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March 23, 1992


The opinion of the court was delivered by: FERN M. SMITH



 The plaintiffs are three former employees of Bay View Federal Savings & Loan Association ("Bay View") and their spouses. In 1988, Bay View modified its program of retirement benefits. Plaintiffs allege that Bay View's 1988 changes in its retirement benefits violated the Age Discrimination in Employment Act of 1967, 29 U.S.C. §§ 621-634 (ADEA) and the Employee Retirement Income Security Act, 29 U.S.C. §§ 1001-1461 (ERISA). Specifically, plaintiffs allege that the plan changes violated the ADEA by "constructively discharging" older workers in violation of the ADEA and violated ERISA by tampering with vested benefits and penalizing workers for exercising their rights to participate in an ERISA benefit plan. They also allege that Bay View breached its fiduciary duty under ERISA. The Court finds on the undisputed factual record before it that the plan changes at issue violated neither the ADEA nor ERISA, and therefore grants summary judgment in favor of Bay View on all causes of action. *fn1"


 From 1976 to October 1988, Bay View's retirement plan offered retired employees who met certain minimum age and service requirements fully-paid medical benefits. From 1981 to October 1988, Bay View's plan also fully covered medical benefits for retiree's spouses.

 In October 1988, Bay View amended its retirement plan as follows: (1) there would be no change in benefits for current retirees; (2) active employees who were eligible to retire could retain their fully-funded benefits upon retirement if they elected to retire by the end of 1989 (i.e., within fourteen months of the date of the plan change); if these employees retired later, they could continue to receive medical coverage upon retirement at their own cost; (3) employees who were close to retirement age could, upon reaching retirement age, retire with medical benefits at their own cost; and (4) all other active employees could, upon reaching retirement age, retire with medical benefits at their own cost. Plaintiffs fell within the second of these groups.

 According to Bay View, these plan changes were prompted by a proposed ruling by the Financial Accounting Standards Board (FASB) that would require the potential future cost of its health plan for future retirees to be listed as a current liability on Bay View's financial statements; because of the uncertain number of future participants and rising health care costs, Bay View's management was concerned that this would create accounting problems and hurt Bay View's financial picture.

 The following month, in November 1988, in response to negative comments from employees regarding the plan changes, Bay View amended its retirement plan again. The revised plan provided that for those active employees who were then eligible to retire or close to retirement age (the second and third groups), Bay View would "continue to pay the same amount for retirement health benefits that it was paying for the employee whenever the employee chose to retire." Bay View asserts that this change was specifically intended to provide further incentives to remain as employees "since the defined benefit was expected to increase the longer the employee worked." *fn2"

 All three of the plaintiff-employees elected to retire during the fourteen-month "grace period" before the announced plan changes became effective. They now assert that they would not have done so had it not been for the plan changes; that Bay View constructively discharged them based on illegal age-based criteria; and that Bay View's actions violated several provisions of ERISA.



 Plaintiffs allege that Bay View, through the retirement plan changes at issue, violated section 4(f)(2) of the ADEA, which provides:

 It shall not be unlawful for an employer . . .

 (2) to observe the terms of a bona fide seniority system or any bona fide employee benefit plan such as a retirement, pension, or insurance plan, which is not a subterfuge to evade the purposes of this chapter, except that no such . . . employee benefit plan shall require or permit the involuntary retirement of any individual [between 40 and 70 years of age] because of the age of such individual . . .

 29 U.S.C. § 623(f)(2) (emphasis added).

 A. The Plaintiffs' Prima Facie Case

 Section 4(a)(1) of the ADEA makes it unlawful for an employer "to fail or refuse to hire or to discharge any individual or otherwise discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual's age" (emphasis added). Plaintiffs argue that the plan changes, by prospectively limiting retirement benefits, constructively discharged the plaintiffs. Section 4(f)(2), quoted above, operates as an exception to this prohibition and, because of the timing of the events at issue here, constitutes a further element of the plaintiffs' prima facie case under the ADEA. *fn3"

 1. The Plan Changes Are Not Facially Discriminatory

 Several United States courts of appeals have held that, in general, early retirement programs, providing incentives to more senior workers to retire rather than to continue to work, do not create a prima facie case of age discrimination under the ADEA. Bodnar v. Synpol, Inc., 843 F.2d 190 (5th Cir.), cert. denied, 488 U.S. 908, 102 L. Ed. 2d 248 , 109 S. Ct. 260 (1988); Henn v. National Geographic Soc'y, 819 F.2d 824 (7th Cir.), cert. denied, 484 U.S. 908 (1988); Gray v. New England Tel. & Tel. Co., 792 F.2d 251 (1st Cir. 1986); Ackerman v. Diamond Shamrock Corp., 670 F.2d 66 (6th Cir. 1982).

 The touchstone for legal early retirement plans is that they offer employees a genuine choice between two options -- one being the status quo, the other being an early retirement plan that makes the recipient better off than under the status quo. Henn v. National Geographic Soc'y, 819 F.2d at 826.

 On the other hand, the United States Supreme Court has held that a plaintiff states a prima facie case under the ADEA where a particular policy offers a benefit to some employees, but withholds the same benefit from older employees based on age. Trans World Airlines, Inc. v. Thurston, 469 U.S. 111, 83 L. Ed. 2d 523 , 105 S. Ct. 613 (1985). Such a policy is discriminatory "on its face." Id. at 121.

 If Bay View's 1988 plan change had ordered an immediate, across-the-board elimination of fully-paid retirement health benefits for all current employees, irrespective of age or seniority, plaintiffs could not (and do not, even hypothetically) argue that the plan change violated the ADEA. The aspect of the 1988 plan change that gives rise to the ADEA claim in this lawsuit is the "grace period" which allowed retirement-eligible employees to obtain the benefits offered under the old plan if they elected to retire within eighteen months.

 The plaintiff's assertion that the 1988 plan changes were facially discriminatory under the ADEA because they differentiated between older and younger employees is superficially attractive, but does not withstand closer scrutiny. The facts of this case more closely resemble the early-retirement cases than they do the discrimination-in-benefits cases.

 We look first to Bay View's decision to eliminate the fully-paid retirement health benefit. With the adoption of the 1988 plan changes, the reduced benefit became the "status quo" for all employees, regardless of age.

 Next, we look at the "grace period." The grace period prospectively offered retirement-eligible employees the option of either continuing to work under the status quo conditions available to all other employees or retiring within an eighteen-month window and enjoying the more extensive health benefits available under the previous retirement plan. Much like an early-retirement plan, retirement-eligible employees could elect either the status quo or a "better" package of benefits than was available to ...

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