OCTOBER TERM, 1996
Syllabus
INTER-MODAL RAIL EMPLOYEES ASSOCIATION ET AL.
v.
ATCHISON, TOPEKA & SANTA FE RAILWAY CO., ET AL.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH
CIRCUIT
No.96-491. Argued March 17, 1997-Decided May 12, 1997
As employees of respondent Santa Fe Terminal Services, Inc.
(SFTS), a wholly owned subsidiary of respondent The Atchison,
Topeka and Santa Fe Railway Co. (ATSF), the individual petitioners
were entitled, among other things, to pension, health, and welfare
benefits under SFTSTeamsters Union collective bargaining
agreements. The resulting benefit plans were subject to the
Employee Retirement Income Security Act of 1974 (ERISA). Ultimately
ATSF bid the work being done by petitioners to respondent
In-Terminal Services (ITS) and terminated SFTS employees who
declined to continue employment with ITS. The ITS-Teamsters pension
and welfare benefit plans were less generous than the SFTS-
Teamsters plans. Petitioners filed suit, alleging that the
terminations violated § 510 of ERISA, which makes it unlawful to
"discharge ... a [plan] participant ... for the purpose of
interfering with the
attainment of any right to which such
participant may become entitled under
the plan." (Emphasis
added.) The District Court granted respondents' motion to dismiss.
Concluding that § 510 only prohibits interference with the
attainment of rights that are capable of "vesting," the Court of
Appeals reinstated petitioners' claim for interference with
pension benefits, but affirmed the dismissal of their claim
for interference with
welfare benefits, which do not
vest.
Held: The Court of Appeals' holding that § 510 bars
interference only with vested rights is contradicted by § 51O's
plain language, whose use of the word "plan" all but forecloses
that position. ERISA defines "plan" to include an "employee welfare
benefit plan," 29 U. S. C. § 1002(3), even though welfare plans are
exempted from its stringent vesting requirements, see § 1051(1).
Had Congress intended to confine § 510's protection to "vested"
rights, it could have easily substituted "pension plan" for "plan"
or "nonforfeitable right" for "any right." The flexibility an
employer enjoys to unilaterally amend or eliminate its welfare
benefit plan, see
Curtiss-Wright Corp. v.
Schoonejongen, 514 U. S. 73, 78, does not
justify a departure from § 510's plain language. Such flexibility
helps employers avoid the complicated administration and increased
cost of vested plans, and encourages them to offer more generous
benefits at the outset, since they can reduce benefits should
economic conditions
511
sour. Section 510 counterbalances this flexibility by requiring
employers to follow a plan's formal amendment process, thus
ensuring that employers do not "circumvent the provision of
promised benefits."
Ingersoll-Rand Co. v.
McClendon,
498 U. S. 133,
143. Any tension that might exist between an employer's amendment
power and a participant's § 510 rights is the product of a careful
balance of competing interests, not the type of "absurd or
glaringly unjust" result,
Ingalls Shipbuilding, Inc. v.
Director, Office of Workers' Compensation Programs, 519 U. S. 248, 261, that
would warrant departure from § 510's plain language. On remand, the
Court of Appeals should have the first opportunity to evaluate
respondents' remaining arguments, including their argument that
petitioners were eligible to receive welfare benefits under the
SFTS- Teamsters plan at the time they were discharged and, thus,
cannot state a § 510 claim. Pp. 514-517.
80 F.3d
348, vacated and remanded.
O'CONNOR, J., delivered the opinion for a unanimous Court.
Richard E. Schwartz argued the cause for petitioners.
With him on the briefs was
James E. Parrot.
Cornelia T. L. Pillard argued the cause for the United States as
amicus curiae urging reversal. With her on the brief were Acting
Solicitor General Dellinger, Deputy Solicitor General Kneedler,
J. Davitt McAteer, Allen H. Feldman, and Mark S. Flynn.
James D. Holzhauer argued the cause for respondents.
With him on the brief for respondents Atchison, Topeka &
Santa Fe Railway Co. et al. was
Alan E. Untereiner. Patrick W
Jordan and
Robin M. Schachter filed a brief for
respondent In-Terminal Services. *
JUSTICE O'CONNOR delivered the opinion of the Court. Section 510
of the Employee Retirement Income Security Act of 1974 (ERISA), 88
Stat. 895, makes it unlawful to
*Mary Ellen Signorille, Melvin Radowitz, and
Ronald
Dean filed a brief for the American Association of Retired
Persons et al. as
amici curiae urging reversal.
Robert N. Eccles, Karen M. Wahle, Jan S. Amundson, Quentin
Riegel, Robert W Blanchette, and Kenneth P. Kolson filed a brief
for the Employers Group et al. as amici curiae urging
affirmance.
512
"discharge, fine, suspend, expel, discipline, or discriminate
against a participant or beneficiary [of an employee benefit plan]
for the purpose of interfering with the attainment of any right to
which such participant may become entitled under the plan." 29 U.
S. C. § 1140. The Court of Appeals for the Ninth Circuit held that
§ 510 only prohibits interference with the attainment of rights
that are capable of "vesting," as that term is defined in ERISA. We
disagree.
