DB plan participants were entitled to enhanced benefits under plan’s unambiguous change of control provision

Defined benefit (DB) plan participants were entitled to enhanced benefits under the plan’s change of control provision because the provision’s meaning was unambiguous and the participants satisfied all of the requirements of the provision, according to the U.S. Court of Appeals in Cincinnati (CA-6).
Salaried employees of a subsidiary participated in the parent company’s DB plan. Under the plan’s change of control provision, if there was a change in control, the retirement benefits of a participant whose employment with the controlled group was involuntarily terminated within three years after the change of control would be enhanced by adding five more years of credited service and five more years of age to the calculations. Less than a year after a Belgian corporation acquired the parent company (including the subsidiary) in a hostile takeover, the Belgian corporation spun off four of the subsidiary’s plants in a sale to an unrelated corporation. At that time, the participants became employees of the unrelated corporation and ceased to be participants in the parent company’s plan.

After the change in their employment, the participants made claims to the administrator of the parent company’s plan for a recalculation of their future retirement benefits under the change of control plan provision. The plan administrator denied the participants’ claims because they had accepted employment with the unrelated corporation and, therefore, had never experienced a period of unemployment. The plan’s appeal committee subsequently denied the participants’ appeal.
The participants filed suit against the parent company, the plan, and the plan’s appeals committee, asserting a claim under ERISA Sec. 502(a)(1)(B) for enhanced benefits. The district court upheld the administrator’s decision and entered judgment for the parent company, the plan, and the plan’s appeals committee. The court determined that the plan language at issue was ambiguous and found that the plan administrator’s decision was reasonable under the arbitrary and capricious standard of review. The participants appealed the decision.

Dispute centered on meaning of “involuntarily terminated”

The parties agreed that the acquisition by the Belgian corporation constituted a change in control of the parent company (and subsidiary) for purposes of the change of control plan provision, according to the appellate court. Also, there was no dispute that the participants were no longer employed by a member of the controlled group of the parent company after the spin-off. The court observed that the scope of the parties’ disagreement was narrow. They disputed the meaning of the phrase, “involuntarily terminated,” in the change of control plan provision.

According to the appellate court, the starting point is to look at the language of the plan to determine whether plan benefits are due. If the plan terms are unambiguous, the plan administrator must give effect to them according to their plain meaning. An interpretation of the plan contrary to its plain meaning would be arbitrary and capricious. The court determined that a careful reading of the plan language in this case showed that the participants’ interpretation of the change of control provision was the only plausible interpretation.

Meaning of change of control provision unambiguous

The court noted that the plan did not define “involuntarily terminated” and stated that the phrase had meaning only when it was considered in light of the item it modified, which was “employment with the Controlled Group.” When each term in the provision was understood according to its ordinary meaning and no term was ignored, eligibility for enhanced pension benefits under the change of control provision required the “satisfaction of five elements: (1) that the recipient be a plan participant (2) whose employment with the Controlled Group (3) is involuntarily terminated (4) within three years after (5) a change in control.”

According to the court, when each term was given its ordinary meaning, the phrase, “whose employment with the Controlled Group is involuntarily terminated,” was unambiguous and had only one plausible interpretation. The court stated that the participants satisfied each of the elements and concluded that the participants’ employment with the parent company’s controlled group was “involuntarily terminated” when the Belgian corporation sold the subsidiary to the unrelated corporation and the participants became employees of the unrelated corporation. Therefore, the plan administrator’s decision to deny benefits was arbitrary and capricious.

The appellate court ruled that the district court erred in upholding the plan administrator’s interpretation of the change of control plan provision, reversed the district court’s judgment, and remanded the case for entry of judgment in favor of the participants.

Source: Adams, Jr. v. Anheuser-Busch Companies, Inc. (CA-6).

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