Pension & Benefits News Reciprocity contributions on behalf of union “travelers” did not belong to underfunded “home” fund
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Tuesday, March 24, 2020

Reciprocity contributions on behalf of union “travelers” did not belong to underfunded “home” fund

By Pension and Benefits Editorial Staff

Union “travelers” whose “home” pension funds participated in reciprocal contribution agreements were entitled to damages for amounts wrongfully withheld by an underfunded multiemployer pension plan that used the amounts to improve the plan’s funding status, according to the U.S. Court of Appeals in San Francisco (CA-9). The case was before the appeals court for a second time; previously, it vacated part of the damages award and instructed the district court on remand to give further consideration of the claims arising under another plan amendment. The lower court concluded those damages were proper, and the appeals court now affirmed.

Contribution agreements. The named plaintiff, an electrician who is a member of the Puget Sound Electrical Workers Pension Trust, performs work for employers located outside the jurisdiction of his home pension fund. When the plaintiff and other so-called “travelers” are temporarily employed outside the jurisdiction of their home funds, their employers contribute to the local funds for the areas in which the work is performed. Under a reciprocal agreement among home funds, the plaintiff’s employer contributions were transferred to his home pension fund. One of the jurisdictions in which the plaintiff worked was governed by the Pacific Coast Fund Pension Plan, which participated in the reciprocal agreement.

In May 2008, the trustees of the Pacific Coast plan learned it was severely underfunded for 2009 and subsequent plan years. A report from the plan’s actuary stated the plan was getting perilously close to critical status level under the Pension Protection Act of 2006. The trustees enacted Amendment 14, which was effective July 1, 2008. The amendment withheld $1.00 of employer contributions for each hour of covered work.

On June 29, 2009, the plan’s actuary certified the plan was in critical status for the plan year beginning April 1, 2009. The trustees adopted a formal rehabilitation plan through Amendment 24, which imposed a $1.00 hourly withholding from employer contributions for contribution rates below $3.00 per hour and established an additional withholding of all required increases in employer contributions and all surcharge payments.

The plaintiff filed a putative ERISA class action against the trustees alleging they breached the plan’s terms, violated ERISA Secs. 204 and 305 and breached their fiduciary duties by withholding $1.00 per hour from his employer contributions without providing an accrued benefit.

Granting the plaintiff’s motion for summary judgment, in part, the district court ruled the trustees abused their discretion as plan administrator in interpreting Amendment 14’s $1.00 withholding to apply to reciprocal transfers. The district court also certified a plaintiffs’ class. In a clarifying order, the district court ruled that its previous orders also applied to withholding under Amendment 24, and it awarded damages for withholdings under both amendments.

The trustees appealed the summary judgment order, an order granting the plaintiffs’ motion to enforce or clarify the order, and the damages award. The plaintiffs cross-appealed, seeking alternative relief under ERISA Sec. 502(a)(2) and (a)(3); they also appealed the court’s determination of a reasonable hourly rate for the attorneys’ fees award.

Lehman I: Amendment 24 not fully litigated. In a 2017 decision , the Ninth Circuit vacated the damages award with respect to withholdings under Amendment 24, finding that the trustees did not have notice that those withholdings were at issue and did not have an opportunity to respond, as the complaints only made four vague references to Amendment 24’s rehabilitation plan.

In addition, the summary judgment briefs did not analyze the withholding of increased employer contributions under the rehabilitation plan; they continued to focus on the $1.00 hourly withholding in Amendment 14 (while Amendment 14 applies to all contribution rates, the withholding in Amendment 24 differs because it only applies to contribution rates less than $3.00 per hour).

Likewise, the district court’s order did not specifically address that the class sought to recover contributions withheld under Amendment 24, particularly the withholding of increased employer contributions under the default and alternative schedules in the rehabilitation plan.

In affirming the district court’s order granting summary judgment to the plaintiff and awarding damages to the class for all contributions withheld under Amendment 14, the appeals court found the district court correctly interpreted the interaction between Amendment 14, Article 5 of the plan, and the reciprocal agreement.

The trustees argued the $1.00 hourly withholding in Amendment 14 was not a “contribution” under the reciprocal agreement because it is “not used to provide a plan of benefits for employees.” Amendment 14 specified that the withholding would be used solely to improve the funding of the plan. Thus, the trustees maintained they were not required to transfer the $1.00 hourly withholding to travelers’ home pension funds under Article 5 because the withholding did not meet the definition of “contributions” in the reciprocal agreement.

In Lehman I, the appeals court found the trustees’ argument was inconsistent with the plan’s own definition of a “contribution” and ERISA’s purpose. Section 1.04 of the plan defines “contribution” as “the payment made or to be made to the Fund by any individual employer under the provisions of a collective bargaining plan.” This definition does not limit “contributions” to mean only payments used by the fund for a specific objective. The trustees did not dispute the $1.00 hourly withholding in Amendment 14 was a payment made by an employer under the terms of a collective bargaining agreement. Thus, the trustees abused their discretion by interpreting Amendment 14 to apply to outgoing reciprocity transfers.

The Ninth Circuit also affirmed the district court’s ruling that the plaintiffs have the right to enforce the plan’s terms, including the provisions that incorporated the reciprocal agreement. Contrary to the trustees’ argument, the district court did not determine the plaintiffs could enforce the terms of the reciprocal agreement as a standalone contract. Rather, the district court ruled they could enforce the terms of the plan, which in turn incorporates aspects of the reciprocal agreement. Nothing in the reciprocal agreement changed the plaintiffs’ rights to enforce the terms of the plan under ERISA Sec. 502(a)(1)(B). The class sued to enforce the plan, not the reciprocal agreement, the court found.

The appeals court remanded the case for the district court to address whether the class could recover contributions withheld under Amendment 24. It noted that if the lower court concludes based on the terms of the pension plan that, as with Amendment 14, the class is entitled to the transfer of contributions withheld under Amendment 24, then the court need not decide whether the default and alternative schedules in the rehabilitation plan breached ERISA’s minimum accrual requirements. On remand, the lower court again granted summary judgment in favor of the class, determining that Amendment 24 violated the plain language of Article 5 of the Pacific Coast Pension Plan, which mandated that the plan collect and transfer all contributions received on behalf of travelers.

Lehman II. Addressing the trustees’ appeal for a second time, the Ninth Circuit affirmed once again, concluding that summary judgment was properly granted in favor of the plaintiff class. (The panel’s original disposition was filed June 12, 2019, but that opinion was withdrawn and replaced with this authored opinion.).

The appeals court rejected the trustee’s interpretation of Amendment 24 as having specifically created “non-benefit contributions” and excluding them from the definition of “contributions” that would need to be made to a traveler’s home fund. Such a reading is inconsistent with the plan‘s own definition of “contribution” that appears in section 1.04 (and conflicts with and renders nugatory the provision in Article 5). “Any contributions on behalf of a traveler must be passed through under the Plan” the appeals court found. “Because travelers’ contributions do not belong to the Pacific Coast Fund, the district court’s order did not violate the Pension Protection Act of 2006.”

Source: Lehman v. Nelson (CA-9).

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