OCTOBER TERM, 1993
Syllabus
JOHN HANCOCK MUTUAL LIFE INSURANCE CO.
v. HARRIS TRUST
AND SAVINGS BANK, AS TRUSTEE OF THE SPERRY MASTER RETIREMENT TRUST
NO.2
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND
CIRCUIT
No. 92-1074. Argued October 12, 1993-Decided December
13,1993
Petitioner John Hancock Mutual Life Insurance Company (Hancock)
and respondent Harris Trust and Savings Bank (Harris), the current
trustee of a corporation's retirement plan, are party to Group
Annuity Contract No. 50 (GAC 50), an agreement of a type known as a
"participating group annuity." Under such a contract, the insurer
commingles with its general corporate assets deposits received to
secure retiree benefits, and does not immediately apply those
deposits to the purchase of annuities. During the life of the
contract, however, amounts credited to the deposit account may be
converted into a stream of guaranteed benefits for individual
retirees. Funds in excess of those that have been so converted are
referred to as "free funds." Dissatisfied over its inability to
gain access to GAC 50's free funds, Harris filed this suit pursuant
to,
inter alia, the Employee Retirement Income Security Act
of 1974 (ERISA), alleging that Hancock is managing "plan assets,"
and therefore is subject to ERISA's fiduciary standards in its
administration of GAC 50. Hancock responded that its undertaking
fits within the ERISA provision, 29 U. S. C. § 1101(b)(2)(B), that
excludes from "plan assets" a "guaranteed benefit policy," defined
as an insurance policy or contract "to the extent that [it]
provides for benefits the amount of which is guaranteed by the
insurer." The District Court granted Hancock summary judgment on
the ERISA claims, holding that it was not a fiduciary with respect
to any portion of GAC 50. Reversing in part, the Court of Appeals
held that the "guaranteed benefit policy" exclusion did not cover
the GAC 50 free funds, as to which Hancock provides no guarantee of
benefit payments or fixed rates of return.
Held: Because the GAC 50 free funds are "plan assets,"
Hancock's actions in regard to their management and disposition
must be judged against ERISA's fiduciary standards. Pp.94-110.
(a) The import of the pertinent ERISA provisions, read as a
whole and in light of the statute's broad purpose of protecting
retirement benefits, is reasonably clear. In contrast to other
ERISA provisions creat-
87
ing unqualified exemptions from the statute's reach, Congress
specifically instructed, by the words of limitation it used in §
1101(b)(2)(B), that the guaranteed benefit policy exclusion be
closely contained: The deposits over which Hancock is exercising
authority or control under GAC 50 must have been obtained "solely"
by reason of the issuance of "an insurance policy or contract" that
provides for benefits "the amount of which is guaranteed," and even
then the exemption applies only "to the extent" that GAC 50
provides for such benefits. Pp. 94-97.
(b) The Court rejects Hancock's contention that, because
Congress reserved to the States primary responsibility for
regulating the insurance industry, ERISA's requirement that a
fiduciary act
"solely in the interest of ... participants
and beneficiaries and ... for the
exclusive purpose
of ... providing benefits," § 1104(a)(1)(A)(i) (emphasis added),
must yield to conflicting state-law requirements that an insurer
managing general account assets consider the interest of, and
maintain equity among, all of its contractholders, creditors, and
shareholders. The McCarran-Ferguson Act-which provides, among other
things, that no federal "Act ... shall be construed to ...
supersede any [state] law ... . enacted ... for the purpose of
regulating the business of insurance ... . unless such Act
specifically relates to the business of insurance" -does not
support Hancock's contention, since ERISA and the guaranteed
benefit policy provision obviously and specifically "relat[e] to
the business of insurance." Moreover, although state laws
concerning an insurer's management of general account assets
"regulat[e] insurance" in the words of ERISA's saving clause-which
instructs that ERISA "shall not be construed to exempt ... any
person from any [state] law ... which regulates insurance," §
1144(b)(2)(A)-state laws regulating general accounts also can
"relate to [an] employee benefit plan" under ERISA's encompassing
preemption clause, which directs that the statute "shall supersede
any and all State laws insofar as they ... relate to any employee
benefit plan," § 1144(a). There is no solid basis for believing
that Congress, when it designed ERISA, intended fundamentally to
alter traditional preemption analysis. Thus, ERISA leaves room for
complementary or dual federal and state regulation, and calls for
federal supremacy when the two regimes cannot be harmonized or
accommodated. pp. 97-101.
(c) Hancock is an ERISA fiduciary with respect to the free funds
it holds under GAC 50. To determine whether a contract qualifies as
a guaranteed benefit policy, each component of the contract bears
examination. A component fits within the guaranteed benefit policy
exclusion only if it allocates investment risk to the insurer. Cf.,
e. g., SEC v.
United Benefit Life Ins.
Co., 387 U. S.
202. Such an allocation is present when the insurer provides a
genuine guarantee of an aggregate amount
88
HARRIS TRUST AND SAY. BANK
Syllabus
of benefits payable to retirement plan participants and their
beneficiaries, as Hancock indisputably did with respect to certain
GAC 50 benefits not at issue. As to a contract's free funds, the
insurer must guarantee a reasonable rate of return on those funds
and provide a mechanism to convert them into guaranteed benefits at
rates set by the contract. While another contract, with a different
set of features, might satisfy these requirements, GAC 50 does not;
indeed, Hancock provided no real guarantee that benefits in any
amount would be payable from the free funds. Pp. 101-106.
(d) The Court declines to follow the Labor Department's view
that ERISA's fiduciary obligations do not apply in relation to
assets held by an insurer in its general account under contracts
like GAC 50. The 1975 interpretive bulletin assertedly expressing
this view did not originally have the scope now attributed to it,
since it expressly addressed only a question regarding the scope of
the prohibited transaction rules, and did not mention or elaborate
upon its applicability to the guaranteed benefit policy exemption
or explain how an unqualified exclusion for an insurer's general
asset account can be reconciled with Congress' choice of a more
limited ("to the extent that") formulation. Moreover, as of 1992,
the Department apparently had no firm position to communicate,
since it declined to file a brief in the Court of Appeals, citing
the need to fully consider all of the implications of the issues.
This Court will not accord deference to the Department's current
view, since, by reading the statutory words "to the extent" to mean
nothing more than "if," the Department has exceeded the scope of
available ambiguity. Pp. 106-110.
970 F.2d
1138, affirmed.
GINSBURG, J., delivered the opinion of the Court, in which
REHNQUIST, C. J., and BLACKMUN, STEVENS, SCALIA, and SOUTER, JJ.,
joined. THOMAS, J., filed a dissenting opinion, in which O'CONNOR
and KENNEDY, JJ., joined,
post, p. 111.
Howard G. Kristol argued the cause for petitioner. With him on
the briefs were Robert M. Peak, Rosalie A. Hailey, and Richard
J. J. Scarola.
Christopher
J. Wright argued the cause for the United
States as amicus curiae urging reversal. With him on the brief were
Acting Solicitor General Bryson, Acting Deputy Solicitor General
Kneedler, Judith E. Kramer, Allen H. Feldman, Nathaniel 1. Spiller,
and Elizabeth Hopkins.
89
Lawrence Kill argued the cause for respondent. With him
on the brief was
John B. Berringer. *
JUSTICE GINSBURG delivered the opinion of the Court. This case
presents an issue of statutory constructionwhether the fiduciary
standards stated in the Employee Retirement Income Security Act of
1974 (ERISA) govern an insurance company's conduct in relation to
certain annuity contracts. Fiduciary status under ERISA generally
attends the management of "plan assets." The statute, however,
contains no comprehensive definition of "plan assets." Our task in
this case is to determine the bounds of a statutory exclusion from
"plan asset" categorization, an exclusion Congress prescribed for
"guaranteed benefit polic[iesJ."
The question before us arises in the context of a contract
between defendant-petitioner John Hancock Mutual Life Insurance
Company (Hancock) and plaintiff-respondent Harris Trust and Savings
Bank (Harris), current trustee of a Sperry Rand Corporation
Retirement Plan.1 Pursuant to its con-
*Briefs of amici curiae urging reversal were filed for the State
of New York et al. by Robert Abrams, Attorney General of New York,
and Jerry Boone, Solicitor General, and Scott Harshbarger, Attorney
General of Massachusetts; for the American Council of Life
Insurance by James F. Jorden, Stephen H. Goldberg, Perry Ian Cone,
Waldemar
J. Pfiepsen, Jr., Richard E. Barnsback, Stephen W
Kraus, and Phillip E. Stano; and for the Life Insurance Council of
New York by Theodore R. Groom, Stephen M. Saxon, William F.
Hanrahan, William
J. Flanagan, and Raymond A. D'Amico.
Briefs of
amici curiae urging affirmance were filed for
Certain United States Senators and Representatives by
Howard M.
Metzenbaum, pro se; for the American Association of Retired
Persons et al. by
Cathy VentrellMonsees, Joan S.
