Lockheed Corporation v. Spink

PETITIONER:Lockheed Corporation
RESPONDENT:Spink
LOCATION:Western District Court of New York

DOCKET NO.: 95-809
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: United States Court of Appeals for the Ninth Circuit

CITATION: 517 US 882 (1996)
ARGUED: Apr 22, 1996
DECIDED: Jun 10, 1996

ADVOCATES:
Gordon E. Krischer – Argued the cause for the petitioners
Richard P. Bress – Argued the cause for the United States, as amicus curiae
Theresa M. Traber – Argued the cause for the respondent

Facts of the case

Lockheed Corporation hired Paul L. Spink when he was sixty-one. He was excluded from participation in Lockheed’s retirement program. Later changes in federal law required Lockheed to add Spink to the retirement program. Lockheed added Spink, but refused accrued benefits for the years he had worked at Lockheed before federal law changed. Lockheed also offered an increased pension benefit to employees who would retire early in exchange for their waiver of any employment claims against the corporation. Spink refused to be added without earning the extra benefits for the previous years he had worked. Spink filed suit alleging he should receive full benefits. The District Court dismissed the case for failure to state a claim. The Court of Appeals ruled in favor of Spink. It held the law applied retroactively which would cover Spink.

Question

May a business offer early retirement benefits on the condition that an employee give up the right to sue over any job-related claim? Can the federal government retroactively apply retirement income benefit laws?

William H. Rehnquist:

We’ll hear argument now in Number 95-809, Lockheed Corporation v. Paul Spink.

Mr. Krischer.

Is that the correct pronunciation of your name?

Gordon E. Krischer:

It is, Your Honor.

Mr. Chief Justice, and may it please the Court:

This case presents two issues.

The first involves whether Lockheed Corporation breached a fiduciary duty when it amended its pension plan to provide an incentive for employees to early retire and included as one of the eligibility criteria of that amendment the requirement that employees who were voluntarily retiring sign a release of employment-related claims.

There’s no dispute that that amendment that Lockheed adopted complies with the minimum benefit accrual, minimum vesting, and minimum participation standards required by ERISA, and there’s also no doubt that whether participants, employees who took advantage of this increased retirement benefit, did so voluntarily, which is to say, they voluntarily did it.

It was not… it was a new benefit.

No employee who opted to choose this increased pension benefit had to give up anything he or she was otherwise entitled to prior to the existence of this benefit.

The second issue also raised by Mr. Spink in this because of his unique circumstances goes to whether the amendments made to the Internal Revenue Code, the Age Discrimination in Employment Act, and ERISA by OBRA 1986, the Omnibus Budget Reconciliation Act of 1986, should… whether Congress intended that those changes be applied retroactively.

Sandra Day O’Connor:

Mr. Krischer, may I ask you to clarify something in regard to the first question?

In your petition for certiorari you asked whether the Ninth Circuit correctly held that a pension plan sponsor can be liable for breach of fiduciary duty under ERISA when it amended the plan.

Then, in the merits brief you say when the pension plan sponsor and plan fiduciaries may be held liable, blah, blah, blah, and you appear to be raising some additional questions in the merits brief.

Gordon E. Krischer:

Well, I don’t… I believe it’s the same question that’s being raised, Justice O’Connor, because what the Ninth Circuit held… it didn’t make a big distinction between the plan sponsor and the retirement plan committee that would pay the benefits to eligible employees.

The district–

Sandra Day O’Connor:

Well, certainly the Solicitor General’s brief suggests there may be substantial differences in answers to the two questions, and I just wondered whether we should confine ourselves to what you raised in the original cert position–

Gordon E. Krischer:

–I think–

Sandra Day O’Connor:

–and look to whether the plan sponsor was acting in a fiduciary–

Gordon E. Krischer:

–The first point, Your Honor, there are petitioners in this case, including the individuals who are on the retirement committee as well as the executives of Lockheed, who were sued in their executive capacity because they adopted or had the company adopt the amendment.

But you’re correct, the Solicitor General has raised, really for the first time, a distinction possibly between implementation of a lawfully amended plan with a lawful amendment on the one hand and whether actually adopting the amendment on the other are separate issues.

Now, in this case the Ninth Circuit didn’t make that distinction and, indeed, I think respondent in their opposition doesn’t make that distinction.

They call it a false distinction, because whether it’s analyzed as a question of plan implementation or whether it’s analyzed as a question of plan amendment, the key issue in this case on the first issue is, does it violate any substantive requirement of ERISA–

David H. Souter:

–Well, excuse me, I thought that wasn’t it.

I thought the question was whether it violated a fiduciary responsibility.

It is entirely possible that the plan sponsor might violate no fiduciary responsibility and yet violate some substantive bar to that particular amendment, and I thought we only had the first question in front of us.

Gordon E. Krischer:

–The… well, I think both… if you certainly want to limit yourselves to the first question, the Court can do it, but I believe that both questions should subsume–

Antonin Scalia:

Was there–

Gordon E. Krischer:

–and the overall question is–

Antonin Scalia:

–It depends on how you want to argue the case.

Antonin Scalia:

If you want to argue the case that the reason we should find for you on the first question is that the settlor is not a fiduciary, then our answer will not answer the second question.

Now, I suppose there are other bases on which we could answer the first question.

I suppose we could say even if he is a fiduciary the provision is not violative.

If we answered it that way, you would… whether we explicitly address the second question or not, you would implicitly answer the second question.

Gordon E. Krischer:

–Well, I think that’s what we’re suggesting, Justice Scalia.

Antonin Scalia:

Yes, well, not really.

I think most of your brief went to the fiduciary point–

Gordon E. Krischer:

Well–

Antonin Scalia:

–and the fiduciary point is not going to answer this second question, but do you have an argument that even if the settlor were a fiduciary the adoption of this provision would not have been unlawful?

Gordon E. Krischer:

–Yes, Your Honor.

The adoption of the provision by itself was not unlawful because it was a settlor function, but even if… even if it were not a settlor function, the substantive provision of this amendment doesn’t constitute a prohibited action under ERISA section 406.

Now, what the district court held, and really no one has taken issue with this in the Ninth Circuit decision or under the petitions here, and it held at page 31a of the petition, and I will… appendix 31a of the petition, and the nub of this case is held up in the third line: indeed, the sole fiduciary duty implicated by the amendment was the duty owed to defendant stockholders.

The court views the subsequent payment of enhanced benefits to selected participants as merely the defendant’s adherents in his role as plan administrator for the terms of the lawfully amended plan.

Now, what the Ninth Circuit held is, the whole scheme, amending the plan and paying benefits, that whole entire scheme is a violation of ERISA section 406, because it… what has happened, the plan has been amended, employees have volunteered to retire, and they are now receiving the benefits.

And what the Solicitor is suggesting is that a plan fiduciary who is complying… there’s no doubt that the fiduciaries that are paying the benefits are complying with the terms of the plan, so what is the fiduciary to do if the question remains open, which the Ninth Circuit didn’t really leave open–

Antonin Scalia:

That was the district court opinion you were quoting from, not the court of appeals.

