Edes v. Verizon Communications, Inc.

United States Court of Appeals
For the First Circuit

No. 03-2162

RONALD R. EDES, KEVIN LYONS, JOHN PARSONS,

Plaintiffs, Appellants,

v.

VERIZON COMMUNICATIONS, INC., ET AL.,

Defendants, Appellees.

APPEAL FROM THE U.S. DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Patti B. Saris, U.S. District Judge]

Before

Torruella, Lynch, and Lipez, Circuit Judges.

Shannon Liss-Riordan, with whom Earl D. Munroe, Munroe & Chew,
Michael M. McArdle, and Law Offices of Michael M. McArdle were on
brief, for appellant.
Jeffrey G. Huvelle, with whom Frederick G. Sandstrom,
Covington & Burling, Marc Schoenecker, and Verizon Services Group
were on brief, for appellee.

August 2, 2005
 LIPEZ, Circuit Judge. Plaintiffs-appellants Ronald R.

Edes, Kevin Lyons, and John Parsons appeal the dismissal of their

claims against Defendants-appellees Verizon Communications, Inc.,

et al., under the Employee Retirement Income Security Act of 1974,

29 U.S.C § 1001-1461, as amended ("ERISA"). Plaintiffs allege that

Defendants violated ERISA by relegating them to the payrolls of

third-party payroll agencies, thereby: (1) wrongfully denying them

benefits under ERISA plans; (2) interfering with their attainment

of plan participation rights; (3) breaching fiduciary duties owed

to them; (4) failing to meet ERISA's minimum participation

standards; and (5) using arbitrary, unwritten plan eligibility

criteria. We affirm the district court's decision to dismiss each

of these claims pursuant to Fed. R. Civ. P. 12(b)(6).

I.

As alleged in the complaint, Plaintiffs were hired by GTE

Service Corporation ("GTE"), a business unit of GTE Corporation

(now Verizon Communications, Inc.), to work in its Danvers,

Massachusetts, office in or around April 1994. Although Plaintiffs

were hired directly by GTE, each was told to sign on with one of

two independent payroll agencies, FISC Inc. or BeneTemps Inc., who

issued Plaintiffs' paychecks during the entire period of their

employment with GTE. Plaintiffs received no paychecks or benefits

from GTE during their tenure. In all other respects, Plaintiffs

were treated like "regular," full-time GTE employees. In

-2-
particular, Plaintiffs received the same training, performance

reviews, and access to GTE facilities as other employees; were

invited to corporate functions, staff meetings, and committee

service just as other employees were; and were explicitly

instructed to identify themselves to outsiders as "GTE employees"

rather than as temporary employees. In short, according to the

complaint, Plaintiffs were "thoroughly integrated in GTE's

workforce."

In August 1998, GTE terminated Parsons' employment in

preparation for closing the Danvers facility. In December 1998,

GTE terminated Edes' and Lyons' employment. On May 3, 1999,

Plaintiffs made demands for ERISA plan benefits on the GTE Human

Resources Department. GTE denied the claims on September 8, 1999

on the ground that Plaintiffs had not been employed by GTE, and

offered Plaintiffs no administrative review options.

On October 10, 2001, Plaintiffs filed a putative class-

action complaint in federal district court against Verizon

Communications, Inc. (formerly GTE Corporation), seven named GTE

ERISA benefits plans and their administrators and fiduciaries,1 and

"GTE John Doe Unknown Plans 1 - 10." Plaintiffs alleged, on

information and belief, that because eligibility to participate in

1
The named plans include: GTE Employee Savings Plan, GTE
Employees Medical Plans, GTE Employees Dental Plans, GTE Retirement
Income Plans, GTE Tuition Reimbursement Plan, GTE Matching
Contribution to Education Plan, and GTE Plan for Group Insurance
Long Term Disability Income Protection Plan.

-3-
GTE's ERISA plans was "expressly limited to employees who were paid

directly by a participating business unit," Defendants had violated

their rights under ERISA and state common law.

