967 F.

2d 90
15 Employee Benefits Cas. 1881

Judd ALEXANDER; and Richard Edwards, on Behalf of

themselves and as representatives of a Class of
persons similarly situated, Appellants,
v.
PRIMERICA HOLDINGS, INC., formerly known as Primerica
Corporation; Board of Directors of Primerica Holdings,
Inc.; James Dimon; Irwin Ettinger; John Fowler; John
Does 1-10 (being individual members of the Primerica
Holdings, Inc. Board of Directors); ABC (being the
administrator of the American Can Salaried Retirees Group
Insurance Plan); and John Doe 15-25 (being the individual
members of the Board, group or committee functioning as the
administrator of the American Can Salaried Retirees Group
Insurance Plan).
No. 91-5712.

United States Court of Appeals,

Third Circuit.
Argued March 5, 1992.
Decided June 25, 1992.

Gerald A. Liloia, Esquire (argued), Robert D. Towey, and Glenn Curving,

Riker, Danzig, Scherer, Hyland & Perretti, Morristown, N.J., for
appellants.
Saul P. Morgenstern, Jacob S. Pultman, Dewey Ballantine, New York
City, and Donald A. Robinson, Robinson, St. John & Wayne, Newark,
N.J. (Richard M. Green, Primerica Holdings, Inc., New York City and
Sanford M. Litvack (argued) Burbank, Cal., of counsel), for appellees.
Before: STAPLETON and MANSMANN, Circuit Judges and POLLAK,
District Judge.*

OPINION OF THE COURT

MANSMANN, Circuit Judge.

At issue here is whether a particular clause in an ERISA summary plan

description reserved a company's right to reduce employee welfare benefits.
The district court opined that it did. Because we conclude that the clause is
ambiguous, we will reverse the district court's grant of summary judgment, and
we will remand the case for a determination by the district court, as fact finder,
as to whether the company promised lifetime fixed-cost benefits to its retirees.

I.
2

The plaintiffs, Judd Alexander and Richard Edwards, are retired salaried
employees of American Can Company. As retirees, they received health and
life insurance from the American Can Salaried Retirees Group Insurance Plan.
In this class action, they contest a tenfold increase in their monthly premiums,
instituted by Primerica Holdings, Inc., a successor in interest to American Can.
In essence, the retirees claim that the increase violated the terms of the Plan.
Primerica argues that the Plan reserved the right to reduce benefits and,
therefore, that the Plan did not promise any vested benefit.

Because a formal plan document does not exist, our knowledge of the Plan
arises from three summary plan descriptions. These summary plan descriptions
provide that, upon retirement, salaried employees and their spouses will receive
the Plan's Basic Medical coverage and that the death of a retiree does not affect
a spouse's right to benefits. The Plan's Major Medical Benefits will terminate,
however, if a retiree ceases to contribute to the Plan.

The following section of one summary plan description figures prominently in

this litigation:

Extent and Limit of Coverage

5 Company expects to continue this Plan indefinitely, but necessarily reserves the
The
right to amend, modify, or discontinue the Plan in the future in conformity with
applicable legislation. The Plan does not provide for benefit payments in any case or
under any condition not identified and provided for in this booklet. The Group
Insurance Policy and the certificates thereunder issued by the Insurance Company
are consistent with the terms and conditions outlined in this booklet.

6 any changes become effective under the Medicare Program by reason of current or
If
future Governmental legislation or regulations, then full consideration will be given
to appropriate modification in this Retired Group Insurance Plan.
7

App. 172. This section appeared with a slight variation in one other summary
plan description. Primerica argues that the amendment clause in the section's
first sentence reserves an unqualified right to reduce or terminate benefits. To
the contrary, the retirees argue that it reserves only a limited right.

In 1989, shortly after it acquired American Can, Primerica raised monthly

premiums from $5 to $50 per person. The retirees then filed this class action,
claiming that the increase violated the terms of the Plan, that the reduction of
vested benefits violated ERISA, that Primerica's violation of ERISA resulted in
a breach of its fiduciary duty, and that the Plan's ambiguity in itself violated
ERISA.

