Saxton v. Central Pennsylania Teamsters Pension Fund

Full title: DRAKE SAXTON, JIMMY LITTLE, and THOMAS C. DUDLEY, individually and on…

Court: United States District Court, E.D. Pennsylvania

Date published: Oct 28, 2003

Civil Action No. 02-CV-986, CLASS ACTION (E.D. Pa. Oct. 28, 2003)

Opinion

Civil Action No. 02-CV-986, CLASS ACTION

October 28, 2003

Ann Curry Thompson, KELMAN, LORIA, WILL, HARVEY THOMPSON, Detroit, MI, for Plaintiffs and the Class

Alan M. Sandals, Scott M. Lempert, Jonathan S. Levy, SANDALS ASSOCIATES, P.C., Philadelphia, PA, for Plaintiffs and the Class

Joseph J. Costello, Paul C. Evans, MORGAN, LEWIS BOCKIUS, LLP, Philadelphia, PA, for Defendants

PLAINTIFFS' MEMORANDUM IN OPPOSITION TO DEFENDANTS' MOTION TO DISMISS AMENDED COMPLAINT

FRANKLIN VAN ANTWERPEN, District Judge

INTRODUCTION

[A] local union's duties to bargaining-unit workers is a general duty to act in the group's interests regarding the overall terms and conditions of employment. The [pension plan] trustees' duty, in contrast, is to provide specific benefits to those who are entitled to them in accordance with the terms of a plan. That the general nature of a union's duty may result in less than full protection to individual entitlements has been well recognized in our cases, and we have accordingly refrained from making enforcement of such entitlements rest primarily on union action.

Central States, Southeast and Southwest Areas Pension Fund v. Central Transport, Inc., 472 U.S. 559, 576-77 (1985)

A primary union objective is "to maximize overall compensation of its members." Thus, it may sacrifice particular elements of the compensation package "if an alternative expenditure of resources would result in increased benefits for workers in the bargaining unit as a whole."

Schneider Moving Storage Co. v. Robbins, 466 U.S. 364, 376 n. 22 (1984)

The language and legislative history of [LMRA] § 302(c)(5) and ERISA therefore demonstrate that an employee benefit fund trustee is a fiduciary whose duty to the trust beneficiaries must overcome any loyalty to the interest of the party that appointed him.

NLRB v. Amax Coal Co., 453 U.S. 322, 336 (1981)

Plaintiffs Drake Saxton, et al, who are long-service employees of the trucking industry in central and eastern Pennsylvania, have filed this case individually, and on behalf of a proposed class of similarly situated employees, to obtain judicial review and redress for a number of unusual and improper transactions involving their pension plans. Plaintiffs depend on these plans as the principal sources of their retirement security. However, as alleged in the Amended Complaint which they now have filed with the aid of counsel, defendants' transactions involving their pension plans raise a number of serious questions under ERISA's strict fiduciary, prohibited transaction, benefits protection, and other rules.

The Amended Complaint sets forth, in 35 detailed paragraphs, the factual background for plaintiffs' claims. On this motion to dismiss, these factual allegations, and the reasonable inferences to be drawn from them, must be taken as true. In brief, this case concerns three multiemployer pension plans, which provide benefits to employees who are covered by collective bargaining. These plans are overseen by trustees, equally divided between union and management trustees.

As alleged, the first and oldest plan is the Defined Benefit Plan ("DB Plan"), which provides benefits based on a fixed formula taking into account age, pay history and years of service. Benefits under this plan stopped accruing in 1987, when the Retirement Income Plan ("RIP '87") was established. Thus, the benefits under the DB Plan are provided in consideration for services performed by employees before 1988. The complaint alleges, and defendants have publicly admitted, that the DB Plan is seriously underfunded. Plaintiffs claim that this serious underfunding is due to several violations of ERISA by the defendant Fund trustees and Fund Administrator: (a) their failure to prudently account for and ensure adequate funding of the plan; (b) their violation of plan terms and general ERISA prudence rules when they repeatedly authorized the payment of a "thirteenth check" to retired DB Plan participants during the years 1987 through 2000; and (c) their failure to prudently oversee the investments of plan assets by outside investment managers, such that, for example, during a period in the late 1990's when virtually all pension plans were securing double-digit returns on their equity investments, the plan achieved, year after year, dismal returns. As of the last reported measuring date, January 1, 2000, the DB Plan was underfunded by approximately $330 million, an amount equal to 35% of its then-reported benefits liabilities.

Given the serious underfunding in the DB Plan (resulting from defendants' prior violations), one would have expected defendants to face this problem head on and remedy it by, inter alia, collecting more funding from the employers who are responsible for the long-term solvency of the DB Plan, pursuing withdrawal liability actions where appropriate, and taking steps to improve the investment performance of the plan. However, defendants did not do this, but instead began a series of maneuvers to shift the limited pool of incoming employer contributions among the plans. Although plaintiffs and class members were entitled under collective bargaining and the subsidiary agreements with participating employers to current, ongoing contributions to their accounts in the newer, defined contribution RIP '87 Plan in consideration of their work, defendants instead acted to divert these current contributions to the seriously underfunded DB Plan. As a result, plaintiffs and class members who had accrued and vested benefits in the DB Plan are being forced to pay twice for the benefits they earned before 1988. Other plaintiffs and class members, who had never been participants in the DB Plan, are paying for the benefits in that plan despite the fact that they have no connection to it, while the benefits accruals under the RIP Plan to which they were entitled are being diminished and cut back. In addition, defendants have engaged in a series of maneuvers with respect to plan amendments which are inconsistent with and violate the amendment rules for the plans. As a result, there has been a baffling series of rapid-fire, unauthorized changes in these plans, with unsettled consequences for both plaintiffs' benefits and plan assets in general.

In the face of these threats to their retirement security, plaintiffs request the oversight and aid of this Court. It is important to remember that this case arises from multiemployer plans. As noted in the Supreme Court case excerpts appearing on page one above, the forces to which multiemployer plans are vulnerable make it especially important that ERISA's strict fiduciary and prohibited transaction rules be vigorously enforced in this context: "To deter the trustee from all temptation and to prevent any possible injury to the beneficiary, the rule against a trustee dividing his loyalties must be enforced with 'uncompromising rigidity.'" NLRB v. Amax Coal Co., 453 U.S. 322, 329-30 (1981), quoting Meinhard. v. Salmon, 249 N.Y. 458, 464 (N.Y. 1928). So that these strong statutory provisions will not be frustrated, the Court should reject defendants' motion seeking to avoid any judicial review whatsoever of their actions.

I. FACTUAL BACKGROUND A. The Parties and the Procedural History

Plaintiffs are participants in the Central Pennsylvania Teamsters Pension Fund ("Fund"), a multiemployer pension fund governed by ERISA, 29 U.S.C. § 1001 et seq. (Am. Compl. ¶ 10, 11, 12, 13).¹ Defendant Fund is administrated by three union Trustees and three employer Trustees, as well as a Fund Administrator appointed by the Trustees, all of whom are fiduciaries whose conduct is governed by the strict fiduciary duty and prohibited transaction rules of ERISA Sections 404(a) and 406, 29 U.S.C. § 1104(a), 1106. The Fund is comprised of three plans, each of which is a separate and distinct "plan" for ERISA purposes: the Defined Benefit Plan ("DB Plan"); the Retirement Income Plan 1987 ("RIP '87 Plan"); and, the Retirement Income Plan 2000 ("RIP 2000 Plan"). (Am. Compl. ¶ 10). Each plan is governed by its own plan document; each has its own financial valuations and statements; each has its own Summary Plan Description (SPD); and, each files its own Form 5500 annual report with the Department of Labor. The RIP '87 Plan and the RIP 2000 Plan are defined contribution or individual account plans, as defined in ERISA Section 3(34), 29 U.S.C. § 1002(34).

1 Unless otherwise indicated, all references preceded by " ¶ " are to paragraphs in Plaintiffs' First Amended Complaint.

Plaintiffs filed this class action lawsuit in pro per on February 26, 2002. At the time of this filing, plaintiffs Saxton and Dudley were participants in both the DB Plan and the RIP 2000 Plan. Plaintiff Little, however, at that time was a participant only in the RIP '87 Plan. See ¶¶ 4, 5, 6. At the time of the initial filing of their in pro per complaint, plaintiffs were challenging an amendment to the RIP '87 Plan, adopted by the trustees to ameliorate the underfunding in the DB Plan. This amendment, effective March 2002, directed a certain percentage of the employer contributions then being made on behalf of each participant to the RIP '87 Plan from that plan (depending upon the participant's age and years of service in the RIP '87 Plan) into the old DB Plan. After plaintiffs filed their complaint, however, defendant Trustees adopted purported additional amendments that plaintiffs also wished to challenge. They obtained counsel who filed an Amended Complaint on their behalf on August 26, 2003.²

2 Contrary to the implication of defendants' statements at p. 1, n. 1 of their Memorandum, defendants did not produce any documents relating to these subsequent amendments, except as attached to their Motion to Dismiss. Moreover, as they admit, they also have not produced documents prior to approximately 1997 relating to plan amendments and other information that is highly relevant to the allegations in plaintiffs' First Amended Complaint.