On February 20, 2002, Defendants moved to dismiss each of

Plaintiffs' claims pursuant to Fed. R. Civ. P. 12(b)(6), arguing,

inter alia, that their claims of interference with attainment of

participation rights and breach of fiduciary duty were time-barred

and their state common-law claim preempted. After a hearing on the

motion, the court stayed discovery but did not stay automatic

disclosure, noting that Defendants had yet to disclose the plans'

actual language. On September 19, 2002, the court issued an order

denying Defendants' motion to dismiss without prejudice to its

renewal "once the precise language of the terms of eligibility is

produced." In October 2002, Defendants submitted an attorney

declaration with exhibits stating that they had disclosed plan

documents to Plaintiffs in May and June 2002. After the court

permitted Plaintiffs to take a deposition to determine when the

relevant eligibility criteria had been included in GTE's ERISA

plans, Defendants filed a memorandum in further support of their

motion to dismiss in January 2003. Plaintiffs filed a memorandum

in further opposition to the motion.2

2
In their memorandum, Plaintiffs protested that Defendants had
disclosed only one plan (the GTE Savings Plan), and only summary
plan descriptions of the other GTE ERISA plans. As the district
court noted, "[w]hile plaintiffs complain that all plan documents
have not been submitted, they [did] not file a motion to compel

-4-
 On July 25, 2003, the district court issued a memorandum

and order granting Defendants' motion to dismiss the complaint.

The court held that Plaintiffs' claims of interference with plan

participation rights and breach of fiduciary duty were time-barred

and that their state common-law claim was preempted by ERISA. Edes

v. Verizon Communications, Inc., 288 F. Supp. 2d 55, 59, 61-62, 64

(D. Mass. 2003). The district court also concluded that Plaintiffs

otherwise failed to state claims for which relief could be granted.

Id. at 58-59, 64. Plaintiffs timely appealed.3

II.

We review de novo a district court's decision to dismiss

a complaint pursuant to Rule 12(b)(6), "accepting all well-pleaded

facts as true and drawing all reasonable inferences in favor of the

plaintiff." Clorox Co. P.R. v. Proctor & Gamble Commercial Co.,

228 F.3d 24, 30 (1st Cir. 2000). A "complaint is properly

dismissed only when the allegations are such that 'the plaintiff

can prove no set of facts to support [the] claim for relief.'" Id.

(quoting Rockwell v. Cape Cod Hosp., 26 F.3d 254, 260 (1st Cir.

1994)). "Granting a motion to dismiss based on a limitations

[disclosure] pursuant to Fed. R. Civ. P. 37(a)." Edes v. Verizon
Communications, Inc., 288 F. Supp. 2d 55, 58 n.4 (D. Mass. 2003).
According to Defendants' attorney declaration and exhibits,
Defendants disclosed the GTE Plan for Group Insurance, the GTE Plan
for Employees' Pensions, and the Long-Term Disability Income
Protection Plan in addition to the GTE Savings Plan.
3
Plaintiffs do not appeal the district court's dismissal of
their state common-law claim.

-5-
defense is entirely appropriate when the pleader's allegations

leave no doubt that an asserted claim is time-barred." LaChapelle

v. Berkshire Life Ins. Co., 142 F.3d 507, 509 (1st Cir. 1998).

A. Entitlement to Benefits Under the Plans

Plaintiffs argue that the district court improperly

dismissed their claim of entitlement to plan benefits under ERISA

§ 502(a)(1)(B), 29 U.S.C. § 1102(a)(1)(B), for lack of standing.

See, e.g., Abraham v. Exxon Corp., 85 F.3d 1126, 1129 (5th Cir.

1996) ("Whether an employee has standing as a 'participant'

depends, not on whether he is actually entitled to benefits, but on

whether he has a colorable claim that he will prevail in a suit for

benefits."). The district court made no reference in its decision

to standing. Rather, based on the plan documents submitted by

Defendants, the court concluded that "by the terms of the plans,

[P]laintiffs are not entitled to benefits because they [were] not

paid directly by GTE, but instead [were] paid by temporary payroll

agencies." Edes, 288 F. Supp. 2d at 58 (footnote omitted).4

Plaintiffs also insist that they may proceed with their

claim because they were common-law employees of GTE by virtue of

4
"Where, as here, 'a complaint's factual allegations are
expressly linked to -- and admittedly dependent upon -- a document
(the authenticity of which is not challenged), that document
effectively merges into the pleadings and the trial court can
review it in deciding a motion to dismiss under Rule 12(b)(6).'"
Perry v. New Eng. Bus. Serv., Inc., 347 F.3d 343, 345 n.2 (1st Cir.
2003) (quoting Beddall v. State St. Bank & Trust Co., 137 F.3d 12,
17 (1st Cir. 1998)).

