Unpublished Disposition, 859 F.2d 155 (9th Cir. 1984)

MEMORANDUM^* 

The district court granted summary judgment for Patricia A. Wootton (Wootton), finding that retirement plan administrators (the Committee) adopted an arbitrary and capricious interpretation of the Lockheed Retirement Plan for Certain Salaried Employees (the Plan) when they denied Wootton Plan benefits. We affirm.

* BACKGROUND

Wootton's husband worked for Lockheed for 22 years. In October 1982, he was diagnosed as having terminal colon cancer. He continued to work while his condition deteriorated until June 23, 1983, when he finally was hospitalized. He died six months and two days later on December 25, 1983.

Section 5.04 of Lockheed's Retirement Plan sets forth five eligibility requirements for disability retirement benefits. Plan members are eligible for disability retirement benefits if they (1) have had ten or more years of continuous service; (2) are under 65; (3) have been totally and permanently disabled for six consecutive months; (4) submit an application for disability retirement benefits during the period of continuous service; and (5) are not receiving retirement benefits at the time of their disability.

The parties agree that Wootton's husband was eligible for disability retirement benefits as of December 23, 1983, when he met all five of the section 5.04 requirements. His eligibility was confirmed by the Committee on December 24, 1983, the day before he died.

Prior to learning about his cancer, Wootton's husband filed an election for joint and survivor benefits under the Plan, naming Wootton as joint annuitant beneficiary. The Woottons filed their election on July 30, 1982. Lockheed approved the election on August 11, 1982.

Following her husband's death, Wootton asked the Committee to pay her the disability retirement benefits she believed she had elected to receive. The Committee denied Wootton's request. They told her that she would not receive any benefits because her husband died one week too soon.

Pursuant to section 6.04(A) of the Plan, all disability retirement benefits are paid on the first day of each month for administrative convenience. Section 5.04(A) explicitly requires that disabled employees survive a six month disability waiting period, as well as fulfill the other four eligibility requirements, in order to become eligible to receive disability retirement benefits. The Committee interprets section 6.04(A) of the Plan to require that disabled employees also survive until the first day of the month following their six month disability waiting period, when disability retirement benefits are paid, in order for their beneficiaries to receive joint annuitant benefits.

Under the Committee's interpretation, Wootton would have been eligible to receive benefits if her husband had died on January 1, 1984, rather than on December 25, 1983.

Wootton challenged the Committee's interpretation of the Plan. The district court found that the Committee's interpretation was arbitrary and capricious. We affirm.

II

STANDARD OF REVIEW

We will reverse the decision of an ERISA plan administrator when the decision is arbitrary and capricious, made in bad faith, not supported by substantial evidence, or erroneous on a question of law. Dockray v. Phelps Dodge Corp., 801 F.2d 1149, 1152 (9th Cir. 1986). An administrator's decision is not arbitrary and capricious if it is "a reasonable interpretation of the plan's terms and was made in good faith." Id. Although we will defer to the administrator's "reasonable resolutions of any ambiguities in the Plan's language," id. (citations omitted), we will view as arbitrary and capricious an interpretation that reads into the plan new standards not already contained in the terms of the plan. Blau v. Del Monte Corp., 748 F.2d 1348, 1354 (9th Cir.), cert. denied, 474 U.S. 865 (1985). In determining whether an administrator's action is reasonable, we will also consider whether the administrator's interpretation bears a rational relationship to the purpose of the provision being interpreted. Cf. Music v. Western Conference of Teamsters Pension Trust Fund, 712 F.2d 413, 419-20 (9th Cir. 1983) (trustees exercise of discretion not "reasonable" where it bore "no apparent rational relationship" to the purpose of the provision).

III

DISCUSSION

A. Does the Committee's Interpretation Read a New Standard Into the Plan?

Section 7.02(c) (3) of the Plan states that if a member dies before the "Effective Date of his retirement benefit, the member's joint annuitant beneficiary shall receive no benefits under the plan." The key question in this case is whether the Plan defines the phrase "Effective Date of [retirement] benefit," as that phrase applies to disability retirement benefits.

Section 7.01 of the Plan states the following with respect to disability retirement benefits:

A member's Disability Retirement Benefit shall commence as of the Effective Date of such benefit as provided in Section 6.04 and, unless such Member elects an optional annuity form under the provisions of Section 7.02, shall be paid pursuant to the terms of the applicable Subsection of this Section 7.01.

