Teeter v. Supplemental Pension Plan of Consolidated Rail Corp.Teeter v. Supplemental Pension Plan of Consolidated Rail Corp.
MEMORANDUM
Robert L. Teeter has been an employee of the Consolidated Rail Corporation (Conrail) and its predecessors in interest since April 15, 1949. Although he was entitled to join a forerunner of the defendant pension plan upon initial employment, the plaintiff did not elect membership until May 31, 1956. Plaintiff asserts that the only reason he failed to join the plan immediately was that no one informed him of his eligibility. The defendant grants prior service credit to employees who can show that a late election was caused by such an administrative error. The Pension Administration Committee (Committee) of the defendant, however, found that there was insufficient evidence of a mistake to warrant granting plaintiff’s application for retroactive service credit.
Plaintiff seeks a declaratory judgment that the Committee’s decision was in violation of the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001 et seq. A trial was held on the merits, and defendant now asserts that plaintiff’s claim is barred by laches or, in the alternative, that defendant complied with ERISA. Because I find that the claim is not barred by laches and that the defendant violated ERISA when it refused to consider certain of the plaintiff’s evidence, I will remand this action to the defendant for reconsideration.
BACKGROUND
On April 15, 1949, the plaintiff took a position as an assistant engineer at the Springfield, Ohio district office of the New York Central Railroad (N.Y.C.). It is undisputed that he was entitled to join the N.Y.C. pension plan at that time. The plaintiff, however, asserts that while at Springfield he was never informed of the existence of the pension plan. Later, he was transferred to the N.Y.C. office in Cleveland, Ohio, where he was finally told of his eligibility for the plan. He elected to join immediately, and his participation became effective on June 1, 1956.
Shortly after becoming a member, the plaintiff sent a hand-written letter to the plan administrator inquiring whether it would be possible to make retroactive contributions for the time during which he was unaware of his eligibility. The plan administrator replied with a form letter stating that the plan would not grant credit for service rendered prior to joining the plan. Plantiff took no further action to enforce his claim at that time.
Between 1956 and 1983, the plaintiff’s pension claim remained dormant. In the meantime, however, N.Y.C. merged with the Pennsylvania Railroad to form the Penn Central Transportation Company.
On March 4,1983, the plaintiff began the process which brought this case into federal court. He wrote to George J. Jacks, the administrator of the defendant pension plan, and requested a credit for prior service. The request was denied. The plaintiff then sought assistance from several of his associates at Conrail. These efforts eventually resulted in referral of his claim to the Committee.
It is the actions taken by the Committee which are at the core of this dispute. The Committee has a policy of granting prior service credit to claimants that can demonstrate they did not join the plan when first eligible because N.Y.C. failed to provide election materials or accurate information about the plan. N.Y.C. administrative practice required employing officers to inform new employees of their right to join the plan and to assist them in electing membership. The Committee, however, will not grant retroactive service credit unless the claimant can demonstrate some tangible evidence of an administrative error. In the absence of contrary evidence the Committee simply assumes that N.Y.C. followed its policy of informing new employees of their eligibility for the plan. In this case the Committee wrote the plaintiff a letter denying his claim on the grounds that the plaintiff had not provided any evidence other than his unsubstantiated allegation. The Plaintiff was informed of his right of review and that he was permitted to submit pertinent documents and comments in writing.
The Plaintiff asked for a review from the Committee’s decision. In conjunction with the review, plaintiff submitted a polygraph examination corroborating his statement that he was unaware of his eligibility between 1949 and 1956. The Committee refused to hear the polygraph evidence on the ground that it was not reliable enough to be used in an adjudicatory setting. Plaintiff’s claim was denied for a second time on February 20, 1986.
On February 28, 1986, plaintiff wrote to the Committee and asked it to reconsider his claim. He specifically asked the plan administrator to have the Committee “advise of any way that I can convince them that my claim is just and truthful.” Defendant sent a reply stating that tangible evidence was necessary before plaintiff’s claim could be granted and that plaintiff had exhausted the review process. In early August of 1986, plaintiff made another attempt to have his claim reconsidered. He wrote a letter to the Committee and attached notarized statements made by three of his contemporaries at Springfield. Two of the employees had been hired within three months of the plaintiff and the other within 17 months. These employees stated that they too had not been given an opportunity to join the plan on initial employment. The statements obviously rebut the presumption of the Committee that all employees of N.Y.C. were told of the existence of the plan. Nevertheless, the Committee never considered these statements. The plan administrator merely sent a letter to the plaintiff informing him that he had exhausted his rights of appeal.
