The opinion of the court was delivered by: DANIEL H. HUYETT, 3RD
Plaintiff Ruth Haberern from 1974 to 1985 worked full-time as a secretary-bookkeeper for a professional corporation formerly known as Kaupp Vascular Surgeons, Ltd., and later known as Lehigh Valley Vascular Surgeons, Ltd. Defendants are the professional corporation, its defined benefit and defined contribution pension plans, and the trustee of those plans. Plaintiff commenced this action under the Employee Retirement Income Security Act (ERISA), 29 U.S.C.A. §§ 1001-1461 (West 1985 & Supp. 1992). Plaintiff seeks to recover back salary and pension benefits that Defendants have allegedly wrongfully withheld, as well as costs and attorney's fees. Following a nonjury trial, the Court makes the following findings of fact and conclusions of law.
A. Identity of the Parties
Plaintiff Ruth Haberern is an adult individual who resides at 5677 Merion Lane, Macungie, Pennsylvania. (Plaintiff's Testimony, Transcript 11/23/92 at 10.) Kaupp Vascular Surgeons, Ltd. (later known as Lehigh Valley Vascular Surgeons, Ltd.) is a professional corporation that was incorporated on November 30, 1973. (Uncontested Statement of Facts dated September 11, 1990 P 2.) The corporate name of Kaupp Vascular Surgeons, Ltd. was changed to Lehigh Valley Vascular Surgeons, Ltd. (Lehigh Valley) in November 1984. Defendant Lehigh Valley Vascular Surgeons, Ltd. Retirement Plan (the Defined Contribution Plan) and Defendant Kaupp Vascular Surgeons, Ltd. Defined Benefit Pension Plan and Trust Agreement (the Defined Benefit Plan), at all times relevant to this action were "employee pension benefit plans" and "pension plans," as defined in 29 U.S.C.A. § 1002(2) (West Supp. 1992) and governed by ERISA. The Defined Contribution Plan and the Defined Benefit Plan are separate entities from, and independent of, the employer that sponsors the Plans. (Uncontested Facts and Admissions dated November 23, 1992 and received into evidence as Court Exhibit 1 P 2c.) Defendant Lehigh Valley is, and was at all times relative to this action, the employer that sponsored the Defined Benefit and Defined Contribution Plans. Defendant Lehigh Valley was also the administrator of the Plans, as that termed is defined under ERISA, 29 U.S.C.A. § 1002(16) (West Supp. 1992). ( Ct. Ex. 1 P 3.) The principal place of business of Defendant Lehigh Valley is 1275 South Cedar Crest Boulevard, Allentown, Lehigh County, Pennsylvania 18103. (Uncontested Statement of Facts dated September 11, 1990 P 5.) Defendant Kenneth M. McDonald, M.D. (McDonald) is an adult individual who maintains a business address at Defendant Lehigh Valley. ( Ct. Ex. 1 P 5.) In 1976 McDonald became an employee of Lehigh Valley. (Pl. Test. Tr. 11/23/92 at 23.) McDonald served as a trustee of the Defined Contribution Plan from May 1, 1978 to the present, and as a trustee of the Defined Benefit Plan from its inception on September 1, 1979. ( Ct. Ex. 1 P 6.) McDonald is currently the trustee of the Defined Contribution Plan and, at all times relevant to this action, served as a trustee of the Defined Benefit Plan.
B. Plaintiff's Employment With Lehigh Valley
Plaintiff began working for Kaupp Vascular Surgeons, Ltd. on July 1, 1974. At that time the only employees of the corporation were Plaintiff and Harry A. Kaupp, M.D. Kaupp was the sole shareholder, director, and officer of the corporation. Plaintiff's duties as a secretary-bookkeeper involved handling the telephone, scheduling appointments, processing insurance claims forms, typing letters, receiving payments, bookkeeping, taking care of checkbooks, and paying all the bills. Plaintiff's duties with respect to the Defined Contribution Plan involved keeping an accounting of the contributions for each employee and where those contributions were deposited. When the number of employees of Kaupp Vascular Surgeons, Ltd. and later Lehigh Valley expanded beyond Plaintiff and Dr. Kaupp, Plaintiff continued to perform all the same duties that she had performed previously. (Uncontested Statement of Facts dated September 11, 1990 PP 8-10, 13-15.) Plaintiff worked for Defendant Lehigh Valley on a full-time basis until January 2, 1985. She worked on a part-time basis from January 3, 1985 until December 16, 1986. ( Id. P 8.)
