IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_______________
No. 93-2211
_______________
In the Matter of:
APPLETREE MARKETS, INC., et al.,
Debtors.
SOUTH CENTRAL UNITED FOOD &
COMMERCIAL WORKERS UNIONS AND
EMPLOYERS HEALTH & WELFARE TRUST, et al.,
Appellants,
VERSUS
APPLETREE MARKETS, INC.,
Appellee.
_________________________
Appeal from the United States District Court
for the Southern District of Texas
_________________________
(April 15, 1994)
Before VAN GRAAFEILAND*, SMITH, and WIENER, Circuit Judges.
JERRY E. SMITH, Circuit Judge:
There is only one issue in this case: When an employer with-
draws from a multi-employer health insurance plan and establishes
a new health plan for its remaining employees, who must continue to
provide the health insurance mandated by COBRA to the qualifying
*
Circuit Judge of the Second Circuit, sitting by designation.
employees of the withdrawing employer? The district court held
that the multi-employer plan remains responsible for the COBRA-
qualified employees. Finding this conclusion consistent with the
plain language of the statute and coherent policy goals, we affirm.
I.
This matter involves an issue of first impression concerning
coverage under the Consolidated Omnibus Reconciliation Act of 1985
("COBRA"), 29 U.S.C. § 1161 et seq. ("COBRA").1 The issue was
submitted to the district court on cross-motions for summary
judgment on an uncontroverted record. Accordingly the facts set
forth below are undisputed.
Defendant-appellee AppleTree Markets, Inc. ("AppleTree"), a
supermarket chain, is an employer that, pursuant to a collective
bargaining agreement, provided health benefits to its employees
through plaintiff, a multi-employer health plan known as South
Central United Food & Commercial Workers Unions and Employers
Health & Welfare Trust ("UFCW"). UFCW is a multi-employer employee
welfare benefit plan for the purposes of ERISA, 29 U.S.C.
§ 1002(1), providing health and medical benefits to employees in
the retail food industry. UFCW is funded through contributions
from participating employers; AppleTree became a participating
employer in the plan in June 1988 and thereafter contributed to
UFCW monthly.
1
Although COBRA is referred to by its own name, it is technically a set
of amendments to the Employee Retirement Income Security Act of 1974
("ERISA"), 29 U.S.C. § 1001 et seq.
2
In January 1992, AppleTree filed for bankruptcy under
chapter 11 of the Bankruptcy Code. In the course of its bankruptcy
proceedings, AppleTree obtained court approval to shed its
collective bargaining agreements. As a result of the termination
of the agreements, UFCW withdrew AppleTree's membership in the plan
when no agreement could be reached on AppleTree's prospective
contribution rate to the plan.
AppleTree established its own group health plan as of
September 1, 1992, covering only employees active at that time but
not its former employees receiving coverage from UFCW under COBRA.
In other words, AppleTree withdrew its active employees from the
UFCW plan but left behind its COBRA insureds.
UFCW sued, claiming that AppleTree had an obligation under
COBRA to extend coverage under its new plan to its former employees
now receiving benefits from UFCW under COBRA. AppleTree contended
that UFCW was obligated to extend the COBRA benefits. Neither
party disputes that the former employees are entitled to COBRA
benefits: The disagreement is whether UFCW or AppleTree should
provide it.
Relying upon the plain language of COBRA, the district court
granted summary judgment to AppleTree, holding that § 29 U.S.C.
§ 1161(a) defines UFCW as the sponsor of the plan that therefore is
responsible for the coverage. We affirm.
II.
We review a grant of summary judgment de novo. Hanks v.
3
Transcontinental Gas Pipe Line Corp., 953 F.2d 996, 997 (5th Cir.
1992). Summary judgment is appropriate "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 a judgment as a matter of law." FED. R. CIV. P. 56(c). Here,
our task is made simpler because the facts are undisputed and we
deal almost exclusively with a question of statutory
interpretation.
III.
A.
Section 1161(a) reads as follows:
The plan sponsor of each group health plan shall
provide, in accordance with this part, that each
qualified beneficiary who would lose coverage under the
plan as a result of a qualifying even is entitled, under
the plan, to elect, within the election period,
continuation coverage under the plan.
Thus, the plan sponsor of a group health plan must offer
continuation coverage to employees, their spouses, and dependents
who become qualified for such coverage while covered by the plan,
and that coverage is to be provided under the plan in which the
beneficiary participated at the time the qualifying event2
occurred. See id.; 29 U.S.C. § 1167.
COBRA defines the "plan sponsor" as
(i) the employer in the case of an employee benefit plan
2
"Qualifying events" include, among other things, the death,
termination, or divorce of a covered employee. See 29 U.S.C. § 1163.
4
established or maintained by a single employer, . . . or
(iii) in the case of a plan established or maintained by
two or more employers or jointly by one or more
employers and one or more employee organizations, the
association, committee, joint board of trustees, or
other similar group of representatives of the parties
who establish or maintain the plan.