-6-
their full "integrat[ion] in GTE's workforce." Whether or not this

is so, the district court correctly concluded that "[t]he fact that

[P]laintiffs may be common law employees is not by itself enough to

state a valid claim for benefits under ERISA." Edes, 288 F. Supp.

2d at 58-59. In an opinion published several months after the

district court rendered its decision, a panel of this circuit

reached the same conclusion, stating that a plaintiff "may have a

plausible argument that he was a common law employee . . . , but it

is the language of the Plan, not common law status, that controls."

Kolling v. Am. Power Conversion Corp., 347 F.3d 11, 14 (1st Cir.

2003).

Plaintiffs' own complaint alleges, and the plan documents

submitted by Defendants confirm, that GTE's ERISA plans explicitly

exclude from participation employees who were not "paid directly"

by GTE, without regard for their common-law employment status.5

Plaintiffs further allege that they were in fact not "paid

directly" by GTE, but by third-party payroll agencies. Because

they "can prove no set of facts to support [their] claim" for

benefits under the ERISA plans, Rockwell, 26 F.3d at 260, the

district court properly dismissed Plaintiffs' claim under ERISA

§ 502(a)(1)(B).

5
Similarly, in their opening brief on appeal, Plaintiffs
"assum[e] that GTE's welfare plans all have similar criteria for
participation. Plan benefits are available to all active GTE
employees who are paid directly by GTE."

-7-
B. Interference with Attainment of Plan Participation Rights

Plaintiffs allege that Defendants misclassified them as

off-payroll employees for the purpose of interfering with their

attainment of plan participation rights in violation of ERISA

§ 510, 29 U.S.C. § 1140. That statute provides, in relevant part:

It shall be unlawful for any person to
discharge, fine, suspend, expel, discipline,
or discriminate against a participant or
beneficiary for exercising any right to which
he is entitled [under ERISA or an ERISA plan],
or for the purpose of interfering with the
attainment of any right to which such
participant may become entitled.

29 U.S.C. § 1140.

The district court held that Plaintiffs could not state

a claim for relief under this provision for two independent

reasons. "First, an employer may hire employees under terms that

render them ineligible to receive benefits given to other employees

without violating [ERISA] § 510." Edes, 288 F. Supp. 2d at 59.

Plaintiffs argue that the district court's analysis ignored the

language in ERISA § 510 prohibiting employers from discriminating

against a participant or beneficiary "for the purpose of

interfering with the attainment of any right to which such

participant may become entitled" under an ERISA plan. 29 U.S.C.

§ 1140 (emphasis added). Plaintiffs argue that whether or not

Defendants permissibly excluded them from plan eligibility at the

time they were hired as off-payroll employees, Defendants failed to

move them to the GTE payroll after they were hired, "for the

-8-
purpose of interfering with the attainment" of participation rights

to which they should have become entitled.6

We need not decide the circumstances, if any, under which

employees who are ineligible for ERISA benefits at the time of

hiring may state a claim under ERISA § 510, based on a defendant's

failure to reclassify them, because the district court properly

dismissed the claim on the alternate ground that it was time-

barred. See Edes, 288 F. Supp. 2d at 59. The district court

determined the applicable statute of limitations by reference to

state law. See Muldoon v. C.J. Muldoon & Sons, 278 F.3d 31, 32

(1st Cir. 2002) (per curiam) ("Because Congress did not provide a

statute of limitations in the ERISA statute for section 510 claims,

federal courts must apply the limitations period of the state-law

cause of action most analogous to the federal claim."). The

claimed wrong here is the misclassification of Plaintiffs in April

1994 when they went on the payroll of the agency rather than the

company. Consequently, the district court properly applied

Massachusetts' three-year statute of limitations for torts, Mass.

Gen. Laws ch. 260, § 2A, to Plaintiffs' claim under ERISA § 510.

6
More accurately, Plaintiffs allege that GTE designated them
as "temporary" employees at the time they were hired and failed to
reclassify them as "regular" employees at some point during their
employment. Because the dispositive issue determining eligibility
for participation in GTE's ERISA plans is not whether Plaintiffs
were "temporary" or "regular" employees but simply whether they
were "paid directly" by their employing business unit, we have
construed Plaintiffs' claim accordingly.