Gordon E. Krischer:

–That is correct, and the Ninth Circuit didn’t quarrel with that and didn’t differ on that point.

The Ninth Circuit did hold, though, that the adoption of the amendments created a significant benefit for Lockheed, and that adoption of the amendments anticipated payment of benefits pursuant to the amendment constituted a prohibited transaction, because the court was aware… both the district court and the court of appeals were fully aware that benefits are being paid, and those employees that quality for the benefits because they met the eligibility criteria are, in fact, receiving benefits right now.

David H. Souter:

And if that point is sound, it is sound regardless of whether, in the act of amendment Lockheed was acting as a fiduciary or not, isn’t that correct?

Gordon E. Krischer:

It purported… the Ninth Circuit, Your Honor, purported not to decide that question, but in essence–

David H. Souter:

That’s right, but I mean, that question… the answer to… all I’m getting at is the answer to that question is not going to be dictated by whether we determine that Lockheed was acting as a fiduciary in making the amendment.

Isn’t–

Gordon E. Krischer:

–That’s correct.

David H. Souter:

–Okay.

Gordon E. Krischer:

That’s correct.

Stephen G. Breyer:

Mr. Krischer–

–What is–

–I’m sorry.

What is the normal trust law?

I set up a trust, 14 grandchildren, I’m the settlor, $1,000 a month to each.

Stephen G. Breyer:

I amend it, as I reserve the power to do, give $4,000 to Mary provided Mary gives me her apartment in Palm Beach.

Can the… is that under ordinary trust law, the fiduciary can carry that out or not?

Gordon E. Krischer:

It depends, I think, on the trust instrument, but I think–

Stephen G. Breyer:

Oh, no, no, I mean, it… assume normal–

Gordon E. Krischer:

–I think yes.

Yes, Your Honor.

Stephen G. Breyer:

–So in other words, you’re saying under ERISA they can say, give away the entire corpus, settlor amends it, says, give it all to John Smith, provided John Smith gives me his separate company.

Gordon E. Krischer:

Well, I don’t think that under ERISA that can be done.

Stephen G. Breyer:

Why not?

Gordon E. Krischer:

Because there are other requirements under ERISA that state what the minimum participation funding investing standards are.

Stephen G. Breyer:

They’re all with them.

I mean, what they’re saying is, look, what this is is, they’ve given away the body, or a share thereof, in return for a promise that has nothing to do… nothing whatsoever to do with any ERISA purpose, any labor piece, any anything.

They have to sign away other claims they have against the company that have nothing to do with anything.

It says, others, and that’s their claim.

So what’s the merits of that claim?

Gordon E. Krischer:

Mr. Justice Breyer, I agree that that claim is presented her, but the merits of the claim are that there is no bright line other than in 406 that’s drawn, and that’s the prohibited transaction rule.

An employer–

Stephen G. Breyer:

So you’re saying they can give away… they can give away the whole shebang.

Gordon E. Krischer:

–I’m… yes, Your Honor.

I’m saying that an employer, when it adopts a pension plan or increases benefits in a pension plan does so in its self interest, and unless it violates the minimum participation, vesting, or benefit accrual standards, or it constitutes a prohibited transaction, which we contend benefit payments are not, paying benefits pursuant to the terms of the plan is not a prohibited transaction, otherwise plans wouldn’t pay benefits.

Antonin Scalia:

So–

–He can terminate the plan if there’s no contractual commitment to continue it, can’t he, the employer?

Gordon E. Krischer:

Yes, Justice Scalia.

Antonin Scalia:

He can terminate it entirely.

Gordon E. Krischer:

He can terminate it at any time.

He has to follow the ERISA guidelines as to how the assets are allocated.

It can be terminated at any time.

It can be increased at any time.

What the employer is doing is making a promise.

Ruth Bader Ginsburg:

Can you have any conditions on it?

Ruth Bader Ginsburg:

Let’s say in the initial plan, when it first comes up, the employer says, I’m going to make these retirement benefits available to any and all workers who will agree that they will relinquish any claims of any kind that they now or hereafter should have against the company.

Would that be permissible?

Gordon E. Krischer:

The first part of that, Ms. Justice Ginsburg, would be.

The first part, meaning you can condition entry into the plan on raising… releasing present claims, so that you say only those who are eligible to get this new benefit.

I am promising a new benefit only to those that release present claims.

But future claims, ERISA would preclude that, and the reason ERISA would preclude future claims is, once the benefit is established and in place, it has to meet the minimum participation benefit accrual investing standards So to have that condition as part of the plan in the future to defeat or defease vested claims or benefit accrual, I don’t think the employer could do that–

Antonin Scalia:

What provision is that you’re talking about?

Gordon E. Krischer:

–but that’s not done here.

Antonin Scalia:

What are these vested provisions that are going to be violated by that commitment?

Gordon E. Krischer:

Well, for example, if… there’s a rule in ERISA in title I, the vesting rules, that indicate that for the… generally, that an employer has to vest in the benefit within a 5-year period, and if–

Antonin Scalia:

Well, he’s vested.

He’s given up… he has now committed to give up all those future claims.

He’s done what was requested.

Why does that prevent his vesting?

Gordon E. Krischer:

–Well, I don’t… it may not prevent vesting, but it may make it subject to defeasement.

I’m not sure, as a State law matter, someone can in fact waive future claims.

I mean–

Antonin Scalia:

No, but assuming he can.

That’s a totally different question, but if he can, I don’t see why that’s any different under ERISA from what’s at issue here.

Now, maybe they’re both okay, but you’re telling me one is different.

I want to know why it’s different.

Gordon E. Krischer:

–They are not different if you can assure the Internal Revenue Service and the Department of Labor and courts that you are not linking vesting or benefit accrual to some future event.

If you are not, in fact, linking them to some future event, then I think it is perfectly lawful to do that.

Antonin Scalia:

And your position is that’s okay because he doesn’t have to set up this plan anyway, and he can terminate it at any time, so he can make it conditional on anything that isn’t criminal.

Gordon E. Krischer:

That’s–

Antonin Scalia:

And I assume that giving up your claim against an employer is not criminal.

Gordon E. Krischer:

–It is not criminal, and, indeed, the courts as a matter of public policy favor settlement of claims.

Ruth Bader Ginsburg:

Mr. Krischer, you just said–

–Well, what the employer is doing–

–something about State law.

Ruth Bader Ginsburg:

You said, maybe giving up future claims would be something impermissible under State law.

Suppose State law says, employer agreements that require employees to relinquish any and all claims, even past.

That’s against the State public policy, and we don’t allow it.

That’s the State law.

What about the validity of such a term in a plan?

Gordon E. Krischer:

The term in the plan would still be a valid term.

It may be the particular release is not enforceable in State or Federal courts.

We have that situation right now because the plan… the release that employees in this case were asked to sign if they wanted this increased benefit released all claims related to employment, but in California, an employee cannot release a Worker’s Compensation claim unless it’s approved by the Worker’s Compensation Appeals Board.

