On February 29, 2012, the US Court of Appeals for the Third Circuit held that employees who were transferred to a new employer (Siemens) from a prior employer (Westinghouse) pursuant to an asset purchase agreement (APA) were not entitled to receive pension benefits from Siemens. The court held that Siemens did not establish a "plan" under the Employee Retirement Income Security Act of 1974 (ERISA) for the transferred employees during the 13-day period after they became employed by Siemens because Westinghouse continued to maintain the plan. The court also held that Siemens was not required to provide permanent job separation (PJS) benefits to transferred employees under the APA because Westinghouse's pension plan provided that employees would be ineligible for benefits if employees were offered continued employment by a successor employer.
In Shaver v. Siemens Corp., the US Court of Appeals for the Third Circuit held that Siemens Corporation did not owe permanent job separation (PJS) pension benefits to transferred employees who originally worked for a division of Westinghouse Corporation. Siemens did not violate Section 204(g) or Section 208 of ERISA, because:
Siemens did not establish a "plan" under ERISA for the transferred employees during the 13-day period after they became employed by Siemens, during which the employees continued to earn service credit for these benefits because Westinghouse continued to maintain the plan under ERISA.
The employees were not eligible for benefits under Siemens' plan under the asset purchase agreement because they did not meet the required eligibility conditions for benefits under the Westinghouse plan.
In Shaver v. Siemens Corp., the central question was whether Siemens Corporation, which had purchased a division of Westinghouse Corporation, was required to provide transferred employees that it terminated with permanent job separation (PJS) benefits under the terms of the Westinghouse plan and the asset purchase agreement (APA) between the parties. Specifically, the key litigated issues were whether:
Siemens established a "plan" under ERISA because it undertook certain transitional liabilities relating to transferred employees' PJS pension benefits during a 13-day period after the transaction took place.
ERISA Sections 208 and 204(g) required Siemens to provide PJS benefits to the transferred employees under the terms of the APA promising substantially identical benefits.
In 1998, Westinghouse sold one of its business divisions to Siemens pursuant to an APA, which provided, among other things, that Siemens establish a defined benefit pension plan for transferred employees that contained terms and conditions "substantially identical" to the Westinghouse pension plan.
The Westinghouse pension plan provided that Westinghouse employees would be ineligible for PJS pension benefits if they were offered continued employment by a successor employer.
The APA was executed on August 19, 1998, but from August 19 to August 31, 1998, Westinghouse offered transferred employees pension credit for service and compensation, even though Siemens was now their employer. Under this arrangement, Westinghouse maintained and administered the pension plan and Siemens was required to reimburse Westinghouse for any actuarial loss it incurred should Siemens terminate an employee during that period.
Siemens hired all of the transferred Westinghouse employees, but many of them were later terminated when Siemens closed several facilities. Some of these employees sought PJS pension benefits from Siemens, which were denied because the Siemens pension plans do not provide for these benefits. The employees sued Siemens under ERISA, and the District Court, following the Magistrate's recommendation, held that the employees were entitled to receive pension benefits because:
Siemens created a "plan" under ERISA for the transferred employees because certain benefits of the Westinghouse plan were continued during the 13-day period after the employees became employed by Siemens. Siemens then amended this plan in violation of ERISA Section 204(g), the anti-cutback rule, when it adopted a pension plan that excluded transferred employees from PJS benefits.
Because Westinghouse transferred a portion of its pension plan liabilities to Siemens through the APA, Section 208 of ERISA requires Siemens to provide benefits that are "equal or greater" than the benefits under the Westinghouse plan.
The Third Circuit reversed the decision of the district court and held that the transferred employees were not entitled to receive PJS pension benefits from Siemens.
Concerning the continuation of certain benefits under the Westinghouse plan to the transferred employees during the 13-day period after Siemens became their employer, the Third Circuit held that Siemens did not establish a "plan" under ERISA because:
Siemens did not administer and maintain the plan during this period because Siemens was not responsible for determining eligibility, calculating benefits, funding the plan or distributing assets but only had the discrete obligation to reimburse the Westinghouse plan if a transferred employee was terminated before September 1, 1998.
The 13-day arrangement is a discrete benefit arrangement that does not satisfy the ERISA criteria for a pension plan, which must be established and maintained primarily to provide systematically for the payment of definitely determinable benefits over a period of years, usually for life, after retirement.
The Third Circuit relied upon the criteria for an ERISA plan described in Fort Halifax Packing Co. v. Coyne, in which the US Supreme Court wrote that payment of benefits "do[es] not implicate ERISA unless [it] require[s] the establishment and maintenance of a separate and ongoing administrative scheme." The Court provided several factors to help determine what constitutes an ERISA administrative scheme, such as whether the employer:
Determines the eligibility of claimants.
Calculates benefit levels.
Monitors the availability of funds for benefit payments.
Keeps appropriate records in order to comply with applicable reporting requirements.
The Third Circuit held that Siemens did not establish an ERISA plan during this transition period because it did not perform these administrative tasks. While the Third Circuit did not provide a bright-line rule on the duration required for ERISA plans, it noted that "it was confident that" a 13-day arrangement paired with the absence of Siemens' administrative responsibilities for the plan during this period was a short-term, discrete benefit arrangement that does not implicate ERISA.
The Third Circuit agreed that the transfer of pension liabilities from Westinghouse to Siemens under the APA language requiring Siemens to provide "substantially identical benefits" implicated Section 208 of ERISA, which requires that a plan participant receive no less benefits following the transfer of plan liabilities. However, the Third Circuit differed from the district court regarding the significance of that conclusion.
The Third Circuit held that the transfer of liability under the APA, alone, cannot make Siemens liable for providing PJS benefits to the transferred employees. This is because ERISA Section 204(g) does not protect from cutback an early retirement benefit for a participant who has not and cannot satisfy the conditions for eligibility to receive the benefits subject to the cutback.
Specifically, under the Westinghouse plan, employees who were offered continued employment by a successor employer were not eligible for PJS pension benefits. The transferred employees in this case were offered continued employment by Siemens, the successor employer. Therefore, they were not eligible to receive pension benefits under the terms of the Westinghouse plan. So although the APA provided that Siemens was to provide "substantially identical pension benefits," it was not required to provide PJS benefits to the transferred employees because those employees were not eligible to receive PJS benefits under the terms of the Westingouse plans. As a result, Siemens did not reduce their benefits in violation of ERISA Section 208.
Finally, the Third Circuit held that Section 204(g) of ERISA, the anti-cutback rule, did not require Siemens to offer PJS pension benefits to the transferred employees because the Westinghouse plan had not been amended by Siemens and the parties did not agree to extend PJS pension benefits through the APA.
A transitional plan established between parties to an asset purchase agreement may not qualify as an ERISA plan established by the successor employer if, as here:
The successor employer does not establish and maintain the plan's administrative scheme, as determined by the factors established in Fort Halifax Packing Co. v. Coyne.
The arrangement only lasts for a short time period, such as 13 days.
The Third Circuit also clarified the scope of Section 208 of ERISA. Successor employers do not have to provide transferred employees with pension benefits under the terms of an APA that provide for substantially identical benefits if the original employer's pension plan does not provide pension benefits to employees who are offered continued employment by a successor employer.