LOCKHEED CORP. Et Al. v. SPINK
135 L. Ed. 2d 153, 517 U.S. 882, 1996 U.S. LEXIS 3717 (1996)
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Rule of Law:
An employer that amends a pension plan to offer early retirement benefits conditioned on a release of employment claims does not act as a fiduciary and does not engage in a prohibited transaction under ERISA. Statutory amendments to ERISA and the ADEA that prohibit age-based discrimination in pension plans do not apply retroactively.
Facts:
- Paul Spink was rehired by Lockheed Corporation in 1979 at the age of 61.
- At that time, Lockheed's pension plan legally excluded employees who were hired after the age of 60.
- Following the 1986 Omnibus Budget Reconciliation Act (OBRA) which prohibited such age-based exclusions, Lockheed amended its plan in 1988 to allow older employees like Spink to participate.
- However, Lockheed's amended plan did not credit these newly-included employees for their years of service prior to 1988.
- Subsequently, Lockheed offered two early retirement programs, funded by the plan's surplus assets, to incentivize certain employees to retire.
- These programs offered participants increased pension benefits.
- A condition for receiving these increased benefits was that the employee had to sign a release waiving all employment-related legal claims against Lockheed.
- Spink, though eligible, refused to sign the waiver and retired without receiving the enhanced benefits.
Procedural Posture:
- Paul Spink filed a class action lawsuit against Lockheed Corporation and its directors in the U.S. District Court.
- Spink alleged violations of ERISA's fiduciary duty and prohibited transaction provisions, and also claimed the 1986 OBRA amendments required Lockheed to credit his prior years of service for benefit accrual.
- The District Court granted Lockheed's motion to dismiss the complaint for failure to state a claim.
- Spink, as appellant, appealed to the U.S. Court of Appeals for the Ninth Circuit, with Lockheed as appellee.
- The Ninth Circuit reversed the District Court, holding that the early retirement program constituted a prohibited transaction and that the OBRA amendments applied retroactively.
- The U.S. Supreme Court granted Lockheed's petition for a writ of certiorari to review the Ninth Circuit's decision.
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Issue:
Does an employer violate ERISA's prohibited transaction rule by amending a pension plan to offer increased retirement benefits, paid from the plan's surplus assets, in exchange for employees' release of any employment-related claims against the employer?
Opinions:
Majority - Justice Thomas
No. An employer does not violate ERISA's prohibited transaction rule by conditioning the receipt of early retirement benefits upon a waiver of employment-related claims because amending a plan is a settlor function, not a fiduciary one, and the payment of benefits is not a prohibited 'transaction.' First, ERISA's prohibited transaction rules under § 406(a) apply only to fiduciaries. When an employer amends the terms of a benefit plan, it acts as a 'settlor,' not a fiduciary, and is therefore not subject to those provisions. Second, the payment of benefits to participants pursuant to a plan's terms is not the type of commercial transaction that § 406(a)(1)(D) prohibits. Obtaining a release of claims is functionally no different from other permissible employer objectives achieved through benefit plans, such as encouraging early retirement. Lastly, the Court held that the OBRA amendments prohibiting age-based accrual rules are not retroactive, as the statute's text explicitly states they apply only to plan years beginning on or after January 1, 1988.
Concurring in part and dissenting in part - Justice Breyer
Justice Breyer concurs in the judgment but would not reach the broad question of whether the payment of benefits in exchange for a waiver of claims constitutes a prohibited transaction under ERISA § 406(a)(1)(D). He argues that the legal question of what constitutes a prohibited transaction in this context is highly technical and difficult. The Court did not need to answer it to resolve the case, as the decision could rest on the narrower ground that Lockheed was not acting as a fiduciary when it amended the plan. He suggests this complex issue would benefit from further development in the lower courts before being decided by the Supreme Court.
Analysis:
This decision solidifies the settlor/fiduciary distinction under ERISA, granting employers significant latitude to amend pension plans for corporate purposes without triggering fiduciary duties. By defining benefit payments conditioned on waivers as outside the scope of 'prohibited transactions,' the Court allows employers to use surplus plan assets to facilitate downsizing and limit liability. The ruling narrows the reach of ERISA's protective provisions concerning transactions that benefit the employer, prioritizing employer flexibility in plan design over a broader interpretation of fiduciary responsibility.