If Lockheed thought that by getting a release signed here it was relieving itself of Worker’s Compensation claims, it’s wrong, and it was not, and the fact that Lockheed was wrong doesn’t prevent these employees from continuing to get their benefits.

The only requirement was that they sign a release.

There’s no requirement that it be enforceable or valid in all courts for all purposes.

Ruth Bader Ginsburg:

Well, what about Federal claims?

You explain that the State can protect its workers, say, with tort claims, unemployment, but what about, say, title VII claims, because this waiver would include race discrimination claims as well as tort claims, or Worker’s Compensation claims.

What about the Federal claims?

Gordon E. Krischer:

I believe that if the release is otherwise enforceable under those substantive provisions, it is enforceable and this provision is not unlawful, and indeed, the Internal Revenue Service has regulation–

Ruth Bader Ginsburg:

But then you’re making a distinction between Federal claims and State claims who’s saying the State can protect the workers despite the plan provision, but as far as Federal claims is… there’s no protection.

Gordon E. Krischer:

–No, the Federal Government could protect them, too, as, in fact, it has under the Age Discrimination Act, for example.

The Age Discrimination Act, in order to have a valid waiver of age discrimination claims, the release has to have certain recitations and be in a certain format.

If this release doesn’t meet that format, then age discrimination claims will not be waived.

All I’m suggesting is that the requirement of a release–

John Paul Stevens:

Maybe the release is unenforceable.

Gordon E. Krischer:

–is independent of whether it’s enforceable.

John Paul Stevens:

May I ask you kind of a more basic question?

Can we assume some trans… I know you take the position that requirement of the release is not requiring a prohibited transaction, is that–

Gordon E. Krischer:

That’s correct.

John Paul Stevens:

–Now, supposing the amendment did require compliance… performance of a prohibited transaction.

Would it be permissible to make the amendment?

Gordon E. Krischer:

Our position is, it would be permissible to make the amendment.

The amendment itself may be unlawful.

The act of amending the plan is not a fiduciary act, but if a plan, for example, required the pension plan committee to make imprudent investments, the making of that investment would be a prohibited transaction and separately challengeable, but that is apart from the design of the plan.

Gordon E. Krischer:

What an employer does–

John Paul Stevens:

So then your position… I want to be sure.

Your position is the same as the Government’s, except you take the position that performing the amendment would not be a prohibited transaction, whereas they say it would be.

Gordon E. Krischer:

–Well, I don’t… that’s correct, Mr. Justice Stevens, but I don’t think that the Government goes that far.

They’re not saying this will be a prohibited transaction.

They’re saying, they don’t know, that some releases might be okay, and some releases might not be okay, and they don’t draw a line.

All parties here have suggested a line be drawn.

Stephen G. Breyer:

What’s the line?

That’s my–

Gordon E. Krischer:

Well, we suggest that the line be drawn that’s already been drawn by Congress in the Statute under 406, and that is, if it’s a benefit payment, a payment of benefits to a participant required by the plan, that is not a prohibited transaction.

John Paul Stevens:

–No matter what the condition?

Gordon E. Krischer:

That is not a transaction at all.

John Paul Stevens:

No matter what the condition, even if the condition was that the beneficiary must agree that he won’t rent his house to a certain class of persons, or something, something totally unrelated to the plan?

Gordon E. Krischer:

As an academic matter, that’s correct, Your Honor, but you know, these pension plans are set up in the real world, involving real concerns of employees, and I–

John Paul Stevens:

I understand, but your view is that nothing that the pension plan authorizes can be a prohibited transaction?

Gordon E. Krischer:

–That goes too far.

Nothing that the pension plan authorizes, but payment of benefits pursuant to the lawful terms of the plan would not violate 406.

I’ll give you a–

Anthony M. Kennedy:

Pursuant to the lawful terms–

–There are two different things that are going on here.

One is, there’s the distinction between acting as a fiduciary and making the payment, acting as a settlor and making the… forgetting that distinction for a moment, and turning to the language of 406(a)(D), why isn’t this a transfer for the benefit of a party in interest?

I take it that’s what we’re… I take it that’s the statutory phrase that we’re–

Gordon E. Krischer:

–That is, Your Honor.

It’s on page 37a.

Anthony M. Kennedy:

–Why isn’t this for the benefit of the employer, and when you’re answering that, distinguish this hypothetical.

Suppose the employer said, you may take early retirement, you may get an enhanced benefit, if you lend us back the money at 3 percent for 10 years?

Gordon E. Krischer:

Responding to the first question, and then the hypothetical, if I might, everything an employer does with respect to its promise as to what the benefit level will be is in the employer’s self-interest.

Asking for a release is indistinguishable on that basis under the prohibited transaction rules from settling a strike, from requiring as a condition of increased benefit a covenant not to compete, other kinds of things employers do that–

Antonin Scalia:

Or the basic condition of continuing to work for the employer.

The quid pro quo for the plan is always something of interest to the employer, so if giving the employer a quid pro quo, your argument goes, were to violate this provision, every plan violates this provision, because the employer never gives his money away for free.

Antonin Scalia:

He at least says you’ve got to work for me for 10 years to get it.

Gordon E. Krischer:

–You’re correct.

Correct, Justice Scalia, and I think that underscores my point that everything that’s in the plan when it was amended or set up, in terms of benefit payments, is in the employer’s self-interest.

The answer to the–

Anthony M. Kennedy:

So would you answer–

Gordon E. Krischer:

–if I might–

Anthony M. Kennedy:

–the second half of his question?

Gordon E. Krischer:

–I’d like… the second half of the hypothetical, that pushes the line, and that is difficult.

I acknowledge that it’s difficult, but if what you’ve described is really a kickback scheme so that an employee really is getting a pension benefit and kicking it back to the employer, that is unlawful under the benefit accrual and participation provisions of ERISA and, Your Honor, it may be… it may be a Federal crime.

I mean, if–

Anthony M. Kennedy:

Well, but, can you–

Gordon E. Krischer:

–what you’re doing–

Anthony M. Kennedy:

–Is it a violation of this section?

That’s what I’m interested in.

Gordon E. Krischer:

–It is not a violation of this section.

Anthony M. Kennedy:

Why isn’t it for the benefit of a party in interest?

Gordon E. Krischer:

The party in interest here… there are two parties in interest.

One, respondent will argue Lockheed is a party in interest because it’s the employer.

The other person that’s a party in interest here, the Government has argued in its brief, or suggested, are employees, that under the Government’s theory it would be unlawful to ever pay a plan benefit to an employee while they’re an employee, because while they’re an employee they’re a party in interest, and the only reason you pay benefits to… that’s the purpose of the plan.

Stephen G. Breyer:

Why isn’t this a kickback?

Gordon E. Krischer:

It is not a kickback because… for several reasons.

Those employees that thought they had claims, no one was required to sign a release who didn’t want to.

Those employees who thought they had claims, like Mr. Spink, just simply didn’t sign a release.