Although section 7.01 mentions the "Effective Date of [retirement] benefit," no definition is provided. Instead, section 7.01 refers the reader to section 6.04.

Section 6.04(A), entitled "Commencement of Disability Retirement Benefit" also does not define the phrase "Effective Date of [retirement] benefit." It reads:

A member eligible for Disability Retirement Benefits under Section 5.04 shall receive a monthly Disability Retirement Benefit as of the first day of the month after he has applied for and been found to be entitled to such a benefit.

Thus, section 6.04(A) merely prescribes the date upon which the disabled Plan member will first receive the disability retirement benefit to which he or she is already entitled.

It is our opinion that the Plan does not explicitly define the phrase "Effective Date of [retirement] benefit," as that phrase applies to disability retirement benefits. The lack of a definition creates an ambiguity in the meaning of section 7.02(c) (3). We would defer to the Committee's interpretation of the Plan if the Committee reasonably resolved this ambiguity. Dockray, 801 F.2d at 1152. However, we do not defer to the Committee's interpretation because it reads a new requirement into the Plan. Blau, 748 F.2d at 1354.

By interpreting sections 6.04(A), 7.01, and 7.02(c) (3) together to mean that the "Effective Date of [retirement] benefit" is the first day of the month following the end of the six month disability waiting period, the Committee essentially reads a new eligibility requirement into the Plan. Section 5.04 clearly spells out five different eligibility requirements, all of which Mr. Wootton met. In addition to those requirements, the Committee now requires that plan members live until the first day of the month following the end of the six month disability waiting period in order for their joint annuitant beneficiaries to be eligible to receive benefits. The Committee may not resolve ambiguities in the Plan to effectively add a sixth eligibility requirement to section 5.04. Id.

Our cases regarding the vesting versus maturing of retirement benefits do not support the Committee's position. See Gabrielson v. Montgomery Ward & Co., 785 F.2d 762 (9th Cir. 1986); Hernandez v. Southern Nevada Culinary and Bartenders Pension Trust, 662 F.2d 617 (9th Cir. 1981). In each of those cases, we upheld a plan administrator's denial of benefits to a joint annuitant beneficiary on the ground that the plan member died before reaching the retirement age required by the plan. Gabrielson, 785 F.2d at 764-65; Hernandez, 662 F.2d at 619-20. We noted that each plan member's rights had fully vested under their respective plans. However, we also stated in Hernandez that such vested rights may not "mature" until the plan member gains the right to receive the benefits by living until the specified retirement age. Hernandez, 662 F.2d at 620.

The Committee concedes that Mr. Wootton's right to receive disability retirement benefits vested on December 23, 1983 when he satisfied all the eligibility requirements of section 5.04 of the Plan. They argue, however, that his rights never matured because he died before he actually received his benefits on the first day of the following month pursuant to section 6.04 of the Plan. This argument does not follow from Gabrielson and Hernandez.

In Gabrielson and Hernandez, the plan members were not eligible to receive their retirement benefits until they reached retirement age. Thus, reaching retirement age was an eligibility requirement similar to the eligibility requirements set forth in section 5.04 of Lockheed's Plan. The plan members in Gabrielson and Hernandez died after their rights to retirement benefits vested, but before they became fully eligible to receive benefits. Mr. Wootton died after he became fully eligible to receive his disability retirement benefits but before he actually received his first benefit check.

In neither Gabrielson nor Hernandez did the plan administrator seek to add an additional eligibility requirement to the plan by demanding that the plan member live beyond the date of his retirement birthday. In other words, the period of time between the plan member's retirement birthday and the first day of the following month was never an issue.¹  Accordingly, neither Gabrielson nor Hernandez controls the outcome in Wootton's case.

Lockheed also argues that its interpretation of the Plan must be enforced because, when Wootton's husband elected to receive joint and survivor benefits under the Plan, the Woottons signed a form which contained the following:

I understand ...

2. That if I die before the date on which my first monthly benefit payment is due under Option A, Option B, or Option C, no benefits will be paid to my beneficiary....

Lockheed Form LC225-2, Election of Retirement Payment Option. The district court indicated that the above condition was one of eight conditions set forth at the bottom of the form in very small type.