To attract Plaintiff to work for him, Dr. Kaupp offered Plaintiff an annual salary of $ 11,500. (Pl. Test. Tr. 11/23/92 at 13.) As part of her compensation package, Dr. Kaupp offered to pay Plaintiff a percentage of the gross receipts of the corporation. The corporation also provided a defined contribution pension plan as well as health insurance for Plaintiff. (Pl. Test. Tr. 11/23/92 at 14; Kaupp Deposition at 112-113.) Plaintiff accepted these terms and began working for Dr. Kaupp. There was, however, no written employment contract. (Tr. 11/23/92 at 107.)
Plaintiff received biweekly salary checks as well as a check at the end of the corporation's fiscal year representing her percentage of the receivables collected by the corporation for the fiscal year. Plaintiff's salary as reported on her W-2 forms increased every year from 1975 to 1979. (Pl. Test. Tr. 11/23/92 at 15-18; Pl. Ex. 90.) Commencing September 1, 1979 Plaintiff's biweekly salary checks were increased from $ 561.80 to $ 601.20 up to and including August 30, 1984. Effective September 1, 1984, up to and including December 31, 1984, Plaintiff's biweekly salary checks were increased to $ 839.58. (Uncontested Statement of Facts dated September 11, 1990 PP 18, 19.)
Beginning in June 1984, Plaintiff gave frequent and repeated notices to Lehigh Valley that she intended to retire on August 31, 1984. Before August 31, 1984 Plaintiff postponed her retirement date to January 2, 1985, and gave notice to Lehigh Valley. Lehigh Valley held a retirement dinner in Plaintiff's honor in October 1984. (Pl. Test. Tr. 11/23/92 at 30-35; Kaupp Dep. at 17-19.) Although Plaintiff retired on January 2, 1985, Dr. McDonald asked Plaintiff to work part-time thereafter and . Plaintiff worked one day per week or less until December 16, 1986. (Pl. Test. Tr. 11/23/92 at 34.) During the period that Plaintiff worked for Lehigh Valley on a part-time basis, Lehigh Valley paid her biweekly and deducted taxes from her pay. Plaintiff received W-2 forms for 1985 and 1986 and the corporation covered her under its medical plan. (Uncontested Statement of Facts dated September 11, 1990 PP 20-22.)
C. The Defined Contribution Plan and the Defined Benefit Plan
Kaupp Vascular Surgeons, Ltd. established a pension plan, the Defined Contribution Plan, effective December 15, 1973. (Pl. Ex. 4.) The initial trustees of the Defined Contribution Plan were Dr. Kaupp and his wife, Barbara Kaupp. Plaintiff was a participant in the Plan from its effective date. (Pl. Test. Tr. 11/23/92 at 13.) Under section 4.1 of the Plan, Lehigh Valley agreed to contribute each year on behalf of each participant an amount equal to 20.5 percent of the first $ 10,800 of the participant's annual compensation plus 27.5 percent of compensation in excess of $ 10,800. (Pl. Ex. 4.) Section 7.3 of the Plan provides that participants may direct the investments of their contributions under the Plan. Plaintiff made this election in 1974. To the extent a participant has given specific directions, the Trustee is subject to these directions. Pursuant to section 5.1, the amounts contributed by the employer on behalf of a participant could be held in one or more accounts in a participant's name. These accounts would be credited with investment earnings or losses. § 5.6. Plaintiff deposited the amounts Lehigh Valley contributed on her behalf into funds maintained for her benefit at Dean Witter Reynolds, Inc. (Dean Witter) and Gruntal & Co. (Gruntal). Plaintiff, consistent with the Plan, self-directed these accounts. (Pl. Ex. 4) Under section 6.8 of the Plan, an employee's share at any time is the amount in his or her account, subject to any vesting provisions of the Plan. At the time of her retirement, Plaintiff was fully vested in her Plan accounts. (Pl. Ex. 4; Ct. Ex. 1 P 17.)