It was entirely voluntary.

Secondly, this is a release of potential claims.

What the employer was trying to accomplish here was an early retirement program and not be sued by a number of ex-employees who may have second guesses, or Monday-morning quarterbacking about whether they’ve made that decision.

So admittedly the complaint as pleaded below is a release of all employment-related claims, but that’s what employers do when they sever a relationship with, in the most part, long-term employees, because in order to qualify for this benefit, most of the employees who qualified were long-term.

But I admit that you can think of scenarios, but there are other things that employers may wish to accomplish from their benefit plans.

For example–

Antonin Scalia:

My problem is that I could think of… my problem is not that I can’t think of scenarios.

Antonin Scalia:

My problem is that I don’t know how you distinguish the scenarios, how you distinguish the kickback from every other quid pro quo.

What characterizes something as a kickback?

Gordon E. Krischer:

–If it’s a sham transaction, I suppose.

Title–

Antonin Scalia:

What do you mean, sham?

He really wants to get the employee to waive all future causes of action.

Gordon E. Krischer:

–Well–

Antonin Scalia:

Or he really wants to get the employee to promise to make him a loan at 1 percent.

Gordon E. Krischer:

–If–

Antonin Scalia:

That’s not sham.

Gordon E. Krischer:

–No.

As long as it is part of the promise the employer made to the employee, and the employee is getting the benefit promised by the plan, we submit it is not a prohibited transaction.

Congress didn’t deal with that in the 406 rule.

David H. Souter:

Do you say it’s not a prohibited transaction, or do you say it’s not a prohibited transaction unless it is expressly prohibited, or unless it is prohibited by some substantive section of ERISA?

Gordon E. Krischer:

It is not a prohibited transaction under 406 because it’s not specifically mentioned, and it may not be a prohibited transaction, but it may otherwise be unlawful under another provision of ERISA.

For example–

David H. Souter:

So you’re saying, once we’re in a situation in which the question is whether the payment of the benefit is lawful, you simply look to some other source of law, you don’t look to this section.

Gordon E. Krischer:

–That’s correct, and one such other section is… would be section 403… I’m sorry, section 1054(g), which is… which specifically says an amendment to a plan may not cut back benefits.

So that if an employee is entitled to $1,000 a month benefit and the employer amends the plan to say, we’re cutting back the benefit to $500, 1) the amendment may be itself unlawful and challenged and the employer can be sued, and 2) the fiduciary, by paying the lower benefit, may be breaching a fiduciary duty to follow a substantive provision of ERISA, but 406, the prohibited transaction section, is not violated because it is not a prohibited transaction.

It is not one of those enumerated transactions that are listed in 406, which was supposed to be, under this Court’s decision of the Keystone Consolidated case, a bright line test.

Now, the Government’s suggestion–

Sandra Day O’Connor:

Well, what does that language in 406 cover, then, when it says that you can’t pay it to a party in interest, you can’t… you can’t transfer to or use by or for the benefit of a party in interest any assets of the plan.

What does that apply to?

Gordon E. Krischer:

–That would be giving a loan to Lockheed, taking money out of the plan and giving it to a participant in violation of the terms of the plan, doing something with the assets that are different than paying benefits.

David H. Souter:

Discretionary acts.

Its application is limited to discretionary acts, which are not provided for tin the plan, which are not expressly authorized in the plan.

Isn’t that what you’re saying?

Gordon E. Krischer:

Well, in part we are saying that.

We have made the argument that, indeed, paying the benefits here under this circumstance doesn’t involve a discretionary act at all.

It is just simply paying the benefit that someone had earned.

Gordon E. Krischer:

The… I see my time is up.

William H. Rehnquist:

Thank you, Mr. Krischer.

Mr. Bress.

Richard P. Bress:

Mr. Chief Justice, and may it please the Court:

We agree with petitioners that the court of appeals erred on both questions presented in this case, although our reasoning differs from theirs on several related issues.

As to the first question, Lockheed’s conduct in amending the plan did not violate ERISA’s prohibited transaction rules, because in amending the plan Lockheed acted as plan sponsor, or settlor, not as a fiduciary.

That is a sufficient and, we believe, the appropriate basis on which to reverse the judgment of the court of appeals–

Antonin Scalia:

It may be sufficient, but not very helpful.

I mean, if you’re running a plan, it’s not very helpful to know that, I mean, this can’t be done, and we say, well, maybe it can’t be done, but if it can’t be done, this is not the reason it can’t be done.

There may be some other reason.

I don’t think that’s why we took the case.

I really thought we were going to try to clarify the law for the businesses out there that have these plans, so why should we take the narrower ground if there’s a broader ground that does clarify the law?

Richard P. Bress:

–Well, Your Honor, with respect, the petition for certiorari argued that there was a conflict in the circuit only on the question of whether an amendment can be an act itself that violates section 406, so presumably that was the ground on which the Court took certiorari.

Ruth Bader Ginsburg:

But that would just defer the essential question.

That would defer… the essential question is, can you give enhanced benefits for early retirement with this kind of condition and waiver of all employment-related claims, and that one, as far as your brief went, you refused to give an answer to it.

You said that’s still open.

Richard P. Bress:

That is correct, Your Honor.

We… that issue is not one on which we or the lower courts have to this point given significant thought, at least before this case arose, and for that reason, that’s one of the reasons I believe that this Court should decide the question that was actually argued in the cert petition, and while this other matter is a broader matter, perhaps of greater concern, the Court may well fair better by allowing that issue to percolate some in the lower courts.

Ruth Bader Ginsburg:

But it seemed to me that the Ninth Circuit wasn’t making that distinction, that it was really answering the second question against the plan, against Lockheed.

Richard P. Bress:

I believe, Your Honor, that the Ninth Circuit answered both questions against… against Lockheed.

Ruth Bader Ginsburg:

So if we send it back, then they say, well, we answered both questions, so our answers still stand.

Richard P. Bress:

The one issue that the Ninth Circuit has not dealt with so far, Your Honor, is, assuming that the amendment of the plan is itself a lawful act, whether implementation of that amendment is… is therefore lawful or tends to be unlawful, petitioners have argued at points in this case that, given a lawful amendment, implementation can’t be unlawful because it can’t be unlawful for the fiduciary to pay benefits in accordance with the terms of the plan.

Stephen G. Breyer:

But they’ve said, I take it, that everyone now would concede… I don’t want to concede for them if they don’t really want to… that you have a plan, a certain amount’s earmarked for vested benefits, somehow there’s some extra cash around, and the settlor has amended it so that it says, take all the extra cash and give it to Smith, who happens to be one beneficiary, provided he gives to me, the settlor, his house, his car and a lot of other things that have nothing to do with it.

All right.

Now, I take it, that ought to be unlawful, but I don’t know where in the law is it that makes that unlawful.

Richard P. Bress:

All right, let me turn to that, then, Your Honor–

Stephen G. Breyer:

And not for the settlor, but I’m now an administrator, for the first time come to this act.

