Spacek v. Maritime Association

REVISED, February 10, 1998

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

_____________________

No. 96-20480
_____________________

DANIEL A SPACEK,

Plaintiff-Appellee,

v.

THE MARITIME ASSOCIATION, I L A PENSION PLAN, and
Trustees of the Agreement of Trust,

Defendant-Appellant.

_________________________________________________________________

Appeal from the United States District Court
for the Southern District of Texas
_________________________________________________________________
January 22, 1998

Before KING and PARKER, Circuit Judges, and ROSENTHAL,* District

Judge.

KING, Circuit Judge:

Daniel A. Spacek sued the Maritime Association - I.L.A.

Pension Plan and its trustees, alleging that they wrongfully

suspended payment of his early retirement benefits pursuant to a

plan amendment adopted after he retired, in violation of the

Employee Retirement Income Security Act and the common law of

contracts. Both sides filed motions for summary judgment, and

*
District Judge of the Southern District of Texas, sitting
by designation.
the district court granted in part and denied in part each

motion. The district court granted Spacek’s motion for summary

judgment on the basis that the application of the amendment to

Spacek was arbitrary and capricious because it deprived him of

vested rights. We conclude that the district court erred in

granting this portion of Spacek’s motion, and we reverse and

remand for entry of judgment against Spacek.

I. BACKGROUND

The Maritime Association - I.L.A. Pension Plan and its

trustees (collectively “the Plan”) operate a multiemployer

pension plan providing retirement benefits to employees in the

longshoring industry from Brownsville, Texas to Lake Charles,

Louisiana. The Plan is subject to the Employee Retirement Income

Security Act (“ERISA”), 29 U.S.C. §§ 1001-1461.

On November 1, 1985, Spacek, who worked for thirty years in

the Houston longshoring industry for an entity covered by the

Plan, retired at age fifty-one. Under the provisions of the

Plan, Spacek qualified as an early retiree because he had not yet

reached sixty-five years of age.

At the time Spacek retired, section 9.1(d)(2) of the Plan

provided the following:

If a Retired Participant is reemployed in the industry
prior to his Normal Retirement Age, payment of his Age
or Vested Pension and Temporary Bridge Benefit, if any,
shall immediately cease and he shall immediately become
an Active Participant. Such a Participant shall not be
entitled to an Age or Vested Pension or Temporary
Bridge Benefit while he continues to be employed in the
industry or, if greater, for a period of six (6) months
measured from the due date of the first monthly
installment of his Age or Vested Pension which is
withheld pursuant to this Paragraph.
Section 9.1(b)(2) defined “employment in the industry” as

follows:

A Participant who is eligible for an Age or Vested
Pension shall be considered to be “employed in the
industry”, or to be continuing his “employment in the
industry,” during a month if, and only if, both of the
following conditions are met:

(i) he is employed in the same industry, in the same
trade or craft, and in the same geographic area
covered by this Plan, as when he first became
eligible for such pension; and

(ii) he is credited with at least one (1) Credit Hour
for the Payroll Period ending in such month.1

Section 15.1 of the Plan reserved the following amendment

power:

The Trustees may amend the Plan, from time to time, in
any manner not in conflict with the terms of the Trust;
provided, however, that no such amendment will cause or

1
Section 3.1 of the Plan provides the following
description of “credit hours” and their computation during the
time period relevant to this case:

An Employee’s Credit Hours for any Year during the
period January 1, 1937, through September 30, 1976,
shall be the hours for which he was compensated, or
entitled to compensation, by the Employers for periods
during which he was an Employee. . . .

An Employee’s Credit Hours for any Year beginning on or
after October 1, 1956, shall be the hours for which
contributions are made by the Employers pursuant to
Section 4 of Article 1 of the Trust, as determined by
reports submitted by the Employers, either directly or
through the Centralized Payroll System, to the
Administrative office of the Trust.

For Years beginning on or after October 1, 1976, an
Employee’s Credit Hours shall be based on his ‘Hours of
Service’. An ‘Hour of Service’ is each hour during an
applicable computation period for which an Employee is
directly or indirectly paid, or entitled to payment, by
an Employer for the performance of duties or for
reasons other than the performance of duties . . . .

3
 permit any part of the Trust properties to be diverted
to purposes other than for the exclusive benefit of the
Participants or their spouses or permit any part of the
Trust properties to revert to or become the property of
the Employers.

On April 17, 1991, the Plan adopted an amendment changing

the definition of “employment in the industry” under section

9.1(b)(2) by removing the requirement that a participant receive

one credit hour before early retirement benefits would be subject

to suspension for reemployment (the “Amendment”). A copy of the

formal Notice To Participants Eligible For Age Or Vested Pension

was mailed to the participants of the Plan on March 12, 1991.

This document informed Spacek that payment of his benefits could

be suspended if he became reemployed in the same industry, in the

same trade or craft, and in the same geographic area covered by

the Plan, regardless of whether such employment was with a

signatory of the Plan. On May 8, 1991, a second notice was

mailed to the participants, informing them that the Amendment

would take effect on June 1, 1991.2

Approximately three years later, on April 28, 1994, Spacek

began working as a superintendent for James J. Flanagan

Stevedores of Houston. Flanagan is a signatory employer to the

Plan. Spacek’s return to work constituted reemployment in the

industry under amended section 9.1(b)(2), but, because he did not

2
The district court concluded as a matter of law that
Spacek had notice of the Amendment, and Spacek does not challenge
this determination on appeal.

4
receive any credit hours for his work,3 not under section

9.1(b)(2) as it existed at the time Spacek retired. Following

his reemployment, the Plan suspended payment of Spacek’s pension

benefits for six months based on the Amendment.

On February 7, 1995, Spacek filed suit in federal district

court against the Plan to recover the suspended early retirement

benefits. Both sides filed motions for summary judgment, and the

district court granted in part and denied in part both motions.

In doing so, the district court determined that the application

of the Amendment to Spacek and the resulting suspension of

payment of his early retirement benefits, while not violative of

3
Section 3.1 indicates that credit hours are only
accumulated by those individuals who qualify as “employees” under
the Plan’s definition of that term. See supra note 1. Section
2.5 defines “employee” as follows:

“Employee” shall mean any person:

(1) Who is a water-front employee of the Employers
whose wage rates and working conditions are
established by collective bargaining agreements
between the Union and the Employers; or

(2) Who is a walking foreman; or

(3) Who is a bona fide representative in the employ of
any Local Union or of the South Atlantic and Gulf
Coast District, I.L.A., and a bona fide resident
of the area between Lake Charles, Louisiana and
Brownsville, Texas; or

(4) For whom contributions are paid to the Trust by
the West Gulf Maritime Association by reason of a
guaranteed annual income agreement between the
Employers and the Union.

Spacek’s employment as a superintendent for James J. Flanagan
Stevedores did not qualify him as an “employee” under the above
definition. As such, he has accumulated no credit hours under
the Plan while so employed.

5
any particular provision of ERISA, was nonetheless arbitrary and

capricious, and thus unlawful. See Spacek v. Trustee of the

Agreement of Trust for Maritime Ass’n-I.L.A. Pension Plan, 923 F.

