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664 F.2d 675
3 Employee Benefits Ca 1137
William J. QUINN, Appellee,
v.
BURLINGTON NORTHERN INC. PENSION PLAN, Burlington Northern
Inc. Pension Trust and The First Trust Company of
Saint Paul, a Minnesota banking
corporation, as Trustee, Appellants.
William J. QUINN, Appellant,
v.
BURLINGTON NORTHERN INC. PENSION PLAN, Burlington Northern
Inc. Pension Trust and The First Trust Company of
Saint Paul, a Minnesota banking
corporation, as Trustee, Appellees.
Nos. 81-1035, 81-1086.
United States Court of Appeals,
Eighth Circuit.
Submitted Oct. 12, 1981.
Decided Nov. 30, 1981.
James W. Littlefield, argued, John M. Sullivan, Briggs & Morgan, P. A.,
St. Paul, Minn., for Burlington Northern Inc.; Steven L. Wood, St. Paul,
Minn., of counsel.
Frank Claybourne, Doherty, Rumble & Butler, St. Paul, Minn., Harry P.
Lamberson, Frederick V. Lochbihler, argued, Chapman & Cutler, Chicago,
Ill., for Quinn.
Before LAY, Chief Judge, McMILLIAN, Circuit Judge, and COLLINSON,*
<#fn-s> Senior District Judge.
LAY, Chief Judge.
1
William J. Quinn is a participant in the Burlington Northern Inc.
Pension Plan based on his employment with the Chicago, Burlington and
Quincy Railroad and with the Burlington Northern, Inc. He brought suit
against the Burlington Northern Pension Plan in the federal district
court claiming the Plan Administrator erred in offsetting the Burlington
Northern pension payments to him under the Burlington Plan with monies
he receives under an employment agreement with the Chicago, Milwaukee,
St. Paul and Pacific Railroad Company. The parties filed cross motions
for summary judgment.
2
The district court, the Honorable Robert G. Renner presiding, upheld the
Administrator's offset between June 1, 1976, and October 1, 1978, but
declared Quinn to be entitled to larger benefits after the latter date.
This appeal and cross-appeal followed. We affirm the district court in
part and reverse in part and require reinstatement of the Plan
Administrator's ruling requiring an offset both before and after October
1, 1978.
3
Facts.
4
From February 1940 to April 1954, Quinn was employed by the Soo Line
Railroad. From April 1, 1954, to October 12, 1966, Quinn was employed by
the Milwaukee Road. Quinn was then hired by the Chicago, Burlington &
Quincy Railroad (hereinafter CB&Q), a predecessor railroad of the
Burlington Northern, (hereinafter BN). As a precondition to commencing
employment with CB&Q, all of Quinn's prior railroad service was credited
and included as continuous service under CB&Q's pension plan. Quinn
served as president, chief executive officer and as a director of CB&Q
until March 1, 1970. On March 1, 1970, the CB&Q and other companies
merged to form the BN. Quinn then became vice-chairman of BN's board of
directors, a position he held for two weeks, resigning March 15, 1970.
5
Quinn then entered into an employment agreement with the Milwaukee Road
that was to end May 7, 1981. It provided for an annual salary during
that period of not less than $150,000. After May 7, 1981, Quinn was to
be paid, at his option, either (1) one-half his annual salary, but not
less than $75,000 per year, or (2) pension benefits under the Milwaukee
Road's pension plan.1 <#fn1> To select the Milwaukee Road Pension Plan,
Quinn was required to irrevocably elect in writing to receive these
benefits and consequently forfeit all rights to receive the lifelong
"one-half of annual salary." The amounts to be forfeited would have
substantially exceeded any amounts which Quinn could have received under
the Milwaukee Road Pension Plan. Quinn never elected to take the
Milwaukee Road Pension Plan benefits in lieu of the one-half salary.
6
In December 1977, the Milwaukee Road filed for reorganization under the
Bankruptcy Act. Quinn's employment agreement was subsequently
renegotiated in terms less favorable to him. The new agreement called
for Quinn (1) to retire no later than October 1, 1978, (2) to receive no
more than $45,000 per year from October 1978 to May 1981 as a consulting
fee, and (3) to receive $75,000 annually beginning October 1, 1978.
Under this agreement, no option to receive pension funds was given.
Quinn has received these payments.