The Amended Complaint added the Trustees and Fund Administrator as individually named defendants and alleges in seven counts several distinct statutory violations and other breaches of ERISA's requirements. Count I, ¶¶ 58-60, requests declaratory and injunctive relief clarifying and enforcing plaintiffs' rights to future benefits under the DB Plan and the RIP '87 Plan as these rights are affected by the rulings on the remaining counts of the Amended Complaint. Count II, ¶¶ 62-66, alleges that defendant Trustees and Fund Administrator breached their fiduciary duties in the nine enumerated respects set forth in ¶ 64 (a)-(i). Count III, ¶¶ 69-71, alleges that plan amendments adopted by the defendant Trustees in 2002-2003, as more fully described below, violated the "anti-cut back" rule of ERISA Section 204(g)(1), 29 U.S.C. § 1054(g)(1), because they diminished plaintiffs' accrued benefits attributable to past service. Count IV, ¶¶ 73-76, alleges that these amendments also violated ERISA Section 203(a), 29 U.S.C. § 1053(a), as unlawful forfeitures of plaintiffs' accrued benefits. Count V alleges in ¶¶ 78-81 that the Trustees caused illegal transfers of plan assets in violation of ERISA Section 4231(a), 29 U.S.C. § 1411(a), without meeting the requirements set forth in (b)(1), (2) and (4), which transfers constituted prohibited transactions under ERISA Section 406, 29 U.S.C. § 1106. Count VI, ¶ 83, alleges that the collective bargaining agreements (and implementing retirement plan agreements) with employers, pursuant to which the obligations of the employers to submit contributions arises are "plan documents" and that, pursuant to those documents, plaintiffs' have contractual rights to continuing employer contributions into the RIP '87 on their behalf. See also ¶¶ 54-56. Count VII, ¶¶ 85-88, alleges that defendant Trustees and defendant Fund Administrator are personally liable for committing prohibited transactions in connection with the violations alleged in the Amended Complaint.

B. The Relevant History of the Plans from 1986-2002

The Fund and its pension plans have been subject to frequent amendment. Insofar as it is germane to this case, the relevant history of the plans begins in 1986. For ease of reference, a timeline relating to this history, as alleged, is attached as Exhibit 1.³ The 1986 amendments to the Fund's documents phased out the DB Plan, over a three-year period, for purposes of future accumulation of service credit and future benefit accruals, and established a new "Retirement Income Plan".⁴ See ¶¶ 26, 27. As the collective bargaining agreements (CBAs) requiring contributions into the DB Plan expired during the phase-out period (from approximately 1986-89), 95% of future employer contribution were directed into the RIP '87 Plan, and 5% went into the old DB Plan. In 1989, the trustees again amended the DB Plan, effective January 1, 1990, to direct 100% of all employer contributions earmarked for the DB Plan into the RIP '87 Plan. This amendment was premised on the Trustees' incorrect assumption that the DB Plan was "fully funded" and needed no further employer contributions to meet its existing benefit obligations to participants and beneficiaries.

3 This timeline is derived in major part from a mailing sent by the Trustees to the participants in October 2001, advising them for the first time of the funding problems in the DB Plan. By attaching and referring to this and other documents which are not referenced in the Amended Complaint, plaintiffs do not mean to convert the motion to dismiss into a motion for summary judgment. Rather, plaintiffs bring these documents to the attention of the Court in support of their arguments that there are facts under which plaintiffs can prove their claims.

4 This plan later became known as the "RIP '87 Plan" after the RIP 2000 Plan was carved out and established as a separate plan. Both the RIP '87 Plan and the RIP 2000 Plan are "defined contribution" or money purchase plans. Am. Compl. ¶¶ 24, 25, 34. For purposes of plaintiffs' Memorandum in Opposition to Motion to Dismiss, references to "RIP '87 Plan" encompass both the original RIP Plan and the RIP '87 Plan after the amendments carving out the RIP 2000 Plan.

In 1995, the Trustees were considering a proposal to allocate a 45 cents per hour increase in newly negotiated fringe benefit contributions entirely to the DB Plan, rather than to the RIP '87 Plan, as had been done since the late 1980's. See ¶¶ 25-30. The union-side Trustees supported the proposal, but the employer-side Trustees did not. To break the deadlock, the Trustees entered into binding arbitration under the terms of the Trust Agreement. The arbitrator noted initially that the two plans had "overlapping, but by no means identical, participation." See Decision in the Matter of Union Trustees of the Central PA Fund and the Employer Trustees of the Central PA Fund, entered November 7, 1996, at p. 1 (attached hereto as Exhibit 2). The union and the employer Trustees each sought the advice of their respective counsel regarding the Trustees' authority to allocate funds between the two plans by their own action. Their counsel issued a Joint Opinion Letter, advising the Trustees that they could not make the reallocation because first, the DB Plan and the RIP Plans were "separate 'plans' for purposes of ERISA and the Internal Revenue Code"; and, second, that the reallocation by the Trustees would be a fiduciary action by the Trustees, which would not be the case if done by the "Settlors of the Fund, who were identified as the Transportation Employers Association and Teamsters Local 429"; third, that based on the decision of the Third Circuit in Cutaiar v. Marshall, 590 F.2d 523 (3d Cir. 1979), the reallocation by the trustees that "advantaged the participants of one plan to the disadvantage of the participants of the other" would be a prohibited transaction. Decision at 4 (Exhibit 2). The union Trustees took the position, that although the Trustees could not make the reallocation, the arbitrator had to power to do so because he was sufficiently independent. The employer Trustees disagreed. The arbitrator ruled that he did not have the power to make a decision that the Trustees could not lawfully make themselves. Decision at 11 (Exhibit 2).

Contrary to the determination that the Trustees had made in 1990, that the DB plan was fully-funded and needed no further employer contributions, it was apparent by 1999 (if not earlier) that the DB Plan was in jeopardy of serious underfunding. See ¶ 31. The 1999 (amended) IRS Form 5500 report for the DB Plan shows that the plan's assets to liabilities ratio fell to 69.78% (i.e., the plan then was 30.22% underfunded), a short fall of over $292 million. See DB Plan Amended Form 5500 Report for Calendar Year 1999, Schedule B, lines Id(2)(a) and 2 (attached as Exhibit 3). By the end of the plan year 2000, the situation was even worse. The plan was underfunded by approximately $330 million, or 35% underfunded. See ¶ 44; DB Plan Form 5500 Report for Calendar Year 2000, Schedule B, lines ld(2)(a) and 2 (attached as Exhibit 4). The serious underfunding problem was first disclosed to participants in October 2001. See ¶ 43.

In 1999, the "Settlors" of the Fund, who were the Transport Employers Association ("TEA") and Teamsters Local Union No. 429, amended the Fund's Trust Agreement in two important respects. See 1999 Second Amended and Restated Central PA Teamsters Pension Trust Agreement (excerpts attached as Exhibit 5). First, they carved out the RIP 2000 Plan from the RIP '87 Plan, and established it as a separate plan for employers who had joined the Fund in the year 2000 and after and whose employees had never participated in the old DB Plan. Approximately 500 former RIP '87 Plan participants were transferred (along with their account balances) into the RIP 2000 Plan. 1999 Amended Trust Agreement at p. 9, Article II, Section 2.1 (Exhibit 5); see also ¶¶ 32, 33, 34. Second, as a palliative for the funding problems in the DB Plan, the 1999 amendments also provided that, beginning in the plan year 2000, all forfeitures in the RIP '87 Plan would be allocated to the DB Plan for five years. See 1999 Amended Trust Agreement at p. 9-10, Article II, Section 2.4 A-B (Exhibit 5). This diversion of forfeitures that would otherwise have been allocated to the individual accounts of the RIP '87 Plan participants was accomplished indirectly, in two steps rather than one, by reducing an employer's contribution obligation to the RIP '87 during the plan year by the amount derived from the forfeitures of its employees in the previous year, and directing the difference, if any, into the DB Plan rather than into the RIP '87 Plan. These amendments to the Trust Agreement were signed by both the TEA and Local 429 as settlors, as the 1999 Trust Agreement required. See 1999 Amended Trust Agreement, p. 42 (Exhibit 5).