Supp. 960, 963-64 (S.D. Tex. 1996). Specifically, the district

court rejected Spacek’s argument that application of the

Amendment to him violated the anticutback provisions of 29 U.S.C.

§ 1054(g). See id. at 963. However, the court also concluded

that application of the Amendment to Spacek was arbitrary and

capricious because it deprived him of rights that vested

contractually at the time of his retirement. See id. at 963-64.

The district court entered final judgment awarding Spacek,

among other things, $12,998.95 in retirement benefits. The Plan

filed a timely notice of appeal.

II. STANDARD OF REVIEW

“We review the grant of a summary judgment de novo, applying

the same criteria used by the district court in the first

instance.” Texas Medical Ass’n v. Aetna Life Ins. Co., 80 F.3d

153, 156 (5th Cir. 1996). Summary judgment is proper "if the

pleadings, depositions, answers to interrogatories, and

admissions on file, together with the 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).

III. DISCUSSION

ERISA regulates pension benefits through statutory accrual

and vesting requirements. See 29 U.S.C. §§ 1053, 1054. In

6
addition to these statutory protections, when an employer imposes

upon itself extra-ERISA contractual obligations in its employee

benefits plan, these extra-ERISA obligations are rendered

enforceable by contract law. Wise v. El Paso Natural Gas Co.,

986 F.2d 929, 937-38 (5th Cir. 1993); Vasseur v. Halliburton Co.,

950 F.2d 1002, 1006 (5th Cir. 1992). Section 1132 of the statute

creates a procedural mechanism for enforcing a plan participant’s

rights, whether predicated upon ERISA’s statutory protections or

upon the federal common law of contracts.4 See HENRY H. PERRITT,

JR., EMPLOYEE BENEFITS CLAIMS LAW AND PRACTICE § 3.3 (1990) (“ERISA

establishes two different kinds of federal rights. The first

kind of right is statutory . . . . The second kind of right

relates to obligations created under the common law of trusts or

the common law of contracts.”); cf. In re HECI Exploration Co.,

Inc., 862 F.2d 513, 523 n.18 (5th Cir. 1988) (concluding that

Ҥ 1132(a)(1)(B) was intended to create a federal common law

concerning pension rights which would augment the rights created

by ERISA's substantive provisions”).

We conclude that the Plan’s application of the Amendment to

Spacek violated neither the Plan’s statutory nor contractual

obligations.

4
Section 1132(a)(3) provides that a participant or
beneficiary may bring a civil action “to enforce any provisions
of this subchapter or the terms of the plan.” 29 U.S.C.
§ 1132(a)(3) (emphasis added). Additionally, § 1132(a)(1)(B)
provides that a participant or beneficiary may bring a civil
action “to recover benefits due to him under the terms of his
plan, to enforce his rights under the terms of the plan, or to
clarify his rights to future benefits under the terms of the
plan[.]” Id. § 1132(a)(1)(B).

7
 A. Compliance with ERISA

Questions of statutory interpretation are questions of law

and are thus reviewed de novo. Estate of Bonner v. United

States, 84 F.3d 196, 197 (5th Cir. 1996). We therefore conduct a

de novo review in order to determine whether the Plan’s

application of the Amendment to Spacek comported with ERISA’s

statutory requirements. See Penn v. Howe-Baker Eng’rs, Inc., 898

F.2d 1096, 1100 (5th Cir. 1990) (“[W]e accord no deference to the

[plan administrators’] conclusions as to the controlling law,

which involve statutory interpretation.”).

Spacek contended in the district court, and again urges on

appeal as an alternative ground for affirmation of the district

court’s judgment, that application of the Amendment to him

violated the anticutback provisions of 29 U.S.C. § 1054(g).

Section 1054(g) provides as follows:

(1) The accrued benefit of a participant under a plan
may not be decreased by an amendment to the plan, other
than an amendment described in section 1082(c)(8) or
1441 of this title.5

(2) For purposes of paragraph (1), a plan amendment
which has the effect of--

(a) eliminating or reducing an early retirement
benefit or a retirement-type subsidy (as defined
in regulations), or

(b) eliminating an optional form of benefit,

with respect to benefits attributable to service before
the amendment shall be treated as reducing accrued
benefits.

5
None of the parties contend that the Amendment is
authorized by § 1082(c)(8) or § 1441.

8
29 U.S.C. § 1054(g).

Spacek argues that application of the Amendment to him

violated § 1054(g) because the Amendment decreased his early

retirement benefit. As such, he argues, § 1054(g)(2) dictates

that the Amendment must be treated as an amendment reducing

accrued benefits, and that § 1054(g)(1) prohibits such an

amendment. Spacek’s theory is that the suspension of benefit

payments amounts to a reduction in benefits because he will never

recover those suspended benefits and thus the cumulative total of

benefits he will receive over his lifetime has been reduced. The

district court rejected this argument, Spacek, 923 F. Supp. at

963, and so do we. While Spacek’s interpretation of § 1054(g)

has some logical appeal, it fails to comport with the plain

language of § 1054(g), the provision’s legislative history, and

relevant interpretive regulations.

1. Statutory Language

Spacek’s reading of § 1054(g) is contrary to the wording of

the ERISA statute.6 Throughout the statute and corresponding

regulations, the concepts of reduction of benefits and suspension

of benefit payments are used in distinct ways, often within a

6
Research reveals only one reported opinion addressing the
issue of whether suspension of early retirement benefits amounts
to a reduction. In Whisman v. Robbins, 55 F.3d 1140 (6th Cir.
1995), the Sixth Circuit stated that § 1054(g)(2) does not apply
when early retirement benefits are suspended because a suspension
is not a reduction or elimination. Id. at 1147. However, the
court undermined the impact of this statement by concluding that
the plaintiff would have lost even under the unamended plan. Id.
Thus, while we agree with Whisman, we do not rely on it, instead
basing our holding on our independent statutory analysis.

9
single provision. For example, § 1441 provides procedures

regarding disposition of benefits under terminated plans,

instructing that “the plan sponsor of a terminated multiemployer

plan to which section 1341a(d) of this title applies shall amend

the plan to reduce benefits, and shall suspend benefit payments,

as required by this section.” 29 U.S.C. § 1441(a) (emphasis

added). Section 1341a(d) instructs that “[t]he plan sponsor of a

plan which terminates under . . . this section shall reduce

benefits and suspend benefit payments in accordance with section

1441 of this title.” 29 U.S.C. § 1341a(d) (emphasis added).

Similarly, § 1342, which governs termination of a plan by the

Pension Benefit Guarantee Corporation, provides for the

appointment of a trustee with the power, “in the case of a

multiemployer plan, to reduce benefits or suspend benefit

payments under the plan.” 29 U.S.C. § 1342(d)(1)(A)(v) (emphasis

added).7

The regulations adopted pursuant to ERISA also indicate that

a distinction exists between reduction of benefits and suspension

of benefit payments. For example, the regulations specify two

situations in which a summary plan description must provide a

7
See also 29 U.S.C. § 1053(a)(3)(E)(ii) (“A participant’s
right to an accrued benefit derived from employer contributions
under a multiemployer plan shall not be treated as forfeitable
solely because . . . the plan is amended to reduce benefits under
section 1425 or 1441 of this title, or . . . benefit payments
under the plan may be suspended under section 1426 or 1441 of
this title.” (emphasis added)); id. § 1301(a)(8) (defining
“nonforfeitable benefit” in the context of plan termination
insurance and noting that the definition applies “whether or not
the benefit may subsequently be reduced or suspended by a plan
amendment” (emphasis added)).