7
In March 1979, Quinn was notified by the BN Plan representatives that he
was to receive monthly pension benefits in the amount of $448.42 under
the BN Plan. He was told that he was entitled to 30 years of "continuous
service" from 1940 to 1970. Based on this 30 years of service, Quinn
would be entitled to receive a monthly benefit of $3,927.32. However,
the representatives stated that the BN Plan would only make payment to
Quinn at the rate of $448.42 per month based on Quinn's three years and
five months with CB&Q and BN. The representatives claim that under
section 5.4 of the relevant Plan articles, the Plan intended to offset
the actuarial equivalent of the value of the retirement benefits Quinn
was receiving from the Milwaukee Road against the benefit payments due
him under the BN Plan for service from 1940 to 1970.
8
Quinn exhausted his administrative remedies and sued in federal district
court alleging that he is entitled to receive a monthly pension benefit
for life in the amount of $3,937.32. He claims this amount for each
month since June 1, 1976, the first day of the month following his 65th
birthday.2 <#fn2> The district court held that prior to October 1, 1978,
the Plan Administrator properly offset certain pension benefits
ordinarily due Quinn because during that time he was "entitled to
receive" similar benefits from the Milwaukee Road Pension Plan. However,
the district court held that, with respect to the period after October
1, 1978, such an offset was improper. It reasoned that postretirement
benefits Quinn received from the Milwaukee Road, under the terms of the
renegotiated employment agreement, were not within the proscriptions of
section 5.4 of the BN Plan.
9
The dispute in this case rests upon the interpretation of language in
section 5.4 of the BN Plan which provides for an offset of benefits
received under other qualified plans. The plan provides in pertinent part:
10
(t)he amount of monthly pension payable to a participant ... shall be
reduced by the actuarial equivalent of any vested benefit which such
participant has received, or which he is entitled to receive, under any
other pension plan which meets the requirements of section 401(a) of the
Internal Revenue Code with respect to service with another employer
which is included in such participant's period of continuous service
under this Plan....
Section 5.4
11
Standard of Review.
12
Review by the courts of the Plan Administrator's decision is limited. A
reviewing court generally will intervene in the administration of a
pension plan only where the trustee's action is arbitrary, capricious,
or an abuse of discretion. Morgan v. Mullins, 643 F.2d 1320, 1321 (8th
Cir. 1981); Bueneman v. Central States, Southeast and Southwest Areas
Pension Fund, 572 F.2d 1208, 1209 (8th Cir. 1978); Phillips v. Kennedy,
542 F.2d 52, 54 (8th Cir. 1976); Maness v. Williams, 513 F.2d 1264, 1265
(8th Cir. 1975). Although, where the trustee is actually interpreting
statutory law the "arbitrary, capricious, or abuse of discretion"
standard of review is inapplicable. Winer v. Edison Bros. Stores Pension
Plan, 593 F.2d 307, 312 (8th Cir. 1979).
13
Quinn argues, however, that the "abuse of discretion" standard is
applicable only when the court reviews plan action and not when it
reviews the interpretation of the language of plan articles. He contends
that here, where the language of section 5.4 is at issue, recourse
should be had to ordinary principles of contract interpretation. State
law principles are not to be used as state law; such use would
contravene ERISA's preemption provisions. Instead, Quinn urges the court
to borrow the contract principles to use as federal law where ERISA is
silent. Landro v. Glendenning Motorways, Inc., 625 F.2d 1344, 1354 (8th
Cir. 1980); Shaw v. Kruidenier, 470 F.Supp. 1375, 1382 (S.D.Iowa 1979),
aff'd mem., 620 F.2d 307 (8th Cir. 1980).
14
However, despite Shaw and dicta in Landro, this court has recently
indicated that it will apply the "arbitrary, capricious and abuse of
discretion" standard when reviewing a trustee's interpretation of the
language of a pension plan. Morgan v. Mullins, 643 F.2d 1320 (8th Cir.
1981). Other circuits are in agreement. For example, the Fifth Circuit
held recently in Paris v. Profit Sharing Plan for Employees of Howard B.