Effective September 1, 1979, Defendant McDonald and Dr. Kaupp, the two shareholders of Kaupp Vascular Surgeons, Ltd., established a defined benefit pension plan, Kaupp Vascular Surgeons, Ltd. Defined Benefit Plan and Trust Agreement (the Defined Benefit Plan). A defined benefit plan differs from a defined contribution plan in that there are no individual accounts in a defined benefit plan. Rather, a person's pension is based upon a formula taking into account factors such as age, compensation, and years of service. Thus, the employer guarantees a certain benefit based on a formula and benefits are paid out of a fund under the plan. (Pl. Ex. 2; John Lisicky Test. Tr. 11/23/92 at 126.)
Plaintiff was, at all times relevant, a participant in both plans, and, at the time of her retirement, Plaintiff was fully vested in both plans. (Pl. Test.; Ct. Ex. 1 P 17.) Lehigh Valley was the sponsor and administrator of both plans. Lehigh Valley had the power to appoint trustees and to direct the trustees to make distributions of benefits. (Ct. Ex. 1 PP 2-4.) As fiduciaries of the Plans, McDonald and Lehigh Valley exercised authority and control in the management of the Plans. The fiduciary duties of McDonald and Lehigh Valley included responsibility for administering the Plans and distributing information, documents, and reports regarding the Plans, and for distribution of benefits. (Pl. Exs. 2 and 4 art. XI.) Defendant Lehigh Valley terminated the Defined Benefit Plan effective August 31, 1984 and the Internal Revenue Service approved the termination in December 1985. (Ct. Ex. 1 PP 16, 20.) Plaintiff was fully vested in the Plan on August 31, 1984. ( Id. P 17.)
D. Use of Plaintiff's Receivables Percentage to Fund Her Pensions
The contributions under the Defined Contribution Plan and the benefits under the Defined Benefit Plan were based upon the amount of a participant's total compensation and salary, respectively. (Pl. Exs. 2, 4.) For the fiscal years beginning July 1, 1975 and ending June 30, 1979, Plaintiff received as compensation, at the end of each fiscal year, a portion--approximately 80 percent--of a percentage (according to a formula) of the gross receipts of the corporation for that fiscal year. Lehigh Valley used the remaining 20 percent of that receivables percentage, that Plaintiff otherwise would have received, to fund Plaintiff's share of her Defined Contribution Plan. In effect, Plaintiff was forced to fund her own Defined Contribution Plan contribution. Section 4.1 of the Defined Contribution Plan states, however, that the employer is required to make the full contribution under the Plan. (Pl. Ex. 4; Pl. Test. Tr. 11/23/92 at 19-21.) Plaintiff had a copy of the summary plan description of the Defined Contribution Plan, which states that the employer makes the contributions to the Plan (Pl. Ex. 3) and told Dr. Kaupp that she should not have to fund her own pension. Nevertheless, Lehigh Valley used a portion of her receivables percentage to fund her contribution to the Defined Contribution Plan. (Pl. Test. Tr. 11/23/92 at 19.)
In 1980 Lehigh Valley eliminated the portion of Plaintiff's compensation that was calculated on the basis of Lehigh Valley's gross receipts thus reducing Plaintiff's compensation from $ 18,358 for the fiscal year ending June 30, 1979 to $ 14,429 for the fiscal year ending August 31, 1980. (Lehigh Valley had changed its fiscal year from July to June to September to August.) Based upon a salary of $ 19,000, Lehigh Valley would have to contribute approximately $ 10,000 on behalf of Plaintiff into the newly formed Defined Benefit Plan. The doctors felt that this amount was too much. (Lisicky Test. Tr. 11/23/92 at 128.) Therefore, they reduced her salary to $ 14,400, thus requiring Lehigh Valley to contribute only $ 5,500 to the Defined Benefit Plan. (Id. at 131.) By virtue of the elimination of her receivables percentage, Plaintiff was taking her salary and funding her Defined Benefit Plan. (Id.)