I
The individual petitioners are former employees of respondent
Santa Fe Terminal Services, Inc. (SFTS), a wholly owned subsidiary
of respondent The Atchison, Topeka and Santa Fe Railway Co. (ATSF),
which was responsible for transferring cargo between railcars and
trucks at ATSF's Hobart Yard in Los Angeles, California. While
petitioners were employed by SFTS, they were entitled to retirement
benefits under the Railroad Retirement Act of 1974, 88 Stat. 1312,
as amended, 45 U. S. C. § 231
et seq., and to pension,
health, and welfare benefits under collective bargaining agreements
involving SFTS and the Teamsters Union. SFTS provided its workers
with pension, health, and welfare benefits through employee benefit
plans subject to ERISA's comprehensive regulations.
In January 1990, ATSF entered into a formal "Service Agreement"
with SFTS to have SFTS do the same "intermodal" work it had done at
the Hobart Yard for the previous 15 years without a contract. Seven
weeks later, ATSF exercised its right to terminate the newly formed
agreement and opened up the Hobart Yard work for competitive
bidding. Respondent In-Terminal Services (ITS) was the successful
bidder, and SFTS employees who declined to continue employment with
ITS were terminated. ITS, unlike SFTS, was not obligated to make
contributions to the Railroad Retirement Account under the Railroad
Retirement Act. ITS also provided fewer pension and welfare
benefits under its
513
collective bargaining agreement with the Teamsters Union than
had SFTS. Workers who continued their employment with ITS "lost
their Railroad Retirement Act benefits" and "suffered a substantial
reduction in Teamsters benefits." 80
Petitioners sued respondents SFTS, ATSF, and ITS in the United
States District Court for the Central District of California,
alleging that respondents had violated § 510 of ERISA by
"discharg[ing]" petitioners "for the purpose of interfering with
the attainment of ... right[s] to which" they would have "become
entitled" under the ERISA pension and welfare plans adopted
pursuant to the SFTS-Teamsters collective bargaining agreement. See
App. to Pet. for Cert. 29a, Complaint , 33. Had SFTS remained their
employer, petitioners contended, they would have been entitled to
assert claims for benefits under the SFTS- Teamsters benefit plans,
at least until the collective bargaining agreement that gave rise
to those plans expired. The substitution of ITS for SFTS, however,
precluded them from asserting those claims and relegated them to
asserting claims under the less generous ITS-Teamsters benefit
plans. According to petitioners, the substitution "interfer[ed]
with the attainment" of their "right" to assert those claims and
violated § 510. Respondents moved to dismiss these § 510 claims,
and the District Court granted the motion.
The Court of Appeals for the Ninth Circuit affirmed in part and
reversed in part.
80 F.3d
348 (1996). The court reinstated petitioners' claim under § 510
for interference with their
pension benefits, concluding
that § 510 "'protects plan participants from termination motivated
by an employer's desire to prevent a pension from vesting.'"
Id., at 350351 (quoting
Ingersoll-Rand Co. v.
McClendon, 498
U. S. 133, 143 (1990)). But the Court of Appeals affirmed the
dismissal of petitioners' claim for interference with their
welfare benefits. "Unlike pension benefits," the Court of
Appeals observed, "welfare benefits do not vest." 80 F. 3d, at
514
351. As a result, the Court of Appeals noted, "employers remain
free to unilaterally amend or eliminate [welfare] plans," and
"employees have no present 'right' to future, anticipated welfare
benefits.'"
Ibid. (emphasis deleted; internal quotation
marks omitted). Because the "existence of a present 'right' is [a]
prerequisite to section 510 relief," the Court of Appeals concluded
that § 510 did not state a cause of action for interference with
welfare benefits.
Ibid. We granted certiorari to resolve a
conflict among the Courts of Appeals on this issue, * 519 U. S.
1003 (1996), and now vacate the decision below and remand.
II
The Court of Appeals' holding that § 510 bars interference only
with vested rights is contradicted by the plain language of § 510.
As noted above, that section makes it unlawful to "discharge ... a
[plan] participant or beneficiary ... for the purpose of
interfering with the
attainment of any right to which such
participant may become entitled under
the plan." 29 U. S. C.
§ 1140 (emphasis added). ERISA defines a "plan" to include both "an
employee welfare benefit plan [and] an employee pension benefit
plan," § 1002(3), and specifically exempts "employee welfare
benefit plan[s]" from its stringent vesting requirements, see §
1051(1). Because a "plan" includes an "employee welfare benefit
plan," and because welfare plans offer benefits that do not "vest"
(at least insofar as ERISA is concerned), Congress' use of the word
"plan" in § 510 all but forecloses the argument that § 510's
interfer-
*See
Shahid v.
Ford Motor Co., 76 F.3d
1404, 1411
(CA6 1996) (holding that § 510 draws no
distinction between benefits that vest and those that do not);
Heath v.
Varity Corp., 71 F.3d
256, 258
(CA7 1995) (same);
Seaman v.