29 U.S.C. § 1002(16)(B). The UFCW plan was a multi-employer,
"joint" plan. Under the plain language of the statute, the
"association, committee, joint board, or other similar group of
representatives" of UFCW is the plan sponsor. Therefore, under
§ 1161(a), UFCW, not AppleTree, is responsible for providing
continuation coverage to the COBRA employees.
Once the statutory relationship is established, it can be
terminated only for one of the reasons enumerated in 29 U.S.C.
§ 1162(2). UFCW has not alleged that any of the events listed in
§ 1162(2) has occurred; therefore, there is no legal basis for UFCW
to terminate coverage of these COBRA employees.
B.
1.
UFCW contends, however, that this case is controlled by
29 U.S.C. § 1162(1), defining "continuation coverage," and not by
§ 1161(a). Section 1162(1) provides:
The coverage must consist of coverage which, as of the
time the coverage is being provided, is identical to the
coverage provided under the plan to similarly situated
beneficiaries under the plan with respect to whom a
qualifying even has not occurred. If coverage is
modified under the plan for any group of similarly
situated beneficiaries, such coverage shall also be
modified in the same manner for all individuals who are
qualified beneficiaries under the plan pursuant to this
part in connection with such group.
5
UFCW claims that § 1162(1) requires an employer that modifies
health coverage for its employees by transferring them from one
plan to another, but does not terminate all of its health plans, to
transfer coverage for all COBRA-qualified beneficiaries as well.
According to UFCW, "similarly situated beneficiaries" are
AppleTree's active employees and their dependents who have not
experienced a COBRA-qualifying event. Further, when the active
employees' "coverage" was "modified," the COBRA beneficiaries
coverage must be changed identically.
UFCW's reading of the statute is strained and insupportable by
the language of § 1162(1). A natural reading of § 1162(1) reveals
an intent to forbid plan sponsors from discriminating between COBRA
and active employees within a given plan.
There is no support for UFCW's position that a discrete
movement from one plan to another can qualify as a modification of
coverage under the original plan. The statute refers to a
modification of coverage under the plan. This implication that the
statute is intended to prevent discrimination within a single plan
cannot reasonably be read to extend to those participating in a
separate plan.
Thus, § 1162(1) does not apply to this case and would become
relevant only if UFCW modified coverage to active employees
participating in its plan. If so, § 1162(1) would require it to
modify similarly the benefits of beneficiaries of continuation
coverage. Nothing in § 1162(1) requires an entity that has never
previously sponsored health care coverage for an individual to
6
provide continuation coverage to him simply because it later gives
coverage to others.
2.
UFCW relies upon proposed Treasury Department regulations to
buttress its claim that "modification" includes elimination of
coverage for similarly situated employees. The authority of
proposed regulations has not been addressed by this circuit.
UFCW relies upon district court opinions holding that proposed
regulations are entitled to "great judicial deference." See Swint
v. Protective Life Ins. Co., 779 F. Supp. 532, 554 (S.D. Ala.
1991); Johnson v. Reserve Life Ins. Co., 765 F. Supp. 1478, 1480-82
(C.D. Cal. 1991). AppleTree argues that a proposed regulation has
no force or effect until it becomes final. See Oakley v. City of
Longmont, 890 F.2d 1128, 1133 (10th Cir. 1989), cert. denied,
494 U.S. 1082 (1990). Thus, proposed regulations are not entitled
to judicial deference and carry no more weight than a position
advanced in a brief by one of the parties. See Natomas N. Am.,
Inc. v. Commissioner, 90 T.C. 710, 718 n.11 (1988); F.W. Woolworth
Co. v. Commissioner, 54 T.C. 1233, 1265-1266 (1970). We agree with
AppleTree and hold that proposed regulations are entitled to no
deference until final.
Our view accords with other circuits that have considered the
question. In Oakley, 890 F.2d at 1133, the Tenth Circuit noted
that "[u]ntil the agency completes formal rule-making and
promulgates final regulations, the proposed rules, which the
7
Internal Revenue Service has already deemed interpretive
regulations, are unpersuasive." Similarly, when presented with
proposed regulations from the Securities and Exchange Commission,
the Fourth Circuit refused to consider their effect, noting that
the "regulations are not in effect and we do not know when, if
ever, they will become effective." Telvest, Inc. v. Bradshaw, 618
F.2d 1029, 1036 n.10 (4th Cir. 1980).
To give effect to regulations that have merely been proposed
would upset the balance of powers among the constitutional
branches. Deference is due the Executive when Congress delegates
"authority to the agency to elucidate a specific provision of the
statute by regulation. Such legislative regulations are given
controlling weight unless they are arbitrary, capricious, or
manifestly contrary to the statute." Chevron U.S.A. Inc. v.
Natural Resources Defense Council, 467 U.S. 837, 843-44 (1984)
(emphasis added).