Drs. McDonald and Kaupp told Plaintiff that she would no longer receive annually the lump sum check based upon the corporation's gross receipts, and that this amount would be used by Defendants to fund her contribution to the new Defined Benefit Plan. They assured Plaintiff that the salary reduction was in her best interests because she would receive a monthly pension benefit equivalent to her full salary upon retirement. (Pl. Test. Tr. 11/23/92 at 21-24.) In 1980, when the doctors told Plaintiff that her compensation would be reduced and that the corporation was implementing the Defined Benefit Plan retroactive to September 1, 1979, Plaintiff was unhappy and expressed that unhappiness to Dr. Kaupp. (Id. at 23-24.)
Plaintiff's biweekly salary checks remained $ 601.20 from September 1, 1979 to August 31, 1984 (the period that the Defined Benefit Plan was in effect). Because the contributions to the Defined Contribution Plan and the benefits under the Defined Benefit Plan were based on salary, the reduction of her salary by virtue of the elimination of the receivables percentage reduced contributions to Plaintiff's account under the Defined Contribution Plan and reduced her benefits. The salary reduction also reduced her Defined Contribution Plan and Defined Benefit Plan pension benefits. (Lisicky Test.; Pl. Ex. 104.)
Lehigh Valley never told Plaintiff that the Defined Benefit Plan required the employer to make the contributions to the Plan. (Pl. Test. Tr. 11/23/92 at 27.) Lehigh Valley gave Plaintiff a copy of the summary plan description, but the pages regarding contributions to the Plan, insurance, and the table of contents were missing. These missing pages would inform Plaintiff that the employer was required to make the contributions to fund the Plan. (Pl. Test. Tr. 11/23/92 at 29-30; Pl. Ex. 1.) Plaintiff did not receive a complete summary plan description until 1987.
E. Designation of Compensation as Salary and Bonus
Effective for the year 1980, Lehigh Valley designated Plaintiff's compensation into two components: "salary" and "bonus." (Pl. Test. Tr. 11/23/92 at 25-26.) Similarly, Lehigh Valley divided the compensation of Drs. Kaupp and McDonald into the same components. (Lisicky Test. Tr. 11/23/92 at 126-27.) Because benefits under the Defined Benefit Plan were based on salary excluding any bonus, this reduced the amount of the benefit under the Plan and thus the amount of money Lehigh Valley contributed to the Plan to fund the benefits. Plaintiff was not notified that designating a portion of her compensation as a bonus would have the effect of reducing her pension benefits. (Pl. Test. Tr. 11/23/92 at 101.)
G. Pension Benefits Not Distributed to Plaintiff
Plaintiff was assured repeatedly by Defendant McDonald and others acting on his behalf that her pension benefits under both the Defined Contribution Plan and the Defined Benefit Plan would be distributed to her upon her retirement. (Pl. Test. Tr. 11/23/92 at 34.) Beginning in June 1984, Plaintiff gave frequent and repeated notices to Lehigh Valley that she intended to retire on August 31, 1984. Before August 31, 1984, Plaintiff postponed her retirement date until January 2, 1985, and gave notice to Lehigh Valley. (Pl. Test. Tr. 11/23/92 at 31-35.) Although Plaintiff retired on January 2, 1985, Defendants did not distribute her benefits to her in 1985. Instead, they provided a series of excuses. (Pl. Test.) Defendants, however, in March 1985, paid $ 50,000 under the Defined Benefit Plan as a partial distribution to Dr. Kaupp pursuant to a request of his attorney. (Pl. Ex. 21; Edward H. Butz Test. Tr. 11/24/92 at 102-103.)
