Judge: Separate US, Puerto Rico Plans Not a Civil Rights Violation

April 11, 2003 (PLANSPONSOR.com) - Maintaining different early retirement plans for employees of Puerto Rican and continental United States plants does not violate Title VII of the 1964 Civil Rights Act.

>The US District Court for the District of Puerto Rico granted summary judgment to the employer in Ramos v Baxter.   US District Judge Raymond Acosta applied the disparate treatment test and found that Baxter International Inc. had a legitimate business purpose for the different plans and therefore the employee’s presentation of evidence was not sufficient enough to preclude a summary judgment, according to Washington-based legal publisher BNA.

>Additionally, the employees had claimed Baxter violated its ERISA fiduciary duty by maintaining separate plans.   The court dismissed these charges as well.

Separate Plans

>Baxter is a manufacturer and distributor of health care products, with subsidiaries and facilities around the world, one of which is Puerto Rico-based Baxter-PR, employing approximately 6,000 people.

>Baxter’s Puerto Rico subsidiary has an ERISA-governed defined benefit pension plan, the Puerto Rico Plan, for its employees. That plan is considered separate from a similar plan covering employees in the continental United States.   Among the benefits common to both plans are early retirement benefits.   However, in 1990 the two plans diverged slightly in their administration of early retirement benefits.   The domestic plan’s early retirement formula changed to a point system, making the early retirement package more beneficial.  

>Baxter refused to institute the same changes in Puerto Rico because the plan was preparing to close.   Employees at the Puerto Rico plan claimed Baxter breached its fiduciary duties under ERISA with the move and committed discriminatory acts on the basis of national origin.

Court Ruling

>The court dismissed the employees’ Title VII claim under both disparate treatment and disparate impact theories, finding the justification for the differing benefit plans was a legitimate business decision as evidenced by the fact that the pension benefits offered to Baxter-PR employees were comparable to those available to similar industries operating locally, and by the impact of the resulting cost.

>Further, the employees’ ERISA claim alleged that Baxter’s failure to grant them the same benefits as stateside employees constituted a violation of ERISA fiduciary duties because it “exposed the Puerto Rico Plan to loss of favorable tax status and federal legal guarantees which jeopardizes the stability and existence of the Puerto Rico Plan.”

>However, the court dismissed the claim, saying, “amendments effectuated to the terms of a pension plan – even if the decision entails who will receive benefits and/or the formula for calculation of benefits – do not fall within the scope of ERISA’s fiduciary obligations.”

The case is Ramos v. Baxter Healthcare Corp. of Puerto Rico Inc., D. P.R., No. 98-2146, 4/2/03.