10
description of any plan provision under which a benefit or

benefit payment “may be reduced, changed, terminated, forfeited

or suspended.” 29 C.F.R. §§ 2520.104b-4(a)(1)(iii), (a)(2)(iv)

(emphasis added).

To interpret reduction of benefits as including suspension

of benefit payments would make the word “suspension” redundant in

all of these statutory provisions and interpretive regulations,

which is contrary to the rule of statutory construction that each

word must be given meaning. See Bailey v. United States, 116

S. Ct. 501, 506 (1995) (noting the “assumption that Congress

intended each of its terms [in a statutory scheme] to have

meaning”). Thus, under the plain language of the statute, a

suspension of benefit payments is not a reduction of benefits,

and the district court did not err in determining that the Plan’s

application of the Amendment to Spacek did not violate § 1054(g)

by reducing early retirement benefits. This conclusion finds

further support in the legislative history of § 1054(g)(2).

2. Legislative History

The legislative history of the Retirement Equity Act of

1984, Pub. L. No. 98-397, 98 Stat. 1426 (“REA”), which added

paragraph (2) to § 1054(g), supports the conclusion that

§ 1054(g)(2) does not preclude application of the Amendment to

Spacek. During congressional debate, Representative William

Clay, who introduced the House bill that ultimately became the

REA, made the following statement regarding the section of the

bill that would become § 1054(g)(2):

11
 In addition, I wish to further clarify the anticutback
provisions of section 301 of the bill. Those
provisions are not intended to apply to benefit changes
authorized by existing law; for example, they do not
restrict the right of multiemployer pension plans under
ERISA sections 203(a)(3)(E) and 4210(b)(3) and code
section 411(a)(3)(E) to disregard past service credit
when an employer ceases to be obligated to contribute.
Nor do those provisions in any way apply to or affect
the provisions of ERISA section 203(a)(3)(B)[29 U.S.C.
§ 1053(a)(3)(B)] and code section 411(a)(3)(B) relating
to the suspension of benefits for postretirement
employment, including the authorization for
multiemployer plans to adopt stricter rules for the
suspension of subsidized early retirement benefits.

130 CONG. REC. 23,487 (1984)(emphasis added). The above

clarification indicates that § 1053(a)(3)(B), which authorizes

suspension of payment of accrued benefits under a multiemployer

plan based on employment subsequent to commencement of payment of

such benefits “in the same industry, in the same trade or craft,

and in the same geographic area covered by the plan, as when such

benefits commenced,” 29 U.S.C. § 1053(a)(3)(B)(ii),8 also

8
The regulations promulgated under § 1053(a)(3)(B)
indicate that the power of pension benefit plans to suspend early
retirement benefits upon reemployment is even broader than the
power of such plans to suspend retirement benefits available at
normal retirement age:

A plan may provide for the suspension of pension
benefits which commence prior to the attainment of
normal retirement age, or for the suspension of that
portion of pension benefits which exceeds the normal
retirement benefit, or both, for any reemployment and
without regard to the provisions of section
203(a)(3)(B) [29 U.S.C. § 1053(a)(3)(B)] and this
regulation to the extent (but only to the extent) that
suspension of such benefits does not affect a retiree’s
entitlement to normal retirement benefits payable after
attainment of normal retirement age, or the actuarial
equivalent thereof.

29 C.F.R. § 2530.203-3(a) (emphasis added).

12
authorizes the very type of amendment at issue in this case, and

that § 1054(g) in no way limits this authorization. We reach

this conclusion based on the fact that § 1054(g) does nothing

more than prohibit retroactive application of certain types of

amendments. Accordingly, § 1054(g) can be construed as having a

potential impact on § 1053(a)(3)(B) only if § 1053(a)(3)(B)

authorizes retroactive application of amendments that provide for

suspension of benefit payments based upon reemployment. Relevant

federal regulations further bolster this conclusion.

3. Relevant Regulations

Treasury Regulations adopted under 26 U.S.C. § 411, the

section of the Internal Revenue Code that largely mirrors the

accrual provisions of ERISA, 29 U.S.C. § 1054, further compel us

to reject Spacek’s argument that the Plan’s application of the

Amendment to him violates § 1054(g) by virtue of the fact that it

will reduce the total amount of pension benefits that he will

receive in his lifetime. Before turning to a discussion of the

relevant regulations, we first must look to ERISA’s definition of

accrued benefits.

Section 1002(23) of ERISA states that

[t]he term “accrued benefit” means[,] . . . in the case
of a defined benefit plan, the individual’s accrued
benefit determined under the plan and, except as
provided in section 1054(c)(3) of this title, expressed
in the form of an annual benefit commencing at normal
retirement age . . . .

29 U.S.C. § 1002(23). Section 1054(c)(3) in turn provides in

relevant part as follows:

For purposes of this section, in the case of any

13
 defined benefit plan, if an employee’s accrued benefit
is to be determined as an amount other than an annual
benefit commencing at normal retirement age [e.g., an
early retirement benefit], . . . the employee’s accrued
benefit . . . shall be the actuarial equivalent of such
benefit . . . .

29 U.S.C. § 1054(c)(3).

Section 411(c)(3) of the Internal Revenue Code, 26 U.S.C.

§ 411(c)(3), mirrors the provisions of 29 U.S.C. § 1054(c)(3).

The Treasury Regulations promulgated under § 411(c)(3) repeat the

general rule that, where an employee’s pension benefit commences

at a time other than normal retirement age, the accrued portion

of such a benefit is the actuarial equivalent of the retirement

benefit available at normal retirement age. 26 C.F.R.

§ 1.411(c)-1(e). In other words, an early retirement benefit is

accrued under the regulation to the extent that it has been

actuarially reduced to compensate for the fact that it is paid

before normal retirement age. However, the Treasury Regulations

go on to provide that, for purposes of computing the actuarial

equivalent of a retirement benefit available at normal retirement

age, “[n]o adjustment to an accrued benefit is required on

account of any suspension of benefits if such suspension is

permitted under section 203(a)(3)(B) of the Employment Retirement

Income Security Act of 1974 [29 U.S.C. § 1053(a)(3)(B)].” 26

C.F.R. § 1.411(c)-1(f). Thus, in calculating a plan

participant’s accrued benefit where the plan participant is

receiving early retirement benefits, the calculation of the

accrued benefit need not account for the decrease in total

benefits paid as a result of a suspension authorized by 29 U.S.C.

14
§ 1053(a)(3)(B).

As noted above, § 1053(a)(3)(B) authorizes suspension of

accrued benefits under a multiemployer plan based on employment

subsequent to payment of accrued benefits “in the same industry,

in the same trade or craft, and in the same geographic area

covered by the plan, as when such benefits commenced.” 29 U.S.C.