Wolf, Inc., 637 F.2d 357 (5th Cir. 1981), that "(a)lthough the
determination of eligibility for pension benefits seems to be a matter
of contract law, 'the clear weight of federal authority' mandates that
the trustee's determinations of eligibility are to be upheld unless
arbitrary or capricious." Id. at 362. See also Smith v. CMTA-IAM Pension
Trust, 654 F.2d 650, 654 (9th Cir. 1981); Gordon v. ILWU-PMA Benefit
Funds, 616 F.2d 433 (9th Cir. 1980).
15
The "arbitrary, capricious, or abuse of discretion" standard is the
appropriate standard to use when reviewing the Administrator's
interpretation of section 5.4 of the BN Pension Plan. See Morgan v.
Mullins, supra.
16
Merits.
17
The district court found that the Administrator's determination that
section 5.4 was applicable to the period prior to October 1, 1978, was
not arbitrary. We agree. The court did find, however, that the
Administrator abused his discretion with regard to the period after the
October 1, 1978 renegotiation of plaintiff's employment agreement. We
disagree with the latter finding.
18
All parties agree that section 5.4 was enacted to prevent receipt of
duplicate pension benefits for the same period of railroad service.
Under section 5.4 an offset against the BN Plan benefits otherwise due
the recipient may be employed for:
19
(1) Vested benefits which a participant has received or is entitled to
receive;
20
(2) Under another pension plan which meets the requirements of section
401(a) of the Internal Revenue Code.
21
(3) With respect to service with another employer which is included in
the participant's period of continuous service under the plan.
22
The district court found that for the period prior to October 1, 1978,
Quinn was "entitled to receive" benefits from the Milwaukee Road Pension
Plan. It also found that, under the terms of the initial employment
agreement, Quinn was then a participant in the Milwaukee Road Pension
Plan, a qualified plan which meets the requirements of Internal Revenue
Code section 401(a). Quinn was found to have acquired a nonforfeitable
right to pension benefits upon attainment of normal retirement age. The
court also held under the terms of section 5.4 ("entitled to receive")
Quinn was not required to have an unconditional right to receive
benefits. The district court found that, when viewed in terms of the
admitted policy of section 5.4 to avoid duplicate benefits for the same
period of continuous service, Quinn was still "entitled to receive" even
though he never elected to take pension benefits in lieu of other
retirement benefits. Because Quinn was a plan participant, 29 U.S.C. §
1053 mandated that plaintiff had a nonforfeitable right to such
benefits.3 <#fn3> We agree with these findings. However, contrary to the
district court, we hold that even after October 1, 1978, an offset by
the BN Plan is also proper.
23
An examination of Burlington Northern's argument shows why the offset is
correct. That argument is fairly simple. Because Quinn was an employee
of the Milwaukee Road during the period subsequent to March 15, 1970, he
was a participant in the Milwaukee Road Pension Plan. This plan is fully
qualified under section 401(a) and is required by law to provide pension
benefits to its vested participants which are nonforfeitable and which
may not be assigned or alienated. When Quinn reached normal retirement
age on May 5, 1976, his right to receive pension benefits from the
Milwaukee Road Pension Plan then became fully vested. Quinn's election
on October 1, 1978, to receive $75,000 annually in lieu of pension
benefits from the Milwaukee Road Pension Plan does not nullify the BN
Plan's statutory obligation to provide Quinn, should he so request, the
pension benefits which became vested pursuant to the Plan upon his
reaching age 65. Thus, section 5.4 of the BN Plan is applicable in
determining the amount of benefits Quinn is entitled to receive under
that plan for the periods both before and after October 1, 1978.
24
BN argues that the district court was incorrect in holding that Quinn
was a participant in the Milwaukee Road Pension Plan by reason of his
initial employment agreement. It asserts that Quinn was a participant in
the Milwaukee Road Pension Plan by virtue of his status as an employee
of the Milwaukee Road and not by virtue of the employment agreement.
Once Quinn became entitled to nonforfeitable rights to pension benefits
under the Milwaukee Road Pension Plan (i. e. when he turned 65) he was
forever a participant in the Milwaukee Road Pension Plan and at all
times subsequent to May 5, 1976, legally entitled to receive pension
benefits from the Milwaukee Road Pension Plan.
25
We agree that Quinn is a full participant in the Milwaukee Road Pension
Plan. Paragraph 2.1 of that plan provides:
26
All of the Company's Employees on the Effective Date shall become
Participants in the Plan on the Effective Date.
