future unfunded health benefits, thus significantly improving its ability to project future costs for the retirement medical benefits program as a whole.
Sharply rising health-insurance costs are a ubiquitous problem facing employers. Bay View's 1988 plan changes represented reasonable measures to control future health-insurance costs and to prevent them from hurting its current financial picture. Its rationale cannot be brushed aside as a mere pretext. It is a lawful and reasonable business response to a legitimate business problem, and the record is devoid of evidence to the contrary.
Bay View has asserted legitimate, credible business justifications for the 1988 plan changes. The plaintiffs have failed to offer sufficient evidence that these justifications -- reasonable and legitimate on their face -- should be deemed unworthy of credence.
The plaintiffs' ADEA claim fails on this separate and distinct ground.
Because the plaintiffs have failed to make out their prima facie case, and because Bay View has asserted a sufficient affirmative defense, Bay View is entitled to summary judgment on the plaintiffs' ADEA claim.
II. THE ERISA CLAIMS
Plaintiffs challenge Bay View's 1988 plan changes under ERISA on several grounds. They argue:
(1) that the former benefit plan (giving retirees and their spouses fully-paid health benefits) "vested" through agreement of the parties on behalf of the plaintiffs and was therefore not terminable;
(2) that Bay View breached its fiduciary duty to plaintiffs under ERISA section 404, 29 U.S.C. § 1104; and
(3) that Bay View violated ERISA section 510, 29 U.S.C. § 1140, which prohibits employers from discharging or discriminating against a participant or beneficiary "for exercising any right to which he is entitled under the provisions of any employee benefit plan, . . . or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan."
In addition, the plaintiffs seek a declaration under ERISA section 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B), that Bay View may not terminate retirees' existing health benefits in the future.
The parties agree that the plan at issue is an ERISA "employee welfare benefit plan" within the meaning of ERISA section 3(1), 29 U.S.C. § 1002(1). Such plans are expressly exempt under section 201, 29 U.S.C. § 1051(1) from ERISA's vesting provisions governing pension plans.
Retiree medical benefits do not vest by statute once an employee becomes eligible or retires. Williams v. Caterpillar, Inc., 944 F.2d 658, 666-67 (9th Cir. 1991), citing, In Re White Farm Equipment Co., 788 F.2d 1186, 1193 (6th Cir. 1984). Moreover, employees generally have no statutory or other legal right to retirement benefits unless and until they satisfy the eligibility requirements set forth in their plan documents. Williams v. Caterpillar, Inc., 944 F.2d at 666 (laid-off workers who were not full-time salaried employees on day immediately preceding their retirement as required by plan held not entitled to benefits under plan).
Nonetheless, "the parties may themselves set out by agreement or by private design, as set out in the plan documents, whether retiree welfare benefits vest, or whether they may be terminated." In Re White Farm, 788 F.2d at 1193.
The plaintiffs argue that their right to fully-paid retirement medical benefits "vested," by virtue of oral and written agreements with Bay View, as each of them satisfied the age and service requirements for that benefit, whether or not they actually retired.
In determining whether an employer agreed to limit its right to terminate or amend a retirement medical benefits program on a motion for summary judgment, the Ninth Circuit employs common-law contract-interpretation principles. In Bower v. Bunker Hill Co., 725 F.2d 1221 (9th Cir. 1984), the court first examined the plan documents to determine whether they contained ambiguities regarding termination. Finding ambiguity, the court examined extrinsic evidence, such as "summary plan descriptions" designed for employees, management representations and other relevant evidence. Concluding that that evidence created a genuine issue of material fact as to whether the benefits were vested, it reversed an award of summary judgment in favor of the employer.
