In support of Count II the plaintiffs note that defined benefit plans are dependent upon the compensation of the participant received during a particular period and that the definition of compensation is critical in calculating the rate at which a participant's benefits accrue. Plaintiffs contend that the concept of "accrued benefits" is the line drawn between employer flexibility and employee expectations. Plaintiffs argue that because pension plans are subject to participation, vesting and funding, Green's decision as of June 5, 1990, to retroactively exclude the income from the exercise of stock option and appreciation rights was contrary to law and all participants' retirement benefits as of January 1, 1990, had to include in the participants' compensation the amounts received from the exercise of their stock option and appreciation rights and reported in their W-2. Plaintiffs also assert that because Green's June 5, 1990, decision failed to comply with § 1054(h), the purported amendment was ineffective and accordingly the plaintiffs are entitled to the inclusion of all income from the exercise of their stock option and appreciation rights up to March 1, 1994.
In response, defendants contend that the practice of excluding the LTIP income from pension benefit calculations did not result from a plan amendment, de facto or otherwise. Defendants assert that Green's memorandum of June 5, 1990, constituted an exercise of appropriate discretionary authority under the Plans and simply was intended to correct a mistake in practice which had inadvertently developed.
Count III of plaintiffs' amended complaint alleges that Green breached her fiduciary duty in excluding the LTIP income. Plaintiffs assert that Green did not perform her duties as plan administrator in good faith and with the best interests of the beneficiaries in mind.
Defendants assert that ERISA does not permit damages to be recovered against a plan administrator, that Green fulfilled her fiduciary duties in deciding to exclude the LTIP income from the definition of compensation and that Green had no duty to notify the plaintiffs of her decision and disclose the change in practice which she effectuated in her June 5, 1990, internal memorandum.
The parties' submissions pursuant to the instant cross-motions for summary judgment raise the issue of the appropriate standard of review. The Supreme Court recently addressed the issue of the degree of deference due ERISA plan administrators in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 103 L. Ed. 2d 80, 109 S. Ct. 948 (1989). The Bruch Court held that a denial of benefits challenged under § 1132(a)(1)(B) is to be reviewed under a de novo standard "unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan." Bruch, 489 U.S. at 115. If the plan vests such discretion in the administrator, the decision is to be reviewed under the more deferential arbitrary and capricious standard of review. Id.; see also Luby v. Teamsters Health, Welfare & Pension Trust Funds, 944 F.2d 1176, 1180 (3d Cir. 1991) (whether plan administrator's exercise of power is mandatory or discretionary depends upon the terms of the plan). The determination of whether a plan grants the administrator discretionary power to construe its terms is dependent upon the principles of trust law and the settlor's intent as expressed in the instrument. Id. ("The terms of trusts created by written instruments are 'determined by the provisions of the instrument as interpreted in light of all the circumstances and such other evidence of the intent of the settlor with respect to the trust is not admissible.'") (citing Firestone, 489 U.S. at 112 and quoting Restatement (Second) of Trusts § 4, cmt.d (1959)); Heasley v. Belden & Blake Corp., 2 F.3d 1249, 1256 (3d Cir. 1993) (where plan language grants discretionary authority to administrator further inquiry is not necessary and administrator's determination is to be reviewed under deferential arbitrary and capricious standard of review).
In Bruch, the Supreme Court also addressed how an allegation of a conflict of interest is to be factored into the analysis and noted that "if a benefit plan gives discretion to an administrator or fiduciary who is operating under a conflict of interest, that conflict must be weighed as a 'factor in determining whether there is an abuse of discretion.'" Bruch, 489 U.S. at 115 (quoting Restatement (Second) of Trust § 187 comment d (1959)). In other words, the presence of a conflict of interest does not change the standard of review. It is, however, an important factor to be considered in applying the standard of review. See Daniels v. Anchor Hocking Corp., 758 F. Supp. 326, 330 (W.D.Pa. 1991) ("We believe that a more accurate interpretation of Bruch leads to the conclusion that the alleged conflict of interest becomes a factor to be considered and given some weight during the reviewing process, rather than changing the substantive nature of the review itself."). As the Daniels court noted, "the clear import of [the language used by the Supreme Court in Bruch] is that the terms of the plan document, rather than a possible conflict of interest, controls the standard of review." Id Likewise, allegations of bad faith do not change the applicable standard of review. Instead, such allegations are an additional factor to be considered in determining whether there has been a wrongful denial of benefits under an ERISA plan.
The language contained in the instant Plans grants the administrator the discretionary authority to determine whether other "extraordinary" items not specifically excluded from the definition of compensation are similar to the delineated categories of exclusions set forth therein and within the scope of those types of items the settlor intended to exclude. The language of the Plans grants the administrator discretionary authority to determine whether an item of renumeration is extraordinary and similar to the extraordinary situation where an employee recognizes reportable W-2 income from the receipt of money for transportation mileage, relocation expenses, meal allowances or imputed income from insurance payments. The SPD further demonstrates that the employees were made aware of the fact that the administrator could exclude similar extraordinary payments to those set forth in the definition of compensation by indicating that "compensation does not include amounts attributable to transportation mileage, relocation expenses, meal allowances, imputed income from insurance payments or similar extraordinary payments...." In addition, the SPD informed the participants that the plan administrator had the overall responsibility for the operation of the Plans and the authority to construe and control the administration of the Plans. Likewise, the Plans granted to the administrator the discretionary authority to construe the plan. In light of this discretion, Count I of plaintiffs' complaint seeking relief pursuant to the plain meaning of the language contained in the Plans does not provide a separate substantive basis for relief and the contentions raised thereunder must be analyzed pursuant to Counts II and III of the amended complaint. See Wildbur v. Arco Chemical Co., 974 F.2d 631, 637-38 (5th Cir. 1992) (where plan gives administrator discretionary authority to construe plan, an interpretation challenged under the plain meaning of the language is to be analyzed under the arbitrary and capricious standard; the assessment of whether the administrator gave the plan a uniform construction and a fair reading are factors to be taken into account under the deferential standard of review).