Wise,
Mary Ellen Signorille, and
Edgar Pauk; and for the
Western Conference of Teamsters Pension Trust Fund by
William H.
Song, Brigid Carroll Anderson, and
Timothy St. Clair
Smith.
1 Sperry Rand Corporation has undergone a number of changes in
name and corporate form since 1941, when the contract with Hancock
was initially made; for convenience, we use in this opinion only
the employercorporation's original name, Sperry.
90
HARRIS TRUST AND SAY. BANK
tract with Harris, Hancock receives deposits from the Sperry
Plan. Harris asserts that Hancock is managing "plan assets," and
therefore bears fiduciary responsibility. Hancock maintains that
its undertaking fits within the statutory exclusion for "guaranteed
benefit polic[iesJ." "Guaranteed benefit policy" is not a trade
term originating in the insurance industry; it is a statutory
invention placed in ERISA and there defined as an insurance policy
or contract that "provides for benefits the amount of which is
guaranteed by the insurer." 88 Stat. 875, 29 U. S. C. §
1101(b)(2)(B).
The contract in suit is of a kind known in the trade as a
"deposit administration contract" or "participating group annuity."
2 Under a contract of this type, deposits to secure retiree
benefits are not immediately applied to the purchase of annuities;
instead, the deposits are commingled with the insurer's general
corporate assets, and deposit account balances reflect the
insurer's overall investment experience. During the life of the
contract, however, amounts credited to the deposit account may be
converted into a stream of guaranteed benefits for individual
retirees.
We granted certiorari, 507 U. S. 983 (1993), to resolve a split
among Courts of Appeals regarding the applicability of the
guaranteed benefit policy exclusion to annuity contracts of the
kind just described. The Second Circuit in the case we review held
that the guaranteed benefit policy exclusion did not cover funds
administered by Hancock that bear no fixed rate of return and have
not yet been converted into guaranteed benefits.
970 F.2d
1138, 1143-1144 (1992). We agree with the Second Circuit that
ERISA's fiduciary obligations bind Hancock in its management of
such funds, and accordingly affirm that court's judgment.
2 For descriptions of these contracts, see D. McGill & D.
Grubbs, Fundamentals of Private Pensions 551-564 (6th ed. 1989)
(hereinafter McGill & Grubbs); see also Goldberg & Altman,
The Case for the Nonapplication of ERISA to Insurers' General
Account Assets, 21 Tort & Ins. L. J. 475, 478-482 (1986)
(hereinafter Goldberg & Altman).
91
I
The parties refer to the contract at issue as Group Annuity
Contract No. 50 (GAC 50). Initially, GAC 50 was a simple deferred
annuity contract under which Sperry purchased from Hancock
individual deferred annuities, at rates fixed by the contract, for
employees eligible under the Sperry Retirement Plan.
Since its origination in 1941, however, GAC 50 has been
transformed by amendments. By the time this litigation commenced,
the contract included the following features. Assets and
liabilities under GAC 50 were recorded (for bookkeeping purposes)
in two accounts-the "Pension Administration Fund" recorded assets,
and the "Liabilities of the Fund," liabilities. GAC 50 assets were
not segregated, however; they were part of Hancock's pool of
corporate funds, or general account, out of which Hancock pays its
costs of operation and satisfies its obligations to policyholders
and other creditors. See Agreed Statement of Facts "11-19, App.
85-86; Brief for Petitioner 7-9; see also McGill & Grubbs 492
(describing general accounts);
id., at 552 (describing asset
allocation under deposit administration contracts). Hancock agreed
to allocate to GAC 50's Pension Administration Fund a pro rata
portion of the investment gains and losses attributable to
Hancock's general account assets, Agreed Statement of Facts , 11,
App. 85, and also guaranteed that the Pension Administration Fund
would not fall below its January 1, 1968, level, Agreed Statement
of Facts' 27,
id., at 88.
GAC 50 provided for conversion of the Pension Administration
Fund into retirement benefits for Sperry employees in this way.
Upon request of the Sperry Plan Administrator, Hancock would
guarantee full payment of all benefits to which a designated Sperry
retiree was entitled; attendant liability would then be recorded by
adding an amount, set by
92
HARRIS TRUST AND SAY. BANK
Hancock, to the Liabilities of the Fund.3 In the event that the
added liability caused GAG 50's "Minimum Operating Level"-the
Liabilities of the Fund plus a contingency cushion of five
percent-to exceed the amount accumulated in the Pension
Administration Fund, the "active" or "accumulation" phase of the
contract would terminate automatically. In that event, Hancock
would purchase annuities at rates stated in the contract to cover
all benefits previously guaranteed by Hancock under GAG 50, and the
contract itself would convert back to a simple deferred annuity
contract. Agreed Statement of Facts "33, 36-37, 42,
id., at
89-91.
As GAG 50 was administered, amounts recorded in the Pension
Administration Fund were used to provide retirement benefits to
Sperry employees in other ways. In this connection, the parties use
the term "free funds" to describe the excess in the Pension
Administration Fund over the Minimum Operating Level (105 percent
of the amount needed to provide guaranteed benefits). In 1977,
Sperry Plan trustee Harris obtained the right to direct Hancock to
use the free funds to pay "nonguaranteed benefits" to retirees.
These benefits were provided monthly on a pay-as-you-go basis; they
were nonguaranteed in the sense that Hancock was obligated to make
payments only out of free funds, i.
e., only when the
balance in the Pension Administration Fund exceeded the Minimum
Operating Level.
Additionally, in 1979 and again in 1981, Hancock permitted
Harris to transfer portions of the free funds pursuant to
"rollover" procedures. Agreed Statement of Facts' 78,
id.,
at 96. Finally, in 1988, a contract amendment allowed Harris to
transfer over $50 million from the Pension Administration Fund
without triggering the contract's "asset liquidation
3 This liability calculation established, in effect, the price
for Hancock's guarantee of a specified benefit stream. The
liability associated with a given benefit entitlement was to be
calculated using rates that, since 1972, could be altered by
Hancock. Agreed Statement of Facts' 39, App. 90.
93
adjustment," a mechanism for converting the book value of the
transferred assets to market value.
While Harris in fact used these various methods to effect
withdrawals from the Pension Administration Fund, Hancock maintains
that only the original method-conversion of the Pension
Administration Fund into guaranteed benefitsis currently within the
scope of Harris' contract rights. In May 1982, Hancock gave notice
that it would no longer make nonguaranteed benefit payments. Agreed
Statement of Facts "82-87,
id., at 97-98. And since 1981
Hancock has refused all requests by Harris to make transfers using
"rollover" procedures. Agreed Statement of Facts , 79,
id.,
at 96.
Harris last exercised its right to convert Pension
Administration Fund accumulations into guaranteed benefits in 1977.
Agreed Statement of Facts' 81,
id., at 97. Harris contends,
and Hancock denies, that the conversion price has been inflated by
incorporation of artificially low interest rate assumptions.
One means remains by which Harris may gain access to GAC 50's
free funds. Harris can demand transfer of those funds in their
entirety out of the Pension Administration Fund. Harris has not
taken that course because it entails an asset liquidation
adjustment Harris regards as undervaluing the plan's share of
Hancock's general account. In sum, nothing was removed from the
Pension Administration Fund or converted into guaranteed benefits
between June 1982 and 1988. During that period the free funds
increased dramatically as a result of Hancock's continuing positive
investment experience, the allocation of a portion of that
experience to the Pension Administration Fund, and the absence of
any offsetting increase in the Liabilities of the Fund for
additional guaranteed benefits.
Harris commenced this action in July 1983, contending,
inter
alia, that Hancock breached its fiduciary obligations under
ERISA by denying Harris any realistic means to make
94
use of GAC 50's free funds. Hancock responded that ERISA's
fiduciary standards do not apply because GAC 50, in its entirety,
"provides for benefits the amount of which is guaranteed by the
insurer" within the meaning of the "guaranteed benefit policy"
exclusion accorded by 29 U. S. C. § 1101(b)(2)(B).
In September 1989, the District Court granted Hancock's motion
for summary judgment on Harris' ERISA claims, holding that Hancock
was not an ERISA fiduciary with respect to any portion of GAC 50.
722 F. Supp. 998 (SDNY 1989). The District Court thereafter
dismissed Harris' remaining contract and tort claims. See 767 F.
Supp. 1269 (1991). On appeal, the Second Circuit reversed in part.
The Court of Appeals determined that although Hancock "provides
guarantees with respect to one portion of the benefits derived from
[GAC 50], it does not do so at all times with respect to all the
benefits derived from the other, or free funds, portion" of the
contract. 970 F. 2d, at 1143. The free funds "were not converted to
fixed, guaranteed obligations but instead were subject to
fluctuation based on the insurer's investment performance."
Id., at 1144. With respect to those free funds, the Second
Circuit concluded, Hancock "provides no guarantee of benefit
payments or fixed rates of return."
Ibid. The Court of
Appeals accordingly ruled that ERISA's fiduciary standards govern
Hancock's management of the free funds, and it instructed the
District Court to determine whether those standards had been
satisfied.
