Overbroad interpretation of “job classification” resulted in wrongful denial of early retirement benefits

Multiemployer plan trustees abused their discretion when they denied early retirement benefits based on an unreasonably broad interpretation of the plan’s ban on post-retirement work in the same “job classification,” the U.S. Court of Appeals in San Francisco (CA-9) has ruled. The trustees had determined “traffic flaggers” and “snow plow operators” to be in the same job classification as “skilled mechanics” under the terms of the plan.

Plan’s early retirement rule

The plan permitted participants who met certain age and years of service requirements to collect early retirement benefits so long as they refrained from engaging in “post-retirement service” — that is, working in the same geographic region, industry and “job classification” as they did prior to retirement.

Two skilled mechanics wanted to retire early but then accept other work: one wanted to be a traffic flagger on a road construction crew, while the other wanted to be a snow plow operator. Their dispute with the plan centered on whether their desired post-retirement work fell within the same classification as their pre-retirement occupations.

The terms of the plan failed to defined “job classification.” So plan trustees used a “duties and skills” analysis, including reviewing job descriptions and wage grades, to conclude that the three jobs required use of overlapping skills such that they were in the same job classification for purposes of the plan.

The district court found this analysis to be a reasonable interpretation of plan terms, but the participants appealed.

Overbroad interpretation

Applying the deferential abuse of discretion standard of review, the appellate court rejected the trustees’ interpretation of “job classification” as overbroad. While the term “job classification” is undefined by the plan, the court reasoned it must at a minimum be interpreted as less encompassing than the term “industry,” which is also used in the plan’s description of permissible post-retirement service. The trustees’ interpretation essentially gives them the power to ban post-retirement employment within the entire construction industry, the court reasoned. This is a much broader category of prohibited activity than is supported by plan terms.

In addition, while the appellate court did not object to the use of a “duties and skills” test per se, it objected to the trustees’ decision to emphasize minor areas of overlap without regard to the core skills and duties actually required and performed by each job.

Note: The Ninth Circuit could find no other published decision in which a plan used the term “job classification.” However, it found the Eighth Circuit’s analysis in Eisenrich v. Minneapolis Retail Meat Cutters & Food Handlers Pension Plan to be instructive. In that case, a multiemployer plan wrongfully suspended a retiree’s benefits after misreading ERISA’s “trade or craft” rule.

The court reversed the lower court’s decision and returned the matter to the trustees for reevaluation on the merits.

Source: Tapley v. Locals 302 and 612 of the International Union of Operating Engineers-Employers Construction Industry Retirement Plan (CA-9).

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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