Wearing Out One’s Welcome: Sitting by Designation on the Court of Appeals

The Pundit appreciates dissent. Sometimes the best dissents arrive dressed as concurrences, as in Price v Board of Trustees of the Indiana Laborer’s Pension Fund (6th Cir. Jan 2011), written by a district court judge sitting by designation on the Court of Appeals.

The issue in Price is fairly straightforward: whether the old Plan or the newly amended Plan governs the plaintiff’s ongoing eligibility for disability benefits. The old Plan—in force when benefits initially were approved—provided benefits until retirement age. The amended Plan capped benefits after two years. The plaintiff argued that his benefits “vested” under the old Plan when his disability claim was approved. But vesting isn’t the correct terminology. The plaintiff never had a vested right to disability benefits. Vested benefits cannot be taken away, yet any number of events could have terminated the plaintiff’s benefit eligibility prior to retirement age, the most obvious being medical improvement or death. Upon the initial determination of eligibility, the plaintiff did not acquire a vested right to future benefits. Whether the old Plan or the amended Plan governs is a matter of contract interpretation, and because the trustees have discretionary authority, the trustees’ reasonable interpretation is controlling. After clearing away the underbrush created by the misnomer of “vesting,” the Sixth Circuit panel remanded the case to the district court to review the trustees’ Plan interpretation under the arbitrary and capricious standard.

But the visiting district court judge respectfully disagrees with the panel majority. The judge’s dissent, awkwardly finessed into a concurrence (lest one wear out one’s welcome), advocates an across-the-board “vesting” approach for all disability plans, though thankfully the concurrence avoids the terminology of vesting. The concurrence concludes that an initial grant of benefits freezes the Plan’s terms and forever governs the participant’s rights to future benefits. The concurrence champions the “salutary practical effect” of this approach because the plaintiff, whose disability benefit package was created under a collective bargaining agreement, “reasonably expects nothing less: the terms of the Plan in effect at the time of the initial benefit award should define the contractual rights and obligations of the parties.” “It is as though the Plan effectively issues the participant a benefit package IOU promising to pay the terms of the benefit in effect at the time of qualification.”

Why the concurring opinion’s IOU theory is “salutary” is unknown. Even the interests of disabled employees continue to be represented by their unions, so disabled participants’ interests were not completely unrepresented when the revised Plan was adopted through collective bargaining. There may be compelling reasons to revise the terms of an ERISA plan prospectively. Actuarially the Plan may require revision to ensure funding for future claims, so the Plan can remain a viable safety net for all employees rather than a defunct memory. Requiring benefits to be paid according to the old Plan for the group of disabled employees may undermine the financial integrity of the Plan, which is precisely what the union sought to avert in agreeing to adopt a revised Plan. The concurring opinion’s approach impedes flexibility, which in turn jeopardizes the Plan’s ability to provide coverage to all employees. There is nothing “salutary” in that result.

The concurring opinion fixates on enforcing the coverage expectations of the plaintiff, but at the expense of all Plan participants. There is no reason why working employees (with the same seniority as the plaintiff) should have to pay higher dues to prop-up an old disability benefit package for disabled employees when working employees are receiving a smaller disability benefit package, or that an employer should be saddled with these costs indefinitely, which unduly discourage employers from offering these voluntary benefit programs.

The concurrence expresses concern that Plans could be amended to exclude or limit benefits after occurrence of the initial qualifying event, whereas the IOU approach “is consistent with both the agreed general rules governing ERISA welfare benefits, and the reasonable contractual expectations of the parties.” The IOU approach isn’t consistent with ERISA at all. While employers may agree to establish unmalleable benefit programs, employers are not required to do so. See Marrs v. Motorola, Inc., 577 F.3d 783 (7th Cir. 2009) (plan amendments prospectively apply to a participant’s future benefit eligibility unless the plan provides otherwise); Owens v. Storehouse, Inc., 984 F.2d 394 (11th Cir. 1993) (employer did not have a “vested” right to $1 million in lifetime health benefits, thus employer could reduce the benefit to $25,000 for AIDS and other health conditions even after the plaintiff contracted AIDS).

Although the district court judge, sitting by designation, disagrees with the majority panel’s reasoning and states that a remand is unnecessary, the judge “does not object” to the unnecessary remand. So a dissent transforms into a concurrence. With profuse respect and repeated genuflect, The Pundit dissents concurs in the result.

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