Volume 31 Issue 3 Article 13 1986 ERISA - Escape Clauses in Employee Benefit Plans Are Unenforceable under ERISA Wayne Dillahey Follow this and additional works at: https://digitalcommons.law.villanova.edu/vlr Part of the Labor and Employment Law Commons, and the Retirement Security Law Commons Recommended Citation Wayne Dillahey, ERISA - Escape Clauses in Employee Benefit Plans Are Unenforceable under ERISA, 31 Vill. L. Rev. 1192 (1986). Available at: https://digitalcommons.law.villanova.edu/vlr/vol31/iss3/13 This Issues in the Third Circuit is brought to you for free and open access by Villanova University Charles Widger School of Law Digital Repository. It has been accepted for inclusion in Villanova Law Review by an authorized editor of Villanova University Charles Widger School of Law Digital Repository. Dillahey: ERISA - Escape Clauses in Employee Benefit Plans Are Unenforceabl [Vol. 31: p. 1192 ERISA-ESCAPE CLAUSES IN EMPLOYEE BENEFIT PLANS ARE UNENFORCEABLE UNDER ERISA Northeast Department ILGWU Health and Welfare Fund v. Teamsters Local Union No. 229 Welfare Fund (1985) In 1974, Congress enacted the Employee Retirement Income Se- curity Act (ERISA)' to regulate the rapidly growing number of em- ployee benefit plans. 2 ERISA was designed to ensure that employee 1. 29 U.S.C. §§ 1001-1461 (1982). The primary purpose of ERISA was to protect employees' individual pension rights by establishing comprehensive fed- eral standards to govern private employee benefit and pension plans. H.R. REP. No. 533, 93d Cong., 1st Sess. 1, reprintedin 1974 U.S. CODE CONG. & AD. NEWS 4639. These federal standards provide for: (1) the disclosure and reporting of financial and other information with respect to employee benefit plans; (2) the standard of care owed by fiduciaries of employee benefit plans; (3) the appropri- ate remedies and right of access to federal courts for participants, beneficiaries, and fiduciaries and (4) the mandatory vesting of accrued employee benefits after a significant period of service. ERISA § 2, 29 U.S.C. § 1001 (1982). 2. See ERISA § 2(a), 29 U.S.C. § 1001(a) (1982) ("Congress finds that the growth in size, scope, and numbers of employee benefit plans ... has been rapid and substantial"). From 1940 to 1974 the private pension system experienced an extraordinary rate of growth: from 4.1 to 35.0 million employees covered and from 2.4 to 150.0 billion dollars in plan assets. The Employee Retirement Income Security Act of 1974: Policies and Problems, 26 SYRACUSE L. REV. 539, 542 (1975). This expansion placed the private pension system in a position to influence the level of savings, the operation of capital markets, and the financial security of millions of consumers. H.R. REP. No. 533, 93d Cong., 1st Sess. 2, reprinted in 1974 U.S. CODE CONG. & AD. NEWS 4639, 4640. Congress enacted ERISA to assure equitable and fair administration of all pension plans. Id. at 3, reprinted in 1974 U.S. CODE CONG. & AD. NEWS at 4641. The enactment of ERISA followed years of effort at the federal level to reg- ulate employee benefit plans. Id., reprinted in 1974 U.S. CODE CONG. & AD. NEWS at 4641. Various aspects of employee pension plans already had been affected to some degree by most of the major labor legislation of the twentieth century, including the National Labor Relations Act (1935), the Labor Management Rela- tions Act (1947), and the Labor Management Reporting and Disclosure Act (1959). Id., reprinted in 1974 U.S. CODE CONG. & AD. NEWS at 4641. However, not until the passage of the Welfare and Pension Plans Disclosure Act (WPPDA) in 1958 was legislation specifically enacted to regulate pension and welfare funds. Id., reprinted in 1974 U.S. CODE CONG. & AD. NEWS at 4641 (citing 29 U.S.C. § 301-09 (repealed 1974)). Prior to the WPPDA, employee pension and welfare benefit plans generally had been regulated at the state level. Lanam, Public Regulation of Self-Insured and Uninsured Employee Benefit Plans-Who Is to Be Protected? A State Regulator's Perspec- tive, 19 FORUM 309, 310 (1983). The WPPDA imposed disclosure and report- ing requirements upon plan administrators but reserved to the states the detailed regulations relating to the plans. Id. at 311. It was expected that the information disseminated by plan administrators would enable participants to police their plans. H.R. REP. No. 533, 93d Cong., 1st Sess. 4, reprinted in 1974 U.S. CODE CONG. & AD. NEWS 4639, 4642. However, it became evident that the WPPDA was inadequate to protect workers' rights and benefits because the (1192) Published by Villanova University Charles Widger School of Law Digital Repository, 1986 1 Villanova Law Review, Vol. 31, Iss. 3 [1986], Art. 13 1986] THIRD CIRCUIT REVIEW 1193 benefit plan participants would not be deprived of their anticipated ben- efits. 