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ZAJAC v. CHICAGO AREA I.B. OF T. PENSION FUND

September 30, 2004.

WILLIAM ZAJAC, Plaintiff,
v.
CHICAGO AREA I.B. OF T. PENSION FUND and CHICAGO TRUCK DRIVERS, HELPERS, AND WAREHOUSE WORKERS UNION (INDEPENDENT) PENSION FUND, Defendants.



The opinion of the court was delivered by: WAYNE ANDERSEN, District Judge

MEMORANDUM, OPINION, AND ORDER

Defendant Chicago Area of I.B. of T. Pension Fund ("703 Fund") comes before the Court on its Motion for Summary Judgment on Counts I and II of the Plaintiff William Zajac's complaint. Count III of the Plaintiff's complaint is against another Defendant, Chicago Truck Drivers, Helpers, and Warehouse Workers Union (Independent) Pension Fund and is not addressed in this Memorandum, Opinion, and Order.

Counts I and II allege violations of the Employee Retirement Income and Security Act ("ERISA"). Specifically, Plaintiff alleges that the 703 Fund failed to comply with ERISA provisions 29 U.S.C. §§ 1053 and 1054, and disregarded the terms of the 703 Fund's pension plan by failing to give Plaintiff a "30-and-Out" pension benefit or to credit his service as an employee as he requested.

  In the case at bar, the Court holds that the 30-and-Out Pensions requirements established by the Defendant did not violate ERISA or the Reciprocal Agreement. Further, the arbitrary and capricious standard of review applies. Given this deferential standard, the issue is whether the Defendant 703 Fund had a reasonable basis for denying Plaintiff's request for a 30-and-Out pension. For the reasons set forth below, the Court has concluded that the Defendant's actions were not arbitrary and capricious. Therefore, the Defendant's Motion for Summary Judgment is granted.

  BACKGROUND

  Defendant 703 Fund is a multiple-employer pension fund that provides retirement benefits for employees who are covered by various collective bargaining agreements ("CBAs") between employers and Local 703, an affiliate of the International Brotherhood of Teamsters (DF Rule 56.1 Statement, ¶ 3). William Zajac ("Plaintiff") has been a participant during combined periods for a total of thirty (30) years in the 703 Fund, as well as the CTDU Fund, and the Suburban Teamsters of Northern Illinois Welfare and Pension Fund ("Suburban Fund") (DF Rule 56.1 Statement, ¶ 5).

  Benefit costs are financed by contributions paid by contributing employers to the 703 Fund, as these employers contribute on behalf of their eligible employees, and by income derived from the 703 Fund's investments. (DF Rule 56.1 Statement, ¶ 15). The funding levels and contributions necessary to sustain benefits are subject to "periodic actuarial valuations." (DF Rule 56.1 Statement, ¶ 16). Through the years since its adoption in 1959, the Local 703 Pension Plan has been subject to the terms and conditions of an Agreement and Declaration of Trust ("Trust Agreement"). This Agreement, among other things, gives the Trustees the power to administer and supervise the Trust, including the power to construe and interpret the provisions of the 703 Pension Plan. Because it was (and still is) common for union members to transfer from one pension plan to another when members change employers, the 703 Fund and other pension funds sponsored by various local Teamster unions wanted to prevent union members from losing service credit when they changed jobs. Service credit is a key means by which a union member's eligibility for a particular type of pension is determined. In 1973, the 703 Fund Trustees executed a Reciprocal Agreement that required the signatory plans to recognize the service, known as "Reciprocal Service", of employees that was earned under other plans that were also signatories to the Reciprocal Agreement. (DF Rule 56.1 Statement, ¶¶ 23-24).

  Historically throughout the 1970s and 1980s, the 703 Plan offered four types of pensions: 1) a Normal Pension (a pension benefit for which a participant was eligible at age 60 with five years of vesting); 2) an Early Pension (a pension benefit payable for participants between 55 and 60 years of age with fifteen years of service); 3) a Disability Pension (a pension payable by virtue of permanent disability to those participants with 10 years of vested service); and 4) a Deferred Vested Pension (a non-forfeitable pension benefit payable at normal retirement age to a person whose employment ended prior to normal retirement age). (DF Rule 56.1 Statement, ¶ 32). Reciprocal service with other local plans (providing they were parties to the Reciprocal Service) counted towards an employee's total length of service for the purpose of determining eligibility for these four types of pensions. (DF Rule 56.1 Statement, ¶ 26). Appendix A of the 703 Plan provides that when a participant works under another reciprocal plan that is party to the Reciprocal Agreement, he or she earns credits under that plan and these credits are called reciprocal credits for the purposes of the 703 Plan. (DF Rule 56.1 Statement, ¶ 30). Beginning in 1987, the 703 Fund began providing a subsidized benefit known as a "30-year pension." This was a new benefit that was more favorable than the normal retirement benefit for retirees. However, in creating the 30-year pension, the Trustees determined that Appendix A rules regarding the recognition of reciprocal service credits under the Reciprocal Agreement would not apply to the 30-year pension, while the aforementioned Appendix A rules would continue to apply to the Normal, Early, Disability, and Deferred Vested Pensions. (DF Rule 56.1 Statement, ¶ 36; Murdoch Affidavit Exhibit 17). In the ensuing years, the Trustees made a series of similar benefit additions, including a "35 year pension" (which replaced the 30 year pension), "25 and Out pension" and "30 year and Out pension" (DF Rule 56.1 Statement, ¶¶ 37-51). In each of these new benefits, the Trustees determined that reciprocal service would not qualify towards earning a 30-year pension, a 25-and-Out pension, a 30-and-Out pension, etc. Rather, eligibility for these types of retirement benefits were restricted to employees with service specifically with employers during which the employer contributed to the 703 Fund.