The Ninth Circuit has not spoken directly to the burdens of proof in determining whether welfare benefits have or have not vested. The Eighth Circuit has held that, because welfare benefits do not vest under ERISA, "plaintiffs have the burden of proving vested welfare benefits." Howe v. Varity Corp., 896 F.2d 1107, 1109 (8th Cir. 1990). Plaintiffs, on the other hand, assert that the "employer, as the drafter of the Plan language, bears the burden of showing that the Plan is sufficiently unambiguous regarding subjects of eligibility and scope of benefits and that the plan adequately informed the plaintiffs of whether and under what circumstances the company reserved the right to terminate or modify the Plan." The failure to do so, they argue, is "persuasive extrinsic evidence" that the employer did not intend to retain the right to terminate.
This Court agrees with Howe that, since ERISA clearly provides that welfare benefits do not vest, absent express agreement to the contrary, the plaintiff bears the burden of proving vesting. Applying the Ninth Circuit's analysis in Bunker Hill, the Court must first look solely to the plan documents to determine whether the benefits at issue have or have not vested; if those documents are ambiguous, however, the court may examine extrinsic evidence to determine the parties' intent.
The only documents setting forth the terms on which Bay View offered its retirement medical benefits program to employees are sections of Bay View's "Administrative Directive Manual" governing employee benefits in effect before and after the 1988 plan changes.
The "administrative directives" in effect as of January 21, 1976, February 18, 1976, provided that
Employees who retire at age 55 or more may elect to continue their Health Expense Benefits under the CS&LL Health Plan, with the same coverage as they had while still an employee. [Bay View] will pay or share in the cost of continuing the health coverage for its employees who retire from [Bay View's] employment, and from the general work force, on the bases of the employee's age and length of service at time of retirement. The retirement status of the employee will be determined by [Bay View], based on evidence of the employee's leaving the general work force.
The administrative directive in effect as of May 1, 1978 replaced the first two sentences of the above paragraph as follows:
[Bay View] will pay or share in the cost of continuing Health Plan coverage for its employees who retire at age 55 or more from [Bay View's] employment, and from the general work force, on the bases [sic] of the employee's age and length of service at time of retirement.
That sentence was revised again March 1, 1981 to provide:
[Bay View] will continue to provide Health Plan coverage for its employees who retire at age 55 or more from [Bay View's] employment, and from the general work force, on the basis of the employee's age and length of service at time of retirement.
The administrative directive governing retirement medical benefits was revised again on January 1, 1987, but only to add, as relevant here, the statement that "[Bay View] reserves the right to amend or terminate the . . . Program at any time should it be considered desirable or necessary." Subsequent revisions dated December 1, 1988 and August 1, 1990 reflect the changes at issue in this litigation and continue to contain the express reservation of rights to amend and terminate the program.
These document excerpts are unambiguous. Under none of these various provisions could any Bay View employee acquire a right to retirement benefits, "vested" or otherwise, without actually retiring. Plaintiffs' argument that they acquired a right to vested retirement benefits prior to retirement, therefore, cannot be sustained.
Whether plaintiffs acquired a vested right to fully-paid medical benefits upon retirement is a separate issue upon which plaintiffs seek a declaration. The plan documents in effect at the time plaintiffs actually retired contained an express reservation of rights to amend or terminate the retiree health benefits program at any time. It is therefore unlikely that the plaintiffs would be able to meet their burden of proving that their benefits vested at the time of retirement; however, the Court finds it unnecessary to reach this issue because it finds the request for declaratory relief premature.
There is no actual case or controversy as to whether the plaintiffs' benefits vested at retirement because Bay View has done nothing to indicate that it intends to terminate or amend the plaintiffs' health benefits. Bay View's counsel represented to the Court on the record that Bay View has no plans to change the retiree medical benefits program and does not intend to do so. In the event that Bay View ever takes steps to terminate or amend the program, the plaintiffs may well have a cause of action for declaratory relief on the question of vesting. The request for a declaration is denied without prejudice.
B. Fiduciary Duty
ERISA section 404 (29 U.S.C. § 1104) imposes certain responsibilities on "fiduciaries" charged with administering ERISA welfare benefit plans. Plaintiffs assert that Bay View breached its fiduciary duties by making the plan changes at issue here. Bay View responds that section 404 does not apply here because Bay View acted as an employer vis-a-vis the benefits at issue and not as a fiduciary.