Ibid.
II A
Is Hancock a fiduciary with respect to any of the funds it
administers under GAC 50? To answer that question, we examine first
the language of the governing statute, guided not by "a single
sentence or member of a sentence, but look[ing] to the provisions
of the whole law, and to its object
95
and policy."
Pilot Life Ins. Co. v.
Dedeaux,
481 U. S. 41, 51
(1987), quoting
Kelly v.
Robinson, 479 U. S. 36, 43 (1986)
(internal quotation marks omitted). The obligations of an ERISA
fiduciary are described in 29 U. S. C. § l104(a)(1): A fiduciary
must discharge its duties with respect to a plan
"solely in the interest of the participants and beneficiaries
and-
"(A) for the exclusive purpose of:
"(i) providing benefits to participants and their beneficiaries
.... "
A person is a fiduciary with respect to an employee bene-
fit plan
"to the extent (i) he exercises any discretionary authority or
discretionary control respecting management of such plan or
exercises any authority or control respecting management or
disposition of its assets .... " 29 U. S. C. § 1002(21)(A)
(emphasis added).
The "assets" of a plan are undefined except by exclusion in §
llOl(b)(2), which reads in relevant part:
"In the case of a plan to which a guaranteed benefit policy is
issued by an insurer, the assets of such plan shall be deemed to
include such policy, but shall not, solely by reason of the
issuance of such policy, be deemed to include any assets of such
insurer."
A "guaranteed benefit policy," in turn, is defined as
"an insurance policy or contract to the extent that such policy
or contract provides for benefits the amount of which is guaranteed
by the insurer. Such term includes any surplus in a separate
account, but excludes any other portion of a separate account." §
llOl(b)(2)(B).4
4 As noted by Goldberg and Altman, the term "guaranteed benefit
contract ... has never been a part of the insurance industry
lexicon." Goldberg & Altman 482. ERISA itself must thus supply
the term's meaning.
96
HARRIS TRUST AND SAY. BANK
Although these provisions are not mellifluous, read as a whole
their import is reasonably clear. To help fulfill ERISA's broadly
protective purposes,5 Congress commodiously imposed fiduciary
standards on persons whose actions affect the amount of benefits
retirement plan participants will receive. See 29 U. S. C. §
1002(21)(A) (defining as a fiduciary any person who "exercises any
authority or control respecting management or disposition of [a
plan's] assets"); H. R. Conf. Rep. No. 93-1280, p. 296 (1974) (the
"fiduciary responsibility rules generally apply to all employee
benefit plans ... in or affecting interstate commerce"). The
guaranteed benefit policy exclusion from ERISA's fiduciary regime 6
is markedly confined: The deposits over which Hancock is exercising
authority or control under GAC 50 must have been obtained "solely"
by reason of the issuance of "an insurance policy or contract" that
provides for benefits "the amount of which is guaranteed," and even
then it is only "to the extent" that GAC 50 provides for such
benefits that the § 1l01(b)(2)(B) exemption applies.
In contrast, elsewhere in the statute Congress spoke without
qualification. For example, Congress exempted from the definition
of plan assets
"any security" issued to a plan by a
registered investment company. 29 U. S. C. § 1l01(b)(1) (emphasis
added). Similarly, Congress exempted
"any assets of ... an
insurance company or
any assets of a plan which are held by
... an insurance company" from the re-
5 See,
e. g., Massachusetts v.
Morash, 490 U. S. 107, 112-113
(1989);
Metropolitan Life Ins. Co. v.
Massachusetts,
471 U. S. 724,
732 (1985). The statute's statement of purpose observes that "the
continued well-being and security of millions of employees and
their dependents are directly affected by [employee benefit plans]"
and declares it "desirable ... that disclosure be made and
safeguards be provided with respect to the establishment,
operation, and administration of such plans .... " 29 U. S. C. §
1001(a).
6 Section 1101(b) also provides an exclusion for assets held by
"an investment company registered under the Investment Company Act
of 1940." 29 U. S. C. § 1101(b)(1).
97
quirement that plan assets be held in trust. § 1l03(b)(2)
(emphasis added). Notably, the guaranteed benefit policy exemption
is not available to "any" insurance contract that provides for
guaranteed benefits but only "to the extent that" the contract does
so. See Comment, Insurers Beware:
General Account Activities May Subject Insurance Companies to
ERISA's Fiduciary Obligations, 88 Nw. U. L. Rev. 803, 833-834
(1994). Thus, even were we not inclined, generally, to tight
reading of exemptions from comprehensive schemes of this kind, see,
e. g., Commissioner v.
Clark, 489 U. S. 726, 739-740
(1989) (when a general policy is qualified by an exception, the
Court "usually read[s] the exception narrowly in order to preserve
the primary operation of the [policy]"),
A. H. Phillips,
Inc. v.
Walling, 324 U. S. 490, 493 (1945)
(cautioning against extending exemptions "to other than those
plainly and unmistakably within its terms"), Congress has
specifically instructed, by the words of limitation it used, that
we closely contain the guaranteed benefit policy exclusion.
B
Hancock, joined by some
amici, raises a threshold
objection. ERISA's fiduciary standards cannot govern an insurer's
administration of general account contracts, Hancock asserts, for
that would pose irreconcilable conflicts between state and federal
regulatory regimes. ERISA requires fiduciaries to act
"solely in the interest of the participants and
beneficiaries and ... for the
exclusive purpose of ...
providing benefits to participants and their beneficiaries." 29 U.
S. C. § 1l04(a) (emphasis added). State law, however, requires an
insurer, in managing general account assets, "to consider the
interests of all of its contractholders, creditors and
shareholders," and to "maintain equity among its various
constituencies." Goldberg & Altman 477.7 To head off
7See,
e. g., N. Y. Ins. Law §4224(a)(1) (McKinney
1985) (prohibiting unfair discrimination between contractholders);
see also
Mack Boring & Parts v.
Meeker
Sharkey Moffitt, Actuarial Consultants of New Jersey,
98
HARRIS TRUST AND SAY. BANK
conflicts, Hancock contends, ERISA must yield, because Congress
reserved to the States primary responsibility for regulation of the
insurance industry. We are satisfied that Congress did not order
the unqualified deferral to state law that Hancock both advocates
and attributes to the federal lawmakers. Instead, we hold, ERISA
leaves room for complementary or dual federal and state regulation,
and calls for federal supremacy when the two regimes cannot be
harmonized or accommodated.
To support its contention, Hancock refers first to the McCarran-
Ferguson Act, 59 Stat. 33, as amended, 15 U. S. C. § 1011
et
seq., which provides:
"The business of insurance, and every person engaged therein,
shall be subject to the laws of the several States which relate to
the regulation ... of such business." 15 U. S. C. § 1012(a).
"No Act of Congress shall be construed to invalidate, impair or
supersede any law enacted by any State for the purpose of
regulating the business of insurance ... unless such Act
specifically relates to the business of insurance .... " §
1012(b).
But as the United States points out, "ERISA, both in general and
in the guaranteed benefit policy provision in particular, obviously
and specifically relates to the business of insurance." Brief for
United States as
Amicus Curiae 23, n. 13.8 Thus, the
McCarran-Ferguson Act does not surrender regulation exclusively to
the States so as to preclude the application of ERISA to an
insurer's actions under a general account contract. See
ibid.
930 F.2d
267, 275, n. 17
(CA3 1991) (noting state regulations
requiring insurers to treat all contractholders fairly and
equitably). See generally McGill & Grubbs 492-494.
8We called attention to the "deliberately expansive" character
of ERISA's preemption provisions in
Pilot Life Ins. Co. v.
Dedeaux, 481 U.
S. 41, 45-46 (1987).
99
More problematic are two clauses in ERISA itself, one broadly
providing for preemption of state law, the other preserving, or
saving from preemption, state laws regulating insurance. ERISA's
encompassing preemption clause directs that the statute "shall
supersede any and all State laws insofar as they may now or
hereafter relate to any employee benefit plan." 29 U. S. C. §
1144(a). The "saving clause," however, instructs that ERISA "shall
[not] be construed to exempt or relieve any person from any law of
any State which regulates insurance, banking, or securities." §
1144(b)(2)(A). State laws concerning an insurer's management of
general account assets can "relate to [an] employee benefit plan"
and thus fall under the preemption clause, but they are also, in
the words of the saving clause, laws "which regulat[e]
insurance."
ERISA's preemption and saving clauses" 'are not a model of
legislative drafting,'"
Pilot Life, 481 U. S., at 46,
quoting
Metropolitan Life Ins. Co. v.
Massachusetts,
471 U. S. 724,
739 (1985), and the legislative history of these provisions is
sparse, see
id., at 745-746. In accord with the District
Court in this case, however, see 722 F. Supp., at 1003-1004, we
discern no solid basis for believing that Congress, when it
designed ERISA, intended fundamentally to alter traditional
preemption analysis. State law governing insurance generally is not
displaced, but "where [that] law stands as an obstacle to the
accomplishment of the full purposes and objectives of Congress,"
federal preemption occurs.
