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Buczynski v. General Motors Corp.

decided: February 15, 1980.

HENRY BUCZYNSKI, ALEX BORUSOVIC, AND OTHER RETIREES SIMILARLY SITUATED, APPELLEES
v.
THE GENERAL MOTORS CORPORATION, APPELLANT, STATE OF NEW JERSEY, INTEVENOR ; JOSEPH ALESSI, RAYMOND BUISSON, STEPHEN MICHALSKI, CHARLES REPKA, HELEN VOGT AND T. EDWARD WHITE, APPELLEES V. RAYBESTOS-MANHATTAN, INC., AND RAYBESTOS-MANHATTAN, INC. EMPLOYEE RETIREMENT PLAN, JOINTLY, SEVERALLY OR IN THE ALTERNATIVE, APPELLANTS, STATE OF NEW JERSEY, INTERVENOR



APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY

Before Gibbons, Rosenn and Garth, Circuit Judges.

Author: Garth

Opinion OF THE COURT

These two appeals pose a single question: whether the Employee Retirement Income Security Act of 1974 (ERISA) or the laws of New Jersey invalidate the provision of the pension plans of defendants General Motors and Raybestos-Manhattan authorizing reduction, or offset, of pension benefits by amounts received by the pensioner under a Workmen's Compensation statute. We conclude that these offset provisions are not unlawful under ERISA, and that the New Jersey statute prohibiting them is preempted by ERISA. We therefore reverse the district court orders which enjoined such offsets and which required payment to pension beneficiaries of those amounts which the pension trustees had offset in the past.

I.

Both these cases present similar fact patterns,*fn1 and procedural histories. General Motors (GM) and Raybestos-Manhattan (Raybestos) maintain pension plans covered by ERISA, 29 U.S.C. § 1001 et seq. (1976). Both pension plans provide that, under certain circumstances, benefits will be reduced by the amount of Workmen's Compensation payments received by plan participants.*fn2

In 1977, New Jersey enacted a statute expressly prohibiting such offset provisions. The statute, which became effective July 14, 1977, added the italicized sentence to N.J.Stat.Ann. § 34:15-29 (Supp.1979), a part of New Jersey's Workmen's Compensation program. The complete section now provides:

The right of compensation granted by this chapter shall have the same preference against the assets of the employer as is now or may hereafter be allowed by law for a claim for unpaid wages for labor. Claims or payments due under this chapter shall not be assignable, and shall be exempt from all claims of creditors and from levy, execution or attachment. The right of compensation granted by this chapter may be set off against disability pension benefits or payments but shall not be set off against employees' retirement pension benefits or payments.

Shortly after this statute went into effect, the plaintiffs brought class actions*fn3 against the defendants in the New Jersey state courts. The named plaintiffs in each suit were former employees of the defendants who had recovered Workmen's Compensation judgments against the defendants and whose pension benefits were being reduced as a result.*fn4 The suits sought permanent injunctions against the offsets and recoupment damages for those offsets, alleged to be unlawful, which had already been made.

Both cases were removed by the defendants to the United States District Court for the District of New Jersey. Both district judges to whom the respective cases were assigned reached the same result. The district court judge in Buczynski issued two published opinions. The first opinion is reported at 456 F. Supp. 867 (D.N.J.1978). The second opinion, which denied reconsideration, is reported at 464 F. Supp. 133 (D.N.J.1978). The district court judge in Alessi issued a single, unpublished letter opinion.

Although the complaints in both cases challenged the offsets only on the basis of the New Jersey statute, both courts found the offset invalid under § 203(a) of ERISA, 29 U.S.C. § 1053(a) (1976) (hereinafter § 1053(a)). In so holding, both courts invalidated a regulation issued by the Treasury Department expressly authorizing the offset clauses, 26 C.F.R. § 1.411(a)-4(a) (1979).*fn5 They also held that the New Jersey statute was not superseded by ERISA's preemption clause, 29 U.S.C. § 1144 (1976).*fn6

General Motors and Raybestos bring these appeals, challenging the district courts' conclusions that the offsets are invalid under ERISA and that the New Jersey statute is not preempted. We address these issues in turn.*fn7

II.

The plaintiffs claim that the defendants' offset is rendered unlawful by ERISA's antiforfeiture provision, 29 U.S.C. § 1053(a) (1976). This section provides in pertinent part:

(a) Each pension plan shall provide that an employee's right to his normal retirement benefit is nonforfeitable upon the attainment of normal retirement age and in addition shall satisfy the requirements of paragraphs (1) and (2) of this subsection.

A Treasury regulation, however, addresses the permissibility of offsets under ERISA's antiforfeiture provision and expressly authorizes such offsets, declaring them not to be prohibited forfeitures. This regulation provides in pertinent part:*fn8

Furthermore, nonforfeitable rights are not considered to be forfeitable by reason of the fact that they may be reduced to take into account benefits which are provided under the Social Security Act or under any other Federal or State law and which are taken into account in determining plan benefits.

26 C.F.R. § 1.411(a)-4(a) (1979).

In determining the legality of the Workmen's Compensation offset, then, we must begin our inquiry with this regulation, which, if held to be valid, would require us to sustain the offset provisions in the General Motors and Raybestos pension plans.

A.

In assessing the validity of 26 C.F.R. § 1.411(a)-4(a) (1979), we first turn to a consideration of the character of the regulation. In this court's recent opinion in Baker v. Otis Elevator Co., 609 F.2d 686 (3d Cir. 1979), which also concerned the validity of a Treasury regulation interpreting a provision of ERISA, we recognized a distinction between two types of administrative regulations, with a corresponding distinction in the appropriate standard of review. We there stated:

There can be no question but that the regulation with which we are here concerned is a legislative regulation which was issued pursuant to a clear delegation of rule making authority, see 29 U.S.C. § 1202(c) (1976). As Professor Davis has explained,

A legislative rule is the product of an exercise of delegated legislative power to make law through rules. An interpretative rule is any rule an agency issues without exercising delegated legislative power to make law through rules.

The distinction between the two kinds of rules is fundamental. . . . Valid legislative rules have about the same effect as valid statutes; they are binding on courts. . . .

(By contrast, however,) courts always have power to substitute their judgment for administrative judgment as to the content of interpretative rules, but they refrain in varying degrees from substituting judgment in various circumstances . . . .

2 K. C. Davis, Administrative Law Treatise, § 7:8 at 36-37 (1979). We recognize the distinction in the nature of the two types of rules, leading in turn to a distinction in our standard of review. Our scope of review of legislative rules is far more restricted than the scope of our review of interpretative rules. See id., at 37.

609 F.2d at 691.

After an analysis of the Supreme Court's decision in Batterton v. Francis, 432 U.S. 416, 97 S. Ct. 2399, 53 L. Ed. 2d 448 (1977), which addressed the same issue, we concluded in Baker that, to sustain a legislative regulation, "we need only determine . . . that its promulgation is not an abuse of discretion, that it is neither arbitrary or ...


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