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Sixth Circuit Upholds Plan Amendment Retroactively Limiting Disability Benefits

Tuesday, February 19, 2013

The U.S. Court of Appeals for the Sixth Circuit ruled Feb. 15 in a 2-1 decision that the trustees of a multiemployer pension plan did not abuse their discretion when they amended the plan to put a two-year cap on occupational disability benefits (Price v. Board of Trustees of the Indiana Laborer's Pension Fund, 6th Cir., No. 11-4126, 2/15/13).

Writing for the court, Judge David W. McKeague determined that the plan did not provide vested welfare benefits and permitted the plan's trustees to amend disability benefit eligibility after a participant became eligible for disability benefits.

A participant challenged a 2004 plan amendment that stripped the disability benefits he began receiving in 1990 following a work-related accident.

Disability Benefits Impacted By Plan Amendment

James Price began receiving disability benefits from the Indiana Laborer's Pension Fund in 1990 following a work-related injury. Price received his benefits under the plan's “Total and Permanent Disability Benefit” category. In 2001, Price was notified that he no longer qualified for disability benefits under that category but that he would continue to receive disability benefits under the plan's “Occupational Disability Benefit” provision, which would provide benefits until Price reached the plan's early retirement age.

Under the plan, the board of trustees possessed authority to determine benefit eligibility, interpret the plan, and adopt plan amendments, including retroactive amendments. The plan restricted amendments that “reduced benefits for any Participant whose rights have already become vested under the provisions of the Plan on the date the amendment is made.”

In 2004, the plan's trustees amended the plan's “Occupational Disability Benefit” provision to terminate benefits at the earlier of “early retirement age” or Dec. 31, 2006. The amendment impacted Price and any participant who began receiving an “Occupational Disability Benefit” prior to Jan. 1, 2005. The amendment caused Price's disability benefits to terminate Dec. 31, 2006, and he did not become eligible for the plan's early retirement benefits until September 2012.

District Court Twice Awarded Disability Benefits

Price appealed the decision discontinuing his occupational disability benefits and argued the plan amendment violated the Employee Retirement Income Security Act. Price's appeal was rejected by the trustees, and he was advised that the plan permitted retroactive amendment of the occupational disability benefits.

Price filed a lawsuit alleging the trustees violated ERISA by depriving him of his rights to vested benefits. The parties filed cross-motions for summary judgment, and the U.S. District Court for the Southern District of Ohio, reviewing the trustees' decision de novo, granted judgment in favor of Price and ordered the plan to reinstate Price's benefits (56 PBD, 3/26/09; 36 BPR 798, 3/31/09; 46 EBC 2754). The trustees appealed.

The Sixth Circuit determined that the district court misapplied the Yard-Man inference (United Automobile Workers v. Yard-Man Inc., 716 F.2d 1476, 4 EBC 2108 (6th Cir. 1983)) when it ruled that Price's benefits had vested prior to the plan's amendment. The appeals court ruled that the Yard-Man inference only applied to retiree health benefit cases, not to questions of whether other types of welfare benefits have vested. The Sixth Circuit vacated the district court's decision and directed it to apply an arbitrary-and-capricious standard of review (9 PBD, 1/13/11; 38 BPR 119, 1/18/11; 50 EBC 1673).

On remand, the district court examined the trustees' decision and termination letters and determined those documents did not include a statement of their reasoning. The district court concluded that the trustees' decision was therefore arbitrary and capricious and that Price was entitled to retroactive benefits (176 PBD, 9/12/11; 38 BPR 1677, 9/13/11; 51 EBC 2522). The trustees appealed again.

Trustees Reasonably Interpreted Plan

The appeals court reviewed the district court's decision de novo and determined that the trustees' decision was entitled to deference because the plan vested the board with discretion to ascertain benefit eligibility and interpret plan terms. The trustees' decision would be upheld if they offered a reasoned and evidence-based explanation, the appeals court said.

According to the appeals court, the district court's analysis “engaged in the wrong inquiry.” The appeals court determined that the “proper inquiry” was whether the trustees' decision that “Price's benefits could be terminated through amendment, a decision that necessarily required the Board to determine that Price's benefits had not vested,” was arbitrary and capricious.

The appeals court explained that ERISA does not create a substantive right or a vesting requirement for welfare benefits. “[W]elfare benefits may be terminated at any time so long as the termination is consistent with the terms of the plan” and they only vest based on plan terms, the appeals court said.

Examining the plan's amendment provision, the appeals court said that the provision lacked specificity and was therefore ambiguous and open to multiple interpretations. The appeals court proposed hypothetical language that would eliminate the ambiguity and clarify that Price's welfare benefits could be terminated by plan amendment. According to the appeals court, the hypothetical language demonstrated the multiple interpretations that could be drawn from the plan's amendment provision.

The appeals court then determined that the board exercised its discretion to interpret the plan and “reasonably conclude[d]” that the amendment provision permitted plan amendments that altered disability benefit eligibility after a disability occurred. The appeals court also held that the vesting limitation in the plan amendment provision “plainly refer[red] to retirement-related, not disability-related, benefits” and concluded that the trustees' decision was reasonable and not arbitrary and capricious.

Judge Jeffrey S. Sutton joined in the decision.

Dissent Rebukes Benefit-Stripping Amendment

In a dissenting opinion, District Judge Robert J. Jonker, sitting by designation from the U.S. District Court for the Western District of Michigan, argued that it was arbitrary and capricious for the plan to adopt a provision that “terminate[d] benefits that [had] already been awarded.” Jonker argued that the plan amendment defeated “the very purpose of disability benefits” because it left participants without a “reliable income stream during a period of covered disability.”

Jonker also maintained that the trustees applied the wrong plan document and should have based their decision on the plan that existed at the time Price was awarded benefits. The plan in effect in 1990 established the “reasonable expectations of the parties” and assured Price that his disability benefits would continue until he reached the plan's early retirement age if he remained disabled, Jonker said.

According to Jonker, the plan amendment's retroactive application was also inappropriate because retroactive amendments were only permitted “to bring the Plan in compliance with the Act (ERISA) and any subsequent amendments thereto.” The plan did not permit the trustees to apply a “benefit-stripping amendment retroactively to cut off the disability benefits previously awarded to Mr. Price,” Jonker said.

Price was represented by Tony C. Merry of Worthington, Ohio. The trustees and the fund were represented by Ian R. Smith and R. Gary Winters of McCaslin Imbus & McCaslin, Cincinnati.

By Matthew R. Madara  


The full text of the opinion is at http://www.bloomberglaw.com/public/document/James_Price_v_Board_of_Trustees_of_the_India_et_al_Docket_No_1104.

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