Silkwood v.
Kerr-McGee
Corp., 464 U. S.
238, 248 (1984).9
We note in this regard that even Hancock does not ascribe a
discrete office to the "saving clause" but instead asserts that the
clause "reaffirm[s] the McCarran-Ferguson Act's res-
9 No decision of this Court has applied the saving clause to
supersede a provision of ERISA itself. See,
e. g., FMC Corp.
v.
Holliday, 498 U. S. 52, 61 (1990)
(ERISA-covered benefit plans that purchase insurance policies are
governed by both ERISA and state law; self-insured plans are
subject only to ERISA);
Metropolitan Life, 471 U. S., at
746-747 (same).
100
HARRIS TRUST AND SAY. BANK
ervation of the business of insurance to the States." Brief for
Petitioner 31; see
Metropolitan Life, 471 U. S., at 744, n.
21 (saving clause "appears to have been designed to preserve the
McCarran-Ferguson Act's reservation of the business of insurance to
the States"; saving clause and McCarran- Ferguson Act "serve the
same federal policy and utilize similar language"). As the United
States recognizes, "dual regulation under ERISA and state law is
not an impossibility[;] [m]any requirements are complementary, and
in the case of a direct conflict, federal supremacy principles
require that state law yield." Brief for United States as
Amicus
Curiae 23, n. 13.10
In resisting the argument that, with respect to general account
contracts, state law, not federal law, is preemptive, we are
mindful that Congress had before it, but failed to pass, just such
a scheme. The Senate's proposed version of ERISA would have
excluded all general account assets from the reach of the fiduciary
rules.ll Instead of enacting the
10 See
Chicago Ed. Options Exchange, Inc. v.
Connecticut General Life Ins. Co., 713
F.2d 254, 260
(CA7 1983) ("That ERISA does not relieve
insurance companies of the onus of state regulation does not mean
that Congress intended ERISA not to apply to insurance companies.
Had that been Congress' intent ... ERISA would have directly stated
that it was pre-empted by state insurance laws."); 722 F. Supp.
998, 1004 (SDNY 1989) ("dual regulation comports with the language
of the preemption and saving clauses, ... which save certain state
statutes from preemption, but which also assume that ERISA applies
ab initio").
11 The Senate version of ERISA originally defined an "employee
benefit fund" to exclude "premium[s], subscription charges, or
deposits received and retained by an insurance carrier ... except
for any separate account established or maintained by an insurance
carrier," and defined a fiduciary as "any person who exercises any
power of control, management, or disposition with respect to any
moneys or other property of any employee benefit fund .... " See S.
4, 93d Cong., 1st Sess., §§ 502(17)(B), (25), reprinted in
Subcommittee on Labor of the Senate Committee on Labor and Public
Welfare, 94th Cong., 2d Sess., Legislative History of ERISA 147,
150 (Comm. Print 1976). After an amendment (Arndt. No. 496, Sept.
17, 1973), the provision regarding "Fiduciary Standards" was
streamlined to exclude
101
Senate draft, which would indeed have "settled [insurance
industry] expectations," see
post, at 111, Congress adopted
an exemption containing words of limitation. We are directed by
those words, and not by the discarded draft. Cf.
Russello v.
United States, 464 U. S. 16, 23-24 (1983)
(when Congress deletes limiting language, "it may be presumed that
the limitation was not intended").12
Persuaded that a plan's deposits are not shielded from the reach
of ERISA's fiduciary prescriptions solely by virtue of their
placement in an insurer's general account, we proceed to the
question the Second Circuit decided: Is Hancock an ERISA fiduciary
with respect to the free funds it holds under GAC 50?
C
To determine GAC 50's qualification for ERISA's guaranteed
benefit policy exclusion, we follow the Seventh Circuit's lead, see
Peoria Union Stock Yards Co. Retirement Plan v.
Penn
Mutual Life Ins. Co., 698 F.2d
320, 324-327 (1983), and seek guidance from this Court's
decisions construing the insurance policy exemption ordered in the
Securities Act of 1933. See 48 Stat. 75, 15 U. S. C. § 77c(a)(8)
(excluding from the reach of the Securities Act "[a]ny insurance or
endowment policy or annuity contract or optional annuity
contract").
In
SEC v.
Variable Annuity Life Ins. Co. of America,
359 U. S. 65 (1959), we observed that "the concept of
'insurance' involves some investment risk-taking on the part of the
company," and "a guarantee that at least some fraction of the
"funds held by an insurance carrier unless that carrier holds
funds in a separate account." S. 4, Arndt. No. 496, § 511,
id., at 1451.
12 Congress' failure to pass a blanket exclusion for funds held
by an insurer in its general account also counsels against reading
the second sentence of the guaranteed benefit policy exception, 29
U. S. C. § 1101(b)(2)(B), which includes all
separate
account assets within the definition of "plan assets," as
implying that assets held in an insurer's general account are
necessarily
not plan assets.
102
benefits will be payable in fixed amounts."
Id., at 71. A
variable annuity, we held, is not an "insurance policy" within the
meaning of the statutory exemption because the contract's entire
investment risk remains with the policyholder inasmuch as
"benefit payments vary with the success of the [insurer's]
investment policy,"
id., at 69, and may be "greater or less,
depending on the wisdom of [that] policy,"
id., at 70.
Thereafter, in
SEC v.
United Benefit Life Ins. Co.,
387 U. S. 202 (1967), we held that an annuity contract could be
considered a nonexempt investment contract during the contract's
accumulation phase, and an exempt insurance contract once
contractually guaranteed fixed payouts began. Under the contract
there at issue, the policyholder paid fixed monthly premiums which
the issuer placed in a fund-called the "Flexible Fund"-invested by
the issuer primarily in common stocks. At contract maturity the
policyholder could either withdraw the cash value of his
proportionate share of the fund (which the issuer guaranteed would
not fall below a specified value), or convert to a fixed-benefit
annuity, with payment amounts determined by the cash value of the
policy. During the accumulation phase, the fund from which the
policyholder would ultimately receive benefits fluctuated in value
according to the insurer's investment results; because the "insurer
promises to serve as an investment agency and allow the
policyholder to share in its investment experience,"
id., at
208, this phase of the contract was serving primarily an
investment, rather than an insurance, function,
ibid.
The same approach-division of the contract into its component
parts and examination of risk allocation in each component-appears
well suited to the matter at hand because ERISA instructs that the
§ 1l01(b)(2)(B) exemption applies only
"to the extent that"
a policy or contract provides for "benefits
the amount of which
is guaranteed." Analyzing GAC 50 this way, we find that the
contract fits the statutory exclusion only in part.
103
This much is not in dispute. During the contract's active,
accumulation phase, any benefits payable by Hancock for which
entries actually have been made in the Liabilities of the Fund fit
squarely within the "guaranteed" category. Furthermore, if the
active phase of the contract were to end, all benefits thereafter
payable under the contract would be guaranteed in amount. To this
extent also, GAC 50 "provides for benefits the amount of which is
guaranteed."
We turn, then, to the nub of the controversy, Hancock's
responsibility for administration of the free funds during GAC 50's
active phase. Between 1977 and 1982, we note first, GAC 50
furnished retirement benefits expressly called "nonguaranteed";
those benefits, it is undisputed, entailed no "amount ...
guaranteed by the insurer." 29 U. S. C. § 1l01(b)(2)(B); see
supra, at 92. To that extent, GAC 50 does not fall within
the statutory exemption. But the nonguaranteed benefit option is
not the only misfit.
GAC 50, in key respects, is similar to the Flexible Fund
contract examined in
United Benefit. In that case, as in
this one, the contract's aggregate value depended upon the
insurer's success as an investment manager. Under both contracts,
until the occurrence of a triggering event-contract maturity in the
Flexible Fund case, Harris' exercise of its conversion option in
the case of GAC 50-the investment risk is borne primarily by the
contractholder. Confronting a contract bearing similar features,
the Seventh Circuit stated:
"The pension trustees did not buy an insurance contract with a
fixed payout; they turned over the assets of the pension plan to
[the insurer] to manage with full investment discretion, subject
only to a modest income guaranty. If the pension plan had hired an
investment advisor and given him authority to buy and sell
securities at his discretion for the plan's account, the advisor
would be a fiduciary within the meaning of [ERISA], and that is
essentially what the trustees did during the accumula-
104
tion phase of th[is] contract .... " Peoria Union, 698 F.
2d, at 327.
In the Second Circuit's words, "[t]o the extent that [Hancock]
engages in the discretionary management of assets attributable to
that phase of the contract which provides no guarantee of benefit
payments or fixed rates of return, it seems to us that [Hancock]
should be subject to fiduciary responsibility." 970 F. 2d, at
1144.