§ 1053(a)(3)(B)(ii). This is precisely the type of suspension

that occurred when the Plan applied the Amendment to Spacek.

Based on the above Treasury Regulations and § 1053(a)(3)(B),

we conclude that, when an amendment to a plan calls for a

suspension of benefit payments authorized by § 1053(a)(3)(B), as

is the case here, the amendment does not decrease accrued

benefits within the meaning of § 1054(g)(1). This is so because

the reduction in total benefits paid over the lifetime of the

plan participant as a result of the suspension need not be

accounted for actuarially in computing the participant’s accrued

benefit under § 1054(c)(3) in the first instance. See 26 C.F.R.

§ 1.411(c)-1(f). Therefore, an amendment authorizing such a

suspension does not serve to decrease the participant’s accrued

benefits, and thus cannot violate § 1054(g).

To the extent that an amendment such as the one at issue

here would not violate § 1054(g) if it were applied to suspend

fully accrued benefits, it plainly cannot violate § 1054(g) if it

is applied to early retirement benefits, which may or may not be

15
fully accrued.9 The legislative history of the REA indicates

that the fundamental purpose behind the addition of paragraph (2)

to § 1054(g) was to afford early retirement benefits and

retirement-type subsidies the same form of protection from

9
A split exists among the circuits as to the extent to
which early retirement benefits are accrued benefits under
ERISA’s definition of that term. The Third, Fourth, Eighth, and
Tenth Circuits have held that §§ 1002(23) and 1054(c)(3), along
with the legislative history of ERISA, indicate that an early
retirement benefit that has been actuarially reduced to reflect
its payment prior to normal retirement age constitutes an accrued
benefit and any excess value over the actuarial equivalency is
unaccrued. See Atkins v. Northwest Airlines, Inc., 967 F.2d
1197, 1201 (8th Cir. 1992); American Stores Co. v. American
Stores Co. Retirement Plan, 928 F.2d 986, 990-94 (10th Cir.
1991); Tilley v. Mead Corp., 927 F.2d 756, 759-60 (4th Cir.
1991); Bencivenga v. Western Pa. Teamsters and Employers Pension
Fund, 763 F.2d 574, 577-78 (3d Cir. 1985). The Second Circuit
has held that, under § 1002(23), the full amount of the early
retirement benefit calculated by the same formula as the normal
retirement age benefit, including the amount by which the benefit
exceeds the actuarial equivalent of the retirement benefit at
normal retirement age adjusted for early payment, is accrued.
See Amato v. Western Union Int’l, Inc., 773 F.2d 1402, 1407-08
(2d Cir. 1985).

We need not resolve this issue because Spacek has only
argued that application of the Amendment to him violated
§ 1054(g) by virtue of the fact that it reduced or eliminated his
early retirement benefits, and thus should be treated as having
reduced his accrued benefits per § 1054(g)(2). Because Spacek’s
argument rests upon § 1054(g)(2), we are not called upon to
conclude whether his early retirement benefits actually are
accrued benefits under ERISA’s definition of the term.

We acknowledge that, in Harms v. Cavenham Forest Industries,
Inc., 984 F.2d 686 (5th Cir. 1993), a panel of this court
apparently concluded that benefits protected by § 1054(g)(2) are
“vested or accrued.” See id. at 691-92 (concluding that
§ 1054(g)(2) “prohibits the elimination or reduction of
retirement benefits that have already vested or accrued”). The
issue of whether early retirement benefits or retirement-type
subsidies are accrued benefits for all purposes under ERISA was
not before the court in Harms, nor is it before us in this case.
We therefore decline to address the issue of whether § 1054(g)(2)
renders early retirement benefits accrued benefits for all
purposes under ERISA.

16
reduction by amendment afforded to accrued benefits. The House

Committee on Ways and Means stated that this portion of the REA

“codifie[d] present law generally precluding the elimination or

reduction of benefits that have already been accrued by

employees.” H.R. REP. NO. 98-655, pt. 2, at 25-26 (1984).

Furthermore, the Senate Finance Committee’s report on the REA

states that, “under the bill, as under present law, the accrued

benefit of a participant is not to be decreased by an amendment

of a plan. The bill clarifies the scope of the prohibition

against such decreases.” S. REP. NO. 98-575, at 27-28 (1984),

reprinted in 1984 U.S.C.C.A.N. 2547, 2573-74. This legislative

history indicates that, if an amendment would not violate

§ 1054(g) if applied to fully accrued benefits, then it also

cannot violate § 1054(g) if applied to early retirement benefits.

Because we conclude that the Amendment in this case would

not violate § 1054(g) if it were applied to suspend a plan

participant’s fully accrued benefits, we in turn conclude that

the Plan’s suspension of Spacek’s early retirement benefits

pursuant to the Amendment did not violate § 1054(g). However, as

noted earlier, our inquiry does not end here because employers

may obligate themselves contractually to provide benefits at a

level exceeding ERISA’s minimum requirements for pension plans.

See Wise, 986 F.2d at 937-38; Vasseur, 950 F.2d at 1006. Thus,

we turn to the federal common law of contracts in order to

determine whether application of the Amendment to Spacek

constituted a breach of the Plan.

17
 B. Contract Law

1. Statutory Restriction of the Plan’s Ability to
Contractually Limit Its Amendment Power

As an initial matter, we address the Plan’s argument that we

should not conduct a contract law analysis of the propriety of

applying the Amendment to Spacek because doing so would result in

“the establishment of a federal common law of pensions to

supersede the provisions of ERISA and ignores the fiduciary

obligations of plan trustees to administer pension plans for the

benefit of all participants.” The thrust of the Plan’s argument

appears to be that, because ERISA specifically authorizes

employers to suspend plan participants’ receipt of early

retirement benefits upon reemployment in the industry, trade or

craft, and geographic area covered by an employee benefit plan,

see 29 U.S.C. § 1053(a)(3)(B), contract law cannot operate to

deny an employer the right to make such a suspension.

This court has held that “[a]n employer can oblige itself

contractually to maintain benefits at a certain level in ways

that are not mandated by ERISA.” Vasseur, 950 F.2d at 1006; see

also Wise, 986 F.2d at 937. However, we have never had occasion

to determine whether ERISA places any substantive limits on the

extent to which an employer may contractually obligate itself to

exceed ERISA’s minimum statutory requirements. Because we

conclude that, at least in the respect at issue here, the Plan

has not contractually obligated itself to maintain benefits at a

level any higher than that required by ERISA, we express no

opinion on whether ERISA imposes any substantive limits on an

18
employer’s ability to contractually obligate itself not to

suspend benefits in a manner otherwise authorized by the statute.

We assume without deciding that, contrary to the situation that

obtains here, the Plan could have contractually bound itself not

to amend the Plan.

