clearly
erroneous.6 We therefore proceed in our analysis bound by the District Court's
finding of fact that the Trustees adopted Amendment 46 for the primary benefit
of the union and not the Plan beneficiaries.
Standard of Review
11
12
The Supreme Court mandated that trustees have full authority with respect to
coverage and eligibility requirements and that a court's role is limited to
determining whether the trustees abused their broad discretion by adopting
arbitrary and capricious standards. U.M.W. v. Robinson, 455 U.S. 562, 102
S.Ct. 1226, 71 L.Ed.2d 419 (1982).8 The District Court should restrict its
examination to finding whether a rational relationship exists between the
Trustees' actions and the Plan's purpose.9 This Court, under Anderson v.
Bessemer City, should not review for reasonableness, nor should it substitute
its view of a rational relationship for that of the District Court, rather, we must
examine the District Court's factual findings for plausibility in light of the
evidence presented.
13
Representatives for the Plan contend that the District Court applied an incorrect
standard in reviewing the disparate treatment between re-employment with
contributing and non-contributing employers. The District Court stated that "
[w]hile these justifications may appear reasonable at first glance, they do not
withstand the careful scrutiny with which they must be analyzed." Deak,
unpublished slip op. at 16 (footnote omitted).
14
The District Court's opinion clearly reflects that it did apply the correct
standard of arbitrary and capricious conduct. The "careful scrutiny" language
merely indicates that the trial court was not persuaded by the Trustees' "afterthe-fact" explanations and that it closely examined the evidence to discover the
true motivation of the Trustees in adopting Amendment 46 rather than merely
examining whether the reasons given at trial could have been rationally related
to legitimate concerns for the beneficiaries. We cannot overemphasis the
importance of the District Court's finding of fact that the Trustee's contention
that Amendment 46 was adopted solely to strengthen the Plan's financial
integrity was an after-the-fact explanation. No matter how reasonable or
rational the explanation may appear at this point in time, the District Court
found that it was simply not the reason for the Trustees adopting Amendment
46.
The conditions imposed by Amendment 46 violate federal law in two ways: (i)
they are arbitrary and capricious in both their effect on the class of beneficiaries
represented by Captain Deak and the manner in which they were adopted; and
(ii) they represent a breach of fiduciary duties because they were not enacted
for the sole benefit of the Plan's beneficiaries.
16
In Elser v. I.A.M. Pension Fund, 684 F.2d 648 (9th Cir.1982), cert. denied, 464
U.S. 813, 104 S.Ct. 67, 78 L.Ed.2d 82 (1983), suspension provisions that
deprived employees of past service credits were found arbitrary and capricious
"because they discriminated among participants and because they were not
actuarially justified." Id. at 657. Elser required the Trustees to show some
rational nexus between the funds purpose and its discriminatory eligibility
requirement. Id. at 656, quoting Roark v. Lewis, 401 F.2d 425, 429
(D.C.Cir.1968).
17
[B]ecause
finite contributions must be allocated among potential beneficiaries,
inevitably financial and actuarial considerations sometimes will provide the only
justification for an eligibility condition that discriminates between different classes
of potential applicants for benefits. As long as such conditions do not violate federal
law or policy, they are entitled to the same respect as any other provision in a
collective bargaining agreement.
18
19
20
The same argument was made and rejected at the trial court and must similarly
be rejected by this court. The trial court found as a matter of fact that "[t]he
Defendants' after-the-fact explanations offered at trial concerning their
motivations for the adoption of Amendment No. 46 simply do not mesh with
the bulk of the evidence and inferences indicative of their intentions at the time
22
23
The Trustees of the MM & P Pension Plan failed to demonstrate that adopting
the different periods of suspension provided in Amendment 46 was rationally
related to preserving the financial integrity of the Plan. The District Court
determined on conflicting evidence that the Trustees enacted Amendment 46
for the purpose of bolstering the Union's stronghold on the supply of masters,
mates and pilots and therefore, that the amendment was not rationally related to
the financial integrity of the Plan. The Trustees' actions must be analyzed in
terms of the actual intent at the time of amending the Plan and cannot be recast
on appeal to show a rational nexus could have existed.
24
Not every aspect of a benefit plan lends itself to actuarial projection and
analysis. In those cases, Trustees are expected to call upon their familiarity with
benefit plans and their capacity as experienced Trustees to guide their conduct.