I just happen to walk in the building, and there I happen to read the document, and lo and behold, I see this in it.

Do I follow it?

Richard P. Bress:

–Okay.

Richard P. Bress:

As a matter of plain language, Your Honor, when a fiduciary authorizes the payment of enhanced pension benefits in return for an employee’s waiver of all claims as to the employer, the fiduciary is causing the plan to engage in a transaction that constitutes a use of plan assets for the benefit of the employer.

That is–

Antonin Scalia:

As a matter of plan… as a matter of plain language, the fiduciary does that whenever he pays out the benefits only if the employee continues to work for the employer.

I mean, there’s always a quid pro quo, and if you count the quid pro quo as being covered by this provision, every plan would be invalid.

Richard P. Bress:

–Your Honor, we agree with you entirely that it would similarly fall within the plain language–

Antonin Scalia:

Right.

Richard P. Bress:

–to pay benefits in return for an employee’s services.

Antonin Scalia:

Right.

Richard P. Bress:

However, it’s very clear within ERISA that that’s what Congress was talking about.

You’ve got… whether you’re talking about the definition of a participant, which is an employee or a former employee, whether you’re talking about how plans are set out, there are employer plans or employee organization plans.

When you look at the participation, vesting, and accrual rules in sections 202, 203, and 204 of ERISA, you see years of service, you see average compensation for years of service.

These are concepts that go all through ERISA, so you can say, then, that applying section 406 in context, where you’ve got services being rendered and in return you’re paying benefits, would frustrate the entire purpose of the act.

It’s a far different thing, however, to say 406 shouldn’t be given its plain reading because Congress anticipated and, indeed, intended to encourage–

Antonin Scalia:

You’re going to give it the narrowest meaning that will allow the act to have some function?

I mean, why is settling up when you leave the company all of the controversies between you and me that exist at that date, why is that so unrelated to the employer’s business?

Richard P. Bress:

–We’re not saying that it’s unrelated to the employer’s business, Your Honor, and we’re certainly not saying that ERISA says anything about an employer’s right to use its own money to buy a waiver of claims against it any more than ERISA prohibits its employer to use its own money to buy the employee’s house or car.

All we’re saying is that it’s doubtful that Congress intended to permit, indeed, to encourage employers to use plan assets for that purpose.

Congress was well aware–

Anthony M. Kennedy:

Why is it, in your view, that this is a lawful amendment of the plan?

Why does the language does not apply here?

What is the test that you’re proposing, the rule that we’re to follow?

Richard P. Bress:

–Your Honor, our view is that the amendment itself, the act of amending, was not unlawful under section 46 because, while amending the plan, Lockheed was not acting as a fiduciary.

Anthony M. Kennedy:

Beyond that, why does 40… I take it beyond that you agree with Lockheed as well.

Richard P. Bress:

No.

No, Your Honor, we do not agree with Lockheed.

We have taken the position that to the extent that the employer is calling for a waiver, for example, of prior defamation claims, sex discrimination claims, toxic tort claims, things of that sort, that it is a violation.

William H. Rehnquist:

It is a violation.

How do you get that distinction out of section 50… 406?

Richard P. Bress:

Well, out of section 406, Your Honor, what we take from there is that you’ve got a prohibition that is very strict, it’s written in very broad language, it’s in fact in a catchall provision.

In this Court’s decision in Keystone, the Court looked at 406 generally and opted for a broad interpretation consistent with Congress’ desire to protect plan assets, so what we’re saying is, you apply 406 by its terms except where it’s very clear elsewhere in the act that Congress didn’t mean for you to apply it in that context.

Richard P. Bress:

For example, you couldn’t apply 406 to prohibit a payment of advanced benefits in return for an employee’s services because that’s what… very clearly what the act is about, but when you go outside–

John Paul Stevens:

They don’t actually pay enhanced benefits for services.

They’re paying enhanced benefits for retirement.

Richard P. Bress:

–Well, that’s correct, Your Honor.

John Paul Stevens:

When they make the payment, the person is no longer an employee.

Richard P. Bress:

I wasn’t speaking to this case, but that is correct, Your Honor, and what we would say to that is that pension benefits generally have served dual purposes.

One is to attract and retain employees and the other is to encourage retirement.

John Paul Stevens:

The promise of benefits attracts the employee, but not the payment itself, because at the time the payment is made the person is a former employee.

Richard P. Bress:

That–

John Paul Stevens:

Unless it’s a disability benefit, and then they’re paid when they’re not working.

Richard P. Bress:

–That is correct, Your Honor, and we take the position that the promise itself–

John Paul Stevens:

But the promise isn’t covered by 406(D).

It’s… the payment is covered.

Richard P. Bress:

–Well, Your Honor, we would take the position that the promise would be covered in the following context, and that’s that if you take the position that it’s only the outflow of cash–

John Paul Stevens:

Right.

Richard P. Bress:

–then a fiduciary could pledge plan assets, guarantee debts with plan assets, agree to loans with plan assets, and all of that would be–

Antonin Scalia:

You say the quid pro quo is sucked into that.

That’s the use of the plan assets includes whatever you should get for a quid pro quo–

Richard P. Bress:

–That is correct, Your Honor.

Antonin Scalia:

–except you want to make an exception for–

Richard P. Bress:

Well, we don’t want to make an exception.

John Paul Stevens:

–Yes, but your–

Richard P. Bress:

We’re just carving as narrow exception out of section 406 as the act logically permits.

John Paul Stevens:

–But your pledge examples are all fit within the word transfer, but the promise of future benefits doesn’t–

Richard P. Bress:

Well, we’re talking about a use of plan assets, Your Honor, not a transfer here, and under section 406(a)(1)(D) a use of plan assets is included.

I would note here, by the way, because I think it’s important, that this is not a free market transaction we’re talking about.

ERISA provides tax subsidy that exceeds $52 billion a year to encourage employers to pay pensions to employees, and it should not lightly be presumed that Congress intended to extend that tax subsidy to cover purchases of all claims against the employer or, indeed, employer’s houses or cars.

If I may, I’d like to turn to the second question presented in this case, the OBRA 1986 issue.

Ruth Bader Ginsburg:

–On the first issue, what you’re saying, they’re buying the releases with tax-benefitted dollars, otherwise they’d have to pay for them with their–

Richard P. Bress:

That is correct, Your Honor–

Ruth Bader Ginsburg:

–with funds that don’t–

Richard P. Bress:

–so the taxpayer is essentially subsidizing this transaction.

Thank you.

William H. Rehnquist:

–Ms. Traber, we’ll hear from you.

Theresa M. Traber:

Thank you, Mr. Chief Justice, and may it please the Court:

Mr. Spink challenges two distinct practices which together resulted in a benefit to him of $85 a month after 11 years of service with Lockheed.

Lockheed tries to justify these two practices by ignoring the plain language of the statute.

Let me first turn to the 406 issue, the language of which is at page 8 of our brief.

The first issue is whether or not Lockheed was a fiduciary.