2. Standard of Review

Where, as here, an ERISA plan grants its administrators

discretion in interpreting plan provisions,10 we will set aside

an administrator’s interpretation of the plan and action based

thereon only upon a showing of an abuse of discretion. See

Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989);

Sunbeam-Oster Co. Group Benefits Plan v. Whitehurst, 102 F.3d

1368, 1373 (5th Cir. 1996). As the district court observed,

application of the abuse of discretion standard may involve a

10
Section 3.5 of the Agreement of Trust for Maritime
Association - I.L.A. Pension Fund provides the trustees of the
Plan with broad discretion in administering the Plan:

Subject to the stated purposes of the Fund and the
provisions of this Agreement, . . . the Trustees shall
have full and exclusive authority to determine all
questions of coverage and eligibility, methods of
providing or arranging for benefits and all other
related matters. They shall have full power to
construe the provisions of this Agreement and the terms
used herein. Any such determination and any such
construction adopted by the Trustees shall be binding
upon all the parties hereto and the beneficiaries
hereof. The Trustees shall be free to use their own
judgment and discretion in all things pertaining to the
affairs of the Trust.

The district court concluded that the trustees of the Plan had
discretion in interpreting the Plan’s provisions, and none of the
parties challenge this conclusion on appeal. See Spacek, 923 F.
Supp. at 963.

19
two-step process. The court must initially determine whether the

administrator’s interpretation of the plan is the legally correct

interpretation. See Wildbur v. ARCO Chemical Co., 974 F.2d 631,

637 (5th Cir.), modified, 979 F.2d 1013 (5th Cir. 1992). If the

administrator’s interpretation of the plan is legally correct,

then the inquiry ends because no abuse of discretion could have

occurred. However, if the court determines that the

administrator’s interpretation is not legally correct, then it

must further determine whether the administrator’s decision was

an abuse of discretion. See id.

The district court concluded that the standard of review set

out above “does not fully contemplate a situation where the plan

administrator is interpreting a retroactive plan amendment”

because “[i]n this situation, the issue is not whether the

amendment is applied according to its terms, but rather, whether

the amendment can be applied at all due to its retroactive

nature.” Spacek, 923 F. Supp. at 964. We disagree with the

district court’s conclusion because, to the extent that we have

concluded that nothing in ERISA prohibits retroactive application

of the Amendment to Spacek in this case, whether the Amendment

can be retroactively applied to him will be determined by the

terms of the Plan itself. Unless the Plan’s language indicates

that it has contractually obligated itself not to do what ERISA

would otherwise entitle it to do, i.e., unless the terms of the

Plan prohibit adoption of an amendment providing for the

suspension of retired participants’ benefit payments upon their

20
reemployment in the same industry, trade or craft, and geographic

area in any capacity, no basis exists for concluding that the

Plan’s application of the Amendment to Spacek constituted an

abuse of discretion. See Wise, 986 F.2d at 937.

3. Legally Correct Interpretation of the Plan

“[E]xtra-ERISA commitments must be found in the plan

documents and must be stated in clear and express language.” Id.

“[C]ourts may not lightly infer an intent” on the part of a plan

to “voluntarily undertak[e] an obligation to provide vested,

unalterable benefits.” Gable v. Sweetheart Cup Co., 35 F.3d 851,

855 (4th Cir. 1994). The presence of the broad amendment

provision in the Plan leads us to conclude that the Plan’s

application of the Amendment to Spacek comports with the legally

correct interpretation of the Plan. This is so because the

amendment provision undercuts a conclusion that the Plan contains

a clear and express intention to guarantee benefits to

participants at a level higher than that statutorily required by

ERISA. We reach this conclusion based on the courts’ treatment

of extra-ERISA obligations in the context of welfare benefit

plans. We first provide an overview of the case law addressing

extra-ERISA obligations in welfare benefit plans and then address

the propriety of applying the analysis utilized in the welfare

benefit cases in the context of pension benefits.

a. Extra-ERISA obligations in welfare benefit plans

The strong weight of authority throughout the circuits

indicates that, in the area of welfare benefits, which are not

21
subject to ERISA’s minimum vesting and accrual requirements,

Vasseur, 950 F.2d at 1006, a general amendment provision in a

welfare benefits plan is of itself sufficient to unambiguously

negate any inference that the employer intends for employee

welfare benefits to vest contractually, and thus become

unalterable, after the employee retires. See Chiles v. Ceridean

Corp., 95 F.3d 1505, 1512 n.2 (10th Cir. 1996) (“We recognize

that the weight of case authority supports the . . . approach,

that a reservation of rights clause allows the employer to

retroactively change the medical benefits of retired

participants, even in the face of clear language promising

company-paid lifetime benefits.” (emphasis added)).

In In re Unisys Corp. Retiree Medical Benefit “ERISA”

Litigation, 58 F.3d 896 (3d Cir. 1996), the Third Circuit

concluded that the district court did not err in determining that

“summary plan descriptions that used the terms ‘lifetime’ or ‘for

life’ to describe the duration of medical benefits, while at the

same time reserving the employer’s right to modify or terminate

at ‘any time’ and ‘for any reason’ the plans under which these

benefits were provided, were unambiguous.” Id. at 898-99.

Because the provisions were not internally inconsistent, the

court concluded that the employer had no contractual obligation

to refrain from modifying or terminating the rights of retired

employees. Id. at 904-05.

In Gable v. Sweetheart Cup Co., 35 F.3d 851 (4th Cir. 1994),

the Fourth Circuit likewise concluded that a reservation of

22
rights clause in a life and health insurance policy taken out by

a company on its employees allowed modification of the rights of

retirees covered under the policy. Id. at 853. The company

distributed forms to retiring employees which stated that the

company would “continue [insurance coverage] for you during the

remainder of your lifetime at company expense.” Id. at 854.

However, the certificates of insurance issued to employees

covered under the policy stated that

[t]he Policy(ies) under which this certificate is
issued may at any time be amended or discontinued by
agreement between the Insurance Company and the
Policyholder without the consent of or giving of notice
to the Insured Person.

Id.

After the insurance policy’s inception, the company changed

hands and the new owners shifted to a self-insured plan. Id.

However, the insurance policy in its new form retained the

reservation of rights clause. Id. The new owners subsequently

amended the policy “to reduce benefits, increase deductibles, and

require each participant to pay a portion of the insurance

premiums.” Id.

The plaintiff retirees, whose rights to insurance were

modified by the amendment, brought suit, alleging that their

rights under the policy were contractually vested and thus not

subject to modification by amendment. Id. at 855. The court

rejected the retirees’ contention that their rights were vested

on the ground that the “express reservation of the company’s

right to modify or terminate the participants’ benefits is

23
plainly inconsistent with any alleged intent to vest those

benefits.” Id. at 856.

Similarly, in Howe v. Varity Corp., 896 F.2d 1107 (8th Cir.