The courts, in interpreting an employer's responsibilities under section 404, have made clear that an employer wears two hats -- one as fiduciary of the employee benefit programs it has established, the other as employer negotiating, extending, amending or terminating benefit programs. Bay View cites Musto v. American General Corp., 861 F.2d 897 (6th Cir. 1988), cert. denied, 490 U.S. 1020, 109 S. Ct. 1745 (1989), in which the Sixth Circuit upheld an employer's right to amend welfare benefit plan provisions, explaining that "there is a world of difference between administering a welfare plan in accordance with its terms and deciding what those terms are to be. A company acts as a fiduciary in performing the first task, but not the second." Id. at 911. In deciding to "establish, amend, or terminate a benefits plan, as opposed to managing any assets of the plan and administering the plan in accordance with its terms, its actions are not to be judged by fiduciary standards." Id. at 912. See also West v. Greyhound Corp., 813 F.2d 951 (9th Cir. 1987) (employer did not violate ERISA's fiduciary provisions when, during collective bargaining negotiations, it threatened them with termination if they did not accept reduced benefits).
Plaintiffs vainly attempt to distinguish Musto on the grounds that there, the employer had clearly reserved the right to terminate benefits. This distinction is unavailing. The presence or absence of certain language in the plan materials does not abolish or even blur the distinction between the roles of employer and fiduciary for ERISA purposes. In making the plan changes at issue, Bay View acted as an employer, not as a fiduciary. Section 404 is not relevant to this action.
C. Section 510: Constructive Discharge
ERISA's section 510 (29 U.S.C. § 1140) provides that
It shall be unlawful for any person to discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary for exercising any right to which he is entitled under the provisions of an employee benefit plan . . . or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan . . . .
Plaintiffs assert that Bay View "discriminated against the plaintiffs by constructively discharging them for exercising their right to fully paid retiree health benefits under Bay View's plan," thus violating section 510. This assertion runs counter to controlling Ninth Circuit authority and, moreover, is illogical.
In Kimbro v. Atlantic Richfield Co., 889 F.2d 869, 881 (9th Cir. 1989), cert. denied, 112 L. Ed. 2d 28, 111 S. Ct. 53 (1990), the Ninth Circuit interpreted section 510 to apply where "(1) an employee participates in a statutorily protected activity, (2) an adverse employment action is taken against him or her, and (3) a causal connection existed between the two." Id. at 881. This means that the plaintiffs must show that their exercise of an ERISA right "was the motivating force behind [their] discharge." Id. at 881.
The facts of this case do not come close to meeting the Kimbro test. First, for the reasons already stated, the plaintiffs were not constructively discharged. Rather, the 1988 plan changes reduced benefits across-the-board for all employees and offered plaintiffs an option, akin to an early retirement plan, to enjoy the benefits available under the earlier plan if they retired by a certain date. Second, plaintiffs' retirement was at all times a condition precedent to receiving fully-paid benefits after retirement. Without retiring first, they never had the option to receive fully-paid benefits, either before or after the 1988 plan changes. None of Bay View's actions could therefore have constituted a retaliation for plaintiffs' election of fully-paid health benefits. Further, the record is devoid of evidence of retaliatory or other improper motive. The claim under section 510 is without merit.
Through this lawsuit, plaintiffs have asked the Court to extend ERISA and the ADEA beyond their natural and intended scopes. In granting Bay View's motion, the Court does not make light of or in any way disparage the needs of retirement-age individuals for secure medical coverage; the high cost and limited availability of medical coverage for many individuals is a serious and widespread national concern whose impact falls heavily upon the elderly. Nonetheless, the law does not give the plaintiffs a cause of action against Bay View under the ADEA or ERISA on the facts presented here. It would be the proper role of the legislature, not this Court, to enact legislation mandating greater security in medical benefits for employees. Bay View's motion for summary judgment is therefore granted.
DATED: March 23, 1992
FERN M. SMITH
United States District Judge