27
The effective date of the Milwaukee Road Pension Plan was January 1,
1976. Since Quinn was an employee of the Milwaukee Road on that date he
was a participant in the plan. Under the Plan his rights to pension
benefits were to become vested or nonforfeitable on May 5, 1976. See
ERISA § 203(a)(3), 29 U.S.C. § 1053(a)(3). Thus, Quinn was a full
participant and the Milwaukee Road's obligation to meet the minimum
funding standards set by ERISA arose solely because of Quinn's rights to
benefits thereunder; Quinn was not a participant for funding purposes only.
28
Quinn's claim that the 1970 employment agreement excludes him from
participation is incorrect. First, the agreement precedes the 1976 Plan
which made each employee a participant. Also, both the 1970 agreement
and the 1978 modification provide for the trustee of the Milwaukee Road
to pay Quinn, "in lieu of any pension to which he is entitled under the
Debtor's (Milwaukee Road's) Pension Plan, the sum of Seventy-five
Thousand ($75,000) Dollars annually...." These facts show that Quinn
actually is a full participant who has been entitled to receive pension
benefits from the Milwaukee Road Pension Plan.
29
Conclusion.
30
We conclude that Quinn is a participant in the Milwaukee Road Pension
Plan, a qualified plan, by virtue of his employment with the Milwaukee
Road. His rights to pension benefits became vested and nonforfeitable on
his 65th birthday, May 5, 1976. Quinn has been "entitled to receive"
benefits pursuant to the Milwaukee Road Pension Plan and continues to be
"entitled to receive" pension benefits even though he acquired rights to
receive $75,000 annually "in lieu of" pension benefits from the
Milwaukee Road Pension Plan. Thus, we hold that the district court erred
in finding that the BN Plan could not offset the actuarial equivalent
subsequent to October 1, 1978.
31
The district court focused on the terms of the employment agreement in
reaching its bifurcated decision. We feel this was incorrect. Quinn
became a participant and was entitled to receive benefits not because of
the employment agreement but because of his employment by the Milwaukee
Road. Thus, we conclude the finding of the district court in this regard
is clearly erroneous.
32
Since we have determined that Quinn has been entitled to receive pension
benefits from the Milwaukee Road Pension Plan, then, pursuant to section
5.4 of the BN Plan, the Plan Administrator can offset the amount due
Quinn for his years of actual and credited service by the actuarial
equivalent of the amount Quinn has been entitled to receive from the
Milwaukee Road Pension Plan for the years 1940-1966.4 <#fn4>
33
The judgment of the district court is affirmed in part and reversed in
part, in accord with this opinion. The judgment of the district court
upholding the Plan Administrator's ruling applying an actuarial offset
to BN pension benefits prior to October 1, 1978, is affirmed. The
judgment of the district court finding that the Plan Administrator
abused his discretion by offsetting benefits subsequent to October 1,
1978, is reversed and remanded.
* <#fn-s_ref>
William R. Collinson, Senior District Judge, Eastern and Western
Districts of Missouri, sitting by designation
1 <#fn1_ref>
Quinn accrued vested pension benefits under the Milwaukee Road Pension
Plan of approximately $63,000 per year, based in part on his railroad
service from February 19, 1940 through October 11, 1966
2 <#fn2_ref>
The BN Plan and the trustees have made payments from the trust fund to
Quinn at the rate of $448.42 per month only, retroactive to June 1, 1976
3 <#fn3_ref>
Section 203 of ERISA (Employee Retirement Income Security Act of 1974,
29 U.S.C. § 1053) provides, inter alia, that "(e)ach pension plan shall
provide that an employee's right to his normal retirement benefit is
nonforfeitable upon the attainment of normal retirement age...." ERISA
(29 U.S.C. § 1002(19)) provides that "(t)he term 'nonforfeitable' when
used with respect to a pension benefit or right means a claim obtained
by a participant or his beneficiary to that part of an immediate or
deferred benefit under a pension plan which arises from the
participant's service, which is unconditional, and which is legally
enforceable against the plan."
4 <#fn4_ref>
Quinn is presently receiving $448.42 per month from the BN Plan. This
payment is based upon his 31/2 years of service with the CB&Q and the
Burlington Northern and is the minimum that Quinn can be paid. Section
5.4 provides that the amount of the monthly pension shall not be reduced
below the amount which would have been payable if the period of service
with another employer were excluded from the participant's period of
continuous service under the BN Plan
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