In 2001, in another belated attempt to address the burgeoning underfunding in the DB Plan, the Trustees floated two proposed proposals and offered them to the membership for a straw vote.⁵ See ¶ 45. Option 1 proposed freezing the RIP '87 Plan, effective December 31, 2001, subject to future investment earnings or losses, and re-activating ("thawing") the then "frozen" DB Plan for receipt of future employer contributions with future benefits accruing at the rate of 1.75% of employer contributions. Proposed Option 2 diverted only a portion of the RIP '87 Plan employer contributions into the DB Plan according to the participant's age and years of service. (Exhibit 6).

5 As alleged in ¶ 45, the Trustees did not consider insisting that the employers adequately fund the DB Plan because of their conflict of interest and improper desire to promote other subjects of collective bargaining.

The Trustees selected Option 2, to become effective March 1, 2002. See ¶¶ 46-49. In a communication to the participants in January 2002, the Trustees explained their reasons for selecting Option 2 as follows: (1) continuing the RIP '87 Plan was in "accordance with the expectations of the participants"; (2) the "overall similarity of the benefit values" of the two options at retirement age when weighted against the "relative ease of administration" of Option 2; and (3) the results of the straw poll in which 60% of the 22% returning "ballots" preferred Option 2. (Exhibit 7). Employers were advised that they did not need to change the way they submitted future contributions to the Fund, because the Fund "will handle the re-direction through an administrative process" based on the adopted formula. (Exhibit 8). Unlike the protection given to participants who were employed by employers who had never contributed to the DB Plan from having the forfeitures of their employees redound to the benefit of the DB Plan participants (by removing them from the RIP '87 plan and thus shielding them from the effects of the 1999 amendments), no similar protection was accorded to the subgroup of RIP '87 Plan participants (composed of plaintiff Little and an unknown number of other RIP '87 Plan participants) who had similar differentiating characteristics but who were not exempted from the effects of either the 1999 amendment relating to forfeitures, or the March 2002 Amendment No. 4. On the contrary, a percentage of the employer contributions made for these employees were diverted to the DB Plan, a plan in which they had never participated and from which they would never receive a benefit, in derogation of the expectation and agreement that contributions on their behalf would be made to the defined contribution RIP Plan and used to earn income to increase their individual account balances, not to fund the defined benefit accruals earned 16 years ago by other participants in an entirely different plan. See ¶¶ 47, 48.

The adoption of Option 2 was one of two amendments to the 1999 Trust Agreement contained in Amendment No. 4. (Exhibit 9). In order to effectuate the amendment adopting Option 2, the Trustees also had to amend the amendment provisions of the Trust Agreement (Article XIAmendment, Section 11.1) in order to arrogate to themselves the power to promulgate and adopt plan amendments as "settlors" without the signatures of the TEA and Local 429 (the employer/union settlors), as Section 11.1., the provision purportedly being amended, expressly required. See ¶¶ 50, 51.

In October 2002, the Trustees agreed to pay a new and greatly enhanced DB Plan early retirement benefit (out of a plan that a few months earlier was considered to be seriously under-funded) of $3,100 per month to participants under the UPS and/or National Master Freight Agreement at age 57 with 25 total years of service and a specified number of years under one of those agreements. (Exhibit 10).

Several months after adopting Amendment No. 4, in December 2002, and at about the same time as they announced the new defined early retirement benefit under the DB Plan, the Trustees abruptly reversed themselves on their selection of Option 2 for RIP '87 Plan participants with their purported Amendment No. 6 to the 1999 Second Amended and Restated Trust Agreement. (Exhibit 11). This purported amendment froze the RIP '87 Plan for all future accruals of benefits after January 1, 2003 (other than those gains or losses from future investment performance) and service credits, and directed all employer contributions made on behalf of all RIP '87 Plan participants on and after January 1, 2003 into the DB Plan. See Exhibit 11; see also ¶ 52.

C. Plaintiffs' Exceptions to Defendants' Statements of Fact

Plaintiffs take specific issue with a number of defendants' factual assertions. First and foremost, defendants' description of how the "Fund" controls the manner in which employer contributions are required, received, and allocated is, at a minimum, misleading and creates a picture (in aid of defendants' legal arguments against the allegations of fiduciary violations, prohibited transactions and diminishment of accrued benefits) that ignores, and in some cases does violence to, the controlling documents when considered, as they must be, as an integrated whole. Defendants state, for example, that employer contributions are "pooled" to pay for the retirement benefits of the "employees of all contributing employers." (Def Mem. at 3). This statement is misleading at the very least. Contributions are not "pooled" in the "Fund" as defendants' statement would suggest, but rather contributions are pooled in each individual "plan" for purposes of paying benefits to the employees of the employers whose contributions are owed that particular "plan" for the benefit of those employees. As defendants concede, each of the three plans — the DB Plan, the RIP '87 Plan and the RIP 2000 Plan — is a separate plan for ERISA purposes, and this is borne out by the plan documents, including, but not limited to, the 1999 Second Amended and Restated Trust Agreement. See Exhibit 5 at 8-9 — Article 11, Section 2.1; see also Exhibit 12, the 1989 Amended and Restated Defined Benefit Plan; Exhibit 13, the 1999 Amended and Restated RIP '87 Plan; and Exhibit 14, the 1999 Amended and Restated RIP 2000 Plan.

Because these are separate and distinct ERISA plans, the defendant Trustees and Administrator do not have the unbridled latitude and license that they now claim to have, to "allocate" the incoming contributions however they please. On the contrary, the function of the Trustees and Administrator as fiduciaries of both the umbrella "Fund" and each plan with respect to employer contributions is to accept contributions, allocate them according to the controlling document for each plan, and to pay-out the accrued benefits according to each Plan's terms. The Supreme Court made clear that the economic give-and-take inherent in the balancing of competing interests for employer resources was for the agents of collective bargaining, not for fund trustees who are governed by a strict duty to act solely in the interest of participants:

The management-appointed and union-appointed trustees do not bargain with each other to set the terms of the employer-employee contract; they can neither require employer contributions not required by the original collectively bargained contract, nor compromise the claims of the union or the employer with regard to the latter's contributions. Rather, the Trustees operate under a detailed written agreement, 29 U.S.C. § 186(c)(5)(B), which is itself the product of bargaining between the representatives of the employees and those of the employer.

NLRB v. Amax Coal Co., 453 U.S. 322, 336 (1981).

In this case, the Fund's 1999 Trust Agreement directs in mandatory terms with respect to the RIP '87 Plan, for example, that "all Contributions paid to the Fund by RIP 1987 Employers shall be paid to RIP 1987 . . ." (emphasis added), with the exception of the contributions reduced by forfeitures pursuant to the 1999 amendment. See Article II, Section 2.3. at p. 9 (Exhibit 5). This mandate is echoed in the Amended and Restated Retirement Income Plan 1987 plan document. See Exhibit 13 at p. 21, Article VI, Section 6.2 — "Allocations of Contributions to Participant Accounts: "As soon as administratively practicable after receipt, the Plan Administrator shall credit Contributions to each Account." (emphasis added).⁶

6 The Trust Agreement contains a similar mandatory directive regarding contributions to the RIP 2000 Plan. See Exhibit 5 at p. 9, Article II, Section 2.2.

Nor, as defendants argue, are the CBAs irrelevant with respect to directing contributions into particular plans. On the contrary, the CBAs, which include "participation agreements signed by Employers", 1999 Trust Agreement at 4 (Exhibit 5),⁷ governing contributing employers are specifically identified as "plan documents" in the SPDs. See, e.g., SPD for the RIP '87 — Benefit Level J (Exhibit 15). Although the CBAs cannot contain provisions that are in conflict with plan documents, employer contributions still must be allocated according to the appropriate plan — RIP '87 Plan employers contribute to the RIP '87 Plan, and so forth. Defendants attach copies of the National Master Freight Agreement and the UPS agreements to their Memorandum to support their argument that the CBAs are silent with respect to the direction of the employer contributions required thereunder. Whereas these agreements, standing alone, may not specifically indicate the particular plan in which each contributing employer participates, there are other governing documents, not presented by defendants, which control this question and which contain mandatory terms on the allocation of employer contributions to specific plans. Each participating employer or employer association (as in the case of master agreements encompassing more than one employer), for example, is also governed by the "participation agreement" that the employer or employer association signs with the Fund.⁸ See Exhibit 5 at p. 1, ¶ 3;p. 4 ¶ 1.1E and p. 5 ¶ 1.1J.4. These participation agreements in turn are incorporated into the definition of "collective bargaining agreement" by the specific terms of the individual plan. For example, the RIP '87 Plan and the RIP 2000 Plan define "Collective Bargaining Agreement" as including these employer participation agreements:

7 Confirmation of the fact that the contribution obligations of participating employers in the Fund are defined in both the master collective bargaining agreements and in individual "retirement plan agreements" which are executed by individual employers and which set contribution levels for specific plans, is found in this Court's decision in Central Pa. Teamsters Pension Fund v. W L Sales, Inc., 778 F. Supp. 820, 824-26 (E.D. Pa. 1991) (Van Antwerpen, J.). There the Court considered the effect of an employer's execution of the "CFA — Retirement Income Plan" document setting contributions to the RIP Plan.

