Mаrjorie Hickey and other current and retired employees of the Chicago Truck Drivers, Helpers and Warehouse Workers Union and two funds maintained by the Union, brought an action against the three employers for the reduction of accrued benefits under the employer’s Staff Retirement Plan (“thе Plan”) in violation of the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1054(g)(1) (1984). The district court granted partial summary judgment in favor of the employees, holding that the Cost-of-Living Adjustment (“COLA”) prescribed by the Plan was an accrued benefit and, therefore, its elimination was a decrease of the accruеd benefit in violation of ERISA.
Hickey v. Chicago Truck Drivers, Helpers & Warehouse Workers Union,
No. 88 C 8696,
The defendants now appeal, arguing that (1) the COLA is not an accrued benefit under ERISA and (2) even if the COLA is an accrued benefit, it was eliminated at thе termination of the Plan, and thus the accrued benefit was not “decreased by an amendment of the plan,” as provided in Section 1054(g) of ERISA. Therefore, defendants argue that elimination of the COLA did not violate ERISA.
I.
In 1961, the Union created a pension plan to provide retirement benefits to any employee who wished to participate. Hickey and other past and present employees were Plan participants. In 1973, defendants amended the Plan to add a COLA to all retirement benefits. The amendment pro *467 vided that if the Consumer Price Index (“CPI”) increased in any year following a participant’s retirement, then the monthly benefit would be increased accordingly, thus preventing a reduction in the real value of the benefits.
Article IV of the Plan prescribed a formula for computing a participant’s monthly accrued benefit, based on his months of service and compensation. Article IVA provided that on each anniversary of a participant’s retirement, the participant’s monthly benefit was to be multiplied by an adjustment factor. The adjustment factor depended upon the increase in the CPI over the prior year. The adjustment could not exceеd 10% per year with an individual lifetime cap of 200%.
Section 4A.02(b) provided that there would be no further change in the monthly benefit after termination of the Plan. This provision dates from 1976.
In 1987, the Plan was terminated without providing funding for future increases in the cost-of-living. Hickey and several other Plan participants brought this action to prevent defendants from eliminating the COLA. They argue that the COLA is a part of the monthly accrued retirement benefit and, as such, the COLA could not be eliminated without decreasing the accrued benefit, in violation of 29 U.S.C. § 1054(g)(1).
The district court examined the pertinent legislative history and conсluded:
The legislative history contrasts accrued benefits with ancillary benefits. Accrued benefits include pensions and retirement benefits, as well as those benefits that do not generally accompany employees as they move from one employer to the next. Ancillary benefits, by contrast, include medical or life insurance, and generally are provided by subsequent employers. The “primary function” of accrued benefits is to “provide retirement income.” As such, accrued benefits do not encompass
such items as the value of the right to receive benefits commеncing at an age before normal retirement age, or so-called social security supplements which are commonly paid in the case of early retirement but then cease when the retiree attains the age when he is entitled to receive current social security benefits....
H.R.Rep. N. 93-807, 93d Cong.2d Sess. 60 (1974), reprinted in II Legislative History at 3180. The COLA is an accrued benefit: its primary purpose is to provide retirement income, it commences only at retirement, and it is not a benefit generally transferable to succeeding employers.
Judge Hart also relied on
Shaw v. International Ass’n of Machinists and Aerospace Workers Pension Plan,
II.
In reviewing a district court’s grant of summary judgment, we review
de novo
the record and the controlling law.
Halpin v. W.W. Grainger, Inc.,
ERISA provides, “[T]he accrued benefit of a participant under a plan may not be decreased by an amendment of the plan, other than an amendment described in Section 1082(c)(8) or 1441
1
...” 29 U.S.C. § 1054(g)(1) (1984). The issue in this case is whether the COLA is a part or element of the accrued benefit. If it is, then defendants violated Section 1054(g)(1) in eliminating it. Congress did not mandate a minimum level of retiremеnt benefits but, instead, left the level of benefits to be determined by the parties and described in the Plan.
Alessi v. Raybestos-Manhattan,
*468
Inc.,
The term “accrued benefit” has a statutory meaning, and the parties cannot change that meaning by simply labeling certain benefits as “accrued benefits” and others, such as the COLA, as “supplementary benefits.” An accrued benefit is, “in the case of a defined benefit plаn, ... an annual benefit commencing at normal retirement age.” ’ 29 U.S.C. § 1002(23) (1984). 2 We first determine what Congress meant by this definition, and then examine the Plan, as a whole, to determine which benefits created by the Plan fall within that definition.
The legislative history gives some indication of what Congress intended by the term “accrued benefit.” The House Conference Report explains,
Under the conference substitute, the term “accrued benefit” refers to pension or retirement benefits. The term does not apply to ancillary benefits, such as payment of medical expenses (or insurance premiums for such еxpenses), or disability benefits ... or to life insurance benefits ...
Also, the accrued benefit does not include the value of the right to receive early retirement benefits, or the value of social security supplements or other benefits under the plan which are not continued for any emplоyee after he has attained normal retirement age.
H.R.Conf.Rep. No. 1280, 93d Cong., 2d Sess. 60, reprinted in 1974 U.S.C.C.A.N. 5038, 5054.