-9-
 The district court next applied federal law to determine

the date on which Plaintiffs' claim accrued and started the clock

on the three-year statute of limitations. Tolle v. Carroll Touch,

Inc., 977 F.2d 1129, 1138 (7th Cir. 1992) (federal common law

determines date of accrual of cause of action under ERISA § 510);

N. Cal. Retail Clerks Unions v. Jumbo Markets, Inc., 906 F.2d 1371,

1372 (9th Cir. 1990) (federal common law determines when cause of

action by trust funds to recover employer's contribution accrues

under ERISA). For a claim under ERISA § 510, "it is the

[challenged employment] decision and the participant's discovery of

this decision that dictates accrual" of Plaintiffs' cause of

action. Tolle, 977 F.2d at 1140-41. Applying this rule in light

of Plaintiffs' allegation that they were directed to sign on with

third-party payroll agencies at their time of hire, the district

court concluded that "[t]he statute of limitations clock began on

[P]laintiffs' claim when [P]laintiffs were hired in April 1994 and

classified as employees of a temporary payroll agency instead of as

regular employees of GTE." Edes, 288 F. Supp. 2d at 59.

Plaintiffs argue that even if they discovered the factual

basis for their claim as early as April 1994, their complaint

alleges a continuing tort that tolled the statute of limitations

until they received their last paychecks.7 Under this theory, in

7
We grant Plaintiffs the inference that Parsons, whom the
complaint alleges was terminated in August 1998, continued to
receive paychecks through October 1998, within the three years

-10-
Plaintiffs' words, "[e]very time [Plaintiffs] received a paycheck

from [a] third-party payroll company while still being denied

benefits under any of the GTE ERISA plans they were incurring new

injury, as a result of [Defendants'] continuing wrongful behavior."

As authority for this argument, Plaintiffs cite Doe v. Town of

Blandford, 525 N.E.2d 403 (Mass. 1988), a case in which a claimant

under the Massachusetts Tort Claims Act alleged the continuing

torts of negligent supervision and failure to fire, which tolled

the time period for presentment of her claim to an executive

officer of a public employer as required by statute.

Even assuming for the sake of argument that

Massachusetts' continuing tort doctrine is applicable to a federal

claim under ERISA § 510 (an issue we do not decide),8 Plaintiffs

have not alleged a continuing tort. While Plaintiffs may have felt

the ongoing effects of their ineligibility for ERISA benefits every

time they received a paycheck from a third-party payroll agency,

prior to the filing of the complaint on October 10, 2001. See
Clorox Co. P.R., 228 F.3d at 30 (court reviewing motion to dismiss
pursuant to Fed. R. Civ. P. 12(b)(6) must grant all reasonable
inferences in the plaintiff's favor).
8
Cf. Pisciotta v. Teledyne Indus., Inc., 91 F.3d 1326, 1332
(9th Cir. 1996) (rejecting continuing violation theory for claim
subject to state statute of limitations under ERISA § 510 by
analogy to ERISA § 413); see generally Rodriguez Narvaez v.
Nazario, 895 F.2d 38, 42 (1st Cir. 1990) (discussing, in context of
federal civil rights actions subject to state statutes of
limitations, considerations involved in determining whether to
apply state law exceptions to application of state statutes of
limitations).

-11-
Plaintiffs' own allegations make clear that Defendants' wrongful

conduct, if any, involved the misclassification of Plaintiffs as

off-payroll employees at their time of hire in April 1994. See

Berry v. Allstate Ins. Co., 252 F. Supp. 2d 336, 346 (E.D. Tex.

2003) ("Allstate's refusal to allow Plaintiffs to participate in

its benefit plans was the single act that served as the basis for

the alleged wrongful discrimination."), aff'd, 84 Fed. Appx. 442

(5th Cir. 2004). The district court properly dismissed Plaintiffs'

ERISA § 510 claim as time-barred.9

C. Breaches of Fiduciary Duty

Plaintiffs allege that the defendant plan fiduciaries

breached their fiduciary duties in violation of ERISA § 404, 29

U.S.C. § 1104, by: (1) misclassifying Plaintiffs as off-payroll

employees ineligible to participate in GTE's ERISA plans and (2)

creating a structural defect in the design of the plans through the

use of arbitrary eligibility criteria to exclude a disproportionate

number of employees from plan participation in violation of ERISA's

9
Plaintiffs do not renew their argument, made before the
district court, that the statute of limitations was tolled while
they exhausted administrative remedies. See Edes, 288 F. Supp. 2d
at 60-61. Instead, Plaintiffs argue that under Massachusetts law
the statute of limitations should be equitably tolled because they
reasonably relied on GTE's representations that it would eventually
place them on GTE's direct payroll. Not only does the complaint
fail to allege any facts supporting this argument, but Plaintiffs
have forfeited the argument through their failure to raise it
below. United States v. Slade, 980 F.2d 27, 30 (1st Cir. 1992)
("It is a bedrock rule that when a party has not presented an
argument to the district court, [he] may not unveil it in the court
of appeals.").

