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CCH® PENSION — 9/12/08

No Breach Of Contract Without A Breach Of A Written Benefit Plan, According To Eighth Circuit

From Spencer's Benefits Reports: A group of retirees could not pursue their claims for breach of contract relating to a company’s early retirement incentive program because ERISA requires a breach of a written contract term. This was the ruling of the Eighth Circuit U.S. Court of Appeals in Cole, et al. v. International Union, United Automobile, Aerospace & Agricultural Implement Workers of America, et al. (No. 06-3205).

The 119 plaintiffs in the class action lawsuit worked at Chrysler Corporation plants in St. Louis, Mo., and retired from Chrysler between Sept. 30, 2003, and Nov. 30, 2004. All of the plaintiffs were members of the International Union, United Automobile, Aerospace & Agricultural Implement Workers of America, or other unions. During the time that the plaintiffs worked at Chrysler, the terms of their employment were governed by a collective bargaining agreement entered into by Chrysler and the unions. A pension agreement setting forth the terms of a pension plan was incorporated into the collective bargaining agreement.

In 2001, Chrysler and the unions entered into a letter agreement that set forth the terms governing an Incentive Program for Retirements (IPR), which was designed to encourage eligible workers to retire so as to reduce Chrysler’s costs in certain markets. The letter agreement was incorporated into the pension agreement when it was renewed in 2003. Chrysler made IPR offers available to St. Louis Chrysler workers twice in 2001 and twice in 2002. The terms of these offers followed those outlined in the 2001 letter agreement, except that each of these offers also was made available to recent retirees.

Between Sept. 30, 2003, and Dec. 10, 2004, Chrysler offered IPR incentives in markets other than St. Louis, and these offers were not extended to recent retirees. Then, on Dec. 11, 2004, Chrysler and the unions agreed to a new IPR offer for St. Louis workers; this offer also was not extended to recent retirees. The terms of the December 2004 offer were more generous than those previously offered in St. Louis and differed from the terms included in the 2001 letter agreement. When Chrysler refused to include the plaintiffs in the December 2004 IPR offer, they filed suit against the company in the U.S. District Court for the Eastern District of Missouri, alleging a breach of an implied contract in the IPR. However, the district court granted summary judgment in favor of the defendants, finding that the IPR was part of an ERISA-governed pension plan and that Chrysler did not breach the written terms of the plan. The plaintiffs appealed, but the Eighth Circuit affirmed that ruling.

Offer Was Part Of A “Plan”

In rendering its decision, the Eighth Circuit initially explained, “We conclude the district court did not err in finding the IPR is part of an ERISA-governed employee pension plan. An ERISA-governed employee pension benefit plan is defined as ‘any plan, fund, or program which was established or maintained by an employer to the extent that by its express terms such plan, fund, or program provides retirement income to employees.’ As such, to qualify as a ‘plan’ under ERISA, an employer’s pension program must involve an ongoing administrative scheme. Much of [the plaintiffs’] argument against ERISA coverage turns on whether the December 2004 IPR offer is a stand-alone provision or part of a larger benefit plan. [The plaintiffs] view the IPR offer in isolation; they define the plan as only the 2004 retirement incentive offer to St. Louis employees. We conclude such a compartmentalized approach is improper.”

The Eighth Circuit went on to conclude, “Chrysler and the unions bargained for using the letter agreement as a foundation, it is myopic to view the 2004 St. Louis offer in isolation. The offer must be viewed in the larger structure of the pension agreement to make sense. Only those eligible for other pension benefits could qualify for this, or any other, IPR offer. As evidenced by the multiple offerings with different terms at different locations, IPR is a program, not an isolated offering at any one location. And, the IPR program was premised upon the letter agreement, which was incorporated in the pension agreement in 2003. As such, we conclude the district court did not err in treating the December 2004 IPR offer as part of the larger pension agreement and not as a stand-alone ERISA program.” (Emphasis in original.)

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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