8 Defendants present none of these individual agreements in connection with their motion; and none has yet been produced to plaintiffs. Plaintiffs can only obtain the relevant participation agreements through further discovery.

An agreement between an Employer and a Union that governs the terms and conditions of employment for Employees, and requires Contributions to this Plan on behalf of such Employees. This term shall include those other written agreements, including participation agreements and joinder agreements, between the plan or Trust and an Employer governing Contributions to this Plan on behalf of Employees.

Exhibit 13 at p. 2 — Article II, Section 2.1g.; Exhibit 14 at p. 2 — Article II, Section 2.1g (emphasis added).

In addition, the RIP '87 has a separate agreement for each of its several "benefit levels" which specify the monetary rate at which the participating employers contribute to that plan. For example, the employers encompassed in the Master Agreements contribute to the RIP '87 Plan at defined "Benefit Level — J", the maximum level, and the document governing those contributions is the Central PA Teamsters Pension Fund Consolidated Fund Agreement — Benefit Level-J Retirement Income Plan. See Exhibit 16. Other employers contribute at that level or at a lesser rate to Benefit Levels A-K, and each defined benefit contribution level has a "Consolidated Fund Agreement" or "Declaration of Trust and Defined Benefit Level X-X" governing contributions to the RIP '87 at that level.

Moreover, in addition to the Master Agreements, there are an unknown number of so-called "white paper" agreements covering other, usually individual and smaller, employers and their employees who are also members of the class that plaintiffs seek to represent. Some of these agreements in plaintiffs' possession are more specific with respect to the direction of the contributions. For example, such agreements provide:

23. PENSION FUND .

A. Employer Contributions.

1. The Employer agrees to make the following monthly contributions to the . . . Fund for each Eligible Employee covered by the Agreement, in accordance with the Terms of the Declaration of Trust and Defined Benefit Level [X] and the Retirement Income Plan executed by the Employer. . . .

See Exhibit 17 — Agreement between Associated Wholesalers and Local Union 429; see also Exhibit 18 — Agreement between Textile Chemical and Local Union 429; Exhibit 19 — Agreement between Schneider Valley Farms and Local 764.

Finally, defendants' assertion that assets were never "transferred" from one plan to another is incorrect, even based on the limited record available in advance of discovery. For example, the 1999 Form 5500 for the RIP 2000 Plan shows that it began life with 458 participants and assets of $8,549,631, with no employer contribution to the plan in that year. See 1999 Form 5500 Report, Part 11, line 7a; Schedule H, at lines 1b(1) and (k), 2(a) 2 (l)(1) (Exhibit 20). The 1999 Financial Report for the RIP 2000 (Exhibit 21) indicates that this entire corpus was pulled out of the RIP '87 through a "Trustee to Trustee" transfer:

Note 1. Description of Plan

Effective December 30, 1999 the Fund spun off certain assets and liabilities of RIP to create this plan. RIP was renamed Central Pennsylvania Teamsters Retirement Income Plan 1987 (RIP 1987). (Exhibit 21 at p. 5)

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Participant Accounts: Each participant's account is credited with the employer's contribution. On a quarterly basis, each account is allocated a share of the investment income and the Plan's expenses. . . . ( Id. at p. 6).

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Note 7. Trustee to Trustee Transfer

Effective December 30, 1999, the Fund spun off $8,391,447 from RIP 1987 to create this additional defined contribution plan, RIP 2000. As of December 31, 1999, RIP 1987 owed RIP 2000 $93,923 to complete the transfer. ( Id. at p. 10)

In addition, the Trustees have yet to account for the contributions owed to RIP '87 Plan participants from March 1, 2002 through December 31, 2002, that were diverted from the RIP '87 Plan individual accounts according to the percentages required by the formula adopted by the March 2002 amendments. II. THE STANDARD GOVERNING DEFENDANTS' MOTION TO DISMISS

The standard governing defendants' motion to dismiss is a settled and familiar one. It has been well summarized by the Court as follows:

Under Rule 12(b)(6), a defendant bears the burden of demonstrating that a plaintiff has not stated a claim upon which relief can be granted. See, e.g., Cohen v. Kurtzman, 45 F. Supp.2d 423, 429 (D.N.J.1999) ( citing Kehr Packages, Inc. v. Fidelcor, Inc., 926 F.2d 1406, 1409 (3d Cir. 1991), cert. denied, 501 U.S. 1222 (1991)).

When considering such a motion to dismiss, we must "accept as true the facts alleged in the complaint and all reasonable inferences that can be drawn from them. Dismissal under Rule 12(b)(6) . . . is limited to those instances where it is certain that no relief could be granted under any set of facts that could be proved." Powell v. Ridge, No. CIV. A. 98-1223, 1998 WL 804727, at *3 (E.D.Pa. Nov. 19, 1998) ( quoting Markowitz v. Northeast Land Co., 906 F.2d 100, 103 (3d Cir. 1990) (citation omitted)). . . . [Granting a Rule 12(b)6) motion is only appropriate if] "no relief could be granted under any set of facts that could be proved. [Powell, 1998 WL 804727, at *3]."

Tiemann v. U.S. Healthcare Inc., 93 F. Supp.2d 585, 588-89 (E.D. Pa. 2000) (Van Antwerpen, J.).

Despite the clarity of this rule, defendants repeatedly violate it. They ignore plaintiffs' allegations, construe other allegations in the manner that aids their arguments, and ask the Court to assume facts and draw all inferences in their favor. In addition, defendants approach the motion as though it were a vehicle for a ruling on the merits, before any discovery into the factual issues embedded in the claims. Since it cannot be said that there is no set of facts under which plaintiffs could be entitled to relief on each of their claims, the motion should be denied in all respects. III. PLAINTIFFS' PURELY STATUTORY CLAIMS ARE NOT SUBJECT TO ADMINISTRATIVE EXHAUSTION WITH THE PLAN ADMINISTRATOR .

At Section III.B of their Memorandum, defendants argue that plaintiffs' claim in Count I of the Amended Complaint is a "claim for determination of benefits" that must first be pursued through administrative claims procedures at the level of the Plan. This argument is faulty. Even before reaching the question of what review procedures exist at the Plan level, and whether exhaustion would be excused on grounds of "futility", it is apparent that Count I does not in fact allege a present claim for benefits, but instead seeks a declaration of plaintiffs' rights to benefits once plaintiffs' other claims are decided.

Count I first incorporates all of the preceding allegations of the Amended Complaint (Am. Compl. ¶ 57), and correctly states that under ERISA sections 502(a)(1)(B) and (a)(3), 29 U.S.C. § 1132(a)(1)(B) and (a)(3), a participant "may seek appropriate declaratory, injunctive and other equitable relief to enforce their rights under a plan, including relief clarifying their rights to future benefits under a plan." (Am. Compl. ¶ 58). Count I goes on to make clear that any such relief is intended to be derivative of, and follow upon, the decisions by the Court on plaintiffs' remaining claims in Counts II through VII, which are purely statutory claims:

59. Plaintiffs and other similarly situated Class members have had their valuable rights and accrued benefits under the plan documents, as further specified below, unjustifiably diminished. They seek relief to clarify and enforce their rights to future benefits under the DB Plan and the RIP 87 Plan.

(Am. Compl. ¶ 59) (emphasis added). In case there is any doubt in this regard, plaintiffs hereby confirm that they do not intend by Count One to make a claim for benefits, or to seek a declaration of their rights to benefits, under the current terms of the plans without regard to the consequences of their other claims for revision or cancellation of the plans' current terms.

Plaintiffs anticipated this very argument by defendants and made this intention clear in the paragraph which immediately followed:

60. This claim for declaratory relief is not subject to exhaustion under the plans' benefit claim procedures because any such claim would be decided under the current provisions of the plans, and those very changes in plan terms are in issue in this case. Accordingly, it would be futile to resort to the plans' benefit claim procedures

(Am. Compl. ¶ 59) (emphasis added). Hence, the legality under the ERISA statute of the plan terms are first placed in issue under Counts II through VII. It is only after these statutory claims are decided that the parties and the Court can determine the consequences of these rulings for the actual benefits entitlements of plaintiffs and the members of the class. At that point in the proceedings, Count I will be ripe for decision.