-12-
minimum participation standards.10 The district court held that

Plaintiffs' claims were barred by the ERISA statute of limitations

applicable to breaches of fiduciary duty. ERISA § 413, 29 U.S.C.

§ 1113, prohibits commencement of such claims "after the earlier

of":

(1) six years after (A) the date of the last
action which constituted a part of the breach
or violation, or (B) in the case of an
omission, the latest date on which the
fiduciary could have cured the breach or
violation, or

(2) three years after the earliest date on
which the plaintiff had actual knowledge of
the breach or violation . . . .

(emphasis added).11 Pursuant to § 413, "ERISA provides that claims

based on a breach of fiduciary duty must be brought within six

10
The Ninth Circuit has permitted enforcement of ERISA § 404
under a "structural defect" theory, which posits that "rules that
exclude employees from receiving benefits for reasons that are
arbitrary and capricious are structurally defective and violate
section 1104." Siles v. ILGWU Nat'l Retirement Fund, 783 F.2d 923,
929 (9th Cir. 1986); see also Abraham, 85 F.3d at 1129-30
(discussing "structural defect" theory). Defendants argued in
their memorandum in further support of their motion to dismiss that
Plaintiffs' structural defect claim arising out of an alleged
structural defect in plan design (as distinct from a structural
defect in plan administration) is not cognizable under ERISA § 404.
The district court did not address this argument, and neither do
we. We discuss the merits of Plaintiffs' independent claim that
the plans' use of arbitrary eligibility criteria violates ERISA's
minimum participation standards, ERISA § 202, 29 U.S.C. § 1052, in
Part II.D.
11
ERISA § 413 also contains an exception for "fraud or
concealment," neither of which Plaintiffs allege, permitting an
action to "be commenced not later than six years after the date of
discovery of such breach or violation." 29 U.S.C. § 1113.

-13-
years of the breach or 'the latest date on which the fiduciary

could have cured the breach or violation,' and within three years

of the date on which the plaintiff had actual knowledge of the

breach." Watson v. Deaconess Waltham Hosp., 298 F.3d 102, 118 (1st

Cir. 2002). The district court found Plaintiffs' claim barred by

the three-year statute of limitations because "[P]laintiffs did

have actual knowledge of their status in 1994, yet failed to

commence their case until 2001." Edes, 288 F. Supp. 2d 55, 61.12

Plaintiffs argue on appeal that "actual knowledge of a

breach or violation" within the meaning of ERISA § 413 "requires a

showing that plaintiffs actually knew not only of the events that

occurred which constitute the breach or violation but also that

those events supported a claim of breach of fiduciary duty or

violation under ERISA." Int'l Union of Elec., Elec., Salaried,

Mach. & Furniture Workers v. Murata Erie N. Am., Inc., 980 F.2d

889, 900 (3d Cir. 1992); see also Maher v. Strachan Shipping Co.,

68 F.3d 951, 954 (5th Cir. 1995) (applying Third Circuit test).

The issue of defining "actual knowledge" has vexed the circuits.

The briefing purports to divine a clear circuit split. On that

view, as noted, the Third and Fifth Circuits follow a rule that for

an ERISA § 404 claim to accrue, a plaintiff must know of not only

12
Defendants did not argue below, nor do they argue on appeal,
that Plaintiffs' claim of breach of fiduciary duty is independently
barred by the alternate six-year statute of limitations in ERISA
§ 413(1).

-14-
all the facts and events constituting the fiduciary breach, but

also "that those events supported a claim of breach of fiduciary

duty or violation under ERISA." Murata, 980 F.2d at 900; see also

Maher, 68 F.3d at 954 (quoting Murata). By contrast, the Sixth,

Seventh, Ninth, and Eleventh Circuits are said to have a hard and

fast rule that a plaintiff need only have had "knowledge of the

facts or transaction that constituted the alleged violation" -- and

not knowledge that those facts support a legal claim -- to start

the limitation period running. Martin v. Consultants & Adm'rs,

Inc., 966 F.2d 1078, 1086 (7th Cir. 1992); see also Wright v.