Hancock urges that to the full extent of the free fundsand
hence, to the full extent of the contract-GAC 50 "provides for"
benefits the amount of which is guaranteed, inasmuch as "Harris
Trust ... has the right ... to use any 'free funds' to purchase
future guaranteed benefits under the contract, in addition to
benefits previously guaranteed." Brief for Petitioner 26; see also
Mack Boring &
Parts v.
Meeker Sharkey Moffitt,
Actuarial Consultants of New Jersey, 930
F.2d 267, 273 (CA3 1991) (statute's use of phrase "provides
for" does not require that the benefits contracted for be delivered
immediately; it is enough that the contract provides for guaranteed
benefits "at some finite point in the future").
Logically pursued, Hancock's reading of the statute would exempt
from ERISA's fiduciary regime any contract, in its entirety, so
long as the funds held thereunder could be used at some point in
the future to purchase some amount of guaranteed benefits. 13 But
Congress did not say a contract is
13 This argument resembles one rejected in
SEC v.
United Benefit Life Ins. Co., 387 U. S. 202 (1967). In
United Benefit, the policyholder was protected somewhat
against fluctuations in the value of the contract fund through a
promise that the cash value of the contract would not fall below
the aggregate amount of premiums deposited with the insurer.
Id., at 205, 208, n. 10. We held that although this
"guarantee of cash value based on net premiums reduces
substantially the investment risk of the contract holder, the
assumption of an investment risk cannot by itself create an
insurance provision under the federal definition. The basic
difference between a contract which to some degree is insured and a
contract of insurance must be recognized."
Id., at 211
(citation omitted).
105
exempt "if" it provides for guaranteed benefits; it said a
contract is exempt only
"to the extent" it so provides.
Using these words of limitation, Congress apparently recognized
that contracts may provide to
some extent for something
other than guaranteed benefits, and expressly declared the
exemption unavailable to that extent.
Tellingly with respect to GAC 50, the Pension Administration
Fund is guaranteed only against a decline below its J anuary 1,
1968, level. See
supra, at 91. Harris thus bears a
substantial portion of the risk as to fluctuations in the free
funds, and there is not even the "modest income guaranty" the
Seventh Circuit found insufficient in
Peoria Union. 698 F.
2d, at 327. Furthermore, Hancock has the authority to set the price
at which free funds are convertible into guaranteed benefits. See
supra, at 92, n. 3. In combination, these features provide
no genuine guarantee of the amount of benefits that plan
participants will receive in the future.
It is true but irrelevant, Hancock pleads, that GAC 50 provides
no guaranteed return to the plan, for ERISA uniformly uses the word
"benefits" to refer exclusively to payments to plan participants or
beneficiaries, not payments to plans. Brief for Petitioner 25; see
also
Mack Boring, 930 F. 2d, at 273 ("benefits" refers only
to payments to participants or beneficiaries; payments to plan
sponsors can be variable without defeating guaranteed benefit
exclusion); Goldberg & Altman 482. This confinement of the word
"benefits," however, perfectly fits the tight compass of the
exclusion. A contract component that provides for something other
than guaranteed payments to plan participants or
beneficiaries
e. g., a guaranteed return to the
plan-does not, without more, provide for guaranteed
benefits
and thus does not fall within the statutory exclusion. Moreover,
the guaranteed benefit policy exclusion requires a guarantee of the
amount of benefits to be provided; with no guaranteed
investment return to the plan, and no guarantee regarding
conversion price, plan participants are undeniably at risk inasmuch
as
106
the future amount of benefits-payments to participants and
beneficiaries-attributable to the free funds can fall to zero. But
see
post, at 117, n. 4 (contending that the
plan's
guarantee renders immaterial the absence of a guarantee by the
insurer). A contract of that order does not meet the
statutory prescription.
In sum, we hold that to determine whether a contract qualifies
as a guaranteed benefit policy, each component of the contract
bears examination. A component fits within the guaranteed benefit
policy exclusion only if it allocates investment risk to the
insurer. Such an allocation is present when the insurer provides a
genuine guarantee of an aggregate amount of benefits payable to
retirement plan participants and their beneficiaries. As to a
contract's "free funds"-funds in excess of those that have been
converted into guaranteed benefits-these indicators are key: the
insurer's guarantee of a reasonable rate of return on those funds
and the provision of a mechanism to convert the funds into
guaranteed benefits at rates set by the contract. While another
contract, with a different mix of features, might satisfy these
requirements, GAC 50 does not. Indeed, Hancock provided no real
guarantee that benefits in any amount would be payable from the
free funds. We therefore conclude, as did the Second Circuit, that
the free funds are "plan assets," and that Hancock's actions in
regard to their management and disposition must be judged against
ERISA's fiduciary standards.
III
One other contention pressed by Hancock and
amici
deserves consideration. Hancock, supported by the United States,
asserts that the Department of Labor has adhered consistently to
the view that ERISA's fiduciary obligations do not apply in
relation to assets held by an insurer in its
107
general account under contracts like GAG 50.14 Hancock urges us
to follow this view based on "'the thoroughness evident in its
consideration, the validity of its reasoning, its consistency with
earlier and later pronouncements, and all those factors which give
it power to persuade, if lacking power to control.'" Brief for
Petitioner 39, quoting
Skidmore v.
Swift &
Co., 323 U. S.
134, 140 (1944); see also
Chevron U. S.
A. Inc.
v.
Natural Resources Defense Council, Inc., 467 U. S. 837, 843-844
(1984).
Hancock and the United States place primary reliance on an early
interpretive bulletin in which the Department of Labor stated:
"If an insurance company issues a contract or policy of
insurance to a plan and places the consideration for such contract
or policy in its general asset account, the assets in such account
shall not be considered to be plan assets. Therefore, a subsequent
transaction involving the general asset account between a party in
interest and the insurance company will not, solely because the
plan has been issued such a contract or policy of insurance, be a
prohibited transaction." Interpretive Bulletin 75-2, 40 Fed. Reg.
31598 (1975), 29 GFR § 2509.75-2(b) (1992).
If this passage squarely addressed the question we confront,
namely, whether ERISA's fiduciary standards apply to assets held
under participating annuity contracts like GAG 50, we would indeed
have a clear statement of the Department's view on the matter at
issue. But, as the second sentence of the quoted passage shows, the
question addressed in Interpretive Bulletin 75-2 was "whether a
party in interest has engaged in a prohibited transaction [under 29
U. S. G. § 1106] with an employee benefit plan." § 2509.75-2.15 The
De-
14 The Department of Labor shares enforcement responsibility for
ERISA with the Department of the Treasury. See 29 U. S. C. §
1204(a). 15 The subsection title for the interpretation, published
in the Code of Federal Regulations, is "Interpretive bulletin
relating to prohibited transactions."
108
partment did not mention, let alone elaborate on, any grounding
for Interpretive Bulletin 75-2 in § 1101's guaranteed benefit
policy exemption, nor did the Bulletin speak of the application of
its pronouncement, if any, to ERISA's fiduciary duty
prescriptions.
The Department asserts the absence of any textual basis for the
view, adopted by the Second Circuit, that "certain assets [can be
considered] plan assets for general fiduciary duty purposes but not
for prohibited transaction purposes," 970 F. 2d, at 1145, and,
accordingly, no reason to suppose that Interpretive Bulletin 75-2's
statement regarding plan assets would not apply in both contexts.
See Brief for United States as
Amicus Curiae 26-27. Nothing
in Interpretive Bulletin 75-2 or 29 CFR § 2509.75-2 (1992),
however, sets forth that position, or otherwise alerts the reader
that more than the prohibited transaction exemption was then
subject to the Department's scrutiny.16 Had the Department intended
Interpretive Bulletin 75-2 to apply to the guaranteed benefit
policy exclusion, it would have had to explain how an unqualified
exclusion for an insurer's general asset account can be reconciled
with Congress' choice of a more limited ("to the extent that")
formulation. Its silence in that regard is an additional indication
that the 1975 pronouncement did not originally have the scope the
Department now attributes to itP
16 It is noteworthy that the Secretary of Labor has express
authority to grant exemptions from the rules regarding prohibited
transactions, but not from § 1104's fiduciary duty provisions. See
29 U. S. C. § 1108.
17 After a lengthy rulemaking proceeding, the Department did
promulgate, in 1986, a comprehensive interpretation of what ERISA
means by "plan assets." See 51 Fed. Reg. 41278 (1986), 29 CFR
§251O.3-101 (1992). Again, however, the Department did not mention
the guaranteed benefit policy exemption contained in § 1101(b) or
refer to the status of assets in that setting. See 29 CFR
§251O.3-101 (1992). The Department, without comment, "note[d] that
the portion of Interpretive Bulletin 75-2 dealing with contracts or
policies of insurance is not affected by the regulation being
issued here." 51 Fed. Reg. 41278 (1986). But Interpretive
Bulletin
109
We note, too, that the United States was unable to comply with
the Second Circuit's request for its assistance in this very case;
the Department of Labor informed the Court of Appeals, after
requesting and receiving a substantial extension of time, that"
'the need to fully consider all of the implications of these issues
within the Department precludes our providing the Court with a
brief within a foreseeable time frame.'" 970 F. 2d, at 1141. We
recognize the difficulties the Department faced, given the
complexity of ERISA and the constant evolution of insurance
contract practices as reflected in this case. Our point is simply
that, as of 1992, the Department apparently had no firm position it
was prepared to communicate.
