Rehearing and Rehearing En Banc Denied March 15, 1979.
HEANEY, Circuit Judge.
Edison Brothers Stores Pension Plan and the individual members of the Plan's Retirement Committee appeal from a decision of the District Court denying their motion for summary judgment and granting the motion for summary judgment of
Henry Winer and Joseph M. Fingerhut were terminated from employment for Edison Brothers Stores, Inc., on May 10, 1976, because Edison believed, after making independent investigations, that both had received kickbacks from suppliers doing business with Edison. Edison proceeded to file suit against Fingerhut and Winer, seeking recovery for damages caused by their dishonest conduct.
Fingerhut and Winer made written requests for payment of pension benefits in June, 1976.
On July 13, 1976, the Retirement Committee denied their requests. In letters to Fingerhut and Winer, it stated:
Under the pension plan provisions, the Retirement Committee has the responsibility for determining eligibility for benefits. Pursuant to § 503 of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1133, and provisions of the plan, Fingerhut and Winer each filed a written application for a hearing before the Retirement Committee.
On October 28, 1976, the Retirement Committee held a hearing to review the denial of Fingerhut's benefits. Counsel for the Retirement Committee introduced evidence implicating Fingerhut in a series of kickbacks. The evidence consisted largely of documents from manufacturers, vendors and sales representatives and included affidavits, signed statements and a deposition. It also consisted of testimony of Julian Edison, the chairman of the board of Edison, concerning his interview with Fingerhut immediately prior to Fingerhut's discharge. During the interview, Fingerhut admitted receiving payments from various suppliers.
On December 21, 1976, the Retirement Committee affirmed its decision to deny Fingerhut's pension. It concluded that Fingerhut did receive kickbacks and that such conduct constituted dishonesty under § 4.09 of the pension plan.
Winer's hearing before the Retirement Committee was held on December 21, 1976. Documentary evidence was introduced showing that various suppliers had made kickbacks to Winer. Winer testified that he had taken some vacation trips to Saint Maarten and Acapulco with a supplier and had received other payments amounting to $3,000 or $4,000.
The Retirement Committee affirmed its decision denying Winer's pension on March 4, 1977. It found that Winer did receive improper payments and that such conduct constituted dishonesty under § 4.09 of the pension plan.
Winer filed suit on March 24, 1977, against the Plan for recovery of pension benefits. The Secretary of Labor filed suit on August 17, 1977, against the Plan and the individual members of the Retirement Committee. The Secretary alleged that the Retirement Committee had caused the Plan to deny Winer and Fingerhut pension benefits to which they were entitled in violation of ERISA §§ 404(a)(1)(B) and (D) and 405(a), 29 U.S.C. §§ 1104(a)(1)(B) and (D), 1105(a). He sought an order enjoining the Retirement Committee from further violations and requiring the Plan to pay Winer and Fingerhut their benefits. Both actions were brought pursuant to ERISA § 502, 29 U.S.C. § 1132. The District Court consolidated the actions on October 4, 1977.
The District Court entered an order on March 14, 1978, granting the Secretary and Winer summary judgment. The court determined that the date of Winer's and Fingerhut's misconduct had no relevance to the denial of their benefits. It was only when they were discharged on May 10, 1976, that a pension claim arose. This was subsequent to the effective date of ERISA § 203(a), 29 U.S.C. § 1053(a), which provides that vested pension benefits cannot be divested except in some limited situations not applicable to the action. Consequently, the Retirement Committee could not lawfully apply § 4.09. The order required the Plan to begin paying Winer and Fingerhut current benefits and to agree with Winer on the amount of his back payments, interest and attorney's fees. The District Court entered a further order on March 27, 1978, awarding Winer $23,258.97, plus interest at six percent per annum from March 15, 1978. An award of attorney's fees was stayed pending appeal.
A primary concern of Congress in enacting ERISA was to provide employees with vested rights in pension plans.
