ERISA-Fifth Circuit Rules That Contractual Claims Restricting Reduction In Pension Benefits May Be Enforced

In Hunter v. Berkshire Hathaway, Inc., No. 15-10854 (5th Cir. 2016), in an ERISA action, plaintiffs Judy Hunter, Anita Gray, and Bobby Lynn Allen appeal the district court’s dismissal of their claims against Berkshire Hathaway, Inc. (“Berkshire”) and Acme Building Brands, Inc. (“Acme”).

In 2000, Berkshire bought Justin Industries, Inc. (“Justin”). At the time, Justin’s subsidiary Acme provided its eligible employees with certain retirement benefits, including an ability to participate in a company Pension Plan or an individual 401(k) Plan. Acme matched fifty percent of an employee’s contributions to his or her 401(k) Plan account on an annual basis, up to five percent of the employee’s compensation (rate of match subsequently reduced or eliminated).  In 2014, Berkshire allegedly contacted Acme about reducing or eliminating benefits in Acme’s retirement plans. One alternative given to Acme was to implement an immediate “hard freeze” of the Pension Plan, and restore the 401(k) Plan’s employer matching contribution to fifty percent, with the caveat that the contribution rate could be changed any time after 2014. Acme ultimately chose this alternative and amended the Pension Plan on August 11, 2014 to implement the freeze.

Consequently, the plaintiffs, who are current and retired employees of Acme, sued Acme and Berkshire under ERISA section 502(a)(3). The plaintiffs sought, among other things, to overturn the amendment to the Pension Plan, and to prevent a future reduction in the rate of the employer matching contribution to the 401(k) plan, on the grounds that the amendment and future reduction violated, or would violate, a merger agreement between Berkshire and Justin.   The district court dismissed all of the plaintiffs’ claims, and this appeal ensued.

In analyzing the case, the Fifth Circuit Court of Appeals (the “Court”) determined that the alternative Acme accepted did not violate the merger agreement. Section 5.7 of the merger agreement expressly allows Acme to “amend, modify or terminate any individual Company Plans in accordance with the terms of such Plans and applicable law.” Further, nothing in the merger agreement restricted Acme itself from amending, modifying, or terminating any of the plans. Instead the agreement restricted Berkshire from causing Acme to reduce benefit accruals or employer contributions. Thus, the Court held that the plaintiffs’ claims against Acme fail and the district court was correct in dismissing them.

However, the Court found that Berkshire’s actions violated the restriction against it in the merger agreement, that restriction being a contractual, enforceable restriction in addition to the requirements of ERISA. Thus, the Court held that the plaintiffs have pleaded sufficient facts to assert a plausible claim to relief against Berkshire. It reversed the district court’s dismissal of the claims against Berkshire, and remanded those claims-save one- back to the district court. One of the specific claims of the plaintiff was that Berkshire had participated in a breach of ERISA fiduciary duty by Acme. However, the claims against Acme had failed, the Court found that the derivative participation claim against Berkshire must likewise fail, and cannot go forward.

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