It’s our position that an amendment which directs the plan administrator to violate ERISA is a fiduciary act, and that nothing in ERISA or the common law supports the artificial distinction that Lockheed has made.

Under the–

William H. Rehnquist:

Where is this statutory section?

You just referred us to a page in your brief.

Theresa M. Traber:

–Yes, Your Honor.

It’s at the end of the first full paragraph on page 8, which is the language of 406 on which we rely here.

The common law carve-out for the settlor function simply does not encompass any kind of amendments which violate the law.

Under common law, whether you are creating a trust or amending it, you could not put into place an illegal provision, so the carve-out does not apply here.

So… and further, under 404(a)(1)(D), the plan administrator has a fiduciary duty to follow the terms of the plan unless they violate ERISA.

A plan sponsor who directs a plan fiduciary to violate that term inserts itself into the fiduciary–

William H. Rehnquist:

So you’re saying that ERISA, at least that section, incorporates all of the other legal prohibitions against what a trustee can do?

Theresa M. Traber:

–In 404(a)(1)(D), yes, absolutely.

It says that the fiduciary… the plan administrator… that’s not the language on page 8, Your Honor.

I don’t want to mislead you… that… it says that a plan administrator, as opposed to a sponsor may not implement any terms of the plan which violate ERISA, and so therefore what I’m saying is that where a plan sponsor orders the plan fiduciary to violate that term, they’re inserting themselves into fiduciary conduct.

William H. Rehnquist:

But are you saying it’s a violation of ERISA for a plan to adopt a provision that would, say, be contrary to a State law for a trustee?

Theresa M. Traber:

I… I… we haven’t addressed that, Your Honor.

William H. Rehnquist:

So you don’t need to make that point for your argument here.

Theresa M. Traber:

No, Your Honor, and 4(a)(1)(D) addresses plan terms that violate ERISA specifically.

The further question isn’t really presenting here.

William H. Rehnquist:

So you’re not relying on any proposition that, because this might have violated some other law, it’s bad.

Your argument’s self-contained within ERISA.

Theresa M. Traber:

That’s correct, Your Honor.

The plan terms here also support our argument that this was a fiduciary act.

In this particular case, the amendment itself inserts Lockheed into plan administration by asking… by having Lockheed collect the releases, and draft them, and provide a list to the administrator of who has met the eligibility requirements, so every aspect of this amendment indicate Lockheed’s invasion into the sphere of plan administration.

John Paul Stevens:

May I ask you if the portion of section 406… 404 on which you rely is quoted in any of the papers?

Theresa M. Traber:

Yes, it is, Your Honor.

John Paul Stevens:

And do you know where?

Theresa M. Traber:

There are quotations to many statutes in the papers, Your Honor.

I believe–

John Paul Stevens:

But you place particular reliance on 404, that’s why–

Theresa M. Traber:

–Yes.

I believe it is quoted in our argument with regard to the amendment.

0….

I… Your Honor, I don’t find exactly where it is cited in our brief.

I believe it is discussed in addition in the brief of the Solicitor General with regard to why it is if… on a separate matter why implementation of an illegal plan amendment is also illegal under ERISA, but I don’t see it here.

I apologize.

I’d like to also look… direct the Court’s attention, which is discussed in our brief in a footnote on–

–The section you’re talking about is 404–

Theresa M. Traber:

–404(a)(1)(D), Your Honor.

405 also supports our position in that it directs… 405(c)(2)(A)(ii) says that a named fiduciary violates… a named fiduciary can violate 404(a)(1) if it establishes a written procedure which is improper with respect to designating someone who can take over the obligations of that named fiduciary, so there… it isn’t true that there’s no provision in ERISA which actually imputes fiduciary standards and fiduciary duties with regard to an amendment.

I’d like to–

Anthony M. Kennedy:

–Is it permitted for the plan to require that the employee who is receiving severance benefits and payments from the plan release the plan from all further liability?

Theresa M. Traber:

–Your Honor, that is not a prohibited transaction, because the plan is not a party in interest.

Anthony M. Kennedy:

So that is permitted.

Theresa M. Traber:

As far as I understand, at least under 406.

Stephen G. Breyer:

But most of these things do give enormous amounts of money and the employer’s pocket.

If he settles a strike, if he gets people to retire early, there are lots of instances where, as you’ve read in the SG’s brief, to enter into a perfectly reasonable… make a perfectly reasonable provision in the plan, it sounds reasonable, to give subset A of employers more money… employees more money, and in return, they do something for the employer.

That happens every day of the week, and so how do you interpret the language there to allow that and to forbid something else?

What’s the line?

Theresa M. Traber:

The only way to interpret the language, which was passed with the overriding purpose of protecting pension benefits, and which says in its most literal form that plan assets may not be used by a party in interest or to benefit a party in interest, is to interpret that language extremely broadly and to only carve out uses or benefits which are necessary incidents of running a pension plan.

Stephen G. Breyer:

Well, it’s not necessary to settle the strike.

Stephen G. Breyer:

I mean, perhaps it isn’t necessary.

It just happens that the workers want it.

Theresa M. Traber:

Well, Your Honor, perhaps it’s a more difficult issue, but I believe that the issue of settling a strike is very similar to attracting employees at the outset.

If you have higher benefits, the employees of your competitor may leave that competitor and come to work for you.

If you increase your benefits, the people on strike may say, we’ll come in off the strike because we’ve been provided with pension benefits that are increased, and therefore we’re not going to have–

Stephen G. Breyer:

What I’m asking–

Theresa M. Traber:

–the same beef about wage claims.

Excuse me.

Stephen G. Breyer:

–What I’m actually worried about is, this seems very complicated to me.

Maybe it shouldn’t.

I don’t see what the line is.

I’m not certain it’s been argued below.

I don’t even see in the record what the document is that we’re talking about or how it should be interpreted.

Should we decide–

Theresa M. Traber:

The release itself, Your Honor?

Stephen G. Breyer:

–Yes, I mean the release itself.

Should we decide this, or should we send it back?

Theresa M. Traber:

Well, I believe that the court below decided that because of the breadth of the release and because the release was not an incidental benefit of running a pension plan that–

Stephen G. Breyer:

We’re just doing this on a complaint or something, aren’t we?

Theresa M. Traber:

–Yes, it’s a 12–

Stephen G. Breyer:

They didn’t even argue that.

We don’t even know what the reasons… I’m nervous about it.

Theresa M. Traber:

–That’s absolutely correct.

It’s a 12(b)(6) motion, Your Honor.

The entire complaint was dismissed on a 12(b)(6) motion by the district court.

Ruth Bader Ginsburg:

Ms. Traber, in that light, could you tell me what you think the Ninth Circuit thought it was leaving over in footnote 5 to its opinion?

It apparently thought that there were a number of questions that it need not address in view of its position on the amendment being impermissible.