Primerica, in a motion for summary judgment, argued that the summary plan
descriptions notified the employees of the Plan's absolute right to reduce or
terminate benefits, and that therefore the Plan did not promise vested benefits.
In response, the retirees argued that the summary plan descriptions only
notified employees that the Plan would necessarily change if required by law.
The district court held that the clause was unambiguous, granted summary
judgment for the defendants, and dismissed the complaint. The retirees
appealed.

10

We have jurisdiction over the final order of the district court. 28 U.S.C. 1291.
Our review of an order granting summary judgment is plenary. Country Floors,
Inc. v. Partnership of Gepner & Ford, 930 F.2d 1056, 1060 (3d Cir.1991).

II.
11

The district court held that because the amendment clause unambiguously
reserved the right to the Plan to reduce or discontinue benefits, the Plan did not
promise lifetime benefits. Whether an ERISA plan is ambiguous is a question
of law. Taylor v. Continental Group, 933 F.2d 1227, 1232 (3d Cir.1991). We
review the district court's decision accordingly.

A.
12

The amendment clause, which is at the center of this appeal, reads:

13

The Company [American Can] expects to continue this plan indefinitely, but
necessarily reserves the right to amend, modify, or discontinue the Plan in the
future in conformity with applicable legislation.

14

The defendants suggest that this clause means that American Can might modify
the Plan at any time and for any reason. The retirees suggest that the clause
means that American Can will only modify the Plan if necessary to conform
with applicable legislation. We find that the clause is ambiguous, that is,
"subject to reasonable alternative interpretations." Taylor, 933 F.2d at 1232.

15

For instance, the word necessarily might mean "understandably," as the

defendants proposed at oral argument, but the word might also mean "as a
necessary result or consequence." See Webster's Third New International
Dictionary (unabridged), at 1510 (1981). The phrase in conformity with
applicable legislation may either limit the right to modify (as the retirees urge)
or notify employees that any change will conform to the law (as the defendants
urge). The word legislation may imply "change in the law," which would
support the retirees' position, but perhaps it simply means "law," which would
support the defendants' position. Similarly, the word indefinitely either means
"continuing without limit" or "undetermined."

16

The variant of the amendment clause does not eliminate the ambiguity. It
provides:

17
American
expects to continue this Plan indefinitely, but necessarily reserves the right
to amend, modify, or discontinue the Plan in conformity with applicable legislation
and also subject to any applicable collective bargaining agreement.
18

The additional words, subject to ..., do not elucidate the clause's meaning.

19

Nor is the ambiguity eliminated by the Medicare clause, which assures

participants that, if Medicare law changes, "full consideration will be given to
appropriate modification" of the Plan. Interpreted one way, the Medicare clause
conforms to the retirees' position; it reassures the employees that although
American Can would reduce benefits if the law required, the company might
also increase them if Medicare law created shortfalls. Interpreted another way,
the Medicare clause conforms to the defendants' position; it reassures that
American Can will give the retirees' needs "full consideration," even without
the obligation to maintain benefits.

20

We also note that ERISA plans, like contracts, are to be construed as a whole,

see Hansen v. Continental Ins. Co., 940 F.2d 971, 981 (5th Cir.1991), and
context colors the meaning of words. Empirical research has demonstrated that
a summary not unlike this one can lead readers to conclude that benefits are for
life. See James F. Stratman, Contract Disclaimers in ERISA Summary Plan
Documents: A Deceptive Practice? 10 Indus.Rel.L.J. 350 (1988).
21

Of the arguments advanced, none persuades us that the amendment clause has
only one meaning. For example, the defendants have asserted that American
Can could have written: "The Plan may only be amended to conform to
applicable changes in legislation." By the same logic, the retirees have argued
that American Can could have written: "The Plan may be amended at any
time." This argument shows only that the clause, if drafted differently, would
have been unambiguous.