The Chevron doctrine is based upon separation of powers: As
Justice Stevens's use of the term "legislative regulations"
suggests, Congress is delegating to the Executive Branch authority
to act in an essentially legislative manner to fill the interstices
of the statute. "The power of an administrative agency to
administer a congressionally created . . . program necessarily
requires the formulation of policy and the making of rules to fill
any gap left, implicitly or explicitly, by Congress." Id. at 843
(quoting Morton v. Ruiz, 415 U.S. 199, 231 (1974)).
In effect, statutory ambiguity cedes legislative authority to
8
the Executive. The Executive Branch need not promulgate rules that
best mirror legislative intent; its rules only need not be
arbitrary or capricious. Absent executive rulemaking, it remains
the duty of courts to construe the statute in order to divine
congressional intent. In other words, if final executive
regulations interpreting an ambiguous statute are promulgated, then
the Executive is the "gap-filling" institution; if there is no
authoritative statement from the Executive, the courts "fill the
gap" by attempting to divine congressional intent.
Once it is recognized that Executive rulemaking is actually
interstitial legislation, it becomes inappropriate to defer to
proposed regulations, as that would upset the constitutional
balance of power among the branches in the same manner as would
deference to laws considered but not enacted by Congress.
C.
UFCW argues that by contributing to the plan, AppleTree
"established and maintained" the plan within the language of
29 U.S.C. § 1002(16)(B). Thus, when AppleTree quit contributing to
the plan, UFCW no longer was the plan sponsor as to these
individuals. Under this reading, the plan sponsor changes as
members enter and exit the plan. The statute indicates, however,
that multi-employer plans have only one sponsor, the joint board of
trustees. Membership changes in the plan do not affect this
definitional fact.
Furthermore, once the UFCW board became the plan sponsor, it
9
could not be relieved of this duty until the occurrence of an event
listed in § 1162(2). UFCW admits that it was the plan sponsor for
at least the time that AppleTree contributed to the plan; from then
on it remained the plan sponsor, as nothing in § 1162(2) permits a
plan sponsor of a multi-employer plan to terminate its COBRA
obligation to qualified individuals because a participating
employer subsequently sponsors its own plan for other covered
persons.
IV.
UFCW contends that adopting AppleTree's reading of the statute
would lead to an inequitable result and therefore should be
eschewed. UFCW argues that allowing AppleTree to relieve itself of
responsibility for the COBRA beneficiaries would create an "adverse
selection" problem allowing AppleTree to foist poor-risk COBRA
beneficiaries onto the plan, while retaining the good risks in its
new plan.
An adverse selection problem arises because even though the
COBRA beneficiaries continue to pay premiums, the amount they can
be charged is limited by law. Moreover, the plan cannot condition
the availability of COBRA coverage on evidence of insurability.
See 29 U.S.C. § 1162(4); 26 U.S.C. § 4980B(f)(2)C). As a result,
"Former employees choose continuation coverage only when that is
cheaper than insurance at market prices." Herrmann v. Cencom Cable
Assocs., 978 F.2d 978, 979 (7th Cir. 1992). "[F]ormer employees
would like to treat continuation coverage as an option, to be
10
exercised only if they are sure that they face medical costs
exceeding the premiums. If they turn out to be healthy, they do
not enroll and pay nothing. If medical needs loom, they exercise
their option." Id. Because COBRA-qualified beneficiaries
rationally will elect coverage only if their premiums will be less
than their benefits, the remaining members of the plan subsidize
their benefits. In turn, employers would prefer to provide
coverage only for good risks, rather than subsidizing the COBRA-
qualified bad risks as well.
Allowing AppleTree to abandon coverage of its COBRA-qualified
ex-employees allows it to bring only the good risks within its new
plan, while leaving the bad risks in the UFCW plan. UFCW contends
that this result is inequitable and contrary to congressional
intent. UFCW claims that it is more equitable to require AppleTree
to subsidize its poor risks, rather than having the remaining plan
members subsidize them. Thus, we should ignore the plain language
of the statute and force AppleTree to cover the COBRA
beneficiaries.
We reject the UFCW's argument for two reasons. First, to
ignore the plain language of the statute would be to substitute
improperly our own policy predilections for the express intent of
Congress. Second, coherent and sensible policies undergird the
plain language of the statute.
A.
The allegedly inequitable result the plain language of
11
§ 1161(a) commands results from Congress's caps on rates and its
forbidding conditioning of availability on evidence of
insurability, not from the statutory definition of "plan sponsor."
If the plan could charge the market price for insuring these high-
risk individuals, there would be no adverse selection problem.
UFCW would have us accept the price caps as given and define
the term "plan sponsor" to account for the side-effects of the
caps. We could as easily accept § 1161(a)'s definition of plan
sponsor, and then declare the price caps invalid as inequitable.
There is no more ground for ignoring the statutory definition of
"plan sponsor" than for ignoring the rate caps or the ban on
evidence of insurability.
UFCW has cited no evidence that Congress was aware that its
price regulation created an adverse selection process or that
Congress intended to rectify the problem by requiring courts
deliberately to misread § 1161(a). We can avoid the unintended
consequences spawned by COBRA's price caps only be eviscerating
§ 1161(a). Correcting the ill effects of price caps by choosing
which provisions in ERISA's "complex and highly technical
regulatory program"3 will be given effect is the duty of Congress,
not the judiciary. Such a course invites us to substitute our
policy preferences for those reflected in the language of the
statute. We reject this invitation and construe § 1161(a)
according to its plain meaning.