29 U.S.C. Sec. 1104(a)(1)(B). The Ninth Circuit recognized that some
behavioral predictions are often not subject to verification in Harm v. Bay Area
Pipe Traders Pension Plan Trust Fund, 701 F.2d 1301, 1306 n. 7 (9th Cir.1983).
While this tends to bolster the Plan's contention that actuaries were unnecessary
to decide that the differing penalties would strengthen the Plan, the Trustees
themselves testified that Amendment 46 was focused toward actuarial
assumptions. In its brief the Plan stated that to determine the magnitude
employer withdrawal would have on the Plan actuarial analysis was necessary.
In light of the testimony that the Plan was financially sound at the time, we
cannot say the District Court was clearly erroneous by emphasizing the total
lack of actuarial analysis in finding any benefit to the Plan was not the true
motive for amending the Plan. None of the Trustees' explanations of the
purposes behind Amendment 46 justifies the discriminatory affect of
distinguishing between re-employment with contributing and non-contributing
employers.
25
The Second Circuit reached the same conclusion in its review of Amendment
47, a similar provision adopted at the same time as Amendment 46. The Second
Circuit also rejected the Plan's contention that the purpose of discriminating
between re-employment with MM & P employers and non-MM & P employers
was motivated to benefit the Plan. Chambless v. MM & P Pension Plan, 772
F.2d 1032, 1039 (2d Cir.1985) ("Amendment 47 ... was not adopted to enhance
the financial integrity of the Plan or to benefit the Plan participants and is thus
arbitrary and capricious."), cert. denied, --- U.S. ----, 106 S.Ct. 1189, 89
L.Ed.2d 304 (1986).
27
Logic
demands that if a fiduciary may hold such positions, then he may fulfill the
concomitant responsibilities.... Thus, a Trustee of an employee benefit plan does not
violate ERISA merely by also serving in a position with an employee organization or
employer that requires him to represent such entity in the collective bargaining
negotiations that determines the funding of the plan.
28
29
In this case however, the District Court held that the MM & P Trustees were
not acting as fiduciaries of both parties during negotiations as in Evans. Instead
the Trustees were using their positions as fiduciaries of the Plan to further goals
of the MM & P Union by restricting retirees from accepting further
The Supreme Court addressed this situation in Central States, Southeast and
Southwest Areas Pension Fund v. Central Transport, Inc., 472 U.S. 559, 105
S.Ct. 2833, 86 L.Ed.2d 447 (1985). In Central States, the Trustees of a multiemployer benefit plan sought to conduct an audit of participating and nonparticipating employee records to determine whether the companies were
making contributions on behalf of all eligible employees. The Supreme Court
upheld the audit on the grounds that it was made pursuant to a good faith effort
to protect the financial integrity of the Plan and was expressly authorized by the
collective bargaining agreement. The Court held that "[i]n light of ERISA's
standards, Central Transport correctly argue[d] that the audit request would be
illegitimate under the standard of loyalty if it were actually an effort by Plan
Trustees to expand Plan coverage ... or to acquire information about the
employers to advance union goals." Id. 472 U.S. at 571 n. 12, 105 S.Ct. at 2840
n. 12, 86 L.Ed.2d at 458 n. 12. Here, the MM & P Trustees illegitimately
advanced Union goals by amending the plan to expand Union membership and
therefore violated their fiduciary duty of loyalty to the plan beneficiaries under
ERISA.12
31
"[T]he principal statutory duties imposed on the Trustees relate to the proper
management, administration, and investment of fund assets, the maintenance of
proper records, the disclosure of specified information, and the avoidance of
conflicts of interest." Massachusetts Mutual Life Insurance Company v.
Russell, 473 U.S. 134, 142-43, 105 S.Ct. 3085, 3091, 87 L.Ed.2d 96, 104
(1985).
32
The Trustees did not breach any duties under ERISA solely by having fiduciary
duties to both the Union or employer and the Plan beneficiaries. The Trustees
can act on behalf of both parties until a situation arises which requires action in
the interest of a party other than, and in conflict with the interests of, the plan
beneficiaries. Thus, the statutorily imposed fiduciary duty to act solely in the
interest of the participants and beneficiaries under ERISA requires trustees who
are also officers or agents of a corporation or a union to act with caution in
areas of potential conflicts of interest.
