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,
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.
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
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
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
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.
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
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.