3
Meredith v. Time Ins. Co., 980 F.2d 352, 357 (5th Cir. 1993).
12
B.
If we examine the policies underlying the statutory language,
we must reject UFCW's classification of them as absurd or
inequitable. Multi-employer benefit plans such as UFCW are
concerned that participants such as AppleTree will exit the plan,
leaving the high risk employees behind. But the coverage agreement
between the employer and the plan is a voluntarily-bargained
document; thus, the agreement can provide for this concern. Since
all elements of the agreement between the plan and an employer are
freely negotiated at the time of joining the plan, the parties can
allocate this risk.
Indeed, establishing actuarial risk is easier as the size of
the participant pool grows. Thus, there are strong countervailing
forces providing AppleTree with incentives to remain in the
program. For smaller employees, these pressures to remain in a
multi-employer plan are even stronger. In fact, multi-employer
plans can refuse to admit prospective members who are unable to pay
their way.
The statutory solution to a loss of revenue because of a
withdrawal of participants is not to terminate coverage for some,
as UFCW attempted to do here. Rather, if revenue falls because of
defections, § 1162(1) requires the joint board to change coverage
for all participants, not to terminate coverage for some while
retaining full coverage for others.
Finally, we reject UFCW's premise that it is somehow more
"equitable" for AppleTree than for the other UFCW plan members to
13
subsidize coverage for the COBRA beneficiaries. When UFCW became
the plan sponsor, it assumed responsibility for these
beneficiaries. It is not inequitable to hold it to its statutory
responsibilities.
V.
Giving the statutory language its plain meaning and construing
it in light of reasonable congressional policy goals, we conclude
that AppleTree is entitled to judgment as a matter of law.
Therefore, we AFFIRM the district court's grant of summary
judgment.
14
JACQUES L. WIENER, Jr., Circuit Judge, specially concurring.
I fully recognize that, inasmuch as I am concurring in Judge
Smith's typically well-crafted opinion for the panel in this case,
affirming the equally well-crafted opinion of the district court,
I run the risk of gilding the proverbial lily when I write
separately. I do so nonetheless in the hope of adding a bit of
perspective to the situation and thereby bolstering further this
court's position in the instant appeal. I am satisfied that when
the instant case is viewed in the framework of the purposes for
which multiemployer plans are created, the types of workers and
types of industries which such plans are generally intended to
serve, and certain overarching features of ERISA, such as its "Type
of Benefit Coverage" provision and its "Written Instrument"
requirement, our ruling today will be seen not solely as the
product of a fair reading of the plain language of the statute "in
a vacuum," but more broadly as a fair and sensible determination
that is wholly consistent with the goals and purposes of ERISA in
general and multiemployer plans in particular.
I
PLAIN LANGUAGE REVISITED
First, I would re-emphasize the point that ERISA's "Type of
Benefit Coverage" provision does not require AppleTree as an
employer participating in a multiemployer welfare benefit plan, to
provide COBRA benefits to those of AppleTree's former employees and
their dependents who had been receiving, or became eligible to
receive, COBRA coverage under the UFCW prior to September 1, 1992
("SCP Qualified Beneficiaries"). Section 602(1) of ERISA4
provides:
(1) The coverage must consist of coverage which,
as of the time the coverage is being provided,
is identical to the coverage provided under
the plan to similarly situated beneficiaries
under the plan with respect to whom a
qualifying event has not occurred. If
coverage is modified under the plan for any
group of similarly situated beneficiaries,
such coverage shall also be modified in the
same manner for all individuals who are
qualified beneficiaries under the plan
pursuant to this part in connection with such
group.5
In applying § 602(1) to the instant case, UFCW's joint board (the
"Board")SQthe designated plan sponsorSQinterprets the term
"similarly situated beneficiaries under the plan for whom a
qualifying event has not occurred" to mean AppleTree's employees.
But the Board's interpretation ignores the unambiguous wording of
the statute which specifies that similarly situated beneficiaries
are those beneficiaries who are participating in the same plan as
the COBRA qualified beneficiaries.
Section 602(1) describes the "type of benefit coverage" to be
provided to COBRA qualified beneficiaries under a plan.
Specifically, § 602(1) requires the plan sponsor to provide
identical health care coverage to the COBRA qualified beneficiaries
of the plan as is provided to other persons who are "similarly
situated" to them and who are participating in the same plan. To
achieve this objective, § 602(1) also requires that if the plan
4
29 U.S.C. § 1162(1).
5
Id. (emphasis added).
16
sponsor modifies coverage for such "similarly situated" persons, it
must also modify the coverage for COBRA qualified beneficiaries in
the same manner. Correctly applying the above quoted language of
the statute, no support can be discerned for the Board's
interpretation that individuals become "similarly situated" to
COBRA qualified beneficiaries of one plan when the individuals
participate in another plan. Instead, the language of § 602(1)
demonstrates that the intent of Congress was to prohibit plan
sponsors from discriminating between COBRA qualified beneficiaries
and active employees who are participating in the same plan.