1990), the Eighth Circuit held that an employer unambiguously

manifested an intent not to contractually vest retired employees’

rights to welfare benefits where the plan contained both a

provision stating that welfare benefits “continue in retirement”

and a reservation of rights provision. Id. at 1109-10. The

reservation of rights provision stated that the employer reserved

the right to amend or terminate the plan “at any time,” but also

provided that the right to amend or terminate “shall not, in any

way, affect an Employee’s right to claim benefits, diminish, or

eliminate any claims for benefits under the provisions of the

Plan to which the Employee shall have become entitled prior to

the exercise of the [employer’s] right . . . to terminate or

amend.” Id. at 1108. Nevertheless, the court concluded that

“the mere fact that employee welfare benefits continue into

retirement does not indicate that the benefits become vested for

life at the moment of retirement.” Id. at 1110; see also Alday

v. Container Corp. of Am., 906 F.2d 660, 665 (11th Cir. 1990)

(holding that reservation of right to terminate or amend welfare

benefits in summary plan description unambiguously manifested

intent on the part of employer not to contractually vest welfare

benefits). But see Jensen v. SIPCO, Inc., 38 F.3d 945, 950 (8th

Cir. 1994) (concluding that plan provisions reserving the right

to terminate or modify health benefits were “not facially

24
unambiguous--they leave at least some doubt as to whether SIPCO

intended to reserve the right to change or terminate benefits to

already retired pensioners, or only the right to make prospective

changes for those covered by the Plan but not yet retired”).

b. Applicability of the welfare benefits
case law in the pension context

We believe that the contractual analysis in the welfare

benefits cases provides the proper framework for our decision in

this case. In the same sense that the amendment provisions in

Unisys, Gable, and Howe unambiguously established that the

welfare benefits at issue in those cases were not contractually

guaranteed at a higher level than ERISA requires, the amendment

provision of the Plan in this case unambiguously establishes that

Spacek’s early retirement benefits are not contractually

guaranteed at a higher level than ERISA requires. Thus, we

conclude that the Plan’s application of the Amendment to Spacek

comported with the legally correct interpretation of the Plan,

and therefore did not constitute an abuse of discretion.

We acknowledge that courts have traditionally applied

contract law in a manner that affords pension benefits greater

protection than welfare benefits. See, e.g., Danti v. Lewis, 312

F.2d 345, 348-49 (D.C. Cir. 1962) (holding that application of a

pension benefit plan amendment to the plaintiff when the

amendment was adopted after the plaintiff applied for benefits

and rendered the plaintiff ineligible for benefits was arbitrary

and capricious). This tendency doubtless stems from the special

solicitude that courts have shown in protecting the rights of

25
pensioners, who have labored the greater portion of their lives

under an expectation that their hard work would bring them

security in retirement. The statutory framework of ERISA

reflects this solicitude toward pensioners’ rights through

minimum funding, vesting, and accrual requirements for pension

plans that are inapplicable to other types of ancillary benefits.

See Wise 986 F.2d at 934-35. These requirements statutorily

preclude a pension plan from “pulling the rug out from under”

pensioners. Williams v. Cordis Corp., 30 F.3d 1429, 1431 (11th

Cir. 1994). Because Congress has chosen to protect pensioners’

expectations of retirement security statutorily, the courts need

not endeavor--and indeed have no justification for endeavoring--

to safeguard pensioners’ interests by liberally applying equity-

based theories of contract construction that deviate from

contract law’s traditional focus on the intent of the parties as

determined by the objective manifestations of that intent

contained in the language of the parties’ agreement. The cases

cited by Spacek support rather than undermine this conclusion.

Spacek relies heavily on the Ninth Circuit’s decision in

Brug v. Pension Plan of Carpenters Pension Trust Fund, 669 F.2d

570 (9th Cir. 1982). In that case, the plaintiff became a

beneficiary under a pension plan pursuant to an amendment adopted

by the trustees of the plan. Id. at 573. The plaintiff later

became disabled and applied for a disability retirement pension

under the plan. Id. The trustees of the plan delayed

considering the plaintiff’s application until after they voted to

26
rescind the amendment that had authorized her qualification as a

beneficiary under the plan. Id. The trustees then denied the

plaintiff’s application. Id. The court concluded that the

trustees’ denial of the plaintiff’s application was arbitrary and

capricious because “the Trustees did not have the discretionary

authority to apply that termination [of the amendment allowing

the plaintiff to qualify as a plan beneficiary] so as to preclude

[her] eligibility for pension benefits that had vested in the

meantime.” Id. at 575.

Brug differs from the instant case in that the action of the

trustees in Brug completely deprived the plaintiff of any

opportunity to obtain benefits by rendering her ineligible to

participate in the employee benefit plan. It is possible that 29

U.S.C. § 1054(g), amended since the Brug decision, would preclude

the trustees’ rescission of the amendment because such action

arguably constitutes an amendment eliminating early retirement

benefits.11 Had Brug been decided today, deviation from

11
In Williams v. Plumbers & Steamfitters Local 60 Pension
Plan, 48 F.3d 923 (5th Cir. 1995), we were presented with the
issue of whether a disability benefit can constitute an early
retirement benefit within the meaning of § 1054(g). However, we
declined to address the issue because the appellant had not
presented the argument to the district court. Id. at 925. We
likewise decline to decide the issue here because the parties
have not briefed the issue and its resolution is unnecessary to
our decision. Suffice it to say, if the disability retirement
pension benefit at issue in Brug constituted an early retirement
benefit subject to the protections of § 1054(g), then Brug
supports our position that resort to equity-based theories of
contract construction is unnecessary to protect pension benefits
in light of the enhanced statutory protection of these types of
benefits afforded by ERISA. If the benefit at issue in Brug
merely constituted a welfare benefit, then Brug is inconsistent
with Unisys, Gable, and Howe, all of which held that a

27
traditional principles of contract interpretation may well have

been unnecessary to protect the interests of the plaintiff in

light of the enhanced statutory protections afforded by ERISA.

Spacek next relies upon Pratt v. Petroleum Production

Management, Inc. Employee Savings Plan & Trust, 920 F.2d 651

(10th Cir. 1990), in which the Tenth Circuit concluded that the

administrators of an executive deferred compensation, or “top

hat,” plan could not amend the plan so as to change the valuation

dates for a terminated employee’s shares of the employer’s

securities held by the plan, and Kemmerer v. ICI Americas Inc.,

70 F.3d 281 (3d Cir. 1995), cert denied, 116 S. Ct. 1826 (1996),

in which the Third Circuit utilized similar contractual analysis

to conclude that an employer could not terminate a top hat plan

and thereby defeat the rights of retired employees. In each

case, the court reasoned that “[a] pension plan is a unilateral

contract which creates a vested right in those employees who

accept the offer it contains by continuing in employment for the

requisite number of years,” and that unilateral adoption of an

amendment cannot operate to diminish rights vested after

acceptance of the offer. Pratt, 920 F.2d at 661 (internal

quotation marks omitted); see also Kemmerer, 70 F.3d at 287.

Kemmerer and Pratt are distinguishable from the instant case

because they involved top hat plans, which are not subject to

reservation of rights provision in a welfare benefits plan
unambiguously indicated that the plan did not contractually vest
plan participants’ rights to benefits, and we decline to follow
it.

28
ERISA’s full panoply of regulations. “ERISA exempts top-hat

plans from the fiduciary, funding, participation and vesting

requirements applicable to other employee benefit plans.” Duggan

v. Hobbs, 99 F.3d 307, 310 (9th Cir. 1996); see also 29 U.S.C.