In April 1985 McDonald informed Plaintiff that Lehigh Valley could not distribute her pension benefits to her because of a "financial squeeze" on the corporation. (Pl. Ex. 19.) By May 15, 1985 McDonald had resolved the financial squeeze and fully funded the Plans. (McDonald Test. Tr. 11/24/92 at 157-161.) Nevertheless, Defendants failed to pay to Plaintiff her pension benefits. Instead, Mark Baicker, one of Lehigh Valley's pension advisers, advised Plaintiff in July 1985 that payment would not be made pending approval by the IRS of the termination of the Defined Benefit Plan and completion of some accounting matters relating to the Defined Contribution Plan. Baicker suggested to Plaintiff that she make a written request for payment of her pension benefits, but Plaintiff did not because she had made a written request for benefits in October 1984. (Def. Ex. 8; Pl. Test. Tr. 11/23/92 at 104-105.)
Although the IRS approved the termination of the Defined Benefit Plan in December 1985 (Def. Ex. 9), Defendants did not advise Plaintiff of the approval until February 1986, at which time they promised her, without condition or limitation, a full distribution from both the Defined Benefit and Defined Contribution Plans by the end of the month, which Defendants failed to do. (Pl. Ex. 25.) Instead, on July 18, 1986 Defendants required Plaintiff to sign releases as a condition of payment. Defendants requested and obtained signed releases from all other participants. (Def. Exs. 15, 18; Butz Test. Tr. 11/24/92 at 99-104, 112.) Defendants requested releases as a condition of distributions from both Plans because McDonald had become the sole trustee of both Plans and had not been involved in some of the earlier transactions and management of the Plans. (Butz Test. Tr. 11/24/92 at 100-101.) By letters of July 21, 1986 Defendants gave Plaintiff an accounting for both Plans. (Pl. Ex. 16; Def. Ex. 79.) Plaintiff refused to sign the releases and Defendants refused to pay any benefits to Plaintiff. (Pl. Test. Tr. 11/23/92 at 43-46; Butz Test. Tr. 11/24/92 at 135-36.)
In April 1987 Defendants informed Plaintiff that they would pay her benefits under the Defined Benefit Plan in the form of an annuity or a single sum payment and they asked Plaintiff to choose which she desired. Defendants again requested a release, which Plaintiff refused to sign. (Pl. Ex. 30.) In May 1987 Plaintiff requested distribution of both her Defined Benefit and Defined Contribution Plan benefits without execution of a release. (Pl. Ex. 31.) In July 1987 Defendants sent Plaintiff a check in the amount of $ 42,986.24, which they stated represented Plaintiff's complete entitlement under the Defined Benefit Plan. (Pl. Ex. 27.) Defendants did not request a release for the $ 42,986.24 payment because the Plan had been terminated with IRS approval. (Butz Test. Tr. 11/24/92 at 109-110.) On July 28, 1987 Plaintiff requested an explanation from Defendants of the basis of the $ 42,986.24 payment, (Pl. Ex. 110), but Defendants to date have not supplied an explanation.
Defendants have not paid Plaintiff her pension benefits under the Defined Contribution Plan. (Pl. Test. Tr. 11/23/92 at 53; McDonald Test.; Ct. Ex. 1 PP 25, 26.) Defendants were prepared to distribute Plaintiff's benefits under the Plan in July or August of 1987 without a release, (Butz Test. Tr. 11/24/92 at 113-115), but Defendants declined to do so when Plaintiff's counsel delivered to counsel for Defendant McDonald Plaintiff's list of "demands" relative to both Plans. (Def. Ex. 25, 26.) Defendants again insisted on a release from Plaintiff. (Butz Test. Tr. 11/24/92 at 115-120.)