Heyne, 349 F.3d 321, 330 (6th Cir. 2003); Blanton v. Anzalone, 760

F.2d 989, 992 (9th Cir. 1985). Accord Brock v. Nellis, 809 F.2d

753, 755 (11th Cir. 1987). The Second and D.C. Circuits, on this

scale, have hybrid analyses. See Caputo v. Pfizer, Inc., 267 F.3d

181, 193 (2d Cir. 2001) (plaintiff need have "knowledge of all

material facts necessary to understand that an ERISA fiduciary has

breached his or her duty," but "need not have knowledge of the

relevant law") (citing Maher, 68 F.3d at 954; Gluck v. Unisys

Corp., 960 F.2d 1168, 1177 (3d Cir. 1992); and Blanton, 760 F.2d at

992); Fink v. Nat'l Sav. & Trust Co., 772 F.2d 951, 957 (D.C. Cir.

1985) ("The disclosure of a transaction that is not inherently a

statutory breach of fiduciary duty . . . cannot communicate the

existence of an underlying breach.").

-15-
 We think the differences are exaggerated, and the

positions of the circuits, as evidenced by how they apply the

"rules" to the facts, are much more nuanced. Further, even if the

language set forth above were an accurate depiction, we would find

ourselves in the middle.

Settling on a description of the appropriate standard to

apply is a complex venture. Prior to 1987, ERISA § 413 also

"contained a constructive knowledge provision, stating that the

three-year limitations period began when a plaintiff 'could

reasonably be expected to have obtained knowledge' from certain

reports filed with the Secretary of Labor." Martin, 966 F.2d at

1085 n.6 (citing earlier version and legislative history). Given

this explicit statutory alteration, as the Seventh Circuit has

recognized, "actual knowledge must be distinguished from

constructive knowledge" in applying ERISA § 413. Id. at 1086. Yet

"[i]t is difficult to say in the abstract precisely what

constitutes 'actual knowledge' of a 'breach or violation.'" Id.

Where the alleged breach arises out of a financial transaction

involving ERISA plan funds, determining where the distinction

between actual and constructive knowledge lies in a particular case

may depend "on the level of generality employed in characterizing

the transaction at issue," which may depend, in turn, on an

examination of "the complexity of the underlying factual

-16-
transaction, the complexity of the legal claim and the

egregiousness of the alleged violation." Id.

We agree with the observation that the primary purpose of

a statute of limitations is to "prevent[] plaintiffs from sleeping

on their rights and [to] prohibit[] the prosecution of stale

claims." Wright, 349 F.3d at 330. The amendment to ERISA § 413

means that knowledge of facts cannot be attributed to plaintiffs

who have no actual knowledge of them. We also agree that there

cannot be actual knowledge of a violation for purposes of the

limitation period unless a plaintiff knows "the essential facts of

the transaction or conduct constituting the violation." Martin,

966 F.2d at 1086. And, like the Martin court, we recognize that

determining the meaning of complex transactions may take some time;

mere knowledge of facts indicating that "'something was awry'" does

not always mean there is actual knowledge of a violation. Id.

(quoting Radiology Ctr., S.C. v. Stifel, Nicolaus & Co., 919 F.2d

1216, 1221 (7th Cir. 1990)). On the other hand, we do not think

Congress intended the actual knowledge requirement to excuse

willful blindness by a plaintiff. See id. at 1086 n.7.

The question of when there is "actual knowledge of a

violation," as Martin notes, is one which may change with different

facts. Here we need not go into the permutations of that question,

because it is clear that Plaintiffs had the requisite "actual

knowledge" in April 1994. Plaintiffs' claim of breach of fiduciary

-17-
duty arises not from an intricate financial transaction, cf., e.g.,

id. at 1087-88 (analyzing claim against fund trustees for use of

improper contract bidding process as violation of duty to eliminate

imprudent investments), but from GTE's decision to hire Plaintiffs

without rendering them eligible to participate in its ERISA plans.

In essence, Plaintiffs allege that Defendants had a fiduciary duty

to classify them as eligible for plan participation, and to design

their plans accordingly, based on their status as common-law

employees, regardless of the plans' actual eligibility criteria.

As the facts alleged in their complaint establish,

Plaintiffs knew in April 1994 that they were not classified as

employees on GTE's direct payroll. At the same time, Plaintiffs

received no ERISA benefits from GTE. These facts establish that

Plaintiffs had actual knowledge that if Defendants had a fiduciary

duty to classify them as eligible for ERISA plan participation

and/or to design their plans accordingly, they had breached that

duty. Accordingly, Plaintiffs need not have had actual knowledge

of the plans' eligibility criteria to start the statute of

limitations running, and their claim of breach of fiduciary duty in

violation of ERISA § 404, filed more than three years later, is

time-barred under ERISA § 413.