Further, the plain language of the statute does not support
the Board's contention that AppleTreeSQa formerly participating
employerSQsomehow caused a modification of the coverage within the
meaning of § 602(1) when it sponsored its own group health plan for
its employees after the SCP Qualified Beneficiaries became eligible
for and began to receive COBRA coverage under the UFCW. The
statute refers to a modification of coverage under the same plan.
The language of § 602(1) reflects that the intent of Congress was
to prohibit a plan sponsor from modifying coverage to provide
coverage to COBRA qualified beneficiaries different from the
coverage provided to "similarly situated" active employees of the
same plan. Nothing in § 602(1) requires an entity that has never
sponsored health care coverage for an individual to provide COBRA
benefits for that individual simply because the entity happened to
have been his employer when he experienced a COBRA qualifying event
under a multiemployer plan and the entity subsequently establishes
17
a group health plan for its own employees. The majority opinion
makes this abundantly clear.
To reach a different conclusion would not only ignore the
plain language of the statute but would also fail to recognize the
purpose and structure of multiemployer plans.
The primary purpose of multiemployer plans is to provide
benefits to workers of a particular industry or area. Through this
structure, the workers are able to continue their coverage under
the plan despite moving from one employer to anotherSQa phenomenon
typical of certain industries, including retail food sales and
serviceSQwithin the group of employers participating in the plan.
To terminate an individual's COBRA coverage under a multiemployer
plan just because he happened to work for one particular employer
among the many at the time he became eligible to receive COBRA
benefits under the plan would fly in the face of a principal
purpose of multiemployer plans. More about this later.
Applying the foregoing principles, § 602(1) would be applicable in
the instant case ifSQbut only ifSQthe Board modified the coverage
of the active employees and their dependents who are participating
in the UFCW and who are similarly situated beneficiaries with
respect to the SCP Qualified Beneficiaries. Here, no such
modification of coverage occurred. Accordingly, § 602(1) is
inapplicable and does not relieve the Board of its obligation to
provide COBRA coverage to the SCP Qualified Beneficiaries; neither
can § 602(1) be stretched to shift such obligation to AppleTree.
II
18
DEFINITION OF PLAN SPONSOR
ERISA's "definition of plan sponsor" actually prohibits
AppleTree from replacing the Board as plan sponsor of the SCP
Qualified Beneficiaries, absent some express written provision to
that effect in the UFCW or its plan documents. Nevertheless, as
amicus, the National Coordinating Committee for Multiemployer Plans
("NCCMP") insists, on behalf of the Board, that AppleTree was
required to relieve the Board of its COBRA obligations on August
31, 1992. I disagree.
Recognizing as it must that COBRA requires the "plan sponsor"
to provide COBRA coverage, NCCMP proceeds to argue that AppleTree
"established and maintained" the UFCW by making contributions
thereto; and that as a result when AppleTree ceased contributing to
the UFCW and established a group health plan for its employees on
September 1, 1992, the Board ceased to be the plan sponsor as to
AppleTree's former and active employees, and the duty of providing
COBRA benefits reverted to AppleTree as plan sponsor of those
individuals on that date. On the basis of that bit of legal
legerdemain, NCCMP concludes that AppleTree is the party
responsible for providing the SCP Qualified Beneficiaries with
COBRA coverage as of September 1, 1992.
This contention, however, finds no support in the statute, the
plan documents, or reality. ERISA provides the specific statutory
definition of "plan sponsor": Multiemployer plans have only one
plan sponsor, the joint board of trustees. Changes in the identity
of employers who from time to time participate in the plan have no
19
effect on the party designated by ERISA to be the "plan sponsor."
The joint board of trustees remains the "plan sponsor" regardless
of which employers are permitted to withdraw from (or join) the
plan.
III
THE MULTIEMPLOYER PENSION PLAN AMENDMENT ACT - A COMPARISON
Indirect but strong support for the conclusion that withdrawal
of an employer from a multiemployer welfare benefit plan does not
change the party designated as plan sponsor is found in the
adoption by Congress of the Multiemployer Pension Plan Amendment
Act of 1980 ("MPPA"). Congress enacted the MPPA in response to
concerns about the extreme financial hardships of multiemployer
pension plans (as distinguished from multiemployer welfare benefit
plans) and the resulting potential liability of the Pension Benefit
Guaranty Corporation to pay for certain unfunded pension benefits.
These concerns arose because of the tension between the plan
sponsors on the one hand and the contributing employers of
multiemployer pension plans on the otherSQtension resulting from
the disparate identities and interests of those parties.
In response to those concerns, Congress elected not to
redesignate the plan sponsor of a multiemployer pension plan upon
the withdrawal therefrom of an employer. Instead, the legislative
solution was to impose withdrawal liability on an employer who
withdraws. Through the enactment of MPPA, Congress amended ERISA
to require an employer who withdraws from a multiemployer pension
plan to continue to pay additional contributions to the plan to
20
fund adequately certain unfunded pension benefits.