Inasmuch as this claim for declaratory relief is dependent upon the resolution of the remaining statutory claims, there is no claim for benefits that should or need be processed under the current terms of the plans. It may be that Count I is duplicative of the Prayer for Relief, including paragraph D, which seeks the same declaration by the Court. But, in any event, Count I by its very allegations does not present a claim for benefits under the current terms of the plans, and the claim simply is not subject to dismissal for lack of exhaustion of plan review procedures.⁹ IV. COUNT II ADEQUATELY PLEADS CONDUCT BY DEFENDANTS THAT IS SUBJECT TO AND ACTIONABLE UNDER ERISA'S STRICT FIDUCIARY DUTIES.

9 Defendants argue that, under two recent Third Circuit decisions, plaintiffs' Count I must be deemed a claim for benefits because plaintiffs "are seeking benefits under the terms of the RIP 1987 and DB Plans." (Def. Mem. at 12). For the reasons stated in the text, there is no claim for benefits under the terms of these plans as currently constituted. In addition, unlike the statutory claims in this case, the two decisions cited by defendants were claims for benefits under the current terms of a plan which were "masquerading" as statutory claims. In Harrow v. Prudential Ins. Co., 279 F.3d 244 (3d Cir. 2002), there simply was a dispute over whether the current terms of a medical plan, in which the plaintiffs and all proposed class members were actively participating, did or did not cover Viagra. This was a garden variety benefits dispute, and the plaintiff did not allege any facts that would make out an independent fiduciary breach claim. The same kind of situation was presented in D'Amico v. CBS, Inc., 297 F.3d 287 (3d Cir. 2002), where participants in a pension plan sought to trigger a specific "partial termination" provision currently a term of the plan which would have afforded them additional benefits. Although this claim had a statutory basis in the tax code, it was not independently actionable and relief could only be obtained from the plan itself. As D'Amico states, a fiduciary breach claim is subject to the exhaustion requirement only where it "is actually a claim based on denial of benefits under the terms of a plan." 297 F.3d at 291 (emphasis added). For the reasons stated, that is not the nature of plaintiffs' fiduciary breach and other statutory claims pled in Counts II through VII. Exhaustion therefore is not applicable even as a threshold matter.

In Section C of their Memorandum, defendants argue that each of the four distinct and independent claims for breach of ERISA's strict fiduciary duties must be dismissed, either because none of the conduct or transactions alleged was subject to these fiduciary duties, or because plaintiffs have not adequately pled the basis for their claim.

Count II alleges nine distinct and independent violations by defendants of their ERISA fiduciary duties to, inter alia, act solely in the interest of the participants and beneficiaries of each plan; act for the exclusive purpose of providing benefits to them under each plan; act with the same care, skill, prudence, and diligence that a reasonably prudent person who is familiar with such matters would use under the given circumstances; refrain from conducting the affairs of each plan for any reason other than for the exclusive benefit of the participants; and act in accordance with the documents and instruments governing each plan to the extent that such documents and instruments are consistent with the provisions of ERISA Titles I and IV. ERISA Section 404(a)(1)(A)-(D), 29 U.S.C. § 1104(a)(1)(A)-(D). (Am. Compl. ¶ 63).

Plaintiffs allege that, in violation of their strict fiduciary duties, defendant Trustees and defendant Fund Administrator:

(a) Continued to pay to DB Plan retirees a "thirteenth check" through 2000, despite evidence that the DB Plan was not within the necessary minimum funding requirements of the DB Plan for payment of these additional retirement benefit checks, thereby harming the financial condition of the DB Plan and causing the funding of plaintiffs' and the Class members' existing accrued benefits to be severely diminished;

(b) Conducted and managed the affairs of the DB Plan and RIP 87 Plan, as specified in this Complaint, in violation of the documents and instruments governing each plan;

(c) Knowingly concealed, enabled and/or failed to investigate the possibility of a legal cause of action or other remedies against current and former Fund Trustees and/or co-fiduciaries who approved and/or paid DB Plan retirees a thirteenth check despite evidence that the continued payments were imprudent given the financial condition of the DB Plan and were in violation of the terms of the DB Plan;

(d) Entered into, or enabled or allowed, a series of per se prohibited transactions using plan assets, as more fully specified in this Complaint, including paying the DB Plan retirees a "thirteenth check" in violation of the established minimum funding requirements for such payments and the terms of the Plan, and diverting contributions which had been allocated to and/or received by the RIP 87 Plan and hence were assets of that plan into the separate DB Plan;

(e) Encouraged or permitted Fund actuaries to use outdated and improper 1951 mortality tables to calculate the funding liability of the DB Plan, thereby distorting and concealing the true funding status of the Plan, depriving it of needed and legally required funding, and jeopardizing the security of the accrued pension benefits of plaintiffs and the members of the Class;

(f) Knowingly concealed, enabled, and/or failed to investigate the possibility of a legal cause of action or other remedies against current and former Fund Trustees and/or co-fiduciaries who encouraged or permitted the use of the outdated and improper mortality tables and did not secure required funding for the DB Plan;

(g) Failed to prudently and effectively monitor and oversee the performance of the investment advisors and managers who were responsible for the investment of plan assets, and instead continued to employ the services of the same investment advisors and managers despite their unusually poor results from 1998 to 2000, thereby causing a significant loss of assets to the plans, further jeopardizing the funding of the DB Plan and diminishing the values of the individual accounts of plaintiffs and the members of the Class in the RIP 87 Plan itself and as transferred into the reformulated DB Plan;

(h) Failed to discharge their duties in accordance with the documents and instruments governing the plans by purporting to amend the 1999 Trust Agreement on numerous occasions in 2002 without the authorizing signatures of Fund settlors, Local 429 and the TEA, as required by the 1999 Trust Agreement, and as a result severely reducing the accrued benefits of plaintiffs and the members of the Class and their accrual of future benefits under the terms of the pre-amendment RIP 87 Plan;

(i) Failed to discharge their duties in accordance with the documents and instruments governing the plans by again purporting to amend the 1999 Trust Agreement in February 2002 to arrogate to themselves broad powers to act as settlors in amending the Trust Agreement, again without the authorizing signatures of Fund settlors, Local 429 and the TEA, as required by the 1999 Trust Agreement; and

(j) In other ways to be determined in discovery and adduced at trial.

(Am. Compl. ¶ 64). Defendants apparently are arguing that they are wrapped in the immunizing cloak of plan "settlors" and that the Court should rule, on a motion to dismiss, that none of these transactions affecting the retirement security of thousands of working men and women should be subject to judicial scrutiny.

Defendants first argue that the claims relating to defendants' maneuvers with plan contributions are not viable because that conduct is immune from the fiduciary duty and prohibited transaction rules. For the reasons stated in sections A and B, defendants are mistaken in supposing their management of plan assets is not governed by ERISA. Defendants also argue that the fiduciary breach claims relating to investment conduct are not pled adequately. They are incorrect, as sections C and D demonstrate.

A. The Department Of Labor Field Assistance Bulletin Does Not Determine The Litigation Issues In This Case And Is Not Entitled To Deference .

In support of their effort to immunize their conduct from scrutiny under ERISA's strict fiduciary standards, defendants argue that the Court should follow a brief form of informal guidance issued by the Department of Labor in November 2002, apparently in response to a request by one or more of the defendants. There are several independent reasons why defendants' reliance on this document is misplaced.

First, as an informal pronouncement of an administrative agency, it is not entitled to any judicial deference. Field Assistance Bulletins were first issued by the Department of Labor on October 16, 2002 — less than three weeks before it released the Bulletin cited by defendants in this case. According to the Department's news release at the time the first Bulletin appeared, Bulletins are issued "to publicize technical guidance provided to its field enforcement staff and "to provide the regional office staff with prompt guidance." News Release No. 02-20, dated October 16, 2002, U.S. Department of Labor, Office of Public Affairs (attached hereto as Exhibit 22).