We need not grapple here with the difficult question of the
deference due an agency view first precisely stated in a brief
supporting a petitioner. Cf.
Estate of Cowart v.
Nicklos
Drilling Co., 505
U. S. 469, 476 (1992) ("If the Director asked us to defer to
his
new statutory interpretation, this case might present a
difficult question regarding whether and under what circumstances
deference is due to an interpretation formulated during
litigation.") (emphasis in original). It suffices to recall, once
again, Congress' words of limitation. The Legislature provided an
exemption "to the extent that" a contract provides for guaranteed
benefits. By reading the words "to the extent" to mean nothing more
than "if," the Department has exceeded the scope of available
ambiguity. See
Public Employees Retirement System of Ohio v.
Betts, 492 U.
S. 158, 171 (1989) ("no deference is due to agency
interpretations at odds with the plain language of the statute
itself"). We therefore cannot accept current pleas for the
deference described in
Skidmore or
Chevron.
75-2, as we just observed, did not home in on whether, or to
what extent, particular insurance contracts fit within the
guaranteed benefit policy exemption. Thus the 1986 publication is
no more enlightening than the interpretation published in 1975.
110
The Department of Labor recognizes that ranking free funds as
"plan assets" would secure "added legal protections against losses
by pension plans, because ERISA imposes restrictions not currently
provided by contract and insurance law." Brief for United States as
Amicus Curiae 25-26. But the Department warns that
"the disruptions and costs [of holding insurance companies to be
fiduciaries under participating group annuity contracts] would be
significant, both in terms of the administrative changes the
companies would be forced to undertake (e. g., segregation
of plan-related assets into segmented or separate accounts, and
re-allocation of operating costs to other policyholders) and in
terms of the considerable exposure to the ensuing litigation that
would be brought by pension plans and others alleging fiduciary
breaches." Id., at 25.
These are substantial concerns, but we cannot give them
dispositive weight. The insurers' views have been presented to
Congress 18 and that body can adjust the statute. See
Burnet
v.
Coronado Oil &
Gas Co., 285 U. S. 393, 406 (1932)
(Brandeis, J., dissenting);
Di Santo v.
Pennsylvania,
273 U. S. 34, 42 (1927) (Brandeis, J., dissenting).
Furthermore, the Department of Labor can provide administrative
relief to facilitate insurers' compliance with the law, thereby
reducing the disruptions it forecasts.
***
For the reasons stated, the judgment of the Court of Appeals for
the Second Circuit is
Affirmed.
18 See App. to Brief for Petitioner 19-64 (listing the hundreds
of individuals and organizations, including insurance industry
representatives, testifying before Congress during deliberations on
ERISA). Insurance industry representatives have constantly sought
amendment of ERISA to exempt all general account assets. See Brief
for Certain United States Senators as
Amici Curiae
13-14.
111
JUSTICE THOMAS, with whom JUSTICE O'CONNOR and JUSTICE KENNEDY
join, dissenting.
Insurance companies hold more than $332 billion in their general
accounts pursuant to group annuity contracts with pension plans.
See American Council of Life Insurance, 1993 Life Insurance Fact
Book Update 27. Today, the Court abruptly overturns the settled
expectations of the insurance industry by deeming a substantial
portion of those funds "plan assets" and thus subjecting insurers
to the fiduciary regime of the Employee Retirement Income Security
Act of 1974 (ERISA). Although I agree with the Court that the
guaranteed benefit policy exception, § 401(b)(2) of ERISA, 29 U. S.
C. § 1l01(b)(2), does not-as petitioner Hancock contends-exclude
all general account assets from ERISA's coverage, the Court, in
making the exception depend upon whether investment risk is
allocated to the insurer,
ante, at 106, proposes a new test
that bears little relation to the statute Congress enacted. The
relevant question under the statute is not whether the contract
shifts investment risk, but whether, and to what extent, it
"provides for benefits the amount of which is guaranteed." 29 U. S.
C. § 1l01(b)(2)(B). In my view, a contract can "provide for"
guaranteed benefits before it actually guarantees future
payouts-that is, before it shifts the investment risk as to those
benefits to the insurer. Accordingly, I respectfully dissent.
I
The guaranteed benefit policy exception, § 401(b)(2) of ERISA,
excludes from the scope of ERISA's fiduciary requirements assets
held pursuant to "an insurance policy or contract to the extent
that such policy or contract provides for benefits the amount of
which is guaranteed by the insurer." 29 U. S. C. § 1l01(b)(2)(B).
In interpreting this exception, I begin, as in any case of
statutory construction, with "the language of the statute,"
Estate of Cowart v.
Nicklos Drilling Co., 505 U. S. 469, 475
(1992), and with the
112
THOMAS, J., dissenting
assumption that Congress "says in a statute what it means and
means in a statute what it says there,"
Connecticut Nat.
Bank v.
Germain, 503 U. S. 249, 254
(1992). Unlike the Court, I see no need to base an understanding of
§ 401(b)(2) on principles derived from the interpretation of
dissimilar provisions in the Securities Act of 1933, see
ante, at 101-104, or from a sense of the policy of ERISA as
a whole, see
ante, at 96. The meaning of the provision can
be determined readily by examining its component terms.
First, the insurance contract must "provide for" guaranteed
benefits. Because "provides for" is not defined by the statute, we
should give the phrase its ordinary or natural meaning. See
Smith v.
United States, 508 U. S. 223, 228
(1993). Looking at the contract, the Court observes that there is
"no genuine guarantee of the amount of benefits that plan
participants will receive in the future."
Ante, at 105. The
Court apparently takes "provides for" to mean that the contract
must currently guarantee the amounts to be disbursed in future
payments. That is not, however, what "provides for" means in
ordinary speech.
When applied to a document such as a contract, "provides for" is
"most natural[ly]" read and is "commonly understood" to mean" 'make
a provision for.'"
Rake v.
Wade, 508 U. S. 464, 473, 474
(1993) (interpreting a section of the Bankruptcy Code that applies
to "'each allowed secured claim
provided for by the
[reorganization] plan''') (emphasis added). See also Black's Law
Dictionary 1224 (6th ed. 1990) (defining "provide" as "[t]o make,
procure, or furnish for future use, prepare"). If "provides for" is
construed in this way, the insurance contract need not guarantee
the benefits for any particular plan participant until the benefits
have vested, so long as it makes provision for the payment of
guaranteed benefits in the future. See
Mack Boring &
Parts v.
Meeker Sharkey Moffitt, Actuarial
Consultants, 930 F.2d
267, 273 (CA3 1991) ("Section 401(b)(2)(B) does not, on its
face, require that the benefits contracted for be delivered
immedi-
113
ately, and we will not read into the statute such a requirement.
Rather, it is enough that the ... contract 'provided' guaranteed
benefits to plan participants at some finite point in the
future").l
Had Congress intended the meaning the Court suggests, it easily
could have applied the exception to an insurance contract "to the
extent that benefits, the amount of which is guaranteed by the
insurer, are vested in plan participants." The concept of vested
benefits was familiar to Congress, see,
e. g., 29 U.
S. C. § lOO1(c), and it knew how to require vesting when it
intended to do so. See ERISA § 1012(a), 26 U. S. C. § 411 (1988 ed.
and Supp. IV). In the guaranteed benefit policy exception, however,
Congress, rather than requiring that benefits be vested, required
that guaranteed benefits be
provided for.2
The second requirement under the statute is that the "amount" of
benefits be guaranteed. The relevant "bene-
1 Even Harris Trust, which argues that benefits are not
"provided for" until they have vested in plan participants, see
Brief for Respondent 15, cannot avoid this common meaning of the
phrase. In describing the original contract between Sperry and
Hancock, Harris Trust states that "the contract
provided for
the annual purchase of individual deferred annuities .... "
Id., at 2 (emphasis added). Certainly, one would not say-and
Harris Trust did not mean-that the contract only "provided for"
such annuities after they were purchased. Common sense and usage
dictate precisely the sense in which Harris Trust used the phrase:
The contract made provision for the purchase of annuities.
Similarly, after 1968 the contract made provision for the payment
of guaranteed benefits.
2 Giving "provides for" its ordinary meaning as outlined here
would not, as the Court suggests, see
ante, at 104-105,
exempt from ERISA's fiduciary rules any contract "in its entirety"
if it allows for the payment of some amount of guaranteed benefits
in the future. As the Court implicitly acknowledges, that potential
misconstruction of the exception results, not from a misreading of
the term "provides for," but from a misunderstanding of the
limitation imposed by the phrase "to the extent that." As I discuss
below, see
infra, at 117-118, I agree with the Court that by
limiting the exception to policies "to the extent that" they
provide for guaranteed benefits, Congress did not mean that any
contract would be completely exempted "if" it provided for any
guaranteed benefits.