D. Violation of ERISA's Minimum Participation Standards

ERISA sets minimum participation standards in the form of

limits on a plan's imposition of age- or length-of-service-related

-18-
conditions of participation, see ERISA § 202(a)(1), 29 U.S.C. §

1052(a)(1), on any employee who is "otherwise entitled to

participate in the plan," 29 U.S.C. § 1052(a)(4). A provision of

the Code of Federal Regulations, 26 C.F.R. § 1.410(a)-3(e)(1),

which is made applicable to ERISA's statutory minimum participation

standards under ERISA § 3002(c), 29 U.S.C. § 1202(c), clarifies

that "[p]lan provisions which have the effect of requiring an age

or service requirement . . . will be treated as if they imposed an

age or service requirement," thereby preventing a plan from evading

ERISA's minimum participation standards through creative plan

design. Apart from these limitations, "[s]o long as a plan does

not discriminate based on age or length of service, nothing in

ERISA requires a plan to extend benefits to every common law

employee." Kolling, 347 F.3d at 14.

Plaintiffs make a cursory attempt to argue that the GTE

ERISA plans' eligibility criterion -- whether an employee is "paid

directly" or by a third-party payroll agency -- is a condition of

participation imposed on employees who are "otherwise entitled to

participate" that "ha[s] the effect" of a minimum-service

requirement exceeding the permissible limits of ERISA's minimum

participation standards. Under Plaintiffs' theory, "[s]ince GTE

could choose at any time (or never)" to place Plaintiffs on GTE's

own payroll, "what GTE has created are exclusions of uncertain and

arbitrary duration." Even if this is so, Plaintiffs' indefinite

-19-
exclusion from plan eligibility simply renders them employees who

are not (and may never be) "entitled to participate in the

plan[s]," 29 U.S.C. § 1052(a)(4) -- not employees who are otherwise

eligible but who are nevertheless excluded pending completion of a

specific period of service exceeding the minimum permitted under

ERISA.

Despite Plaintiffs' attempt to hitch their claim to

ERISA's minimum participation standards limiting the use of age- or

length-of-service-related conditions of participation, their true

complaint remains that the GTE ERISA plans use arbitrary criteria

to establish an employee's threshold eligibility for plan

participation -- a complaint that has nothing to do with ERISA's

minimum participation standards. Indeed, Plaintiffs identify no

statutory provision that prohibits the use of such arbitrary

eligibility criteria. Rather, Plaintiffs rely on a Treasury

regulation, 26 C.F.R. § 1.410(b)-4(b), which sets forth one method

by which an ERISA plan may voluntarily satisfy certain requirements

in order to qualify for preferential tax treatment. See 26 U.S.C.

§ 410(b); 26 C.F.R. § 1.410(b)-2(b).

Under § 1.410(b)-4(b),

[a plan] classification is established by the
employer in accordance with this paragraph (b)
if and only if, based on all the facts and
circumstances, the classification is
reasonable and is established under objective
business criteria that identify the category
of employees who benefit under the plan.
Reasonable classifications generally include

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 specified job categories, nature of
compensation (i.e., salaried or hourly),
geographic location, and similar bona fide
business criteria. An enumeration of
employees by name or other specific criteria
having substantially the same effect as an
enumeration by name is not considered a
reasonable classification.

(emphases added.) According to Plaintiffs, the GTE ERISA plans'

use of arbitrary distinctions between employees who are "paid

directly" and those who are paid by third-party payroll agencies

has "substantially the same effect as an enumeration by name" and

"is not considered a reasonable classification . . . established

under objective business criteria" within the meaning of the

regulation. On this basis, Plaintiffs argue that Defendants

impermissibly excluded them from plan eligibility.

There are two problems with this argument. Even if

Plaintiffs are right that the GTE ERISA plans violate this

regulation (a judgment we do not make), Plaintiffs themselves

recognize that § 1.410(b)-4(b) is not incorporated into ERISA.