Prior to the enactment of ERISA, pension plans frequently contained "bad boy" clauses which denied employees their otherwise nonforfeitable pension benefits if they were discharged for dishonesty, excessive absenteeism or insubordination, or if they competed with their former employer after termination. Lee, ERISA's "Bad Boy": Forfeiture for Cause in Retirement Plans, 9 Loy.Chi.L.J. 137 (1977). The legislative history is clear, however, that § 203(a) was designed, in part, to prevent further enforcement of "bad boy" clauses. In February, 1974, the House Committee on Ways and Means, in discussing permitted forfeitures of vested rights, stated:
H.R.Rep.No.93-807, 93d Cong., 2d Sess. 60 (1974), reprinted in II Legislative History, 3180 (footnote omitted). Accord, H.R.Rep.No.93-779, 93d Cong., 2d Sess. 59 (1974), reprinted in II Legislative History, 2648; S.Rep.No.93-383, 93d Cong., 1st Sess. 50 (1973), reprinted in I Legislative History, 1118, U.S.Code Cong. & Admin.News 1974, pp. 4639, 4725. Congressman Dent, Chairman of the General Subcommittee on Labor of the House Committee on Education and Labor and one of the principal supporters of ERISA, summarized the status of "bad boy" clauses during the floor debates as follows:
120 Cong.Rec. 29197 (1974), reprinted in III Legislative History, 4669.
The Conference Report states:
H.R.Conf.Rep.No.93-1280, 93d Cong., 2d Sess. 271 (1974), reprinted in III Legislative History, 4538, U.S.Code Cong. & Admin.News, 1974, p. 5052.
Since ERISA became effective with respect to the Plan on January 1, 1976, see ERISA § 211(b)(2), 29 U.S.C. § 1061(b)(2), it follows that the Retirement Committee could not thereafter enforce the Plan's "bad boy" clause without violating their statutory obligations. See Amory v. Boyden Associates, 434 F.Supp. 671, 672 (S.D.N.Y.1976); Keller v. Graphic Systems of Akron, Inc., 422 F.Supp. 1005, 1009 (N.D.Ohio 1976).
This argument is defective for several reasons. We note, initially, that our function on appeal is not limited to determining whether or not the Retirement Committee acted rationally and in good faith. Assuming that the rational and good faith standard is applicable under ERISA for judicial review of the Retirement Committee's interpretation of plan provisions in some circumstances, see Bueneman v. Central States, Southeast & Southwest, 572 F.2d 1208 (8th Cir. 1978), it does not apply where its interpretation is ultimately an interpretation of a statutory provision. See Riley v. MEBA Pension Trust, 570 F.2d 406, 409-410 (2d Cir. 1977). The Committee's interpretation of § 4.09 has precisely this result. In effect, the Committee is deciding that § 203(a) does not, under these circumstances, preclude application of the "bad boy" clause. Determining the scope of § 203(a) is, however, a task assigned to the courts. Thus, our responsibility on appeal is to decide whether the Committee's application of § 4.09 is consistent with § 203(a) and the other provisions of ERISA.
The thrust of the appellants' argument is that there was no forfeiture of vested rights after January 1, 1976, because the rights of Winer and Fingerhut were forfeited "automatically" by the plan terms at the time of their misconduct prior to January 1, 1976. We find little merit to this contention. A forfeiture does not occur immediately by the self-executing operation of a plan provision at the time of an employee's misconduct. Rather, a forfeiture occurs when a pension committee declares the forfeiture by denying the employee's pension claim.
Automatic forfeitures would place intolerable burdens on employees. They would be required to constantly oversee operations of pension committees in order to protect themselves against abuses and errors that could pass unnoticed. Otherwise, they would risk losing their cause of action years before they applied for pension benefits. See id. This is inconsistent with the remedial purposes of ERISA. Moreover, such a rule would allow pension committees to "bootstrap" themselves into positions where they could rely indefinitely on pre-ERISA conduct to deny pension benefits to employees based on provisions clearly prohibited by ERISA.