Ante, at 104-105.
114
THOMAS, J., dissenting
fits" under the statute are payments to plan participants, not
any payments to the pension plan itself. See
Mack Boring,
supra, at 273 ("[T]he term 'benefit,' when used in ERISA,
uniformly refers only to payments due to the plan participants or
beneficiaries"). The Court recognizes that the term "benefits" does
not include payments to the plan but concludes that the reference
to "the amount of" benefits means the
aggregate amount of
benefits.
Ante, at 106. The Court cites neither authority
nor reason for its interpretation, and with good cause. Given that
"benefits" refers to payments to individuals, "amount" standing
alone most naturally refers to the amount owed to each individual.
If, on the other hand, "amount" means aggregate amount, benefits to
individuals could vary so long as the insurance company guaranteed
that a fixed total amount would be paid. That is hardly consistent
with ERISA's focus on protecting plan participants and their
beneficiaries. See
ante, at 96, and
The Court's focus on the aggregate amount of benefits, combined
with its understanding of "provides for" as requiring a current
guarantee, shifts the inquiry from the nature of the benefits that
the policy will provide to individuals to the nature of the return
that the policy provides to the plan as a whole. In the Court's
view, this is precisely the inquiry demanded by the statute. As it
makes clear by its citation to
Peoria Union Stock Yards Co.
Retirement Plan v.
Penn Mutual Life Ins. Co., 698 F.2d
320 (CA7 1983), from which it takes its "lead,"
ante, at
101, the Court sees the guaranteed benefit policy exception as
requiring a guaranteed return on all moneys paid to the
insurer-that is, the guaranteed benefit policy exception is really
an exception for "insurance contract[s] with a fixed payout."
Peoria Union, supra, at 327.3 In reaching this result, the
Court is driven
3 To be sure, the payouts must be in the form of guaranteed
benefits to plan participants, but the Court's focus remains on an
overall fixed return. Thus, in its view, any funds not immediately
committed to the payment of
115
by its gloss on the guaranteed benefit exception as a provision
demanding an "examination of risk allocation in each component" of
the policy. See
ante, at 102. But Congress nowhere mentioned
allocation of risk, fixed payouts, or guaranteed investment returns
in the statute, despite the obvious superiority of those terms in
conveying the meaning the Court ascribes to the text. Instead,
Congress directed our attention to the provision of guaranteed
benefits-that is, to the type of payments the policy provides to
individual participants.
The Court derives its gloss on the guaranteed benefit policy
exception from extratextual sources that lead it to a reading
divorced from the statute's language. First, the Court begins its
analysis not with an examination of the terms of § 401(b)(2), but
with a discussion of cases decided under the Securities Act of
1933, 48 Stat. 74, as amended. For example, the Court looks to a
case in which we addressed whether a variable annuity was an
"investment contract" covered by § 2 of the Securities Act, 15 U.
S. C. § 77b, or an "insurance or endowment policy or annuity
contract or optional annuity contract" exempted by § 3 of that Act,
15 U. S. C. § 77c(a)(8). See
SEC v.
United Benefit Life
Ins. Co., 387 U.
S. 202, 204205,211 (1967). Were it disputed that GAC 50 is an
"insurance policy or contract," it might be useful to consider how
this Court has defined an insurance policy under federal securities
law and the extent to which GAC 50 meets that test. Here, however,
no one denies that GAC 50 is an insurance policy. If it were not, §
401(b)(2) would not apply at all. Because GAC 50 is concededly an
insurance policy, its allocation of risk is irrelevant to the
distinct inquiry demanded by the statute into the provision of
guaranteed benefits.
guaranteed benefits (through the purchase, for example, of fixed
annuities) must be invested at a guaranteed return and converted to
guaranteed benefits at a rate fixed by contract.
Ante, at
106.
116
THOMAS, J., dissenting
The second source from which the Court distills its "risk of
loss" test is the premise, based on ERISA "as a whole," that
"Congress commodiously imposed fiduciary standards on persons whose
actions affect the amount of benefits retirement plan participants
will receive."
Ante, at 96. Even were that true, there is no
need to resort to such general understandings of the policy behind
a statute when the language suggests a contrary meaning. Cf.
Connecticut Nat. Bank, 503 U. S., at 253-254;
Park 'N
Fly, Inc. v.
Dollar Park &
Fly, Inc.,
469 U. S. 189,
194 (1985) (statutory construction begins with "the assumption that
the ordinary meaning of [the] language accurately expresses the
legislative purpose"). The text of § 401(b)(2) gives no reason to
think that Congress meant to protect pension plans from all risk or
to impose a fiduciary duty on the insurer whenever the pension plan
faced a possibility of loss. Congress easily could have required
that all funds credited to a pension plan be guaranteed, but it did
not.
Moreover, contrary to the Court's assumption, in the statute "as
a whole" Congress did not impose fiduciary duties on all persons
whose actions affect the amount of benefits plan participants
receive. In the same section that contains the guaranteed benefit
policy exception, for example, Congress exempted pension plans'
investments in mutual funds from ERISA's fiduciary provisions. See
29 U. S. C. § 1l01(b)(1); H. R. Conf. Rep. No. 93-1280, p. 296
(1974). Obviously, pension plans bear a significant risk with
respect to such investments, yet Congress allowed them to bear that
risk without imposing fiduciary duties on the companies that manage
the funds.
In any event, as long as a policy provides for guaranteed
benefits as I have described them, the connection between the
return to the plan and the amount of benefits individual plan
participants receive is remote. The insurer's investment
performance would influence the amount of benefits if participants
received either variable benefits or fixed benefit
117
payments that were not guaranteed,
e. g., benefits
paid for a fixed amount of time unless the fund from which they
were paid was depleted sooner. In both cases, ERISA imposes
fiduciary duties on the insurer. But as long as the benefits will
be guaranteed, a variable return to the plan entails no such risk
for plan participants. Whether the insurer earns 2% or 20%, or even
loses 20% on its investments, participants will receive the same
amount of benefits.4
In short, the provision of guaranteed benefits does not require
the provision of a guaranteed return to the plan, nor does it
require that all amounts to be provided in the future be currently
guaranteed. In my view, an insurance policy "provides for benefits
the amount of which are guaranteed" when its terms make provision
for fixed payments to plan participants and their beneficiaries
that will be guaranteed by the insurer. The policy need not
guarantee the aggregate amount of benefits that will ultimately be
returned from the plan's contributions or insulate the plan from
all investment risk to accomplish that more limited goal.
Of course, as the Court correctly observes, § 401(b)(2) excludes
an insurance company's assets from fiduciary obligations only "to
the extent that" the policy provides for guar-
4 In this case, Sperry's retirement plan, not the insurance
policy, specifies the amount of benefits to which a plan
participant is entitled. App. 119, 121. The return on the funds
held under GAC 50 has no effect on that amount. Thus, even if the
free funds fell to zero and the policy terminated, see
ante,
at 105-106, plan participants whose benefits had not yet vested
would be entitled to the same amount of benefits under the plan
itself, and would have an action against the plan if it failed to
pay. See 29 U. S. C. § 1132(a). For this reason, it is simply wrong
to suggest, as some
amici curiae do, that reversing the
decision below would leave millions of pensioners unprotected by
ERISA. See Brief for Senator Howard Metzenbaum et al. as
Amici
Curiae 15. If the plan, on the other hand, is "trapped" by an
unwise insurance contract, the trap is one of its own making. Those
amici are in a far better position than this Court to
persuade Congress to protect pension plans from their own mistakes
and misjudgments. Nothing in either the text or the logic of the
guaranteed benefit policy exception provides such protection.
118
THOMAS, J., dissenting
anteed benefits. That limitation does not mean that the
exception is available to a contract "if" it provides for
guaranteed benefits. Cf.
ante, at 104-105. Rather, the term
suggests that a contract may provide for guaranteed benefits only
to a certain extent. In the Court's view, to the extent that a
policy allows a pension plan a variable return on free funds not
yet committed to providing guaranteed benefits to participants, it
falls outside the § 401(b)(2) exception. Once again, however, the
Court's understanding of the statute is controlled by its focus on
the allocation of risk. The difficulty the Court sees with the
variable return on any component of the contract is that a variable
return ensures no guaranteed aggregate amount of benefits. If all
of the funds attributable to the policy are allocated to purchasing
guaranteed benefits, however, whether those funds come from pension
plan contributions or investment return, the contract is
"provid[ing] for benefits the amount of which is guaranteed" in its
entirety. Only if one assumes, as the Court does, that overall
returns are critical would one read the "to the extent that"
limitation more narrowly.
II
In its effort to insulate Harris Trust from all risk, the Court
radically alters the law applicable to insurance companies. The
Department of Labor has taken the view that general account assets
are not plan assets. See,
e. g., Interpretive
Bulletin 75-2, 40 Fed. Reg. 31598 (1975), 29 CFR § 2509.75-2 (1992)
(concerning prohibited transactions); § 2510.3-101 (same).5 In
reliance on that settled under-
5 I agree with the Court that Interpretive Bulletin 75-2's
exemption of all general account assets from fiduciary requirements
is at odds with the text of § 401(b)(2) and is therefore not
entitled to deference under
Chevron U. S.