22

The defendants have also attacked the retirees' position because it interprets the
clause as stating the obvious--that the company would amend the Plan if the
law required it. ERISA requires a plan sponsor to warn participants of possible
decreases in their benefits. See 29 U.S.C. 1022. Thus, although the retirees'
suggested meaning states the obvious, section 1022 explains the presence of the
clause. Moreover, the defendants' suggested meaning would render the words
"in conformity with" as stating the obvious--that any change would be
according to law--and section 1022 would equally explain the obviousness of
those words.

23

The defendants have also questioned the implication in the retirees'

interpretation that legislation might result in a benefit reduction. But one can
imagine legislation that might result in a reduction of benefits. For example, a
tax on benefits would reduce them; nationalization of health care might
eliminate private insurance altogether in an effort to contain costs.

24

Finally, the defendants have made much of evidence that indicates that
American Can increased benefits on one occasion, with a slight increase in
premiums from about $3 to $5 per month. We reject the defendants' argument
that the company's past practice of changing benefits somehow renders the
amendment clause unambiguous. A benefit increase does not necessarily
contradict the retirees' position. The defendants ascribed to the retirees' position
the most rigid interpretation--that the amendment clause prohibits all changes
except those required by law. Any change, even an increase, would be
inconsistent with that rigid interpretation. Even if we were to adopt that rigid
interpretation, the evidence might only show that the increase violated the
amendment clause and that it went unchallenged because it harmed neither the
donor nor the donees. Common sense, however, does not warrant so rigid an

interpretation.
25

Summary plan descriptions must warn employees of adversity. See 29 U.S.C.

1022. Whether the clause reserved a limited or unlimited right, it addressed the
right to reduce benefits. A lawyer reading the words "necessarily reserves the
right to amend, modify or discontinue the Plan" might give the emphasized
words their broadest meaning: enhance or reduce. It is unclear, however, why a
company would reserve the "right" to enhance benefits. Neither ERISA nor
common sense requires notice of future benefit enhancements. The average
Plan participant, under the spell of common sense, would understand the clause
to reserve either a limited or unlimited right to reduce benefits. An increase in
benefits therefore sheds no light on the meaning of the clause. It harmonizes
both with the defendants' position that the Plan could freely reduce benefits and
with the retirees' position that the Plan could not reduce benefits at will.
Moreover, a benefit increase must illuminate the entire plan, not just the
equivocal amendment clause. In that regard, evidence of an increase would
support the retirees' position that the Plan promised irreducible benefits.

26

A finding of benefit reductions, however, would show action consistent with

the defendants' position that American Can had reserved the right to reduce or
discontinue benefits at will. The district court, as the trier of fact, might
reasonably infer that, because benefits had been reduced in the past, the Plan
had not promised irreducible benefits. The defendants support their allegation
of past reductions with a snippet of testimony, which culminates in the
statement that the cost of benefits "changed by a matter of $1, a dollar and
change a month in return for an offsetting increase in the protection,
particularly on the catastrophic side." Dep. of J. Alexander, App. at 129-30.
The testimony shows a cost increase that was minuscule in comparison to the
one contested here, and which was accompanied by a benefit increase.
According to the defendants' own submission, American Can explained the
change as an increase in benefits, not a reduction, and the employees perceived
it that way. On remand, it will be for the district court to determine if this
evidence is sufficient to show that American Can always acted consistently
with a reservation of authority to reduce benefits and increase premiums and
the relevance thereof.

B.
27

We further conclude that the amendment clause is ambiguous in light of Alday

v. Container Corp. of America, 906 F.2d 660 (11th Cir.1990), cert. denied, --U.S. ----, 111 S.Ct. 675, 112 L.Ed.2d 668 (1991); Musto v. American General
Corp., 861 F.2d 897 (6th Cir.1988), cert. denied, 490 U.S. 1020, 109 S.Ct.