Under the law, informal guidance issued by an administrative agency is not entitled to judicial deference. In Christensen v. Harris County, 529 U.S. 576, 586-87 (2000), the Supreme Court rejected a party's request to defer to an opinion letter issued by the Department of Labor. The Court summarized the caselaw as follows: "Interpretations such as those in opinion letters — like interpretations contained in policy statements, agency manuals, and enforcement guidelines, all of which lack the force of law — do not warrant Chevron-style deference." Id. at 587. Subsequent Third Circuit precedent amplifies this conclusion. In Madison v. Resources for Human Development, Inc., 233 F.3d 175 (3d Cir. 2000), the court declined to follow an "interpretive guideline" on wage and hour laws which appeared in an interpretive regulation. Like the Bulletin here, the "purpose of this bulletin [is] to make available in one place" an interpretation of the statute by the Department. Id. at 185-86. The Third Circuit ruled that this "interpretive guideline" was not entitled to any judicial deference because it was "not an official regulation promulgated after notice-and-comment rule making" and thus "d[oes] not have the effect of law." Id. at 186. "To grant Chevron deference to informal agency interpretations would unduly validate the results of an informal process." See also Bd. of Trustees of Bricklayers and Allied Craftsmen Local 6 of New Jersey Welfare Fund v. Wettlin Associates, Inc., 237 F.3d 270, 274 (3d Cir. 2001) (reversing dismissal on pleadings based on DOL interpretive regulation on statutory definition of "fiduciary"; court rejected that interpretation).

The Third Circuit's ruling in Madison establishes a second reason why the "Field Assistance Bulletin" is not entitled to deference in this case. Under the rule of Christensen, informal agency pronouncements are "entitled to respect based only on their persuasiveness." Madison, 233 F.3d at 186. To assess the persuasiveness of such informal agency rulings, one must consider a number of factors:

The weight of such a judgment [i.e. informal agency pronouncement] in a particular case will depend upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control.

Madison, 233 F.3d at 186, quoting Skidmore v. Swift, 323 U.S. 134, 140 (1944). In this case, all of these indicia cut against giving effect to the Field Assistance Bulletin.¹⁰

10 Although they never acknowledge the Christensen line of cases and the Department's own pronouncements on the limited force of its informal opinions, defendants cite two decisions for the proposition that the Court should take guidance from the "opinion letter' V Field Assistance Bulletin. However, in each of defendants' cases the court actually noted the limited force of the opinions, referred to the criteria discussed in Skidmore, and independently came to its own conclusion. See Marcella v. Capital Dist. Physicians' Health Plan, Inc., 293 F.3d 42, 48 n. 1 (2d Cir. 2002) (DOL "position in accord with our interpretation of ERISA"); MD Physicians Assoc., Inc. v. State Bd. of Ins., 957 F.2d 178, 186 n. 9 (5th Cir. 1992) ("we ground our decision on the statutory language of ERISA and the intent of Congress").

First, the Bulletin is based on a limited record. The Bulletin apparently was issued as a result of a request by one or more of the defendants for an Advisory Opinion or other guidance from the Secretary of Labor. (Plaintiffs have sought production of the correspondence between defendants and the Department of Labor, but defendants so far have refused to produce these materials. See Letter, dated October 21, 2003, Paul Evans to Alan Sandals, attached hereto as Exhibit 23). Accordingly, the factual showing on which the Bulletin is based was determined by defendants unilaterally and/or was limited to selected documents and representations, there was no additional discovery or fact-finding by the Secretary, and there was no adversarial presentation of the pertinent legal issues. Indeed, the Department of Labor regulation authorizing the issuance of Advisory Opinions, another form of compliance guidance to which defendants analogize the Bulletin, see Def. Mem. at 17 n. 5, makes clear that such informal opinions are conditioned upon the factual showing presented by the requesting party, and can be relied upon only by the parties described in the request:

Effect of Advisory Opinion

An advisory opinion is an opinion of the department as to the application of one or more sections of the Act, regulations promulgated under the Act, interpretive bulletins, or exemptions. The opinion assumes that all material facts and representations set forth in the request are accurate, and applies only to the situation described therein. Only the parties described in the request for opinion may rely on the opinion, and they may rely on the opinion only to the extent that the request fully and accurately contains all the material facts and representations necessary to issuance of the opinion and the situation conforms to the situation described in the request for opinion.

ERISA Procedure 76-1, 41 Fed. Reg. 36281 (August 27, 1976) (emphasis added). Although ERISA Procedure 76-1 does not explicitly govern these Bulletins, there is no reason to believe that they are not subject to the same limitations as Advisory Opinions.

The Bulletin also does not demonstrate "thoroughness." Instead, it proceeds from a brief, conclusory statement of generalized facts. There is no acknowledgement, let alone any analysis or reasoning, which takes into account the several serious issues of ERISA compliance raised in the Amended Complaint, including the alleged invalidity of the very amendments defendants cite. Rather, the Bulletin is limited to discussion of an abstract principle, assessed in a vacuum. As explained below, to the extent that the Bulletin purports to follow the decision in Walling v. Brady, 125 F.3d 114 (3d Cir. 1997), the Bulletin actually stretches that case far beyond its expressly stated bounds. Walling only determined that, in the context of a multiemployer plan, the action of trustees in permissibly amending a plan to establish a new form of benefit using surplus assets was a "settlor" action that was not controlled by ERISA fiduciary duties. Because Walling did not give trustees of multiemployer plans license to ignore ERISA substantive protections under the guise of "plan amendments," or to play fast and loose with plan funding and employer contributions, the Bulletin cannot do so either. Indeed, discussion of any of these complicating legal issues is absent from the Bulletin. The Court obviously does not require the assistance of the Bulletin to interpret and apply Walling and other precedent, and there is no sound reason to give it any deference.

The Bulletin also is inconsistent with an earlier pronouncement on these issues by the Department, in Advisory Opinion 80-08A (February 1, 1980) (attached hereto as Exhibit 24). In that Advisory Opinion, the Department confirmed that serious questions of possible conflicts of interest and prohibited transactions were presented where trustees of related multiemployer plans purported to have discretion to allocate employer contributions among various plans. The party requesting the opinion letter noted that there could be two methods by which contributions could be allocated:

3. Allocation of Employer Contributions

You represent that it — is common for employers who contribute to multiple employer plans to make their contributions to several "related plans" by means of a single combined payment, [footnote 3 omitted] Payment is often made through a board of trustees, common to all of the plans, which allocates the contribution among the various plans. In some cases this allocation is made on the basis of a fixed formula established in the collective bargaining agreement. In other cases the common trustees have the discretion to vary the allocation formula on the basis of the current and anticipated needs of the various plans. In your view, allocation arrangements in general are in the interest of plans and their participants and beneficiaries because centralized collection and distribution is more efficient and reduces administrative expenses.

Advisory Opinion Letter 80-08A at 3-4 (Exhibit 24) (emphasis added). The Department first determined that no prohibited transaction issues would be presented where the governing plan document, the collective bargaining agreement, itself specified a fixed formula for allocating the contributions:

You request an interpretation that [the prohibited transaction rule of] section 406(b)(2) of the Act does not apply either to discretionary allocations or to allocations based on a fixed formula. That section provides that a fiduciary with respect to a plan shall not in his or her individual or any other capacity act in any transaction involving the plan on behalf of a party (or represent a party) whose interests are adverse to the interests of the plan or the interests of its participants or beneficiaries. In the alternative, you request an exemption from the restrictions of section 406(b)(2) for the allocation of employer contributions.

A. Where allocations are made on the basis of a fixed formula, you argue that the person performing the allocation should not be deemed a fiduciary solely by virtue of this function since he or she has no discretionary authority regarding the allocation. In addition, if the person performing the allocation is a fiduciary for another reason, you submit that there is no actual or potential conflict of interest because that person has no discretion with respect to the allocation. Finally, you argue that the allocation of contributions is not a transaction involving a plan because contributions do not become plan assets until after the allocation is made. In the Department's view, when trustees common to related plans allocate employer contributions among such plans on the basis of a fixed, nondiscretionary formula established in a collective bargaining agreement, which formula is binding upon the trustees, the trustees are not, solely by reason of such allocation, acting on behalf of or representing the plans to which the allocations are made, or from which the allocations are withheld, within the meaning of section 406(b)(2) of the Act.