§ 1101(a)(1) (exempting top hat plans from fiduciary

responsibilities), § 1051(2) (exempting top hat plans from

participation and vesting requirements), § 1081(a)(3) (exempting

top hat plans from minimum funding standards). As such, top hat

plans are in some degree analogous to pre-ERISA pension plans

because no statutory mechanism exists to safeguard the

expectations of top hat plan participants in obtaining their

deferred compensation.12 It is therefore at least arguable that

courts have an equity-based justification for deviating to some

degree from traditional contract analysis in evaluating the

12
The analogy is, of course, incomplete because top hat
plan participants, unlike ordinary pension plan participants, are
typically high-ranking management personnel. Top hat plan
participants are therefore better equipped than ordinary pension
plan participants to effectively protect their interests in the
employee benefits bargaining process. See Duggan, 99 F.3d at
310. This is the very reason that Congress chose not to subject
top hat plans to ERISA’s vesting, accrual, participation, and
fiduciary requirements. As the Department of Labor has observed:

[I]n providing relief for "top hat" plans from the
broad remedial provisions of ERISA, Congress recognized
that certain individuals, by virtue of their positions
or compensation level, have the ability to affect or
substantially influence, through negotiation or
otherwise, the design and operation of their deferred
compensation plan, taking into consideration any risks
attendant thereto, and therefore, would not need the
substantive rights and protection of Title I [of
ERISA].

Dep’t of Labor Op. Ltr. 90-14A.

29
contractual authority of plan administrators to amend top hat

plans that is similar to the equity-based justification for the

pro-pensioner contract analysis that appears to underlie pre-

ERISA cases interpreting pension plans.

This is precisely the rationale used by the Third Circuit in

In re New Valley Corp., 89 F.3d 143 (3d Cir. 1996), cert. denied,

117 S. Ct. 947 (1997), in which the court concluded that a broad

amendment and termination provision in a top hat plan did not

unambiguously reserve to the employer the right to terminate the

plan after its beneficiaries retired. Id. at 152. In doing so,

the court distinguished its earlier decision in Unisys, 58 F.3d

896, which held that a substantially similar amendment provision

in a welfare benefits plan unambiguously authorized amendments of

welfare benefits at any time before or after retirement. See New

Valley, 89 F.3d at 153-54.

First, the court concluded that it was not as strictly bound

to the language of the plan documents in New Valley as it was in

Unisys because top hat plans, unlike welfare benefit plans, are

exempt from ERISA’s writing requirements. Id. at 153. As such,

top hat plan beneficiaries may be more justified in relying upon

oral representations that are inconsistent with plan documents.

See id. Second, the court observed that top hat plan

participants lack the statutory cause of action for breach of

fiduciary duty afforded to welfare benefit plan recipients. See

id. The court was less inclined to find that the employer had

unambiguously reserved the right to terminate the plan at any

30
time when the participants’ remedy was limited to a breach of

contract action than when the participants had a statutory fall-

back cause of action for breach of fiduciary duty. See id. Both

of these bases for distinguishing top hat plans from welfare

benefit plans are equally applicable in distinguishing top hat

plans from ordinary pension benefit plans such as the one at

issue in this case. Unlike the top hat plan at issue in New

Valley, the Plan is not exempt from ERISA’s fiduciary

responsibility or writing requirements. See 29 U.S.C. § 1101(a)

(establishing the scope of ERISA’s fiduciary responsibility

requirements, including the writing requirement contained in

§ 1102).13

An additional justification that courts have offered for

13
In New Valley, the Third Circuit also based its decision
to treat the amendment provision in the top hat plan differently
from a similar provision in a welfare benefits plan on the fact
that the benefits under the top hat plan were “not payable, at
all, until after retirement,” whereas the welfare benefits at
issue in Unisys “were payable as compensation while the employees
worked and then continued on into retirement.” New Valley, 89
F.3d at 154. The court concluded that the fact that the top hat
plan benefits were not payable until after retirement arguably
provided some indication that the deferred compensation benefits
provided under the plan were intended to become unalterable upon
retirement. We find this argument unpersuasive. The mere fact
that the early retirement benefits at issue under the Plan are
not payable until after retirement does not establish the “clear
and express” manifestation of an intent to contractually vest
those rights upon a plan participant’s retirement that is
required for contractual vesting of rights under the law of this
circuit. See Wise, 986 F.2d at 937. “No inference of an intent
to vest can be presumed from the fact the benefits are retirement
benefits.” Howe, 896 F.2d at 1110. We thus conclude that New
Valley provides no basis for us to depart from the analysis of
the welfare benefit cases discussed above in construing the
amendment provision’s effect on the Plan in this case and thereby
determining the propriety of the Plan’s application of the
Amendment to Spacek.

31
construing amendment provisions in top hat plans narrowly is that

a broad construction of such provisions “‘would make the [plans’]

several specific and mandatory provisions ineffective, rendering

the promises embodied therein completely illusory.’” Kemmerer,

70 F.3d at 287-88 (quoting Carr v. First Nationwide Bank, 816 F.

Supp. 1476, 1494 (N.D. Cal. 1993)). A promise is illusory when

it creates no obligation whatsoever on the part of the purported

promisor. See RESTATEMENT (SECOND) OF CONTRACTS § 2 cmt. e (1981).

For example, when one contracting party reserves a right to

cancel a services contract at any time without providing notice,

the promise will likely be considered illusory. See ARTHUR LINTON

CORBIN, CORBIN ON CONTRACTS § 163 (1963). However, if a party

reserves the right to terminate upon a certain period of notice

to the other party, the reserving party’s promise is not rendered

illusory because “[t]he party in whom the power has been reserved

has made a real promise, one that in terms purports to control

his action during the specified period of notice.” Id. § 164.

Interpreting a broad amendment provision in a top hat plan

to allow an employer to terminate a top hat plan or sharply

diminish the benefits that it provides renders the employer’s

obligations under the plan illusory because, under such a

construction of the amendment provision, the employer has no duty

of performance under the plan. This is not the case with an

ordinary pension plan subject to all of ERISA’s statutory

safeguards because the backdrop of ERISA guarantees that the

employer will have some obligation of performance under the

32
pension plan.

While employers are not required to offer pension benefits

at all, when they choose to do so, they must comply with ERISA’s

statutory requirements, such as minimum vesting and accrual

standards. See Shaw v. Delta Airlines, Inc., 463 U.S. 85, 91

(1983) (“[ERISA] imposes participation, funding, and vesting

requirements on pension plans. It also sets various uniform

standards, including rules concerning reporting, disclosure, and

fiduciary responsibility, for both pension and welfare plans.

ERISA does not mandate that employers provide any particular

benefits . . . .” (citations omitted)); PERRITT, supra § 3.2

(“ERISA provides for enforcement of employee benefits

entitlements only when a contractual right or a trust right to

such entitlements exists.”). Thus, the administrators of a

pension plan governed by ERISA could not, for example, exercise

their amendment power so as to eliminate or reduce early

retirement benefits because this is statutorily prohibited. See

29 U.S.C. § 1054(g). We therefore conclude that construing a

broad amendment provision in a pension plan governed by ERISA as

allowing the plan administrators to adopt any amendment that

comports with ERISA’s statutory requirements does not render the

employer’s obligations under the plan illusory because the plan

administrators are bound to exercise their amendment power in a

manner that comports with ERISA’s minimum statutory requirements.