Plaintiff then hired a lawyer and filed suit before this court. At trial other evidence tending to support his claim came to light. First, only one of the N.Y.C. employees at Springfield who started around the time when plaintiff began signed up for the pension plan immediately. In fact, that person was the employing officer, who, interestingly enough, was the individual charged with informing the other employees of the terms of the plan. In addition, there was evidence at trial that when a new employee did not want to join the pension plan, he was asked to sign a form electing out of the plan. There was no such document in the plaintiff's file. None of this evidence was considered by the Committee.
Laches
Defendant’s first argument is that plaintiff’s claim is barred by laches. In general, laches requires a showing that the non-moving party failed to diligently prosecute the claim and that the moving party suffered prejudice because of the delay.
Costello v. United States,
The courts have been reluctant to apply the doctrine of laches to pension cases. The rule is, as I stated in an earlier decision, that pension claims accrue on retirement, but the claimant has the option of bringing suit when an anticipatory breach occurs.
Troiani v. Bethlehem Steel Corp.,
Defendant argues that the case at bar is different from other pension cases because the plaintiff wrote a letter in 1956 asking for the relief requested today. That letter, defendant asserts, started the clock running on plaintiff’s claim, and if the plaintiff wanted to appeal the denial of benefits, he had to do so in 1956. I cannot agree. The plaintiff merely sent an informal handwritten inquiry to the N.Y.C. plan. The plan sent back a form letter stating that no credit would be given for service prior to the date of election. Plaintiff did not choose to start the clock running in 1956. He waited until retirement was rapidly approaching and then filed a formal complaint with the Committee in 1983. There was nothing improper in plaintiff’s actions.
There are several other reasons why it would be inequitable to bar plaintiff’s claim. First, it is unclear that defendant has been sufficiently prejudiced by the passage of time so “as to overcome the policy of ERISA favoring recovery of benefits that have been earned through long years of service.”
Atkins v. Bowen,
ERISA is the source of these rules, but the principles are applicable to pre-ERISA cases as well. It would be unfair to bar plaintiff’s claim simply because he wrote a letter to the plan administrator in 1956 asking whether he was entitled to his service credit. For these reasons, I find that the plaintiff’s claim is not barred by laches. Review of the Committee Decision
Before turning to the question of whether the defendant acted in violation of ERISA, it is necessary to resolve the issue of what standard of review applies to decisions of pension plans to deny benefits. As the Third Circuit Court of Appeals has rec
In Bruch, the plaintiffs were three classes which in total represented over 500 formerly salaried employees of the plastics division of Firestone Tire and Rubber Company. Firestone sold its plastics division to the Occidental Petroleum Corporation, and most of the employeess later accepted positions with Occidental. The plaintiffs claimed that (1) the sale of the division triggered a right to severance benefits; (2) employees who elected early retirement after the sale were entitled to full pre-sale benefits; (3) the sale of the division triggered vesting of employee stock option rights; and (4) the employees were entitled to obtain information about benefits from their former employer.
The key to
Bruch
is the Court of Appeals’ valid concern that pension plan administrators cannot always be trusted to act impartially. The arbitrary and capricious standard was adopted from pension plans established under § 302(c) of the Labor Management Relations Act (LMRA), 29 U.S.C. § 186(c)(5). However, LMRA plans require equal employee and employer representation in plan administration. The decisions of these plans was, therefore, likely to be unbiased. In contrast, the plans at issue in
Bruch
were controlled entirely by company personnel. Furthermore, the
Bruch
plans were unfunded. Any expenditure would have come directly out of the company’s pocket. The conflict of interest was obvious, and the arbitrary and capricious standard made little sense under the circumstances. The court instead applied the law of trusts which states that “when a trustee is thought to have acted in his own interest and contrary to the interest of the beneficiaries, his decisions are to be scrutinized with the greatest possible care.”
Bruch,
Whether the arbitrary and capricious or
de novo
standard applies depends on the context of the case.
Bruch,
We recognize that in Bruch the arbitrary and capricious standard was not applied but we do not understand that case necessarily to apply in a situation such as this involving “personal claims for benefits,” see Struble,732 F.2d at 333 , even though it could hardly be said that Equitable is disinterested in this matter, (referring to Struble v. New Jersey Brewery Employee’s Welfare Trust Fund,732 F.2d 325 (3d Cir.1984)).
Shiffler,
The case at bar is an individual claim for benefits like that in Shiffler and unlike that brought in Bruch. Therefore, I must apply an arbitrary and capricious standard to the decision of the defendant. 1
Due Process
The real question in this case is whether the defendant violated plaintiffs due process rights by failing to specify the reasons for the decision and refusing to hear additional evidence. I find that plaintiff’s due process rights were violated.