Arvida
Realty Sales, 985 F.2d
543, 546 (CAll) (same), cert. denied, 510 U. S. 916 (1993); see
also
McGann v.
H &
H Music Co., 946 F.2d
401,
408 (CA5 1991) (implying the same), cert. denied
sub nom. Greenburg v.
H &
H Music Co., 506
U. S. 981 (1992);
Andes v.
Ford Motor Co., 70 F.3d
1332, 1336 (CADC 1995) (implying the same).
515
ence clause applies only to "vested" rights. Had Congress
intended to confine § 510's protection to "vested" rights, it could
have easily substituted the term "pension plan," see 29 U. S. C. §
1002(2), for "plan," or the term "nonforfeitable" right, see §
1002(19), for "any right." But § 510 draws no distinction between
those rights that "vest" under ERISA and those that do not.
The right that an employer or plan sponsor may enjoy in some
circumstances to unilaterally amend or eliminate its welfare
benefit plan does not, as the Court of Appeals apparently thought,
justify a departure from § 510's plain language. It is true that
ERISA itself "does not regulate the substantive content of
welfare-benefit plans."
Metropolitan Life Ins. Co. v.
Massachusetts, 471 U. S. 724, 732
(1985). Thus, unless an employer contractually cedes its freedom,
see,
e. g., Adcox v.
Teledyne, Inc.,
21 F.3d
1381, 1389 (CA6), cert. denied, 513 U. S. 871 (1994), it is
"generally free under ERISA, for any reason at any time, to adopt,
modify, or terminate [its] welfare pla[n]."
Curtiss-Wright
Corp. v.
Schoonejongen, 514 U. S. 73, 78
(1995).
The flexibility an employer enjoys to amend or eliminate its
welfare plan is not an accident; Congress recognized that
"requir[ing] the vesting of these ancillary benefits would
seriously complicate the administration and increase the cost of
plans." S. Rep. No. 93-383, p. 51 (1973). Giving employers this
flexibility also encourages them to offer more generous benefits at
the outset, since they are free to reduce benefits should economic
conditions sour. If employers were locked into the plans they
initially offered, "they would err initially on the side of
omission."
Heath v.
Varity Corp., 71 F.3d
256, 258 (CA7 1995). Section 510 counterbalances this
flexibility by ensuring that employers do not "circumvent the
provision of promised benefits."
Ingersoll-Rand Co., supra,
at 143 (citing S. Rep. No. 93-127, pp. 35-36 (1973); H. R. Rep. No.
93-533, p. 17 (1973)). In short, "§ 510 helps to make promises
credible."
Heath, supra, at 258. An employer
516
may, of course, retain the unfettered right to alter its
promises, but to do so it must follow the formal procedures set
forth in the plan. See 29 U. S. C. § 1l02(b)(3) (requiring plan to
"provide a procedure for amending such plan");
Schoonejongen,
supra, at 78 (observing that the "cognizable claim [under
ERISA] is that the company did not [amend its welfare benefit plan]
in a permissible manner"). Adherence to these formal procedures
"increases the likelihood that proposed plan amendments, which are
fairly serious events, are recognized as such and given the special
consideration they deserve."
Schoonejongen, supra, at 82.
The formal amendment process would be undermined if § 510 did not
apply because employers could "informally" amend their plans one
participant at a time. Thus, the power to amend or abolish a
welfare benefit plan does not include the power to "discharge,
fine, suspend, expel, discipline, or discriminate against" the
plan's participants and beneficiaries "for the purpose of
interfering with [their] attainment of ... right[s] ... under the
plan." To be sure, when an employer acts without this purpose, as
could be the case when making fundamental business decisions, such
actions are not barred by § 510. But in the case where an employer
acts with a purpose that triggers the protection of § 510, any
tension that might exist between an employer's power to amend the
plan and a participant's rights under § 510 is the product of a
careful balance of competing interests, and is most surely not the
type of "absurd or glaringly unjust" result,
Ingalls
Shipbuilding, Inc. v.
Director, Office of Workers'
Compensation Programs, 519 U. S. 248, 261
(1997), that would warrant departure from the plain language of §
510.
Respondents argue that the Court of Appeals' decision must
nevertheless be affirmed because § 510, when applied to benefits
that do not "vest," only protects an employee's right to cross the
"threshold of eligibility" for welfare benefits. See Brief for
Respondent Atchison, Topeka & Santa Fe Railway Co. et al. 18.
In other words, argue respondents,
517
an employee who is eligible to receive benefits under an ERISA
welfare benefit plan has already "attain[ed]" her "right[s]" under
the plan, so that any subsequent actions taken by an employer
cannot, by definition, "interfer[e]" with the "attainment of ...
right[s]" under the plan. According to respondents, petitioners
were eligible to receive welfare benefits under the SFTS- Teamsters
plan at the time they were discharged, so they cannot state a claim
under § 510. The Court of Appeals' approach precluded it from
evaluating this argument, and others presented to us, and we see no
reason not to allow it the first opportunity to consider these
matters on remand.
We therefore vacate the judgment of the Court of Appeals and
remand the case for further proceedings consistent with this
opinion.
It is so ordered.
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