H. Defendants' Transfer of Plaintiff's Defined Contribution Plan Investments
Plaintiff deposited her Defined Contribution Plan monies into funds maintained for her benefit at Dean Witter and Gruntal. Plaintiff, consistent with the Plan, self-directed these accounts. (Pl. Ex. 4; Pl. Test. Tr. 11/23/92 at 14-15; Wally Rebar Test. Tr. 11/25/92 at 22-27.) In July 1987 Plaintiff's accounts with Gruntal consisted of approximately $ 27,000 of stocks and $ 36,000 in a money market account. Plaintiff also had two money market accounts with Dean Witter.
In October 1984, Plaintiff requested that, upon her retirement, Defendants distribute her pension benefits under both Plans "in kind." (Pl. Test. Tr. 11/23/92 at 47.) Under an in kind distribution, Plaintiff would receive the actual securities held. On May 22, 1987, however, Plaintiff requested that Lehigh Valley pay her benefits under both Plans as a "single sum" distribution for rollover into an Individual Retirement Account. (Pl. Ex. 31.) Plaintiff inadvertently made no reference in that letter to an in kind distribution. (Pl. Test. Tr. 11/23/92 at 91-92.) McDonald forwarded Plaintiff's letter to Lehigh Valley's pension advisors. They told McDonald to instruct Dean Witter and Gruntal to close Plaintiff's accounts under the Defined Contribution Plan and to send McDonald checks from the proceeds. (Pl. Ex. 62.) McDonald wrote to Dean Witter and telephoned Mr. Wally Rebar of Gruntal and directed them to sell Plaintiff's stocks and close her account. Rebar then telephoned Plaintiff who stated that she did not want her stock portfolio sold. Rebar then relayed Plaintiff's statement to McDonald. (Trans. 11/24/92 at 12-13.) Confronted with these conflicting instructions, McDonald telephoned his pension advisors who stated that the only way to provide Plaintiff with a lump sum distribution was to sell her stocks and pay her the proceeds. McDonald then telephoned Rebar and instructed him to sell Plaintiff's stocks. ( Id. at 13.) The stocks were sold in July 1987 and although Plaintiff expressed her unhappiness, (Pl. Ex. 38.), she did not direct McDonald to buy back the stocks. (Pl. Test. Tr. 11/23/92 at 92-94.)
On July 22, 1987 Dean Witter and Gruntal issued three checks payable to Lehigh Valley for the benefit of Plaintiff. McDonald endorsed the checks over to Plaintiff. (Pl. Ex. 11.) Lehigh Valley was prepared to give those checks to Plaintiff, but when Plaintiff's counsel delivered a letter to Defendants' counsel on August 5, 1987 setting forth the losses that Plaintiff had allegedly incurred (Def. Exs. 25, 26), Lehigh Valley refused to give Plaintiff the checks until she signed a release. (Butz Test. Tr. 11/24/92 at 114-16.) McDonald then directed that the two checks from Dean Witter be deposited in a new money market account in the name of Lehigh Valley Vascular Surgeons, Ltd. Retirement Plan, Kenneth M. McDonald, Trustee and that the new account not show Plaintiff's name. (Pl. Ex. 10.) The Gruntal check was also placed in a money market account. (McDonald Test. Tr. 11/24/92 at 22.) McDonald chose a money market account because he believed that it was the safest investment mechanism. ( Id. at 23.) Defendants refused to pay Plaintiff these funds without a release. (Def. Ex. 70; Pl. Test.; Ct. Ex. 1 P 26.)
The amount, including prejudgment interest, of Plaintiff's lost salary used to fund the Defined Benefit Plan is $ 137,790. (Pl. Ex. 104; Lisicky testimony.)
The amount, including prejudgment interest, of Plaintiff's lost benefits under the Defined Contribution Plan as a result of the reduction of Plaintiff's salary is $ 37,892. (Id.)
The amount, including prejudgment interest, of Plaintiff's lost benefits under the Defined Benefit Plan as a result of the underfunding of the Plan because of the reduction of Plaintiff's salary is $ 62,072. (Id.)
The amount including prejudgment interest, of Plaintiff's Defined Contribution Plan distribution that she has never received ...