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KOENIG v. INTERCONTINENTAL LIFE CORP.

March 15, 1995

GEORGIA B. KOENIG, et al., on behalf of themselves and others similarly situated
v.
INTERCONTINENTAL LIFE CORP., et al.



The opinion of the court was delivered by: J. WILLIAM DITTER, JR.

 Ditter, J.

 March 15, 1995

 In this ERISA action, plaintiffs have moved for partial summary judgment on Count II of their amended complaint. *fn1" For the reasons stated below, their motion is granted.

 I. FACTS

 Plaintiffs' amended complaint arises out of a class action lawsuit brought by former employees of the Individual Insurance Products Division of CIGNA Corporation ("IIP"). Defendant, Intercontinental Life Corporation ("ILCO"), purchased IIP from CIGNA in December, 1988. ILCO assumed control of the IIP retirement plan and thereafter took certain actions which are the subject of this lawsuit. In the instant motion, plaintiffs assert that ILCO amended the IIP pension plan in 1990 by merging it into the ILCO pension plan that had been established in January, 1988. Plaintiffs argue that the purported amendment is ineffective because ILCO failed to give notice of the amendment to the plan participants.

 II. ERISA'S NOTICE REQUIREMENT

 Section 204(h) of ERISA establishes that absent notice, a pension plan may not be amended to reduce significantly plan participants' rate of future benefit accrual. 29 U.S.C. § 1054(h). *fn2" This leads to a three-part inquiry. First, did ILCO "amend" the IIP plan within the meaning of § 1054(h)? Second, if ILCO did amend the plan, did the amendment significantly reduce the rate of future benefit accrual? Finally, did ILCO provide notice of the amendment at least 15 days before its effective date?

 Plaintiffs claim that the merger in 1990 of the IIP pension plan (the plan for former IIP employees then employed by ILCO) into the ILCO pension plan was an amendment that significantly reduced the rate of future benefit accrual of the IIP plan. Plaintiffs conclude that defendants were required to give notice to the IIP plan participants, which ILCO allegedly failed to do. Defendants argue that a "merger" is not an "amendment," and so 29 U.S.C. § 1054(h) does not apply to the 1990 merger. Even if it does apply, they argue, plaintiffs have not offered evidence of a "significant" reduction in the rate of future benefit accrual. I find defendants' arguments unavailing.

 A. Does § 1054(h) Apply to Plan Mergers?

 There has been little caselaw interpreting 29 U.S.C. § 1054(h), and still less discussing the merger-as-amendment question. See, e.g., Davidson v. Canteen Corp., 957 F.2d 1404 (7th Cir. 1992) (no dispute that Canteen amended its retirement plan without providing notice; court discusses whether there was significant reduction in rate of benefit accrual). Nonetheless, what little authority there is convinces me that a plan merger is a plan amendment and that § 1054(h) therefore applies. In re Gulf Pension Litigation involved, among other ERISA issues, Chevron's merger of the Gulf pension plan and the Chevron annuity plan into one Chevron retirement plan which, the court stated, reduced the benefits to former Gulf employees. 764 F. Supp. 1149, 1175 (S.D. Tex. 1991), aff'd sub nom. on different grounds, Borst v. Chevron Corp., 36 F.3d 1308 (5th Cir. 1994). Chevron in that instance treated the plan merger as a plan amendment and filed notice of the resulting reduction in plan benefit accruals. *fn3" Id. The court did not question Chevron's assumption that § 1054(h) required notice of the plan merger.

 Similarly, the Sixth Circuit in Sutter v. BASF Corp. stated that BASF's decision to merge its basic retirement plan and its supplemental retirement plan into a consolidated plan, "constituted the establishment or amendment of a pension plan . . . ." 964 F.2d 556, 562 (6th Cir. 1992). Although Sutter involved a different question than the applicability of § 1054(h), the court nonetheless declined to differentiate between a plan merger and a plan amendment.

 The Ninth Circuit implied that a merger of a pension plan's terms into those of another plan, rather than just a merger of assets, would be an amendment of the first plan. Watkins v. Westinghouse Hanford Co., 12 F.3d 1517, 1524, 1526 (9th Cir. 1993). Watkins involved an employee at the Hanford Nuclear Reservation who had worked for different contractors at the site; the different private contractors had their own pension plans. Id. at 1520. The Department of Energy consolidated responsibility for the site with one contractor, which in turn determined that the assets of the private contractors' plans would be merged into one pension plan for the whole site (the HOEP plan). Id. The court pointed out that the other plans' assets, not their terms, merged into the HOEP plan so that the contractor "could assume responsibility for administering the existing pension funds." Id. at 1524. Plaintiffs argued that the HOEP plan reduced their accrued benefits under the previous plans without complying with ERISA's amendment procedures. Id. at 1525. The court disagreed, stating that, given its conclusion that the previous plans were not a part of the HOEP plan for any purpose other than administering previously accrued and vested benefits, there was no amendment of the previous plans. Id. at 1526. Thus, Watkins implies that merging previous plans' terms into another plan, rather than just merging the assets for administrative purposes, would be an amendment of the previous plans. When the IIP pension plan was merged into the ILCO pension plan, the ILCO plan's formulas and definitions replaced the IIP plan's terms. Unlike Watkins, the instant case involves a new set of formulas and definitions and thus an amendment of the IIP plan.

 I have been unable to find a case standing for the proposition that the applicability of § 1054(h) rests on how a plan change is labeled. It would be too easy to defeat the purpose of the notice requirement merely by terming a change a "merger" or "modification" rather than an "amendment." To hold that § 1054(h) is triggered only by the label "amendment" would place pension plan participants in a peculiarly precarious position at the mercy of semantics. In Production and Maintenance Employees' Local 504 v. Roadmaster Corp., for example, defendant "clarified" a plan amendment in an attempt to remedy the amendment's violations of ERISA provisions. 954 F.2d 1397, 1400 (7th Cir. ...


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