Affirming a lower court ruling, the 3 rd Circuit ruled that the death benefit was an unvested welfare benefit and neither the ERISA nor unilateral contract principles prohibited its termination.
According to the opinion, the pensioner death benefit neither provided retirement income to employees nor resulted in a deferral of income by employees; it could not be an accrued pension benefit since it was not “an annual benefit” and did not “commenc[e] at normal retirement age;” nor did it directly relate to an accrued benefit by paying out an accumulated amount of accrued benefits. Since the benefit provided benefits in the event of death, it fit within the ERISA definition of a welfare benefit.
Further, the 3 rd Circuit pointed out that under ERISA, an accrued pension benefit is protected by ERISA’s anti-cutback provision without any showing that it has vested, but a welfare benefit is protected only if the participant proves that the plan sponsor intended the welfare benefit to have vested despite not being obliged to do so by ERISA. The court determined that nothing in the plan documents suggests that the pensioner death benefit vests during the life of the pensioner, and the plan documents do not state such vesting in clear and express language.
Since the pensioner death benefit vested in the event of the death of a pensioner, it did not belong irrevocably to living pensioners, the court said.
AT&T adopted a pension and disability benefit plan in 1913. AT&T spun off Lucent in 1996, and Lucent assumed the obligation to provide retirement benefits equivalent to those under the AT&T plan to the retirees transferred to Lucent. The plan included a death benefit to be calculated and issued at the time of death of a former employee receiving pension benefits or of an employee eligible to received pension benefits.
Lucent amended its plan in 1997 to eliminate the pensioner death benefit for employees who retired after January 1, 1998, and further amended the plan in February 2003 to eliminate the pensioner death benefit for all management employees then living regardless of the date of retirement.
Three different lawsuits were filed alleging that Lucent had terminated the pensioner death benefit unlawfully and seeking declaratory and injunctive relief reversing that termination. The suits were consolidated, and a district court ruled for Lucent.
The opinion In Re: Lucent Death Benefits ERISA Litigation is here .