The appellants argue next that § 203(a) may not be retroactively applied to invalidate § 4.09 as it governed pre-ERISA facts. We fail to see how the statute is being applied retroactively. There is no attempt to hold the appellants liable for any of their actions occurring prior to the statute's effective date which would constitute retroactive application. See Morgan v. Laborers Pension Trust Fund for N. Cal., supra at 523-524; Martin v. Bankers Trust Co., 417 F.Supp. 923, 925 (W.D.Va.1976), aff'd, 565 F.2d 1276 (4th Cir. 1977). The appellants are liable only for actions that transpired subsequent to January 1, 1976.
The appellants finally argue that even if there was a forfeiture of vested rights under § 203(a), § 4.09 is enforceable pursuant to ERISA § 514(b)(1), 29 U.S.C. § 1144(b)(1), as an "act or omission" occurring before January 1, 1975. Section 514(a) of ERISA, 29 U.S.C. § 1144(a), provides that as of January 1, 1975, the provisions of Title I, including the nonforfeiture rules of § 203(a) shall supersede any and all state laws relating to employee benefit plans. Section 514(b)(1), however, provides that "[t]his section shall not apply with respect to any cause of action which arose, or any act or omission which occurred, before January 1, 1975." The appellants contend that the dishonest conduct of Winer and Fingerhut prior to January 1, 1975, constitutes "acts" or "omissions" under § 514(b)(1). Thus, the Retirement Committee's application of § 4.09 is required by § 514(b)(1) to be governed by state law which permits enforcement rather than by § 203(a).
The legislative history behind the phrase "act or omission" is sparse. In discussing § 514, for example, the Conference Committee stated:
H.R.Conf.Rep.No.93-1280, 93d Cong., 2d Sess. 383 (1974), reprinted in III Legislative History, 4650, U.S.Code Cong. & Admin.News 1974, p. 5162. As noted by the District Court in Bacon v. Wong, 445 F.Supp. 1189, 1192 (N.D.Cal.1978), "* * * it is not at all clear what acts and omissions Congress referred to in § 514(b)(1) * *."
Congress could not have meant that if any act or omission relevant to the cause of action occurred prior to January 1, 1975, state law would control. Such an interpretation would be inimical to the Congressional attempt to extend the protections of ERISA to all employees as soon as practicable. The phrase "act or omission" in § 514(b)(1) apparently refers to those significant facts which give rise to a claim but which fall short of establishing a cause of action. See Reuther v. Trustees of Trucking Emp., 575 F.2d 1074 (3d Cir. 1978); Bacon v. Wong, supra; Finn v. Chicago Newspaper Publishers' Association, 432 F.Supp. 1178 (N.D.Ill.1977). In other words:
Bacon v. Wong, supra at 1192.
Under this construction, the wrongful conduct of Winer and Fingerhut cannot be
The cases cited by the appellants to support their position are clearly distinguishable in this regard. In Reuther v. Trustees of Trucking Emp., supra, and Bacon v. Wong, supra, the employers made contributions to pension funds on behalf of employees who were ineligible for benefits. They later sought restitution for these contributions. The courts determined that the relevant "acts or omissions" were the overpayments themselves and, thus, ERISA did not govern an employer's right to restitution for payments made to the funds prior to January 1, 1975. The decisions of the pension committees to deny payment were considered merely a requirement of exhaustion of private remedies, however, rather than the underlying basis for the claim as in the present action. See Bacon v. Wong, supra at 1192-1193.
We note, moreover, that to construe the dishonest conduct of Winer and Fingerhut as an "act or omission" under § 514(b)(1) would seriously undercut the Congressional decision to prevent further enforcement of "bad boy" clauses.
We conclude that the Retirement Committee violated their fiduciary duties under ERISA when they refused to pay the pension benefits of Winer and Fingerhut.
The judgment of the District Court is affirmed.