Theresa M. Traber:

I–

Ruth Bader Ginsburg:

It’s on 14a of the–

Theresa M. Traber:

–I believe, if it’s the footnote that I think you’re referring to, Your Honor, I believe it was leaving open… it was leaving open the separate claims of whether there was a separate violation of ERISA 404 and 403, and also… it was leaving open the issue of… it was leaving open the issue… I believe what it decided here was that there… although it may have been inartfully drafted, I believe what it decided here was where there’s an amendment that directs a violation of 406, then that is a… constitutes fiduciary conduct and results in prohibited transaction, but it was leaving open the broader issue as to whether an amendment which directs a violation of 404 or 403, which it decided not to reach, would have been a prohibited… or, excuse me, violations of those provisions.

Theresa M. Traber:

The only thing that is actually before the Court in the most narrow sense is whether or not a 404… excuse me, a 406 violation has been… has occurred here as a result of this.

I would state–

Antonin Scalia:

–Ms. Traber, how would it fit into your scheme if the employer offered early retirement to people but said, on the other hand, I don’t want you working for my competitors, so if you retire and commit yourself not to take the knowledge that you’ve acquired from my business and work for competitors for a certain period of time, and if you make that commitment, you can get this early retirement.

Would that be okay?

Theresa M. Traber:

–It’s our position that they could do that with their own assets paid out of corporate coffers.

They could not do that with plan assets because that additional covenant not to compete, so to speak, would be additional… a benefit which does not benefit the plan, does not benefit participants, but only benefits the party–

Antonin Scalia:

Well, it benefits participants by inducing the employer to make a plan provision that otherwise wouldn’t be made.

I mean, every time we say there’s another… you know, another quid pro quo that the employer can’t get, you’re inducing employers to have that fewer… that fewer plans.

Theresa M. Traber:

–Well, Your Honor, the statistics on that that are quoted in the brief really don’t bear that out.

The statistics in the GAO report say that only 28 percent of any employers who’ve done early retirement plans have attached waivers to them, and most of the employers say that the reason they don’t attach waivers is because it increases morale both for the remaining employees and for the retiring–

William H. Rehnquist:

What if you just had a brand-new plan that Justice Scalia provided, not a plan… not an amendment to an existing plan, would there be anything wrong with those conditions?

Theresa M. Traber:

–Well, Your Honor, I think that’s a much more difficult question, because it doesn’t deal with assets that are already held in trust, and I believe on separate issues that’s a violation of the nonforfeitability provisions that Mr. Krischer discussed with regard to vesting provisions.

William H. Rehnquist:

Well, then you really do discourage employers.

I mean, here you have an employer who’s going to set up a new plan and offer benefits to employees, and you say that most of the benefits he would like to offer make the plan invalid.

Theresa M. Traber:

Your Honor, if… I think Congress was trying to draw a very bright line with regard to assets that are held in trust and receive immense tax advantages.

For example, the tax advantages that flow from holding these assets in trust are many.

First of all, the dollars that are put into the plan are much less than the dollars that the employer can pay out down the road, so because the income of the trust is not taxable, they can actually provide greater benefits than they would otherwise be able to pay.

Further, they… if you have… it increases the ability of the employer–

John Paul Stevens:

Yes, but that argument applies equally to a provision in the original plan or to an amendment after the plan’s been in effect for a while.

Theresa M. Traber:

–I think the… would that apply to either?

The analysis–

John Paul Stevens:

Your argument does, yes.

Theresa M. Traber:

–Yes.

The analysis of what Congress was trying to protect would apply to either.

I think the most difficult question, Justice Stevens, is whether, when the employee retires and the plan administer… in a new plan, under Mr. Chief Justice’s hypothetical when the employee retires in a new plan that’s been created with this provision, so long as it only goes to claims prior to the plan, the issue is whether, when the benefits are paid out in exchange for looking at the tally and seeing whether or not the release was signed and whether or not there is an exchange, that violates the law.

But that’s a… and I don’t think that our standard necessarily addresses that, but I think that’s a much more difficult question.

John Paul Stevens:

But I don’t–

–I’m surprised you say it’s more difficult.

I don’t see why, if the provision is unlawful, why it’s only unlawful if it’s an amendment, whereas it would not be unlawful in the original document.

Theresa M. Traber:

Well, I… as I said–

John Paul Stevens:

I just have trouble understanding why that is so.

Theresa M. Traber:

–Well, as I said, I believe under our standard it is unlawful, because of that exchange–

John Paul Stevens:

In the… even if it were in the original instrument?

Theresa M. Traber:

–Yes, Your Honor.

John Paul Stevens:

I think that’s your argument.

I may have missed something.

Theresa M. Traber:

Yes.

Yes, Your Honor, it is.

Stephen G. Breyer:

What is the standard?

I mean, Congress must, for example, have… wants employers to give people… pay $2,000 extra money, if you retire early.

That must be okay.

Theresa M. Traber:

That’s okay, so long as it’s out of the corporate coffers.

Stephen G. Breyer:

What does that mean, out of?

A retirement agreement by an executive is 14 pages long in small print, has 3,867 normal provisions in it, okay?

Theresa M. Traber:

Yes.

Stephen G. Breyer:

Now, which are those are okay and which aren’t?

How do I know?

Theresa M. Traber:

There are–

Stephen G. Breyer:

How do I know if it isn’t normal to have an anticompetition agreement when an executive scientist retires, or whether it’s abnormal, or whether it’s expected, whether you could never get it without it?

How do I know–

Theresa M. Traber:

–Well, I think the way… I think Congress provided an explicit procedure for doing that.

Under 408, the… well, first of all, in the legislative history Congress said, we want this to be broad.

We recognize it encompasses beneficial transactions, and that it is extraordinarily broad.

If someone wants an exemption from it because a particular transaction is, in fact, beneficial, or wants an exemption that would relate to an entire class of transactions, the option that they have under 408(a) is to go to the Department of Labor and seek an exemption, and that’s where the flexibility is in the statute, and that’s what Congress said the provision was to be.

Stephen G. Breyer:

–Has the Department of Labor ever written anything that would help us with this that you’ve come across?

Theresa M. Traber:

With regard to this particular issue?

I don’t… not that I’m aware of with respect to this particular issue, Your Honor.

Antonin Scalia:

But it would be your position that if a company has a standard retirement agreement with its employees that all employees when they retire sign and if they sign they get… I don’t know, they get a termination benefit, and if an ERISA plan refers to, you know, you can get increased ERISA benefits if you retire pursuant to the normal retirement procedures of the company, if any of those retirement procedures in the standard form of the company that’s even used apart from ERISA, if any of those include anything other than working for the company, the ERISA retirement thing would be bad.

Theresa M. Traber:

Oh, no, Your Honor.

No, Your Honor.

Antonin Scalia:

Oh, you can–

Theresa M. Traber:

Their welfare… if I understand your hypothetical, their welfare benefit–

Antonin Scalia:

–My hypothetical is that the condition is not in the ERISA plan, but it is incorporated by reference.

Theresa M. Traber:

–But there’s a plan–

Antonin Scalia:

It says, if you retire in good standing and sign the ordinary retirement agreement that the company has, okay, and that’s a standard agreement that it’s had for years, would a reference to that in the ERISA plan make the retirement benefit invalid?