Hence a violation of this regulation cannot be a violation of ERISA

through incorporation. Nor does § 1.410(b)-4(b) confer substantive

rights on ERISA plan participants or would-be participants

independent of ERISA's statutory provisions. The district court

concluded that, "[w]hile GTE's classification may well be

unreasonable and arbitrary under the Treasury regulations, . . .

this failure to comply with the tax regulations does not permit the

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Court to rewrite the plan." Edes, 288 F. Supp. 2d at 64. As the

Fifth Circuit reasoned in Abraham, 85 F.3d at 1131:

[t]he [Treasury] regulations purport to do no
more than determine whether a plan is a
qualified tax plan. Failure to meet the
requirements of those regulations results in
the loss of a beneficial tax status; it does
not permit a court to rewrite the plan to
include additional employees. The Treasury
regulations do not create substantive rights
under ERISA that would permit the relief
[plaintiff] requests.

Accord Bronk v. Mountain States Tel. & Tel., Inc., 140 F.3d 1335,

1338 (10th Cir. 1998); Montesano v. Xerox Corp., 117 F. Supp. 2d

147, 162 (D. Conn. 2000), aff'd in part and rev'd on an unrelated

ground, 256 F.3d 86, 89 (2d Cir. 2001). Plaintiffs therefore fail

to state a claim under ERISA based on Defendants' alleged violation

of 26 C.F.R. § 1.410(b)-4(b) or, in the alternative, under that

regulation standing alone.13

13
Plaintiffs belatedly argue that an ERISA plan may, by its own
terms, provide that the plan must comply with Treasury regulations
governing qualification for preferred tax status. See Bronk, 140
F.3d at 1338 (distinguishing plans containing explicit provisions
"that they must comply with ERISA, the Internal Revenue Code and
Treasury Department regulations governing tax-qualification"). In
a footnote in their opening brief on appeal, Plaintiffs assert that
GTE's ERISA plans "state an intent to comply with the tax law.
Thus, they would be constructed to comply with the tax law"
(referring, presumably, to those tax laws that govern qualification
for preferred tax status). In their complaint, however, Plaintiffs
alleged only that one set of GTE plans, the GTE Retirement Income
Plans, are "intended to comply with the Tax Reform Act of 1986,
subsequent legislation, and relevant rulings and regulations." At
oral argument, Plaintiffs asserted that Defendants' failure to
disclose the complete language of each GTE ERISA plan prevented
them from determining whether any of the plans contain such a
requirement. As we have noted, Plaintiffs did not seek to compel

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E. Lack of Written Plan Eligibility Criteria

Plaintiffs argue that Defendants are in violation of

ERISA § 402, 29 U.S.C. § 1102(a)(1), which requires that "[e]very

employee benefit plan shall be established and maintained pursuant

to a written instrument," because eligibility for participation in

GTE ERISA plans cannot be determined without recourse to payroll

lists that are not part of the plan documents themselves. The

statutory requirement that plan terms be set forth in writing

serves the purpose of "ensur[ing] that participants know their

rights and obligations under the plan, and to provide some degree

of certainty in the administration of benefits." Fenton v. John

Hancock Mut. Life. Ins. Co., 400 F.3d 83, 88-89 (1st Cir. 2005)

(citations omitted), petition for cert. filed, 2005 WL 1656497

(U.S. July 13, 2005) (No. 05-80) (presenting question whether

district court properly considered summary plan descriptions in

review of administrator's denial of benefits). Plaintiffs argue

that the plans' arbitrary distinction between employees who are

"paid directly" and those who are paid by third-party payroll

agencies evades this requirement because it fails to establish

objective criteria for determining plan eligibility. To the

contrary, as the district court stated, the "plan documents specify

disclosure of additional plan documents. See supra, note 2. More
importantly, Plaintiffs have forfeited the argument that GTE's
ERISA plans are, by their own terms, subject to rules governing
qualification for favorable tax treatment by failing to raise it
before the district court. See Slade, 980 F.2d at 30.

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'objective criteria' for eligibility: whether or not employees are

paid directly by GTE." Edes, 288 F. Supp. 2d at 64. The plan

documents thus provide adequate notice of participation rights

based on an employee's readily discernable payroll status, and the

district court properly held that Plaintiffs failed to state a

claim for a violation of ERISA § 402.

III.

Because Plaintiffs' claims of interference with their

attainment of plan participation rights and breach of fiduciary

duty under ERISA §§ 510 and 404 are time-barred, and because

Plaintiffs have otherwise failed to state claims for which relief

may be granted, the decision of the district court dismissing the

complaint pursuant to Fed. R. Civ. P. 12(b)(6) is affirmed.

So ordered.

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