Pension plans are required to comply with the full and fair review requirements of ERISA, 29 U.S.C. § 1133, and the regulations promulgated under the section which appear at 29 C.F.R. § 2560.503-l(f) (1987). The failure to do so constitutes a violation of due process.
Grossmuller v. International Union, UAW,
Fiduciaries of pension plans are required under § 503(2) of ERISA to “afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full and fair review by the appropriate named fiduciary of the decision denying the claim.” 29 U.S.C. § 1133(2). In order to help define the meaning of full and fair review, the Department of Labor promulgated regulations which require a plan administrator to provide a claimant who has had a claim for benefits denied with:
(1) The specific reason or reasons for the denial;
(2) Specific reference to pertinent plan provisions on which the denial is based;
(3) A description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material is necessary; and
(4) Appropriate information as to the steps to be taken if the participant or beneficiary wishes to submit his or her claim for review.
29 C.F.R. § 2560.503-l(f) (1987). The Third Circuit Court of Appeals has found that a full and fair review requires “knowing what evidence the decision-maker relied upon, having an opportunity to address the accuracy and reliability of the evidence, and having the decision-maker consider the evidence presented to both parties prior to reaching and rendering his decision.”
Grossmuller,
With these requirements in mind, I now turn to the specific claims raised by the plaintiff. First, plaintiff asserts that it was error for the defendant to refuse to hear oral testimony of the plaintiff on whether or not he had received notification of his eligibility for the pension plan. Plaintiff takes the position that live testimony was indispensable. The law, however, is otherwise. Pension boards are not required to grant a claimant a chance to personally plead his case.
Brown,
797
There are, however, several more serious problems with the Committee’s handling of the plaintiffs case. First, the defendant rejected the plaintiffs claim solely on the basis that N.Y.C. had a policy of informing all new employees of their eligibility for the plan. That may have been the policy, but it seems that the policy was honored in the breach — at least at the Springfield office. The plaintiff procured three affidavits from people who had worked at Springfield at approximately the time that he did, all of whom stated that they too had not been told of their eligibility upon initial employment. This is very strong evidence that the policy was not enforced at Springfield and lends credence to plaintiffs version of the facts.
The defendant claims that the statements of the other Springfield employees were brought to their attention after the final appeal and that, therefore, they had no responsibility to consider them. I find, however, that as a requirement of due process under ERISA the defendant was required to hear this evidence.
Under 29 C.F.R. § 2660.508-1(1) (1987) the plan administrator had a responsibility to give the plaintiff a description of the specific reasons for denial, any plan provisions which were relied on in reaching a decision, and any information necessary to perfect the claim. The defendant did not satisfy these requirements. The letter denying the plaintiffs claim stated only that the Committee was refusing the application because the sole evidence of an administrative error was the plaintiffs word. The Committee requires more to establish the occurence of an error which allegedly took place 40 years ago. The minutes of the meeting establish that the reason for requiring additional evidence is that the Committee assumed the N.Y.C. policy of informing new employees of their pension rights was carried out uniformly. However, there was no mention of the N.Y.C. policy in the letter to the plaintiff. Thus, the real reason for the denial, that the Committee assumed the administrative practice had been followed, was never communicated to the plaintiff. If the defendant had been more specific concerning its reliance on the N.Y.C. policy, a policy the plaintiff believed was never followed, perhaps the statements of the former employees would have surfaced six months sooner, and we would have all avoided a costly federal case.
Furthermore, plaintiff offered evidence tending to show that individuals who were eligible for the plan, but who did not want to join, signed a form specifically stating they did not wish to elect membership. That form was not in the plaintiffs file. This is evidence that only the defendant could have and should have procured.
I do not find that any pension claimant who is denied benefits and at a later time finds a scintilla of evidence in his favor can reopen the claim. However, in this case some of the evidence came to light shortly after the denial. The evidence may well have been gathered earlier if the defendant had made a serious effort to satisfy its requirements under ERISA. It would have taken little effort to reconsider the plaintiff’s claim when the important statements of the Springfield employees became available.
Since the errors made by the defendant concern the refusal to consider evidence which should have been before them, the proper course of action is to remand this case to the plan.
Wolfe,
ORDER
AND NOW, this 11th day of January, 1989, IT IS ORDERED that judgment is ENTERED in favor of the plaintiff. The defendant is ORDERED to reconsider plaintiffs claim in conformance with the opinion of the court. The Clerk of this court is directed to close the docket of the within case.
Notes
. It must be noted that
Bruch
was specifically limited to questions of law.
Bruch,