The obvious significance of the history of the MPPA to the
instant case is that no comparable amendment act was ever adopted
for welfare benefit plans. And the reason is equally obvious:
The pertinent rules that apply to pension plans simply do not apply
to welfare benefit plans. Given the substantial differences
between pension plans and welfare benefit plans, the latter just do
not experience the funding problems that are endemic to the former.
For example, pension plans are subject to ERISA's vesting
requirements and funding obligations, whereas welfare benefit plans
are not.
IV
THE QUALIFYING EVENT
COBRA imposes on the sponsor of the plan that covered the
individual when he experienced a qualifying event the duty of
providing COBRA coverage. This statutory obligation arises at the
moment the individual experiences a qualifying event that triggers
a loss of coverage under the plan, and ends only upon the
occurrence of one of the terminating events specified in § 602(2)
of ERISA. Nothing contained therein permits the sponsor of a
multiemployer plan to terminate or transfer its COBRA obligation to
a withdrawing employer simply because, at a time after the
individual experiences a qualifying event, the employer withdraws
from the plan and sponsors its own plan for its own employees. On
the contrary, the obligation to provide COBRA coverage to the
individual remains with the plan sponsor of the multiemployer plan.
21
To recap: The UFCW is a multiemployer plan, and the plain
language of ERISA expressly designates the Board as the plan
sponsor of the UFCW. The SCP Qualified Beneficiaries experienced
their COBRA qualifying events prior to September 1, 1992, at a time
when they were covered under the UFCW. Thus COBRA expressly
imposes on the Board the duty to provide COBRA benefits to the SCP
Qualified Beneficiaries until a terminating event occurs. The fact
that AppleTree ceased making contributions to the UFCW on August
31, 1992, and thereafter sponsored a group health plan for its
employees could not and does not relieve the Board of its
obligations to provide COBRA benefits to the SCP Qualified
Beneficiaries. V
ERISA's "WRITTEN INSTRUMENT" REQUIREMENT
Another aspect of ERISA that helps to frame the proper
perspective within which to consider the narrow issue of this case
is the statute's "written instrument" requirement. It prohibits
the Board from shifting its COBRA obligation to AppleTree absent
the required documentationSQdocumentation which here is non-
existent. To appreciate fully the true significance of this
requirement in the instant appeal, a more extensive explanation of
the above alluded to purpose and structure of multiemployer plans
should prove beneficial.
Multiemployer plans typically are established and maintained
to provide employee benefits to workers in particular industries.6
6
See Langbein & Wolk, Pension and Employee Benefits Law,
48-52; 359-2d, BNA Tax Management, "Multiemployer PlansSQSpecial
Rules," A-1.
22
Multiemployer plans tend to be prevalent in those industries that
have in common lower level workers who are employment-peripatetic
by nature, such as the retail food, garment, trucking, mining,
construction, and entertainment industries. Multiemployer plans
are common in these and other similar industries, which are
typified by many small companies that are "too small to justify an
individual plan."7 Multiemployer plans comprise the pooled assets
of numerous employers (each of which usually makes contributions
pursuant to collective bargaining agreements) and the income
generated by those assets.8 Thus, multiemployer plans generally
have participant populations that are larger than those of single-
employer plans, and generally experience better risk-spreading
opportunities. To the extent multiemployer plans are larger, they
also enjoy economies of scale unavailable to all but the largest
single-employer plans. As a result, multiemployer plans often
provide more favorable coverage to the participants and their
beneficiaries than single employer plans are able to provide.
Of particular importance to the instant case is the widely
recognized fact that multiemployer plans are common in those
industries in which, due to seasonal or irregular employment and
high labor mobility, few workers would qualify for coverage under
7
Langbein & Wolk, Pension and Employee Benefits Law at 49.
8
See Central States, Southeast and Southwest Areas Pension
Fund v. Central Transport, 472 U.S. 559 (1985); Schneider Moving
& Storage Co. v. Robbins, 466 U.S. 364 (1984); Central States,
Southeast and Southwest Areas Pension Fund v. Gerber Truck, 870
F.2d 1148, 1154 (7th Cir. 1989) (en banc).
23
an individual employer's plan if one were established.9 For
example, construction workers are frequently hired by a contractor
for a single project that takes only a matter of weeks or months to
complete.10 Once the project is finished, those workers may be
unemployed until another contractor needs their particular skills
for a different project.11 Thus, multiemployer plans, in contrast
to single-employer plans, promote portability of benefits by
workers whoSQgenerally not on their own volitionSQmove from one
employer to another.12
A worker is eligible to participate in a single-employer plan
because of his employment relationship with one particular
employer. In contrast, a worker is eligible to participate in a
multiemployer plan because of his employment relationship with a
particular industry and the several employers which participate in
the plan. Consequently, multiemployer plansSQunlike single-
employer plansSQare able to achieve portability of benefits through
a plan structure that permits a worker who moves from one employer
to another within the plan's group of participating employers to
enjoy continuous coverage under the plan.13 The United States
Department of Labor ("DOL") also recognizes that multiemployer
plans are primarily established and maintained for the purpose of
9
Langbein & Wolk, Pension Employee Benefit Law at 49.