Id. at 4 (emphasis added). But the Department opined that serious prohibited transaction issues were presented where the trustees effectively exercised discretion as to how the employer contributions would be allocated, "because the plans may have competing interests as to a fixed pool of money":

B. In those cases where trustees have discretion to allocate payments (i.e., to distribute contributions among various plans) you argue that, since employer contributions do not become plan assets until the allocation is made, the allocation itself is not a "transaction involving a plan" within the meaning of section 406(b)(2) of the Act. However, in the case where common trustees receive employer contributions for several related plans in a single payment, it appears to the Department that the discretionary allocation of those contributions among the plans by the common trustees is a transaction involving the plans. In addition, the allocation process could involve a section 406(b)(2) violation because the plans may have competing interests as to a fixed pool of money, [omitted footnote quoted in footnote below] ¹¹

Id. at 4 (emphasis added). The party requesting the letter also suggested issuance of a prohibited transaction class exemption for trustee allocations of employer contributions (assuming that the prohibited transaction rules applied), but the Department refused to issue an exemption:

C. In the alternative, you request a class exemption from the restrictions of section 406(b)(2) of the Act for the discretionary allocation of employer contributions under the circumstances described above. You argue that allocation arrangements in general are in the interest of plan participants because they reduce administrative costs. You also argue that discretionary allocation arrangements are protective of the rights of the plans and their participants and beneficiaries because such arrangements permit re-evaluation of funding needs on a frequent basis. You represent that collectively bargained plans typically provide fixed contributions and fixed benefits. As a result, it is important, in your view, for collective bargaining agreements to provide for flexibility in the funding of related plans during the period between contract negotiations in order to permit trustees of such plans to respond to situations in which the needs of participants for benefits under the related plans fluctuate, [footnote omitted]

Although discretionary allocation arrangements may, in some cases, permit an efficient utilization of the assets of related plans, it appears to the Department that where trustees of related plans are involved in the discretionary allocation of funds among such plans, a conflict of interest may arise for which no independent safeguard has been offered to prote the interests of plan participants . In addition, you have not demonstrated that discretionary allocations would generally be in the interests of all the affected plans and their participants and beneficiaries. Accordingly, on the basis of the information submitted, we have tentatively decided not to propose the requested class exemption [from the prohibited transaction rules].

Id. at 4-5 (emphasis added).

11 In a footnote appearing at the end of this paragraph, the Department noted that, "Nothing in this letter is intended to express an opinion with respect to a case in which a collective bargaining agreement gives common trustees of several related plans the power to make prospective changes in the formula under which contributions are allocated among those plans." In this case, no such issue is raised. The 1998-2003 National Master Freight Agreement (excerpted in Exhibit 9, p. 191, to Def. Mem.) states that the "Supplemental Negotiating Committees", not the Trustees of the Fund, are to allocate the employer contributions to the Fund. The 1997-2002 National Master United Parcel Service Agreement (excerpted in Exhibit 8, p. 181-82, to Def. Mem.) states that allocations between the DB Plan and the RIP Plan "shall be made by the Joint Supplemental Area Negotiating Committee in the manner determined by the Settlers [sic] of the Central Pennsylvania Teamsters Pension Fund, or, to the extent lawful, the Trustees of the Central Pennsylvania Teamsters Pension Fund." (emphasis added)

The Department's opinion that serious prohibited transaction questions are presented when multiemployer fund trustees purport to use discretion to allocate employer contributions among plans is consistent with longstanding Third Circuit law. In Cutaiar v. Marshall, 590 F.2d 523 (3d Cir. 1979), the court ruled that trustees of a multiemployer fund who purported to loan assets of a pension plan to a welfare plan within the same fund engaged in a prohibited transaction. This followed from the general principle that, "Each plan must be represented by trustees who are free to exert the maximum economic power manifested by their fund whenever they are negotiating a commercial transaction." 590 F.2d at 530. Because there was no alignment of interests between the participants in the pension plan and the participants in the welfare plan, there was an unavoidable conflict of interests when the trustees purported to act on behalf of both plans and their particpants: "If there is a single member who participates in only one of the plans, his plan must be administered without regard to the interests of any other plan." Id. ¹² Other courts have reached the same conclusion when multiemployer trustees act to transfer contributions earmarked for one plan to another related plan. See Asbestos Workers Local Union No. 5 v. Western Insulation Contractors Ass'n, 772 F. Supp. 493, 499 n. 13 (E.D.Cal. 1991) (where agreements with employers specified that contributions were to be made to one plan, trustees would breach fiduciary duties if they diverted those contributions to another plan; "having accepted a contribution earmarked for a specific plan, they cannot then allocate that contribution to another plan").

12 Despite its origin in the earliest days of ERISA jurisprudence, Cutaiar continues to be sound law in this Circuit on these points. See Reich v. Compton, 57 F.3d 270, 285-87 (3d Cir. 1995); see also Donovan v. Mazzola, 716 F.2d 1226, 1228, 1238 (9th Cir. 1984) (where unduly charitable loan made by one plan to another with "substantially the same [but] not identical" membership, loan violated prohibited transaction rules; Cutaiar rule "consistent with the remedial purposes of ERISA").

If the Field Assistance Bulletin is not inconsistent with Advisory Opinion 80-08 A, then it must be reconciled with the Advisory Opinion. Page 3 of the Bulletin acknowledges and confirms the reasoning of Advisory Opinion 80-08A. Thus, the Bulletin does not depart from the principles announced in the Opinion, but instead purports to make a specific factual judgment about the documents and instruments governing the Fund. According to the Bulletin, "the trustees . . . had the authority to amend the Fund and the plans" and "once the amendment was properly adopted, the formula became binding on the trustees." (Bulletin at 3). These conclusions, however, are contrary to the allegations of the Amended Complaint (¶¶ 50-56), which must be taken as true at this juncture. Moreover, there is no basis to suppose that these summary factual conclusions were the subject of any rigorous investigation that was informed and shaped by the arguments being advanced in this litigation.

Similarly, nothing in Walling purported to address or decide the serious issues raised in Advisory Opinion 80-08A (and in Cutaiar) regarding the prohibited transactions presented by fund trustees unilaterally allocating contributions among plans. To the extent that the Department believed Walling to have decided these issues, it was mistaken.

Given the precedential, procedural, and evidentiary limitations of the Bulletin, it is not entitled to deference and it does not control the claims made in this case.

B. The Case Precedents Do Not Immunize Defendants' Actions From Liability Under ERISA's Strict Fiduciary And Prohibited Transaction Rules .

Despite defendants' wishes, Walling v. Brady, 125 F.3d 114 (3d Cir. 1997), also does not have the broad scope that defendants now attribute to it. Under defendants' view of the law, an inapposite and limited decision by the Third Circuit immunizes their conduct from application of ERISA's strict fiduciary duty and prohibited transaction rules.

It has long been the teaching of Supreme Court decisions in this area that the actions of trustees of a multiemployer fund are and must be subject to the fiduciary duty and prohibited transaction rules in order to protect the benefits entitlements of participants. Thus, in Amax Coal, the Court emphasized that trustees of multiemployer plans are not exempted from the duty of undivided loyalty to participants or ERISA's other "strict fiduciary standards," NLRB v. Amax Coal Co., 453 U.S. 322, 329-30, 332 (1981), or from ERISA's prohibited transaction rules, 453 U.S. at 333. Accordingly, "an employee benefit fund trustee is a fiduciary whose duty to the trust beneficiaries must overcome any loyalty to the interest of the party that appointed him." 453 U.S. at 334. The Supreme Court also made clear that fund trustees and their appointing parties cannot evade ERISA's strict duties through their drafting of plan documents: "We agree with the Court of Appeals that trust documents cannot excuse trustees from their duties under ERISA, and that trust documents must generally be construed in light of ERISA's policies." Central States, Southeast and Southwest Areas Pension Fund v. Central Transport, Inc., 472 U.S. 559, 568 (1985). In enacting ERISA, "[T]he crucible of congressional concern was misuse and mismanagement of plan assets by plan administrators." Mass. Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 140 n. 8 (1985). Despite this law, defendants maintain that their conduct regarding the allocation of employer contributions — which are protected plan assets — is immunized from scrutiny under the fiduciary duty and prohibited transaction rules.

Defendants' strained argument that ERISA's strict fiduciary duty rules do not apply to their conduct regarding allocation of employer contributions relies upon two separate lines of authority. The first line consists of Lockheed Corp. v. Spink, 517 U.S. 882 (1996), and Hughes Aircraft Co. v. Jacobson, 525 U.S. 432 (1999), which stand for the limited proposition that employer-sponsor amendments to single-employer plans generally are not governed by ERISA fiduciary duties. The second line consists of Walling v. Brady, 125 F.3d 114 (3d Cir. 1997), which defendants mistakenly assert to be "on all fours with this case," and similar cases. Defendants maintain that the Walling line stands for the broad proposition that any action which takes the form of an amendment to a multiemployer plan must be non-fiduciary in nature, no matter what the substance of the action may be or the serious conflicts of interest presented. (Def. Mem. at 19-20.). As a result, say defendants, the loyalty and prudence fiduciary duties, and the prohibited transaction rules against using plan assets to further other interests, simply are ousted when it comes to multiemployer plans.

