Employees brought action for violation of breaches of fiduciary duty under ERISA (ERISA) arising from change and partial termination of pension plan. The United States District Court for the Eastern District of Pennsylvania, James T. Giles, J., barred fiduciary claims as untimely and dismissed non-fiduciary claims on grounds that no "partial termination" occurred. Employees appealed. The Court of Appeals, Mansmann, Circuit Judge, held that: (1) "actual knowledge" requirement of ERISA limitations requires plaintiff to have actual knowledge of all material facts necessary to understand that some claim exists; (2) remand was required to determination when each employee had actual knowledge of all material facts; (3) ERISA non-fiduciary claims were timely under borrowed Pennsylvania statute of limitations; and (4) remand was required for determination of whether "partial termination" of plan occurred.
Affirmed in part, reversed in part, and remanded.
Alito, Circuit Judge, concurred and filed opinion.
Simon E. Gluck and the other named plaintiffs are Pennsylvania residents who, with few immaterial exceptions, worked for over 20 years for Unisys Corporation or its predecessor, Burroughs Corporation. The defendants are the Unisys pension plan, Unisys Corporation, and the various fiduciaries and administrators of the Unisys and Burroughs plans.
From 1951, Burroughs maintained the Burroughs Employees' Retirement Income Plan ("BERIP"), a defined benefit plan *fn1 consisting of two separate parts. Under the first, "non-contributory" part, all employees received annual retirement benefits without any obligation to pay money into the plan. The second, "contributory" part, was voluntary, and required after-tax employee contributions.
An employee who chose to become a "contributory member" was entitled to receive an additional "contributory retirement benefit" equal to an annual payment of 40 percent of his total contributions. The amount of the accrued contributory benefit thus increased with each payment. The right to receive the contributory benefit vested after a contributory member either reached age 65 before discontinuing contributions or had made continuous contributions over a 10-year period of employment.
Any contributory member could discontinue voluntary contributions and receive a refund of the amount contributed plus interest at a rate of two to five percent. Contributory members whose benefit had vested, however, could discontinue voluntary contributions, receive a refund of their total contributions with interest, and still receive the defined contributory benefit, less the withdrawn contributions, the actuarial value of which BERIP set at ten percent per year of the amount withdrawn. For example, if a vested employee elected a refund on the day of his retirement after contributing a total of $1,000, he would receive $400 per year minus $100 per year, or $300 per year under the formula: (40%)($1,000) (10%)($1,000) = $300. In this litigation, the parties have referred to the remaining defined contributory benefit (the $300 per year in our example) as the "residual benefit" or "residual."
BERIP also provided early retirement benefits for both contributory and non-contributory members whose benefits had vested. The formula for a contributory early retirement benefit reduced the normal contributory retirement benefit by one-half of one percent for each calendar month by which the retirement date preceded the retiree's sixty-second birthday. In our example, a contributory member retiring on his sixty-first birthday would receive $282 annually, that is, $300 minus 6%. Members who retired after age 60 with over 30 years of service would receive their full, unreduced benefit. In our example, a 61-year old member with 30 years' service would receive the full $300 per year, as compared to $282 per year received by a similarly situated member without 30 years' service.
Based on actuarial assumptions about Burroughs' future liabilities under BERIP, Burroughs funded both the contributory and the non-contributory parts of the plan with pre-tax dollars and invested the assets of the plan, including the employee contributions, at market rates of interest. It is undisputed that in 1984, the assets in the plan exceeded the present value of Burroughs' liability to pay future defined benefits. In their complaint, the employees claim that this overfunding, or "surplus," amounted to $100,000,000.
Sometime in 1984, Burroughs amended BERIP to terminate the contributory part of the plan, effective July 1, 1984. Also effective July 1, 1984, Burroughs initiated the Burroughs Employees Savings Thrift ("BEST"). BEST is a 401(k) plan, in which employees could defer income, receive matching contributions by Burroughs, and make additional voluntary contributions. BEST participants are at all times 100% vested in their own deferred and additional contributions, and vested according to a schedule in the company's matching contributions.
Burroughs heralded the 1984 creation of BEST as a major addition to your benefits which will give you an opportunity to enhance substantially your future financial security.
The Burroughs Employees Savings Thrift (B.E.S.T.) plan represents a significant improvement in your benefit package and a major financial commitment from the Company .... Because the B.E.S.T. offers a more tax-efficient way to build a personal investment fund, on June 30 we are discontinuing ... the contributory portion of Burroughs Employees' Retirement Income Plan .... If you are contributing to Burroughs' retirement plan, you'll receive a personal letter in April showing your account balance. Your contributions plus interest will be transferred to the new B.E.S.T. and invested or paid out as you direct. Letter from W.M. Blumental, CEO (Feb. 15, 1984), App. at 367.