10
Id.
11
Id.
12
Id. at 52.
13
Id.
24
permitting portability of benefits for the workers of a particular
industry.14
Within that framework, the "written instrument" requirement is
all the more meaningful. Section 402(a)(1) of ERISA expressly
requires that "[e]very benefit plan shall be established and
maintained pursuant to a written instrument."15 The written
instrument must "provide for one or more named fiduciaries who
jointly or severally shall have the authority to control and manage
the operation and administration of the plan."16 One purpose of
ERISA's "written instrument" requirement is to protect the
interests of employees and their beneficiaries in employee benefit
plans by giving them a clear understanding of their rights and
obligations under the plan.17 Recognizing that ERISA requires that
14
See 29 C.F.R. § 2510.3-37(c). The DOL requires a
substantial business purpose before a multiemployer plan may be
established. Such business purpose includes the interest of a
labor organization in securing employee benefit plans for its
members. The DOL examines four factors to determine the
existence of a substantial business purpose, any one of which may
be sufficient: (1) maintenance of a plan by a substantial number
of unaffiliated contributing employers covering a substantial
portion of a trade, craft or industry in terms of employees or
locality; (2) closeness of relationship of benefits to years of
service within the trade, craft or industry rather than with a
given employer; (3) extent of collective bargaining in matters
other than employee benefit plans between the employer
organization and the employers maintaining the plan; and (4) the
extent to which the administrative burden and expense of
providing benefits through single-employer plans would be greater
than through multiemployer plans.
15
29 U.S.C. § 1102(a)(1).
16
Id.
17
Cefalu v. B. F. Goodrich Co., 871 F.2d 1290, 1296 (5th
Cir. 1989).
25
employee benefit plans and any changes made to such plans be in
writing, we have held that we lack the power to create a federal
common law remedy in this area because ERISA specifically and
clearly addresses the issue.18 Thus, participants and
beneficiaries of employee benefit plans must be able to rely on the
plans' written instruments for determination of benefits and
determination of the party responsible for providing those
benefits. Here, the UFCW designates the Board as that responsible
party, and does so expressly and in writing.19
Further, the UFCW expressly grants its participants and
beneficiaries the right to elect COBRA coverage under the UFCW when
a qualifying event triggering loss of coverage thereunder is
experienced.20 There is nothing written in the UFCW, however, that
permits the Board to terminate an individual's COBRA coverage under
the plan when and if that individual's former employer withdraws
from the plan and subsequently sponsors a group health plan for its
own employees. Under the statute, the pertinent plan provisions,
and the applicable legal authorities, it is the BoardSQnot a
formerly participating employerSQwhich is obligated by law and
under the terms of the UFCW to provide COBRA benefits to the SCP
Qualified Beneficiaries. For us to hold otherwise would violate
ERISA's "written instrument" requirement and improperly deny the
18
Id. at 1297.
19
See §§ 1.33 and 4.5 of the UFCW; §§ 1.8, 7.1, 7.2, 7.3,
8.1 and 9.2 of UFCW's Trust Agreement.
20
See § 2.8 of the UFCW.
26
SCP Qualified Beneficiaries their right to uninterrupted COBRA
coverage under the UFCW.
Additionally, for us to rule in this case in the manner urged
by the Board could broadly but adversely affect the current
structure and operation of multiemployer plans, including the
rights and obligations of the participants and participating
employers alike. As noted, over longer periods of time, workers in
a given industry tend to work for numerous employers within that
industry. It was principally in recognition of this revolving door
facet of such employment that employers and union representatives
devised the multiemployer plan. Such a plan provides the means to
ensure maintenance of a desired level of benefits for workers who
toil in a particular industry and who change employers with some
frequency. Through participation in a multiemployer plan, both the
workers and the employers understand that the plan will continue to
provide health coverage to such workers even though they may work
for two or more employers which participate in the plan at
different times. Clearly, if we were now to permit plan sponsors
to shift their COBRA obligations to employers such as AppleTree,
plan sponsors of multiemployer plans would be able to deny
participants their "portability of benefits" right without being
required to amend the plan's written instrument as required by
ERISA.
In turn, the denial of the portability right could severely
affect other benefit rights of the participants in multiemployer
plans. For example, if AppleTree were required to provide the SCP
27
Qualified Beneficiaries with COBRA coverage under the new, single-
employer AppleTree plan, the SCP Qualified Beneficiaries would
become participants in the AppleTree plan and would be terminated
as participants in the UFCW as of August 31, 1992. This
termination of coverage under the UFCW might well produce harsh
consequences to the SCP Qualified Beneficiaries. First, to the
extent that the level of coverage provided under the AppleTree plan
were less favorable than the coverage provided under the UFCW, the
SCP Qualified Beneficiaries would suffer a diminution in coverage
(for, as noted earlier, multiemployer plans generally provide more
favorable coverage than single-employer plans given economies of
scale).