A. Inc. v.
Natural Resources Defense Council, Inc., 467 U. S. 837 (1984).
Rejecting the Department of Labor's interpretation of the
guaranteed benefit policy exception, however, does not require
adopting the Court's extreme approach.
119
standing, insurers have set up general account contracts with
pension plans and have managed assets theoretically attributable to
those policies, not in accordance with ERISA's fiduciary
obligations, but in accordance with potentially incompatible
state-law rules. See
Mack Boring, 930 F. 2d, at 275, n. 17.
Most States treat the relationship between insurer and insured as a
matter of contract, not a fiduciary relationship. See,
e. g.,
Benefit Trust Life Ins. Co. v.
Union Nat. Bank of
Pittsburgh, 776 F.2d
1174, 1177 (CA3 1985) (generally, relationship between insurer
and insured is "solely a matter of contract");
New Hampshire
Ins. Co. v.
Foxfire, Inc., 820 F. Supp. 489, 497 (ND
Cal. 1993) (implied covenant of good faith and fair dealing does
not create fiduciary relationship between insurer and insured under
California law). And state law generally requires that the insurer
not discriminate among its policyholders. See,
e. g.,
N. Y. Ins. Law § 4224(a)(1) (McKinney 1985). ERISA, on the other
hand, will require insurers to manage what the Court deems plan
assets "solely in the interest of the participants and
beneficiaries" of the plan, 29 U. S. C. § 1104(a)(1), and will
impose a host of other requirements. These conflicting demands will
place insurers in a difficult position: "Whenever an insurance
company takes actions to ensure that under state law, it is
treating its policyholders fairly and equitably, it runs the risk
of violating ERISA's fiduciary requirements."
Mack Boring,
supra, at 275, n. 17.
Although the Court attempts to limit the fiduciary duty to the
free funds-it dubs only the free funds" 'plan assets,'" see
ante, at 106-the duty it imposes on insurers extends much
farther. The free funds are not identifiable assets at all, but are
simply an accounting entry in Hancock's books. The amount of the
free funds, and hence their "management,"
ibid., depends on
the management of all of the assets in Hancock's Group Pension line
of business. See Agreed Statement of Facts' 43, App. 91. To impose
fiduciary duties with respect to the management of the free funds
is essen-
120
THOMAS, J., dissenting
tially to impose fiduciary duties on the management of the
entire line of business. Although insurers in reaction to today's
decision may be able to segregate their assets and allocate certain
assets to free funds on specific contracts, that will not help
insurers like Hancock in this case who now find themselves
potentially liable for past actions.6
The Court's decision may also significantly disrupt insurers'
transactions with companies whose pension plans they fund. The
Court's interpretation of § 401(b)(2) will impose on insurers not
only general fiduciary duties under 29 U. S. C. § 1104, but also
restrictions on prohibited transactions under § 1106. The
guaranteed benefit policy exception expressly applies to both. See
§ 1101(b) (applying subsections (b)(l) and (b)(2) "[nor purposes of
this part," that is, Part 4, which comprises §§ 1101-1114). Indeed,
this case concerns alleged violations of both sections. Amended
Complaint' 40, App. 58. Among the previously innocent transactions
now potentially prohibited will be an insurer's investment in stock
issued by any of the employers whose pension plans the insurer
funds, a lease of a building owned by the insurer to one of those
employers, or the purchase of goods or services from any of those
employers. See Hearings on Public Law 93-406 before the
Subcommittee on Labor Standards of the House Committee on Education
and Labor, 94th Cong., 1st Sess., 390-391 (1975) (testimony of the
Assistant Secretary of Labor). Thus, large insurance companies that
may have sold policies to thousands of pension plans could suddenly
find themselves restricted in contracting with the corre-
6 It will be especially difficult for the lower courts in this
case to limit application of fiduciary duties to the free funds, as
the Court appears to desire, because the pension plan claims that
Hancock breached its fiduciary duty by understating the amount of
the free funds. See Amended Complaint n 29, 30, 40, App. 55-56,
58-60. Thus, it will not be possible to determine the extent of
Hancock's fiduciary duty without first ascertaining whether Hancock
violated it.
121
sponding thousands of employers whose goods and services they
may require. See
id., at 391.
I do not intend to suggest that the Court should give
dispositive weight to the practical effects of its decision on the
settled expectations of the insurance industry (and its customers,
the pension plans, who stand to lose much of the benefit that these
contracts presumably offered them). Such considerations are a
matter for Congress. But surely the serious and far-reaching
effects that today's ruling is likely to have should counsel
caution and compel the Court to undertake a closer examination of
the terms of the statute to ensure that Congress commanded the
result the Court reaches. As discussed in Part I,
supra, I
believe Congress did not mandate that result.
III
Application of the standards I have outlined above to GAC 50,
prior to its amendment in 1977 to allow for payment of
nonguaranteed benefits, is relatively straightforward. In its
pre-1977 form, GAC 50 provided for guaranteed benefits in its
entirety. Plan participants would be guaranteed to receive the
amount of benefits specified in the contract if the contract was in
operation when they retired, regardless of the contract's
subsequent termination, App. 137, or any other contingency.
Hancock's entire general account, not simply the funds Hancock
credited to the pension plan, stood behind that guarantee.
Moreover, GAC 50 provided that all investment return remained in a
fund allocated exclusively to the payment of guaranteed benefits,
and all of the free funds were available to pay such benefits. We
therefore are not faced with a contract that uses a pretextual
option of guaranteed benefits to disguise an ordinary investment
vehicle. Apart from an asset withdrawal mechanism that imposed a
significant charge, the contract provided for no other way to
122
THOMAS, J., dissenting
use those funds. See 767 F. Supp. 1269, 1274-1275 (SDNY
1991).7
Indeed, that is precisely why this litigation arose. Hancock had
not squandered the pension plan's funds, as one might expect in the
run-of-the-mill breach of fiduciary duty case. The Pension
Administration Fund, and thus the free funds, had grown beyond the
parties' expectations. The pension plan, however, was unhappy with
the bargain it had struck in its contract. By 1977, it had
discovered that it could get cheaper guaranteed benefits and a
better return on its investment elsewhere, see
id., at
1273-1274, but GAC 50 posed several obstacles to moving the
uncommitted funds. Terminating the contract would require the plan
to "repurchase" annuities for the benefits already guaranteed. The
repurchase price set by the contract depends on assumptions
concerning the interest rate that would be earned on the funds over
the term of the annuity. See Agreed Statement of Facts " 33-34, 41,
App. 89, 90-91 (2112-3% for benefits vested before 1968; 5% for
those vested after 1968).8 Because those interest rates turned out
by the late 1970's to be relatively low compared to prevailing
market rates, the contractually determined price for purchasing the
annuities was correspondingly high and the pension plan considered
the option of terminating the contract to be "prohibitively
expensive." Brief for Respondent 5. Withdrawing assets, as already
mentioned, entailed a significant asset liquidation adjustment.
Therefore, before the 1977 amendment the only other way the free
funds could be used was to purchase
7 GAC 50 made no provision for the rollover mechanism that
Hancock allowed the pension plan to use on several occasions to
reduce the surplus in the Pension Administration Fund. See 767 F.
Supp., at 1274-1275. See also Agreed Statement of Facts' 77, App.
96.
8 The "artificially low interest rate assumptions,"
ante,
at 93, in the contract were last amended in 1968. See Agreed
Statement of Facts n 105, 111, App. 100, 101. The pension plan
alleged that Hancock breached its fiduciary duties by refusing to
amend the contract again to take into account changed conditions.
Amended Complaint' 40(b), App. 58.
123
guaranteed benefits for plan participants. It is difficult to
see how a policy that provided for nothing but guaranteed benefits
could be said not to provide for such benefits in its entirety.
The extent to which GAC 50 "provides for" guaranteed benefits is
more complicated, however, because the 1977 amendment discontinued
the automatic provision of guaranteed benefits and permitted the
payment of "Non-Guaranteed Benefits." See Agreed Statement of Facts
"80, 82, App. 96-97. Proper resolution of this case ultimately
depends on the operation and the effect of that amendment. Because
the courts below did not discuss its relevance and should be given
the opportunity to consider it in the first instance, I would
remand.
IV
In the judgment of both the Court and the Second Circuit, to the
extent that the contract "'provides no guarantee of benefit
payments or fixed rates of return, it seems to us that [Hancock]
should be subject to fiduciary responsibility.'"
Ante, at
104 (quoting
970 F.2d
1138, 1144 (CA2 1992)). Perhaps it should. But imposing that
responsibility disrupts nearly 20 years of settled expectations
among the buyers and sellers of group annuity contracts. I do not
believe that the statute can be fairly read to command that result.
I therefore respectfully dissent.
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