33
Although officers of a corporation who are Trustees of its pension plan do not
34
violate their duties as Trustees by taking action which, after careful and impartial
investigation, they reasonably conclude best to promote the interest of participants
and beneficiaries simply because it incidentally benefits the corporation, or, indeed,
themselves, their decisions must be made with an eye single to the interest of the
participants and beneficiaries. Restatement of Trusts 2d Sec. 170 (1959); II Scott on
Trusts Sec. 170, at 1297-99 (1967).... [T]his, in turn, imposes the duty on the
Trustees to avoid placing themselves in a position where their acts as officers or
directors of their corporation will prevent their functioning with the complete loyalty
to participants demanded of them as Trustees of a pension plan.
35
Id. at 271.
36
The MM & P Pension Plan Trustees failed to ensure Amendment 46 would best
promote the interest of the participants and beneficiaries. In fact, the District
Court determined that they acted for the sole benefit of the union and without
the careful and impartial investigation available from the actuaries who were
already investigating other aspects of the Plan. The union representatives
drafted Amendment 46 and no independent review was sought. The Trustees
also failed to examine other less restrictive possible methods to accomplish
their stated goal, even though one Trustee testified that less discriminatory and
harsh methods could be conceived, they were not considered.13 The fact that
Amendment 46 may also benefit the Plan beneficiaries does not cure the
Trustees' failure to act in the interest of the beneficiaries or their failure to
protect the beneficiaries against their own conflict of interest.
37
38
We find, as did the Second Circuit in Chambless and consistent with the Ninth
Circuit in Elser, that absent any unfunded liability and actuarial determinations
requiring restrictions on re-employment, discriminating among Plan
beneficiaries to strengthen the Union was arbitrary and capricious and violated
the Trustee's fiduciary duty of loyalty. The testimony supported the District
Court's conclusion that the Trustees acted for the primary benefit of the Union
in adopting Amendment 46 which arbitrarily and unjustifiably discriminated
among the participants of the Plan.
39
AFFIRMED.
39
AFFIRMED.
See Rule 3(b), Rules of the U.S. Court of Appeals for the Eleventh Circuit
**
Honorable John R. Brown, Senior U.S. Circuit Judge for the Fifth Circuit,
sitting by designation
The pre-1976 Retirement Defined rule in Article II-A, Section 13, of the Plan
stated:
a. To be considered retired, a person must withdraw completely from any
further employment in any capacity in the maritime industry ...
b. If a Pensioner works in employment forbidden by this section,
He shall not be entitled to pension benefits for any month of such employment
and for six additional months
Following Amendment 42, the Retirement Defined Rule states in pertinent part:
[Article I,] Section 13. 'Normal Retirement Age' shall mean the age of 65, or, if
later, the age of the Participant on the tenth anniversary of his participation.
***
All references in the Rules and Regulations to 'Normal Pension' shall be
changed to read 'Regular Pension.'
He shall not be entitled to pension benefits for any month of such employment
and for six additional months, provided that the additional six month period
shall not extend beyond his Normal Retirement Age, as defined in Article I,
Section 13; provided further however, that if such employment is in the
capacity of a Licensed Deck Officer on a U.S. flag ocean going vessel
employed by a company which is not a participant in the M.M. & P. Pension
Plan ... then the Pensioner shall not be entitled to pension benefits for any
months prior to such Pensioner reaching his Normal Retirement Age, as defined
in Article I, Section 13
A contributing employer was one who hired members of the MM & P Union
ERISA prohibits the forfeiture of vested benefit payments but expressly permits
Trustees to suspend vested benefit payments during periods of re-employment
so long as the suspension does not affect the retiree's entitlement to normal
retirement benefits upon attaining normal retirement age. ERISA Sec. 203(a)(3)
(B), 29 U.S.C. Sec. 1053(a)(3)(B); Fine v. Semet, 699 F.2d 1091, 1093 (11th
Cir.1983). See also Chambless v. Masters, Mates & Pilots Pension Plan, 772
F.2d 1032, 1041 (2d Cir.1985), cert. denied, --- U.S. ----, 106 S.Ct. 1189, 89
L.Ed.2d 304 (1986) (interpreting a similar amendment to the MM & P Pension
Plan)
Captain Deak contends that he had already attained normal retirement age
under the previous benefit plan and, therefore, this suspension violated 29
U.S.C. Sec. 1053(a)(3)(B) as interpreted by 29 C.F.R. Sec. 2530.203-3(a). This
argument fails because it misinterprets the phrase "Normal Retirement Age" as
it is used in the Code of Federal Regulations.