Theresa M. Traber:

–If the benefits paid out are conditioned on… if the benefits paid out of the trust are conditioned on that type of waiver, yes, it would.

If they are separate… if an employer, which some employers do, created an early retirement plan with plan assets and then separately say, and in addition we’ll give you $1,000 if you sign this waiver, that’s fine, but the plan assets are to be held inviolate.

That’s why Congress passed 406, and that’s what the plain language means.

If it may please the Court, I would like to turn briefly to the issue of OBRA.

The… we… I’d like to make three main points with regard to that issue.

First of all, Spink’s… Mr. Spink’s overclaims attack a discriminatory plan provision that was put into place in 1990, and–

William H. Rehnquist:

Where do we find the text of OBRA, Ms. Traber?

Theresa M. Traber:

–Oh, I’m sorry, Your Honor.

It’s on pages 26 to… the key provisions are on pages 26 to 27 of our brief.

William H. Rehnquist:

Thank you.

Theresa M. Traber:

And the two acts that are being attacked are the discriminatory plan provision which created… which Lockheed created in 1990, and its application to him when he retired in June of 1990.

The events at issue, therefore, occurred more than 4 years after the date of OBRA’s passage, and therefore this is simply not an issue of retroactivity.

Turning to… looking at the plain meaning of the benefit accrual provisions which are set forth here, the provisions, Your Honor… may it please the Court, the provisions that I’m referring to are in the last paragraph on page 26 and beginning at the top of the page and into the indented portion on page 27 for your reference.

All of these provisions refer to an employee’s benefit… rate of benefit accrual and are referenced and applied only to employees who have 1 hour of service with any of the applicable plan years.

It’s clear from a textual reading of these provisions that they were intended to apply equally to all employees during those plan years and so long as they were employees during those years.

Now, Lockheed, by relying on the proposed regulation, and the Solicitor General, concede that for people who were participants before OBRA all years of service must be considered in the benefit accrual calculation, and it is to be remembered in this entire mix that this is a case involving a defined benefit plan where the antecedent events of service, of salary levels, and of various other factors that are included do not have any clear significance until the date of retirement, when a particular benefit formula under the plan is applied to them.

It’s not a contributory plan.

It is a plan which is a defined benefit plan, and that’s why the Solicitor General says that there is a requirement of including all years of service for current employees and, in fact… but what they take issue with is our interpretation of reduction in the rate of benefit accrual.

But I would direct the attention of the Court to the proposed regulations, and you will find there that they did not take the same position with regard to the interpretation of reduction of rate of benefit accrual in their regulations.

On the contrary, they said that any limitation which directly or indirectly depended on age would constitute a breach of that.

That’s our position as well.

They also said that if there were new benefits which were denied in part on age–

William H. Rehnquist:

The–

Theresa M. Traber:

–or were provided… I’m sorry.

William H. Rehnquist:

–You’re going so fast I’m having great difficulty following you.

William H. Rehnquist:

You’re saying now that the Department has been inconsistent?

Theresa M. Traber:

Yes, Your Honor.

The Department has taken the position in this Court that the phrase, reduction in the rate of benefit accrual, means only something that goes over time.

That is–

William H. Rehnquist:

Where did they take the position you think is inconsistent?

Theresa M. Traber:

–The position that I believe is inconsistent is in the proposed regulation itself, which is section 1.411(b)-2(b)-2-ii.

[Laughter]

And in other aspects… they also say that–

William H. Rehnquist:

Well, but has the proposed regulation been adopted?

Theresa M. Traber:

–No, Your Honor.

My… our point is that… is that they have taken inconsistent positions here, but that the position that we have taken indicates that… is consistent with the proposed regulation to the extent that it goes to the broader reading by the Department, by IRS, to interpret the terms of the plan.

What they go further and do is carve out an exception which is nowhere in the statute.

Congress–

David H. Souter:

May I interrupt you there?

Why isn’t the, what you call the exception built into 9204(b)?

Theresa M. Traber:

–Your Honor, because–

David H. Souter:

Which refers, in speaking of application, not only to plan years beginning on or after January 1, 1988, and only with respect to service performed on or after such date.

Theresa M. Traber:

–Because you… if you look at the legislative history, particular at–

David H. Souter:

Well, before… I… it’s not that I don’t want to hear about legislative history, but what about just the plain meaning of those terms?

Theresa M. Traber:

–The plain meaning of the statute is that that, but only with respect to years of service, relates to the provision it is intended to implement, which is a repeal and an application of a delayed retirement age, and the only counting that is done under those two limited statutes is a calculation of a delayed retirement age.

That’s a very significant factor.

That means that when they passed it in October of 1986, if you apply the 2-year delay before the effective date, and then you apply the delayed retirement age, there… under 206(a) of ERISA a plan with respect… had the option under OBRA not to pay a person like Mr. Spink any benefits until 1993, because under… they could delay the delayed… the normal retirement age by 5 years, and then they… and under 206(a) they need not pay any benefits until the date of the normal retirement age at the latest.

There are a series of dates, but that is the latest.

So basically… and Congress in the legislative history said, we recognize that there is an issue about cost of funding.

Antonin Scalia:

Well, you’re saying that’s one thing that it could cover, but by its text it covers much more than that.

I mean, by its text it says the amendments made only apply to plan years beginning after January, on or after January 1, and only with respect to service performed on or after such date.

Theresa M. Traber:

And Your Honor, there’s–

Antonin Scalia:

I mean, that’s pretty clear.

Theresa M. Traber:

–There’s no necessary relationship, though, between those participation statutes and the benefit accrual statutes.

As we demonstrated in our brief, benefit accrual calculations can include all manner of provisions.

Theresa M. Traber:

There are baseline minimum calculation standards that need to be met, but the formula itself can be… can partake of various factors, service, excess salary… it can be a plain lump sum at the end of a… or a percentage of salary without regard to years of service.

So it is… there’s nothing in the statute to indicate that these two provisions, 9203 and its effective date, were designed to be superimposed on separate provisions, 9201 and 9202, which has a separate effective date.

Lockheed did not answer many of the questions raised in our brief, including why are there two effective date provisions if Congress intended this separate provision, which is only a couple of lines down from the other one, to apply to the other provisions?

It’s just… they’re trying to carve out an exception in the statute that doesn’t exist there, and on pages 4024 and 25 of the U.S. Code and Congressional and Administrative News in 1986 which deals with OBRA, Congress said we recognize there are funding issues, and therefore we’re going to implement the delayed retirement… excuse me, the delayed normal retirement age.

They didn’t say, and there can be other things you can do to deal with the funding issues.

Under funding statutes, under ERISA generally, the funding for those benefits don’t begin until the effective date.

They wouldn’t have done for Lockheed.

Thank you, Your Honor.

William H. Rehnquist:

Thank you, Ms. Traber.

The case is submitted.

The honorable court is now adjourned until tomorrow at ten o’clock.