Pursuant to Count II, plaintiffs seek partial summary judgment with regard to the exercise of their stock option and appreciation rights occurring in 1989. Plaintiffs assert that under § 204(g) of ERISA, the administrator's decision of June 5, 1990, constituted a de facto amendment to the Plans or at a minimum constituted an exercise of discretion which attempted to retroactively eviscerate accrued benefits. Plaintiffs further contend that the administrator's June 5, 1990, decision likewise ran afoul of § 204(h) of ERISA because it constituted an amendment to the Plans and resulted in a significant reduction in the rate of future benefit accrual without the appropriate notice required under that statutory provision.
ERISA was designed to promote the interests of employees and their beneficiaries in employee benefit plans. Nazay v. Miller, 949 F.2d 1323, 1329 (3d Cir. 1991). ERISA's primary concern is with the administration of benefit plans and not with the precise design of a plan. The primary purpose of the statute is to insure that an ERISA plan is properly executed and administered once it has been established by the sponsor. Id. at 1329; see also Haberern v. Kaupp Vascular Surgeons Ltd. Defined Benefit Pension Plan, 24 F.3d 1491, 1498 (3d Cir. 1994), cert. denied, U.S. , 130 L. Ed. 2d 1067, 115 S. Ct. 1099 (1995). By requiring employee benefit plans to be established and maintained pursuant to a written ERISA instrument, Congress promoted ERISA's goal of assuring that "every employee may, on examining the plan documents, determine exactly what his rights and obligations are under the plan." Hamilton v. Air Jamaica, Ltd., 945 F.2d 74, 77 (3d Cir. 1991), cert. denied, 503 U.S. 938, 117 L. Ed. 2d 622, 112 S. Ct. 1479 (1992) (citing Hozier v. Midwest Fasteners, Inc., 908 F.2d 1155, 1163-64 (3d Cir. 1990)).
ERISA requires that a qualified pension benefit plan "specify the basis upon which payments are made ... from the plan." 29 U.S.C. § 1102(b)(4). In order to become a qualified pension plan, the plan itself must provide "definitely determinable" benefits. See Treasury Reg. § 1.401-1(b)(L)(i). Unlike other plans following within the scope of ERISA, defined benefit plans are subject to vesting, funding and participation requirements established pursuant to ERISA and the Internal Revenue Code. See, e.g., Berger v. Edgewater Steel Co., 911 F.2d 911, 914 (3d Cir. 1990), cert. denied, 499 U.S. 920, 113 L. Ed. 2d 244, 111 S. Ct. 1310 (1991). The benefits under a defined benefit plan "are not dependent upon the current or future assets of the plan. The employer must provide a 'defined benefit' to the plan participant upon retirement, termination or disability, [ Chait v. Bernstein, 835 F.2d 1017, 1019 n.7 (3d Cir. 1987)], and the employer must satisfy shortfalls if the actuarial assumptions of the plan prove incorrect." Malia v. General Electric Co., 23 F.3d 828, 830-31 n.2 (3d Cir.), cert. denied, U.S. , 130 L. Ed. 2d 328, 115 S. Ct. 377 (1994). Likewise, an excess in the assets of a defined benefit plan "typically accrues to the employer's benefit by reducing the out-of-pocket contribution the employer must make to maintain required funding levels for the present value of the defined benefits." Id.
ERISA defines an accrued benefit in the case of a defined benefit plan as "the individual's accrued benefit determined under the plan, and, except as provided in section 1054(c)(3) of this Title, expressed in the form of an annual benefit commencing at normal retirement age ...." 29 U.S.C. § 1002(23)(A). ERISA further provides that "the accrued benefit of a participant under a plan may not be decreased by an amendment of the plan, other than an amendment described in section 1082(c)(8) or 1441 of this Title." 29 U.S.C. § 1054(g)(1). It follows a fortiorari that an accrued benefit may not be retroactively decreased through the purported exercise of an administrator's discretion.
In the instant matter, the administrator did not attempt to exercise any purported discretion to exclude the LTIP income generated from the stock option and appreciation rights prior to June 5, 1990. Because the language contained in the Plans defining compensation was inclusive rather than exclusive and specifically encompassed the type of income recognized upon the LTIP exercises, it follows that those employees which exercised their stock options and appreciation rights in 1989 and had income reported on their W-2's for the calendar year of 1989 acquired an accrued benefit.
Accordingly, plaintiffs are entitled to partial summary judgment on this aspect of the claim set forth in Count II.
Plaintiffs also move for summary judgment as to all LTIP income realized during the calendar years of 1990 up to March 1, 1994. Plaintiffs contend that Green's June 5, 1990, internal memorandum was in effect a de facto amendment and that the failure to provide timely notice under § 1054(h) entitles them to relief. That section provides:
A plan described in paragraph (2) may not be amended so as to provide for a significant reduction in the rate of future benefit accrual, unless, after adoption of the plan amendment and not less than 15 days before the effective date of the plan amendment, the Plan Administrator provides a written notice, setting forth the plan amendment and its effective date to -