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Alessi et al. v. Raybestos-Manhattan, Inc., et al.

Supreme Court of United States
451 U.S. 504 (1981)
ELI5:

Rule of Law:

The Employee Retirement Income Security Act of 1974 (ERISA) permits private pension plans to offset retirement benefits by the amount of workers' compensation awards a retiree receives. ERISA's broad preemption provision supersedes any state laws that prohibit such offsets, as they 'relate to' an employee benefit plan.


Facts:

  • Raybestos-Manhattan, Inc. and General Motors Corp. each maintained private employee pension plans.
  • The terms of both plans provided that an employee's retirement benefits would be reduced, or 'offset,' by the amount of any workers' compensation awards they were eligible to receive.
  • After retiring, several former employees of both companies obtained workers' compensation awards for work-related injuries.
  • In accordance with the pension plan terms, the companies began reducing the pension benefits paid to these retirees by the amount of their workers' compensation awards.
  • In 1977, the New Jersey Legislature amended its Workers’ Compensation Act to expressly prohibit the practice of setting off workers' compensation benefits against employees' retirement pension benefits.

Procedural Posture:

  • Retired employees of Raybestos-Manhattan and General Motors filed separate lawsuits in New Jersey state court against their former employers.
  • The defendant companies removed the cases to the U.S. District Court for the District of New Jersey.
  • The District Court judges, in separate rulings, found in favor of the retired employees, holding that the New Jersey law was not preempted and the offsets were illegal forfeitures under ERISA.
  • The companies appealed to the U.S. Court of Appeals for the Third Circuit.
  • The Court of Appeals consolidated the cases and reversed the district courts' decisions, holding that the offsets were permissible under ERISA and the New Jersey law was preempted.
  • The retired employees (Alessi, et al.) successfully sought review from the U.S. Supreme Court, which noted probable jurisdiction and granted certiorari.

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Issue:

Does the Employee Retirement Income Security Act of 1974 (ERISA) preempt a state law that prohibits private pension plans from reducing retirement benefits by an amount equal to workers' compensation awards received by a retiree?


Opinions:

Majority - Justice Marshall

Yes. ERISA preempts the New Jersey law because the law attempts to prohibit a pension benefit calculation method that is permitted under federal law. First, the offset provision is not an illegal 'forfeiture' under ERISA's non-forfeiture provision, 29 U.S.C. § 1053(a). That provision guarantees that an employee's claim to a vested benefit is legally enforceable, but it does not dictate the amount of the benefit or the method for calculating it, which is left to the plan designers. The offset is a form of 'integration,' a calculation method where benefit levels are determined by combining pension funds with other income sources, a practice Congress approved for Social Security and Railroad Retirement benefits. The Court deferred to a Treasury Regulation that permits integration with benefits under 'any other Federal or State law,' including workers' compensation. Second, because this integration method is permissible under federal law, the New Jersey statute prohibiting it is preempted. ERISA’s preemption clause, 29 U.S.C. § 1144(a), is extremely broad, superseding any and all state laws that 'relate to any employee benefit plan.' By forbidding a specific method of benefit calculation, the New Jersey law directly 'relates to' the pension plans and impermissibly intrudes on an area of exclusive federal concern.



Analysis:

This decision significantly broadened the understanding of ERISA's preemptive scope, establishing that even state laws of general applicability, such as workers' compensation statutes, are preempted if they dictate the terms, conditions, or administration of an ERISA-governed plan. The Court's interpretation of 'nonforfeitable' as protecting the right to a benefit rather than a specific amount provides plan sponsors considerable flexibility in designing benefit formulas, including the use of integration to control costs. This ruling cemented ERISA's role in creating a uniform federal regulatory scheme for pension plans, insulating them from varied and potentially conflicting state laws.

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