1745, 104 L.Ed.2d 182 (1989); and Moore v. Metropolitan Life Ins. Co., 856
F.2d 488 (2d Cir.1988). In Alday, plan documents reserved the right to
"terminate, suspend, withdraw, amend or modify the plan in whole or in part at
any time." 906 F.2d at 662. In Musto, the insurance policy in question
provided:
28

This Policy, or any insurance coverage hereunder, may be amended or

discontinued at any time by an announcement duly published by the Company.
The Company reserves the right to determine new premium contributions from
time to time and at any time. Termination of this Policy, or any insurance
coverage hereunder, or any amendments hereto shall not require the consent of
any Employee or beneficiary, nor shall such action require individual notice to
any such person. Only the President, a Vice-President, the Secretary or an
Assistant Secretary has power on behalf of the Company to make or modify this
contract of insurance.

29

861 F.2d at 901-02. In Moore, various summary plan descriptions had reserved,
since 1915, the right to change the plan's terms "at any time." 856 F.2d at 490.
In each case, the court determined that the clause had reserved the right to
reduce benefits.

30

The American Can clause differs from those in Alday, Musto, and Moore. By
way of example, only one of many summaries in Moore did not contain a
reservation clause, and that summary referred prominently to the plan
document itself. Moore, 856 F.2d at 490. In contrast, the American Can plan
document does not exist, and there are merely three summaries, of which only
two contain the clause. Also, the phrase at any time, which appears in the
Alday, Musto and Moore documents, does not appear in the American Can
documents. In short, the Alday, Musto and Moore plans used clauses more
straightforward than the one we consider here.

31

In opining that the American Can clause was unambiguous, the district court
equated it with two phrases from Musto and Moore. These two phrases,
however, do not sufficiently resemble the American Can clause. A slight
similarity does not warrant construing a different phrase to be unambiguous as a
matter of law.

32

In Musto, one summary plan booklet warned that "since it is not possible to
foresee the future, the Company must reserve the right to change or even
discontinue these provisions if it becomes necessary." 861 F.2d at 904. Later
booklets warned that "the Company does, as it always has, reserve the right to

change the Plan and, if necessary, discontinue it." Id. In a footnote, the Musto
court noted that, in light of the later booklets and the plan document, the earlier
phrase, if it becomes necessary, did not limit the right to change the Plan. 861
F.2d at 906 n. 5. The court also hinted that the phrase, in its context, did not
mean "to avoid bankruptcy." In contrast to the phrase in Musto, the word
necessarily in the American Can clause cannot be construed in light of clearer
booklets or the plan document, neither of which exists here. The dicta in Musto
thus does not establish a legal meaning for the term necessarily as used in the
American Can Clause.
33

In Moore, the plan booklets, under the heading "Change or Discontinuance of

Plan," warned that the company could discontinue its plan at any time, with the
proviso

34 any change shall be subject to the approval of the Superintendent of Insurance of

that
the State of New York.
35

856 F.2d at 490. The Moore proviso differs from the American Can clause.
Thus, although the proviso might suggest a possible meaning for the American
Can clause, it does not make the American Can clause legally unambiguous.

C.
36

The district court granted the defendants' motion for summary judgment on the
theory that an unqualified reservation of the right to reduce benefits was
inconsistent with a promise of vested, lifetime benefits. Because the summary
plan descriptions do not clearly reserve the right to reduce benefits, we will
reverse the district court's grant of summary judgment.1 We next address the
question for resolution on remand.

III.
37

In the first count of the complaint, the retirees claimed the Plan provides an
entitlement, vesting on retirement, to lifetime benefits at a fixed cost. Although
ERISA contains elaborate vesting requirements for pension plans, ERISA does
not require automatic vesting of welfare benefits. Molnar v. Wibbelt, 789 F.2d
244, 250 (3d Cir.1986). A plan itself, however, may imply a vested benefit. See
Internat'l Resources, Inc. v. New York Life Ins. Co., 950 F.2d 294, 301-02 (6th
Cir.1991) ("[A] court may look to the parties' intent to determine when vesting
should occur").