Second, such a termination of participation might adversely
affect the level of the SCP Qualified Beneficiaries' coverage under
the UFCW when and if they were subsequently to become employed by
other participating employers during their COBRA coverage period.
For example, if an SCP Qualified Beneficiary were to be employed
subsequently by a participating employer of the UFCW, that worker
would again be required to meet the eligibility requirements of the
UFCW prior to receiving the level of coverage to which he had been
entitled immediately before his participation in the UFCW ended on
August 31, 1992.21 Also, to the extent that the "pre-existing
condition" exclusion of certain ailments or diseases might apply to
the SCP Qualified Beneficiary, he would now be denied coverage for
such conditions, even though he would otherwise have continued to
21
See §§ 2.3 and 2.5 of the UFCW.
28
be entitled to coverage for them had his COBRA coverage not been
terminated.22
Clearly, the public interestSQand the intent of CongressSQin
encouraging the formation of employee benefit plans could be
adversely affected if we were to hold that AppleTree, rather than
the Board, is obligated to provide COBRA benefits to the SCP
Qualified Beneficiaries. And just as participants and
beneficiaries must be able to rely on the plan's written
instrument, so too must employers be able to rely on the plan's
written instrument to determine their obligations. Employers are
frequently discouraged from participating in or forming employee
benefit plans if they perceive potential exposure to unlimited
liability for participants' benefits. This is another reason for
which ERISA requires the instrument to define in writing the
employers' obligations under the plan.
Notably, neither the UFCW nor any other plan document either
expressly or impliedly permits the Board to shift its COBRA
obligations to AppleTree simply because the SCP Qualified
Beneficiaries happened to have been employed by AppleTree when
those beneficiaries experienced their COBRA qualifying event under
the UFCWSQand AppleTree subsequently sponsored a group health plan
for its own employees. That is not to say that the UFCW or the
other plan documents could not have so provided. I simply note the
fact that the UFCW does not in writing impose any liability on the
withdrawing employer to subsidize the plan's cost of providing
22
See § 4.4 of the UFCW.
29
COBRA benefits; but neither does it permit recovery by the
withdrawing employer of any reserves attributable to the
contributions such employer may have made to the UFCW. Again, I do
not mean to suggest that the plan documents could not so provide;
I simply observe that no such writing exists in connection with the
UFCW. The admittedly belabored point I make is that in the absence
of contrary written provisions ERISA does not allow the Board to
evade its COBRA obligation simply because the financial soundness
of the UFCW may be adversely affected if the Board is required to
provide COBRA coverage to the SCP Qualified Beneficiaries.
VI
AD HOMINEM
In closing, I am constrained to comment on another aspect of
the position urged by the Board in this case. Given the strong
motivation of the entities and organizations that bargain so
vigorously with the employers for the adoption of multiemployer
plansSQa central feature of which is the designation of the Board
rather than the employer as the plan sponsorSQI find illogical, if
not disingenuous, the strident urgings of the Board to this court
that we mystically pass the mantle of plan sponsor from the Board
to the employer, thereby imposing liability on AppleTree for the
costs of providing COBRA benefits to the SCP Qualified
Beneficiaries. The constant emphasis of such bargaining is, as
noted above, the ability to ensure to the workers the portability
of their plan benefits and the avoidance of breaks in coverage and
such attendant evils as requalification, delay periods for
30
eligibility, and exposure to denial of coverage of "new" pre-
existing conditions that were not pre-existingSQand thus were not
excluded from coverageSQfor purposes of former participation in the
same plan. It ill behooves those whose minions benefit so greatly
from the Board's position as plan sponsor to gainsay such
sponsorship for the expediency of shifting COBRA costs to the
departing or withdrawing employer.
VII
CONCLUSION
To repeat, I wholeheartedly concur in Judge Smith's opinion
that, based on the plain language of ERISA and UFCW's written
instruments, the Board is the plan sponsor and thus is obligated to
provide COBRA coverage to SCP Qualified Beneficiaries under the
UFCW until a statutory event should occur to trigger termination of
such coverage. The fact that AppleTree withdrew from the UFCW and
thereafter sponsored a single-employer group health plan for its
employees after the SCP Qualified Beneficiaries became entitled to
receive COBRA coverage under the UFCW is clearly not an event that
terminates the Board's obligations to provide COBRA coverage to the
SCP Qualified Beneficiaries. I find that the broad perspective in
which this decision can and should be viewed provides additional
undergirding for the majority opinion, consistent with the
policies, reasons and rationale of ERISA and COBRA and the raison
d'etre of multiemployer plans.
31
South Central United Food & Commercial Workers Unions & Employers Health & Welfare Trust v. Appletree Markets, Inc.
Court: Court of Appeals for the Fifth Circuit
Date filed: 1994-04-15
Citations: 19 F.3d 969
Copy CitationsCombined Opinion