The Conference Report first defines the term “accrued benefit” as pension or retirement benefits. Viewing the Plan as a whole, the COLA is an essential element of the normal retirement benefit.. The COLA ensures that the retirement benefits will nоt diminish in real value over time. It provides the additional retirement income each month that is necessary to maintain the value of the retirement benefits.
The report also sets out two categories of benefits that Congress excluded from the scope of the term “accrued benеfits.” These are ancillary benefits and benefits discontinued after normal retirement age. Ancillary benefits are, for example, medical or life insurance or disability benefits. “[WJhere the employee moves from one employer to another, the ancillary benefits (which are usually on a contingency basis) would often be provided by the new employer, whereas the new employer normally would not provide pension benefits based on service with the old employer.” H.R.Rep. No. 807, 93d Cong., 2d Sess. 60, reprinted in 1974 U.S.C.C.A.N. 4670, 4726. In contrast, the COLA was inseparably tied to the monthly retirement benefit as a means for maintaining the real value of that benefit. It could not, therefore, be said to be ancillary to the benefit, and it would not be provided by a new employer. A new employer would not be any more likely to provide a COLA benefit for retirement benefits based upon service to ¿ former employеr than to provide base retirement benefits for that past service.
The COLA clearly does not fall within the second type of benefits excluded from the scope of the term “accrued benefit,” benefits which are not continued after normal retirement age.
The Ninth Circuit interpreted the ERISA legislative history in substantially the same way in Shaw. The Shaw plan set out the following formula for computing the monthly retirement benefit: 2.5% X years of credited service X final monthly salary. The plan also included a “living pension” feature which provided for adjustment of the benefit after retirement by substituting in the formula the current monthly sаlary of the retiree’s old job in place of the *469 retiree’s final monthly salary. Id. at 1460. The Shaw court found that the “living pension” feature fit more comfortably within the definition of an accrued benefit than within the enumerated excluded benefits. “The feature is a ‘pension or retirement benefit[ ]’; it primarily provides retirement income; and it is not generally transferra-ble from one employer to another. The living pension feature does not fit within any of the enumerated categories of ancillary or nonaccrued benefits.” Id. at 1463-64.
The “living pension” feature was strikingly similar in principle to the COLA provision. Neither the “living pension” feature nоr the COLA were included in the base benefit formula. However, each operated upon that benefit formula to cause an adjustment to the retirement benefits. The Ninth Circuit reasoned, “[T]he living pension ‘adjust[sj the basic formula for determining benefits at normal retirement, rather than providing a separate, unfunded, optional plan like medical coverage or early retirement. It describes the multiplicand; it does not provide a separate formula or benefit.” Id. at 1464.
The COLA similarly adjusted the computed benefit rather than providing a separate optional benefit. A particiрant’s right to have his basic benefit adjusted for changes in the cost-of-living accrued each year along with the right to the basic benefit. A participant’s entitlement to his or her normal retirement benefit included, as one component, the right to have the benefits adjusted pursuant to the COLA provision. In describing the Plan in the Summary Plan Description, distributed to Plan participants, the defendants listed three components of the “normal retirement benefit,” future service credit, past service credit, and cost-of-living benefits. The Summary Plan Description explained that the COLA would increase the monthly bеnefits to reflect changes in the cost-of-living. (Jt. Ex. 1 at 4-5.) Thus the summary, itself, treated the COLA as part of the normal benefit rather than a separate unguaranteed benefit.
The Supreme Court has stated that the courts should look to the views of the agencies responsible for interpreting ERISA, the PBGC and the IRS, in determining what benefits qualify as accrued benefits.
Mead Corp. v. Tilley,
Defendants argue that the COLA was an unfunded benefit, and as such, it could not be an accrued benefit. ERISA sets out minimum funding standards for pension plans at 29 U.S.C. § 1082. The question of whether defendants complied with these standards is not the issue. Accrued benefits must be funded, but the fact that a benefit was unfunded does not necessarily mean that the benefit was not accrued.
Defendants cite
Sutton v. Weirton Steel Div. of Nat’l Steel Corp.,
The plaintiffs argue that, even if the COLA is not an “accrued benefit,” it is a retirement-type subsidy and, therefore, cannot be eliminated under 29 U.S.C. § 1054(g)(2) (1984). Sincе we hold that the COLA is a part of the “accrued benefit” and was improperly eliminated in violation of Section 1054(g)(1), we do not reach the question of whether the COLA would qualify as a retirement-type subsidy.
III.
Defendants argue on appeal that, even if the COLA is an “accrued benefit,” the Plan’s termination did not qualify as an amendment of the Plan and, therefore, is not prohibited by Section 1054(g)(1). Section 1054(g)(1) proscribes a decrease of the accrued benefit “by an amendment of the plan.”
Defendants, however, did not argue this theory to the district court. In their reply brief to this court, they asserted that thе argument was made to the district court and cited two locations in the record. At those record locations, defendants did refer to the provision in Article IVA, providing for termination of the COLA upon termination of the Plan, but in the context of arguing that the parties did not intend for the COLA to be a part оf the accrued benefit. We have examined the record, including the citations given by the defendants, and cannot find any legal argument to the effect that the elimination of the COLA was not accomplished by amendment. Neither the defendants’ response to the motion for summary judgment (R. at 30) nor their motion for reconsideration (R. at 56) addressed this argument. Furthermore, they never cited
Dooley v. Amer. Airlines, Inc.,
The judgment of the district court is Affirmed.