These statutory requirements guarantee that the employer’s

performance is not purely discretionary.

33
 In sum, while we express no opinion as to whether the

contractual analysis of top hat plans utilized by the courts in

Pratt, Kemmerer, and New Valley is correct, we conclude that the

justifications for departure from traditional contract

interpretation arguably present in dealing with top hat plans are

absent in this case because of the statutory safeguards afforded

by ERISA to ordinary pension plans such as the one at issue here.

These safeguards insure that, when courts give a broad amendment

provision in a pension plan the meaning dictated by its plain

language, pensioners like Spacek will not have the rug pulled out

from under them regarding their pension benefits. Therefore, the

Plan’s application of the Amendment to Spacek comports with the

legally correct interpretation of the Plan.

4. Contra proferentem

Even if we assume that the amendment clause renders the

Plan’s terms ambiguous and that we must construe the Plan’s terms

against it in determining the legally correct interpretation

under the doctrine of contra proferentem, we are still compelled

to conclude that application of the Amendment to Spacek did not

constitute an abuse of discretion.14 If we assume that the Plan

14
This court has on several occasions held that the
doctrine of contra proferentem applies in construing ERISA plans.
See, e.g., Todd v. AIG Life Ins. Co., 47 F.3d 1448, 1451-52 (5th
Cir. 1995). However, we have done so only in construing
insurance policies governed by ERISA. See id.; Ramsey v.
Colonial Life Ins. Co. of Am., 12 F.3d 472, 479 (5th Cir. 1994);
Hansen v. Continental Ins. Co., 940 F.2d 971, 982 (5th Cir.
1991). We need not resolve the issue of whether contra
proferentem applies outside the insurance context because we
conclude that, even if the doctrine applies and we construe the
language of the Plan in favor of Spacek, the Plan’s application

34
can be reasonably interpreted as authorizing application of

amendments only to participants who have not retired at the time

of the Amendment to Spacek still did not constitute an abuse of
discretion.

We acknowledge that a number of other circuits have
concluded that the doctrine of contra proferentem cannot
logically coexist with the abuse of discretion standard of review
applicable to ERISA plans under which plan administrators are
granted discretion in construing plan provisions. See, e.g.,
Cagle v. Bruner, 112 F.3d 1510, 1519 (11th Cir. 1997) (“[T]he
arbitrary and capricious standard of review would have little
meaning if ambiguous language in an ERISA plan were construed
against the Fund.”); Pagan v. NYNEX Pension Plan, 52 F.3d 438,
443 (2d Cir. 1995) (“[A]pplication of the rule of contra
proferentem is limited to those occasions in which this Court
reviews an ERISA plan de novo.”). These courts apparently base
their holdings on the view that, if the plan is ambiguous, i.e.,
subject to more than one reasonable interpretation, and the
administrators adopt one reasonable interpretation, the
administrators cannot be said to have acted arbitrarily and
capriciously.

The two-tier abuse of discretion standard that we have
adopted dictates a different approach than that utilized by the
courts mentioned above. While we do not decide whether the rule
of contra proferentem actually applies, we acknowledge that it is
possible for the rule to be used in determining the legally
correct meaning of an ambiguous ERISA plan, the first step of our
abuse of discretion review. See Wildbur, 974 F.2d at 637. If
the administrators did not adopt the interpretation of the plan
dictated by whatever rule of decision we apply--in the case of
contra proferentem, this would be the reasonable interpretation
most favorable to the plan participants, see RESTATEMENT (SECOND) OF
CONTRACTS § 206 (1981)--then we proceed to the second portion of
our analysis in order to determine whether the legally incorrect
interpretation adopted by the administrators constituted an abuse
of discretion. See Wildbur, 974 F.2d at 637. The fact that plan
administrators have adopted one reasonable interpretation of the
plan does not foreclose our proceeding to the second step of our
review for abuse of discretion. “‘[A] wrong but apparently
reasonable interpretation is arbitrary and capricious if it
advances the conflicting interest of the fiduciary at the expense
of the affected beneficiary or beneficiaries unless the fiduciary
justifies the interpretation on the ground of its benefit to the
class of all participants and beneficiaries.’” Id. at 638
(quoting Brown v. Blue Cross & Blue Shield of Ala., Inc., 898
F.2d 1556, 1566-67 (11th Cir. 1990).

35
of the amendment’s adoption, then, because the Plan applied the

Amendment to Spacek after he retired, the rule of contra

proferentem would indicate that the Plan did not adopt the

legally correct interpretation of its terms. See RESTATEMENT

(SECOND) OF CONTRACTS § 206 (1981) (“In choosing among the

reasonable meanings of a promise or agreement or a term thereof,

that meaning is generally preferred which operates against the

party who supplies the words or from whom a writing otherwise

proceeds.”). Therefore, we would proceed to the second step of

our review for abuse of discretion in order to determine whether

the Plan’s legally incorrect interpretation constituted an abuse

of discretion. See Wildbur, 974 F.2d at 637.

Whether an ERISA plan administrator’s adoption of a legally

incorrect interpretation of an employee benefits plan constitutes

an abuse of discretion hinges upon three factors:

(1) the internal consistency of the plan under the
administrator’s interpretation,

(2) any relevant regulations formulated by the
appropriate administrative agencies, and

(3) the factual background of the determination and
any inferences of lack of good faith.

Id. at 638; see also Batchelor v. Int’l Bhd. of Elec. Workers

Local 861 Pension and Retirement Fund, 877 F.2d 441, 445-48 (5th

Cir. 1989). These factors indicate that the Plan’s application

of the Amendment to Spacek did not constitute an abuse of

discretion. First, application of the Amendment to Spacek in no

way rendered the Plan internally inconsistent. Second, our

research revealed no regulations prohibiting or casting into

36
doubt the propriety of the Plan’s application of the Amendment to

Spacek. Indeed, the relevant treasury provisions discussed in

Part III.A.3, supra, indicate that application of the Amendment

to Spacek was perfectly lawful under ERISA. Third, Spacek

presented no evidence to the district court that in any way

establishes bad faith on the part of the Plan in applying the

Amendment to suspend his benefits. The only factual inference

that we can draw from the record before us is that the Plan made

a good faith decision to conserve its resources for participants

who had truly decided to retire and not reenter the local

longshoring industry. The affidavit of Shirley H. Hunt,

administrator of the Plan at all times relevant to this lawsuit,

states that the Plan adopted the Amendment “to promote the Plan’s

financial integrity and enhance the corpus of the trust assets .

. . [by] prevent[ing] early retirees such as Mr. Spacek from

returning to work in the longshoring industry while

simultaneously collecting regular pension benefits without the

necessity of having to make further contributions to the Plan.”

We therefore conclude that, even if the scope of the Plan’s

amendment provision is ambiguous, as a matter of law the Plan did

not abuse its discretion in applying the Amendment to Spacek.

IV. CONCLUSION

For the foregoing reasons, we REVERSE the district court’s

grant of summary judgment in favor and Spacek and REMAND for

entry of judgment in favor of the Maritime Association - I.L.A.

Pension Plan and the Trustees of the Agreement of Trust.

37