This sort of conditional language, printed in small type at the bottom of a form, does not override the language of the Plan itself. The form was not part of the Plan; it could not add to or subtract from the Plan; it was used simply to allow Wootton's husband to elect among options already available under the Plan. The Plan itself is the legally operative instrument that determines Wootton's eligibility to receive benefits, and it is the Plan that our opinion construes.

B. Does the Committee's Interpretation of Section 6.04(A) of the Plan Bear a Rational Relationship to the Purpose of that Section?

The Committee admits that the purpose of paying disability retirement benefits on the first day of each month is to promote administrative convenience. In a large retirement plan, it would be an administrative nightmare to issue disability checks on every day of the month that some plan member had fulfilled the eligibility requirements of section 5.04. The purpose of convenience, however, is not promoted by denying benefits to the unfortunate widows and widowers of plan members who are fully eligible to receive their disability retirement benefits, but who happened to die before they actually receive their first check.

All of the eligibility requirements of section 5.04 can be applied evenhandedly to employees who may become disabled. They also all bear some rational relationship to the goal of providing disability retirement benefits to similarly situated disabled Plan members. The new requirement, added by the Committee's interpretation of the Plan, that Plan members survive until the first day of the month following their six month disability waiting period creates an irrational distinction between plan members that results in unequal treatment.

The effect of the Committee's interpretation is to create a variable disability waiting period. As one of its requirements, section 5.04 mandates that a member be permanently disabled for six months before becoming eligible for benefits. Under the Committee's interpretation, a member who becomes disabled on the first day of a month would face a seven month waiting period. A member who becomes disabled on the last day of a month faces only the prescribed six month waiting period plus one day.

This unequal treatment of plan members is unnecessary to promote the goal of administrative convenience. The Committee could just as easily award benefits to a plan member or their joint annuitant beneficiary once the plan member or their joint annuitant beneficiary once the plan member fulfills the five eligibility requirements of section 5.04 of the Plan. Then, all benefits could be paid on the first day of each month, regardless of the date of the Committee's award.

IV

CONCLUSION

For the foregoing reasons, we find that the Committee's interpretation of the Plan is arbitrary and capricious.

AFFIRMED.

BEEZER, Circuit Judge, dissenting:

The Plan is unambiguous. The Committee's interpretation is reasonable. Wootton should be estopped from challenging the Committee's interpretation. I would reverse and remand with instructions to enter summary judgment in favor of the Committee.

* By its terms the Plan instructs that a beneficiary shall receive no benefits if the Plan member dies before the first of the month. A plain reading leaves no room for argument.

Section 7.02(c) (3) shows that the "Effective Date" is the trigger enabling a beneficiary to obtain benefits: "In the event ... the Member dies prior to the Effective Date of his retirement benefit, the Member's joint annuitant beneficiary shall receive no benefits under the Plan." Section 7.01 explains where "Effective Date" is defined: "A member's Disability Retirement Benefit shall commence as of the Effective Date of such benefit as provided in Section 6.04." And section 6.04(A) provides that the trigger for benefits will be the first day of the month: "A member eligible for Disability Retirement Benefits ... shall receive a monthly Disability Retirement Benefit as of the first day of the month after he has applied and been found to be entitled to such a benefit."

The meaning of these provisions is unmistakable. Section 7.01 explicitly refers to section 6.04 as providing the Effective Date, and the only point in time mentioned by section 6.04 is the first day of the month. Pursuant to section 7.02(c) (3), a beneficiary receives no disability benefit if the member dies before the Effective Date--the first of the month.

As if there could be any doubt, the Plan elsewhere gives the same definition of "Effective Date". As the district court acknowledged, "With respect to most retirement benefits, Section 7.01 of the plan provides that a member's retirement benefit shall begin on the first day of the month after the member has actually retired and applied in writing for benefits, 'Which date shall be the Effective Date of the Member's retirement benefit.' " Summary Judgment Order at 6 (quoting section 7.01). With respect to disability benefits, the Plan refers to other sections because eligibility requirements are more complicated. The Effective Date, however, is the same.

This plain construction does not read a new requirement into the Plan. Compare Blau v. Del Monte Corp., 748 F.2d 1348, 1354 (9th Cir. 1985). The requirement that a member live to the first day of the month is already there. The conclusion is inescapable: Wootton should receive no benefits; her husband died before the first of the month.

II

The Committee's "interpretation" of the Plan (to mean what it says) is entirely reasonable. In a large-scale retirement plan, efficiency of administration is at a premium. Expenditures on administration will deprive beneficiaries of additional income. The Committee's interpretation may well promote efficiencies in administration.