The amended BERIP gave two options to contributory members, who could no longer accrue contributory benefits by paying into BERIP. Contributory members could opt to withdraw their total contributions, as they could have done under BERIP. Under the amended BERIP, they would receive five- percent interest applied retroactively to all contributions. Vested contributory members would receive the residual benefit, calculated, as under the original plan, by reference to their total contributions. Alternatively, a contributory member's total contributions and interest would be transferred to a BEST account and he would receive the residual benefit based on contributions through June 30, 1984. Thus, employing our previous example, a non-vested contributory member could either elect to receive $1,000 cash and no residual, or to transfer the $1,000 to BEST and receive a residual upon retirement of some amount less than $300 per year. *fn2 Under the amended BERIP, vested contributory members still received the residual, calculated from the time contributory participation had ended, which at the latest would be June, 30, 1984, the date on which the contributory part of the plan ended.
The company literature explained these options in a letter dated March 5, 1984, as follows:
As a contributory member of Burroughs Employees' Retirement Income Plan, you may be interested in the personal impact of recently announced changes in our benefit package for retirement ...
* First of all, the noncontributory part of the plan, fully paid by the Company, remains in place with an improved benefit formula. The new Burroughs Employees Savings Thrift (B.E.S.T.) plan will be replacing the contributory part of the plan.
* As in the past, all the retirement contributions you have made plus interest are yours to do with as you choose. They will be transferred to B.E.S.T. unless you decide to withdraw them prior to July 1, 1984.
* Besides the noncontributory retirement benefit, you may be eligible for an additional Company-paid benefit from the retirement plan as a result of your prior contributions. This benefit, referred to as a residual benefit, is what remains from prior Company contributions after your contributions plus interest are no longer in the plan. When your account balance transfers to B.E.S.T., this residual benefit, if any, will remain in the retirement plan and become part of your regular benefit provided by Burroughs.
Before employee meetings begin, we will provide you with a personalized letter which shows your contributions plus accrued interest. It will also show your approximate residual benefit, if any, at age 65 upon transfer of your account to B.E.S.T. App. at 369 (emphasis in original).
The "personalized" letter, dated March 29, 1984 began: "Dear Burroughs employee: As you know, Burroughs is improving its benefit package to enhance your future financial security." On the reverse side, the letter continued:
Your contributory account balances as of February 29, 1984, are indicated below. The residual benefit noted which will remain in the retirement plan, is the estimated additional annual normal (age 65) retirement benefit you would receive ....
When account balances transfer to B.E.S.T.:
Your account balances noted above will increase by the amount of your contributions between March 1 and July 1 and continue to earn interest (5% per year) until the month of transfer.
If you withdraw your contributory account balance:
Should you choose this alternative, you will not receive a residual benefit, if you are eligible for one, unless you are at least age 65 or have continuously contributed for a period during which you are credited with 10 or more years of service. App. at 371-72.
The prospectus described the change as follows:
Contributory feature discontinued
Because B.E.S.T. provides a more tax advantageous and flexible savings opportunity, the contributory part of the Retirement Income Plan will end as of July 1, 1984. Here are some things you should note:
Further, if you become vested in the retirement plan, you will continue to be eligible for the accrued benefits, if any, attributable to Company contributions as the result of your prior participation. This "residual benefit" will become part of your pension benefit. If you're affected, you will be notified. App. at 500-01.
The amended BERIP also reduced early retirement benefits for all participants except members with either 20 or more years of service or those aged 55 or older on June 30, 1984. The amended BERIP calculated the early retirement benefit by reducing the normal retirement benefit one-half of one percent for each month by which the early retirement date would precede the retiree's. sixty-fifth (rather than sixty-second) birthday. Thus, a contributory member with less than 20 years of credited service, who on his sixty-second birthday had been entitled to receive an additional $100 per year, would be entitled only to an additional $82 per year: $100 - (67o per year) (3 years) = $82.
The employees claim that the 1984 termination of the contributory part of the plan, together with the reduction of the early retirement contributory benefit, increased the surplus (the amount by which the plan was over-funded) because these two actions decreased Burroughs's expected future liability.
One further event is critical here. Effective April 1, 1988, after a merger of Burroughs and Sperry Corporation created Unisys Corporation, the amended BERIP was merged into the Unisys Pension Plan. The Unisys plan established a uniform retirement benefit for covered employees. It did not provide for payment of the residual, except that a limited class of employees were entitled, by a "grandfather clause," to have their retirement benefit calculated under the amended BERIP, and not under the Unisys plan. *fn3 The Unisys plan thus put contributory and non-contributory BERIP participants on equal footing. Despite their many years of contributions, former BERIP contributory participants did not receive any additional retirement benefit under the Unisys plan. The employees-former contributory, members allege that any overall increase in benefits to all of the employees was funded, at least in part, by amounts formerly allocated to pay the residual to the contributory members.
The Unisys plan also further reduced the early retirement benefit formula. It maintained the exception for those with 20 or more years of service, but eliminated the early retirement benefit for those with 30 or more years of service. Also continued in 1988 was BEST, which appears to have been amended by ...