38

Because a plan document does not exist and because the summary plan

descriptions are ambiguous, the district court, as the trier of fact, must
determine whether the Plan provided lifetime benefits upon retirement. See
Taylor v. Continental Group, 933 F.2d 1227, 1232 (3d Cir.1991) (interpretation
of ambiguity is question of fact). In interpreting an ambiguous ERISA plan, a
court may consider the intent of the plan's sponsor, the reasonable
understanding of the beneficiaries, and past practice, among other things. Id.,
933 F.2d at 1232-33. In this regard, we note that the retirees' affidavits and
documents, if believed by the district court, are sufficient to show that the Plan
promised lifetime irreducible benefits.
39

In support of their cross-motion for summary judgment, the retirees submitted

affidavits and documents to prove that American Can and its employees
understood that the Plan provided for lifetime benefits, vesting at retirement.
William F. May, an employee of American Can for forty-two years and
Chairman of its Board of Directors from 1965 to 1980, affirmed that the
company intended to promise lifetime insurance to its retirees. He explained
that American Can made these promises to recruit and retain employees despite
salaries below the industry average, and also to induce acceptances of offers of
early retirement. Jack McGoldrick, as an officer of the Corporate
Communications Department who worked on the development of the summary
plan descriptions, indicated that American Can intended only to reserve the
necessary power to keep the Plan in conformity with applicable legislation.

40

Similar explanations of the company's intent and the employees' understanding

were given by Judd H. Alexander, formerly one of the top executive officers
and a member of the Annuity Board; by Sal J. Guidice, whose department
trained employees to inform prospective retirees that their benefits, including
medical insurance, were lifetime fixed-cost benefits; and by Lawrence Morrow
and Eugene Ecker, former executives in the Human Resources Department.

41

In their official capacities, Alexander, Guidice and Morrow told employees that
the insurance benefits were for life. "I specifically told employees," said
Morrow, "that they should spend their careers at American Can because the
reward for such service was the company's lifetime retirement program,
including the medical insurance plan." Aff. of Lawrence Morrow, App. at 261.
George Wagner, a manager, thought that medical benefits were not subject to
discretionary termination or cutbacks. He represented the same to employees,
and he expressly told them that they did not need to obtain back-up medical
insurance, since the American Can program would protect a retiree and spouse
for the remainder of their lives.

42

Additionally, a number of the affiants indicated that they relied on the promise

of lifetime benefits vesting at retirement, either in deciding to remain with

American Can or in accepting early retirement. Detrimental reliance is not an
element of the retirees' cause of action, but it may show that the employees
acted with the understanding that the Plan provided for lifetime medical
benefits that could not be reduced.
43

Although the summary plan descriptions do not unambiguously promise

lifetime benefits, they may be interpreted to make that promise in light of the
evidence of the company's intent and employees' understanding, and in light of
the duty of clarity that ERISA puts on a plan sponsor. See 29 U.S.C. 1022.

IV.
44

For the foregoing reasons, we will reverse the district court's judgment
dismissing the complaint. We will remand for the district court's interpretation
of the summary plan descriptions in light of all relevant evidence and for the
district courts further consideration of the retirees' claims.

Honorable Louis H. Pollak of the United States District Court for the Eastern
District of Pennsylvania, sitting by designation

Given that the amendment clauses are facially ambiguous, we need not address
what extrinsic evidence, if any, the district court was bound to consider in
determining whether the amendment clause was ambiguous. See Mellon Bank,
N.A. v. Aetna Business Credit, Inc., 619 F.2d 1001, 1011 & n. 12 (3d
Cir.1980):
If a reasonable alternative is suggested, even though it may be alien to the
judge's linguistic experience, objective evidence in support of that
interpretation should be considered by the factfinder. See Corbin, Contracts
542.
619 F.2d at 1011 (emphasis in original; footnote omitted).