3 Toward that end, section 502 of ERISA grants participants, bene- 4 ficiaries and fiduciaries the right to bring civil actions in federal court. The circuits presently disagree on whether parties not expressly granted this right, such as benefit plans, may nevertheless bring an ac- tion under section 502 of ERISA. 5 Addressing this jurisdictional issue WPPDA contained only limited disclosure requirements and completely lacked any substantive fiduciary standards. Id., reprinted in 1974 U.S. CODE CONG. & AD. NEWS at 4642. ERISA was enacted in response to the perceived failure of the WPPDA to regulate the private pension system. Lanam, supra, at 312. 3. ERISA § 2(a), 29 U.S.C. § 1001(a) 1982. ERISA's declaration of policy states: that despite the enormous growth in [employee benefit] plans many employees with long years of employment are losing anticipated retire- ment benefits owing to the lack of vesting provisions in such plans; that owing to the inadequacy of current minimum standards, the soundness and stability of plans with respect to adequate funds to pay promised benefits may be endangered; that owing to the termination of plans before requisite funds have been accumulated, employees and their beneficiaries have been deprived of anticipated benefits; and that it is therefore desirable in the interests of employees and their beneficiaries, ...that minimum standards be provided assuring the equitable charac- ter of such plans and their financial soundness. Id.; see also 120 CONG. REC. 3977 (1974), reprinted in 2 SUBCOMM. ON LABOR OF THE SENATE COMM. ON LABOR AND PUBLIC WELFARE, 94th Cong., 2d Sess., Legis- lative History of the Employee Retirement Income Security Act of 1974, at 3293 (1976) (primary purpose of bill is protection of individual pension rights). 4. ERISA § 502, 29 U.S.C. § 1132 (1982). Section 502(a) of ERISA pro- vides in pertinent part: (a) A civil action may be brought- (1) by a participant or beneficiary- (B) to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan; (2) by the Secretary, or by a participant, beneficiary or fiduciary for appropriate relief under section 1109 of this title; (3) by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this sub- chapter or the terms of the plan; Id. Section 502(e)(1) confers federal jurisdiction over the civil actions author- ized in § 502(a) by providing: Except for actions under section (a)(1)(B) of this section, the district courts of the United States shall have exclusive jurisdiction of civil ac- tions under this subchapter brought by the Secretary or by a partici- pant, beneficiary, or fiduciary. State courts of competent jurisdiction and district courts of the United States shall have concurrent jurisdic- tion of actions under subsection (a)(1)(B) of this section. ERISA § 502(e)(1), 29 U.S.C. § 1132(e)(1) (1982). 5. Compare Fentron Indus. v. National Shopmen Pension Fund, 674 F.2d 1300 (9th Cir. 1982) (employer has standing to sue under ERISA notwithstand- ing the omission of "employers" from § 502 of ERISA) and International Ass'n https://digitalcommons.law.villanova.edu/vlr/vol31/iss3/13 2 Dillahey: ERISA - Escape Clauses in Employee Benefit Plans Are Unenforceabl 1194 VILLANOVA LAW REVIEW [Vol. 31: p. 1192 in Northeast Department ILGWU Health and Welfare Fund v. Teamsters Local Union No. 229 Welfare Fund,6 the United States Court of Appeals for the Third Circuit decided that, lacking a specific grant, federal jurisdiction over an action brought by a benefit plan cannot be predicated on section 502 of ERISA. 7 The court, however, found general federal question ju- risdiction 8 over the action and proceeded to address the merits of the case, which presented an issue of first impression under the federal com- mon law of benefit plans covered by ERISA. 9 In deciding which of two employee benefit plans was obligated to pay the medical bills of a wo- man covered by both plans, l0 the Third Circuit was required to rule on the enforceability of "other insurance" provisions that purported to al- locate coverage between the overlapping plans. I The court concluded of Bridge, Structural, and Ornamental Iron Workers Local No. Ill v. Douglas, 646 F.2d 1211 (7th Cir.) (union has standing to sue under § 502(a)(1)(B) even though unions are not enumerated among persons or entities that may bring suit), cert. denied, 454 U.S. 866 (1981) with New Jersey State AFL-CIO v. New Jersey, 747 F.2d 891 (3d Cir. 1984) (labor unions may not sue under § 502(a)(1)(B) of ERISA because they are not one of parties authorized to sue under that section) and Tuvia Convalescent Center v.