Prior to 1976, the MM & P Pension Plan provided for normal retirement upon
the completion of twenty years of service with the Union. It was not until 1976
that ERISA incorporated normal retirement age as a term of art. In light of the
use of normal retirement age in ERISA, the MM & P Pension Plan was
amended to eliminate any confusion between the use of "Normal Retirement
Age" under ERISA and "Normal Retirement Age" under the Plan. See
Amendment 42, supra, n. 2. Normal retirement age as defined by the MM & P
Pension Plan is the later of age 65 or the tenth anniversary of employment.
Therefore, a suspension of benefits due to re-employment does not itself violate
ERISA. Captain Deak claims in his cross-appeal that he had reached normal
retirement age by serving twenty years. The earlier Plan's provision for
retirement with full pay after twenty years of service merely provides for
vesting of the pension. Captain Deak's pension was fully vested and cannot be
reduced, but it can be suspended. See Johnson v. Franco, 727 F.2d 442, 445
(5th Cir.1984); Fine v. Semet, 699 F.2d 1091, 1093 (11th Cir.1983); Hernandez
v. Southern Nevada Culinary and Bartenders Pension Trust, 662 F.2d 617, 61920 (9th Cir.1981).
If the District Court's account of the evidence is plausible in light of the record
viewed in its entirety, the court of appeals may not reverse it even though
convinced that had it been sitting as the trier of fact, it would have weighed the
evidence differently. Where there are two permissible views of the evidence,
the factfinder's choice between them cannot be clearly erroneous
Anderson v. Bessemer City, 470 U.S. 564, 573-74, 105 S.Ct. 1504, 1512, 84
The Trustees rely on Robinson for the proposition that courts should not
interfere with action taken by Trustees pursuant to a collective bargaining
agreement. The Trustees correctly argue that ERISA requires them to act "in
accordance with the documents and instruments governing the Plan" and that
they are prohibited from ignoring an unambiguous command of a collective
bargaining agreement policy that is consistent with the purpose of the
retirement fund. They, therefore, conclude that Amendment 46 "may not be
invalidated simply because the court feels that it is 'arbitrary and capricious,'
where it is consistent with, and indeed mandated by, the product of collective
bargaining." Brief for Appellant at 33
The collective bargaining agreement of the MM & P is clear and positive. It
requires that "Pensioners will be prohibited from working at any job in the
maritime industry after a pension is awarded." Sec. XXIX C. Par. 8.
The subsection of ERISA relied on by the Trustees states "a fiduciary shall
discharge his duties with respect to a Plan solely in the interest of the
participants and beneficiaries and ... in accordance with the documents and
instruments governing the Plan insofar as such documents and instruments are
consistent with the provisions of this title or Title IV." 29 U.S.C. Sec. 1104(a)
(1)(D) (emphasis added).
The Trustees are unable to surmount federal law with a private agreement.
Trustees are prohibited from complying with any provision of a collective
bargaining agreement which violates the provisions of ERISA prohibiting
arbitrary and capricious payment of retirement benefits and impose fiduciary
duties on the Trustees.
In UMWA Health & Retirement Funds v. Robinson, 455 U.S. 562, 570, 102
S.Ct. 1226, 1231, 71 L.Ed.2d 419, 427 (1982), the Supreme Court reversed the
Court of Appeals decision which introduced a reasonableness standard when
reviewing a benefit trust fund under Sec. 302(c)(5). The Court held that the
statute requires the Trustees to maintain the fund for the sole and exclusive
benefit of the employees to the exclusion of all others and their conduct is not
reviewable for reasonableness. It only requires a rational relationship to the
purpose of solely benefitting the employees
10
The Union's membership was closed at the time so the only way the Union
could accept new members was to replace old members. The initiation fees of
the new members, an amount between $2,000 and $3,800, was paid entirely to
the Union. The effect on the Plan of encouraging retirement was to increase
retirement benefits currently payable and to decrease the average age of current
participants
11
12
13