To begin with, under this interpretation the Committee need not keep track of separate eligibility dates for each member. The Committee need only pool members into groups according to month of eligibility. In addition, the Committee need not compare each member's separate eligibility date with the date of his or her death certificate. Instead, the Committee need only inquire into whether members died before or after the first of the month. Finally, the Committee need not perform separate administrative functions upon eligibility and initial payment. The Committee may complete all paperwork at once: the same day a member becomes eligible for benefits, he or she is enrolled in the payment system as well. All told, efficiencies like these could produce substantial savings in a large-scale retirement plan.

Wootton complains that the Committee's interpretation results in unequal treatment of Plan members. The variable waiting period means that one member might wait nearly seven months for eligibility, another barely six months. As seen by a member who is not yet disabled, however, the variable waiting period does not amount to unequal treatment. Every member has the same chance of becoming disabled early or late in the month, increasing or decreasing waiting time. For every member who is disadvantaged, another is advantaged. If this system saves money through administrative efficiencies, members as a group would benefit from the availability of additional benefit income.

The Committee's interpretation is not arbitrary and capricious; it is entirely reasonable. It bears a rational relationship to the purpose of the Plan's provisions--delivering more money, more efficiently, to a large group of members. Compare Music v. Western Conference of Teamsters Pension Fund Trust, 712 F.2d 413, 419-20 (9th Cir. 1981).

III

Wootton should be estopped from challenging the Committee's interpretation. Under the Plan, Mr. and Mrs. Wootton had to elect among several options structuring benefits in different ways. They elected to receive joint and survivor benefits by signing form LC 225-2. In doing so the Woottons documented their acceptance of the Committee's interpretation of the Plan.

The form says:

I understand ...

2. That if I die before the date on which my first monthly benefit payment is due under Option A, Option B, or Option C, no benefits will be paid to my beneficiary.

Having signed the form, Wootton cannot now argue that the Plan was unclear or that the Committee "interpreted" the Plan unreasonably. Wootton relies on form LC 225-2 for entitlement to a survivor's annuity. She and her husband signed the form voluntarily and she is bound by its terms and conditions. The form apprised Wootton of the Plan's requirement that a member live to the first of the month. It is inequitable to allow Wootton to renege on her acceptance of this requirement, especially considering Lockheed voluntarily provided the Plan and funded it in full.

Use of the election form shows that the Committee's interpretation of "Effective Date" is longstanding and has been consistently applied to members. The Plan has always included a variable waiting period for disability retirement benefits. Lockheed has funded the Plan based on an actuarial assumption of a six and a half month wait to eligibility, the average wait within the variable waiting period. If the Committee must assist Wootton now, after only a six month wait, the precedent will force the Committee to deplete the fund's principal, creating a scarcity of income for later beneficiaries. These beneficiaries will be deprived of money the Plan had earmarked for them.

The Committee is a fiduciary. See Summary Judgment Order at 10. As such, the Committee is responsible for protecting the benefits of all the Plan's members. The Committee is fulfilling its duty to those members by adhering to the Plan as written. Accordingly, the Plan should operate to deny Wootton of disability retirement benefits.

Wootton would not go penniless; Lockheed did provide her with a life insurance benefit of $165,000. Even so, the denial of disability benefits would be a tragic loss, a dark cloud on her financial well-being. The silver lining would be that the Plan, operating as expected from the outset, would have resources available for other beneficiaries who later will be entitled to benefits. The Committee would be able to fulfill its fiduciary duty to all members, and they would get benefits they have a right to expect under the Plan.

IV

The Plan is clear; the Committee's interpretation of it is reasonable. Wootton should be estopped from challenging the Committee's interpretation. As a fiduciary, the Committee must take into account the interests of all the Plan's members. Wootton's receipt of benefits will deprive others of benefits, contrary to what is contemplated by the Plan. In a similar case, the Sixth Circuit reversed a district court that had ruled a plan arbitrary and capricious. Moore v. Reynolds Metals Co. Retirement P., 740 F.2d 454 (6th Cir. 1984). We would do well to heed the Sixth Circuit's admonition to the district court:

Courts, however, have not been authorized by Congress to impose upon employers the court's subjective beliefs concerning the relative value of benefits which employers have chosen voluntarily to confer upon employees.

Id. at 457.