  On November 29, 1989, the Trustees adopted the "30-and-Out Pension" (the type of pension at issue before the court in this case), effective January 1, 1990, which provided a benefit payable as early as age 50 rather than age 60 (for the Normal Pension) or age 55 (for the Early Pension). (DF Rule 56.1 Statement, ¶ 37). The 30-and-Out pension required participants to have thirty (30) or more years of contributed service with the 703 Plan, with at least ½ year of Pension Service earned after January 1, 1989; further, the 30-and-Out Pension required that the participant's thirty years of service be continuous. "Continuous" means that the service not be interrupted by a break of two or more years. (DF Rule 56.1 Statement, ¶ 37). Notably, the 30-and-Out pension did not count reciprocal service toward eligibility requirements. In the ensuing years, the Trustees, after reviewing funding requirements, liberalized the requirements for earning the 30-and-Out Pension by eliminating the age requirement in April 1990. (DF Rule 56.1 Statement, ¶ 39). On March 24, 1998, the Trustees considered the possibility of extending reciprocal service to 30-and-Out pensions, but determined restrictive conditions would be necessary to reduce financial exposure of the 703 Fund. (DF Rule 56.1 Statement, ¶¶ 60-62). The Trustees, however, eventually amended the 30-and-Out pension and announced the changes in a Notice to Participants of material modifications (dated May 1999) as follows:
The eligibility rules for a "30 and Out" Pension have been changed. In the past, only the years for which employer contributions were received by the Plan were counted towards your eligibility for a "30 and Out Pension." Effective January 1, 1998, Reciprocal Service Credits may be used to establish eligibility for a "30 and Out" Pension. The new Plan provision allows participants who accumulate at least 15 years of pension service under this Pension Plan (with at least 6 out of the last 10 years under this Plan) to use up to 15 years of Reciprocal Service Credits in order to establish eligibility for a 30 and Out Pension. (Exhibit 28 to the Murdoch Affidavit; DF Rule 56.1 Statement ¶ 70).
  Put more simply, the 703 Plan now recognized reciprocal service credit for the 30-and-Out Pension benefit if i) at least fifteen (15) years of service credits out the last thirty (30) were as a covered employee under the 703 Plan, and ii) six (6) out of the last ten (10) years of service were as a covered employee under the plan. (DF Rule 56.1 Statement ¶ 66; Murdoch Affidavit ¶ 31; DF Exhibit A-25).

  Plaintiff worked under covered employment as defined by the 703 Plan from 1973 to 1988, accumulating fifteen years of credit towards a pension with the 703 Plan. (DF Rule 56.1 Statement ¶ 80-81). From 1988 until he applied to the 703 Fund for a 30-and-Out Pension in November 1999, he had not worked for covered employment as defined by the 703 Plan. (DF Rule 56.1 Statement ¶ 81). However, during the 1989-1999 period, Zajac did earn 10.7 credits (by working for employers who contributed to the Suburban Plan, a party to the Reciprocal Agreement) for the purposes of Reciprocal Service. (DF Rule 56.1 Statement ¶ 83, 91). The 703 Fund rejected Plaintiff's application for a 30-and-Out Pension on December 15, 1999, and wrote him a letter, dated January 12, 2000, informing him that he was ineligible because he did not meet the requirement that six out of the last ten years of his service be earned with employers contributing to the 703 Plan. (DF Rule 56.1 Statement ¶ 92-93; DF Exhibit A-30). The letter notified Plaintiff of his right to appeal within 60 days of the letter, as well as his right to be represented by counsel (without cost to the Fund), and to "review pertinent plan documents and to submit issues and comments in writing." (DF Exhibit A-29). Plaintiff appealed this decision in April 2000, and the Trustees, after considering the appeal, notified the Plaintiff's attorney by letter on June 1, 2000 that the appeal had been denied for the same failure to meet this requirement. (DF Rule 56.1 Statement ¶ 94-95, DF Exhibit A-30).

  DISCUSSION

  I. Standard for Summary Judgment

  A party is entitled to Summary Judgment "if the pleadings, depositions, answers to interrogatories, and admissions of fact, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R. Civ. P. 56(c). The moving party for summary judgment bears the initial burden of demonstrating an absence of evidence to support the position of the non-moving party. Doe v. R.R. Donnelly & Sons Co., 42 F.3 439, 443 (7th Cir. 1994). In responding to a motion for summary judgment, the non-moving party must then set forth specific facts showing that there is a genuine issue of material fact and that the moving party is not entitled to judgment as a matter of law. Anderson v. Liberty Lobby, 477 U.S. 242, 252 (1986). In analyzing whether ...


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