Defendants' argument rests upon a gross misreading of Walling. As the discussion below will demonstrate, Walling stands for the much narrower proposition that, under certain limited circumstances, amendments to a multiemployer plan that create benefits will, for fiduciary duty purposes, be regarded as similar to amendments to a single-employer plan. The limited circumstances addressed in Walling were these: (1) the affected defined benefit pension plan had surplus assets, so that all existing benefits under that plan were fully funded and secure, and there was no "finite asset pool" that was affected by the defendants' conduct, see 125 F.3d at 115-16; and (2) the challenged amendment merely created a new pension benefit in the overfunded pension plan, in order to assist some participants in meeting their premium obligations under a related medical plan, see 125 F.3d at 116. Neither feature is present in this case. Indeed, Walling did not address any of the circumstances of this case, involving issues of (a) transfers and diversions of employer contributions; (b) competing funding needs of an underfunded, frozen defined benefit plan and a currently active, defined contribution plan; (c) a conflict of interests between the participants in one plan and the participants in the other plan; and (d) a conflict between defendants' duties to the participants and their allegiance to their employers.

The Third Circuit in Walling thus fell far short of announcing an unqualified rule that single and multiemployer plans must be treated identically in determining whether plan trustees are subject to ERISA's fiduciary duty and prohibited transaction rules. Indeed, in its discussion of Lockheed Corp. v. Spink, 517 U.S. 882 (1996) — a case which provided much of the basis for Waiting's holding — the Walling court wrote, "While we do not read Lockheed to be the definitive word that there are never valid occasions on which to distinguish between the two types of plans [i.e., single — versus multiemployer], we find that the instant case is clearly one in which the fiduciary duty does not apply." Walling at 117. Further, the court engaged in considerable analysis of Sis kind v. Sperry Retirement Program, 47 F.3d 498 (2d Cir. 1995), a case which noted that a fiduciary duty can be found in connection with the amendment of a multiemployer plan. The Walling court specifically declined to disagree with Siskind, but, instead, distinguished it, stating: "The distinction embraced in dicta by Siskind . . . was due to its finding a material difference in the administration of single — and multiemployer plans. Finding no such difference here, we hold that the simple fact that the plan at issue is a multiemployer plan is insufficient to cause the fiduciary duty to attach to the Trustees' actions." Walling at 118 (emphasis added). In other words, with the quoted limiting language, Walling recognized that, in certain other circumstances, trustees of a multiemployer plan would indeed be governed by fiduciary duties when they amend a plan. See also Lynch v. New York City Dist. Council of Carpenters Welfare Fund, 1999 WL 177436, *8 (S.D.N.Y. 1999) (citing Walling, and noting that Walling "limited its holding to the facts before it and did not adopt a rule as broad as is urged by defendants", who had "argue[d] that there is no breach of fiduciary duty cause of action against trustees of a multi-employer welfare plan for acting to amend the plan.").

Close examination reveals that Walling is readily distinguishable from this case. In Walling, the trustees amended a defined benefit plan to provide an additional new benefit — out of that fund's surplus — to participants in that very plan who happened to also be participants in a related "welfare fund" (medical plan). Id. at 116. This additional pension plan benefit offset a $100 per/month fee that the medical plan then was requiring its participants to pay in order to continue to receive their benefits. Id., Unlike this case, the amendment in Walling simply effected a new benefits use of surplus assets that were already held in a single overfunded defined benefit pension plan. Thus, under the amendment in Walling, all of the pension plan assets continued to be used to benefit participants in that plan, and no participant could say that his/her existing benefits were impaired or made less secure. The present case, in contrast, challenges defendants' actions to divert employer contributions among several distinct, protected plans, to the immediate disadvantage of current plan participants, in a setting in which every dollar which is earmarked for, but never received by the defined contribution RIP Plan means at least one less dollar in benefits for the participants in that plan. Thus this case, unlike Walling, presents irreconcilable conflicts of interest on the part of the Trustee defendants — both a conflict as to the duty of loyalty owed to the participants in each of the separate plans, who do not have identical economic interests, and a conflict between the trustees' duty of loyalty to the participants and their simultaneous desire to serve the interests of their other masters — in the case of management-side trustees, employers who want to minimize or avoid their funding obligations to the DB Plan, and in the case of union-side trustees, union representatives who do not want too many resources committed to satisfaction of pension obligations as compared to other subjects of collective bargaining. These circumstances make the operation of ERISA's strict fiduciary-duty and prohibited transaction protections far more important than they possibly could have been in Walling, which only concerned surplus assets held within a single plan.

Furthermore, in Walling the additional benefit created by amendment in no way diminished or impaired the benefits of the other participants in the single pension plan who did not qualify for it. Indeed, these other participants actually received "a separate 5% increase in benefits" during the relevant time. 125 F.3d at 116. As the Walling court noted, "The Walling Class members, as well as all the other members of the Pension Fund,. . . received more than they had anticipated receiving from the Pension Fund upon retirement." Id. The possible reduction in the pension plan surplus in Walling in no way damaged the legal interests of the participants, because they had no legal entitlement to the surplus or expectation of benefiting from it, given the fact that their benefits were fully funded otherwise. See Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 440 (1999) (beneficiaries of a defined benefit plan "have no interest in the Plan's surplus"). Again, the contrast to this case is clear, because every dollar in employer contributions (which are made in consideration of current work) which defendants have diverted from the RIP '87 Plan into the DB Plan represents one less dollar in benefits to be received by participants in the RIP '87 plan (plus the lost investment return on that money).

These critical distinctions between the present case and Walling grow from the very "material difference" that Walling itself recognized as the legitimate basis upon which the Second Circuit in Siskind had written that amendments to multiemployer plans could be subject to fiduciary duties under ERISA. Like the cases discussed in Siskind — and unlike Walling — the funds at issue in this case constitute a "finite asset pool." See Walling at 118 (first recapitulating the Lockheed rule that "plan sponsors who alter the terms of a plan do not fall into the category of fiduciaries" (internal quotation marks omitted) and then writing that, "The plan feature (a finite asset pool) on which Siskind based its deviation from this bright-line rule is not present here." (parenthesis in original)). A finite asset pool is present in this case for two reasons. First, the funds represented by employer contributions necessarily are a fixed or finite sum, because collective bargaining determines and caps the amount of the contributions. Second, the RIP '87 Plan at issue in this case is a defined contribution, rather than a defined benefit, plan. It clearly has a finite asset pool, because benefits are determined by actual deposits, and a foregone deposit represents a benefit accrual that is forever lost. As the Supreme Court explained in Hughes Aircraft, a defined contribution plan, like the RIP '87 Plan, "provides for an individual account for each participant and for benefits based solely upon the amount contributed to the participant's account." Id. at 439. Again, Walling dealt only with a single, overfunded defined benefit plan. It did not involve a finite pool of employer contributions, a defined contribution plans, or impairments of present benefits. The case instead involved "redesigning the plan itself and "amend[ing] the Pension Fund's plan design," 125 F.3d at 119-20, rather than trustee actions dealing with employer contributions and otherwise managing plan assets.

The general principle stated by the Second Circuit in Siskind, with which the Walling court implicitly agreed, was that plan amendments usually are "administrative and fiduciary task[s in cases] concern[ing] multiemployer pension plans, jointly administered by trustees representing the employers and trustees appointed by and representing the union." Walling, 125 F.3d at 117, quoting Siskind, 47 F.3d at 506. In articulating this principle, the Siskind court posited that, "In the multiemployer setting, trustees amending a pension plan affect the allocation of a finite plan asset pool to which each participating employer has contributed." Siskind, 47 F.3d at 506 (emphasis added, internal quotation marks omitted); see also Chambless v. Masters, Mates Pilots Pension Plan, 772 F.2d 1032, 1038-40 (2d Cir. 1985) (holding that amendment of a multiemployer plan was governed by fiduciary duties and would violate duty to act solely in interest of participants). That the analysis in Siskind remains good law is made clear by Burke v. Bodewes, 250 F. Supp.2d 262, 270 (W.D.N.Y. 2003) ("the rule of Chambless and Siskind remains the law of the [Second] Circuit;" fiduciary duty applied to multiemployer pension plan amendment which increased benefits without due regard for financial consequences). Not only did the Walling court decline to question the general principle stated in Siskind, but it also endorsed the following passage from Musto v. American General Corp., 861 F.2d 897, 912 (6th Cir. 1998), a case upon which Siskind relied heavily, as a statement of the "more central distinction" between plan design and plan administration:

In amending a multi-employer plan, where the level of contributions of each participating employer has generally been set by collective bargaining, the trustees " affect the allocation of a finite plan asset pool between participants," . . . and hence act as plan administrators subject to a fiduciary duty. But when, as here, there is only one employer, there is normally no "plan asset pool" to be affected. In amending a single employer plan, therefore, the company normally acts in its role as employer, not in its role as fiduciary.

Walling at 118-19 ( quoting Musto at 912) (italics in original; bold emphasis added).

Even the fiduciary duty example described in this quote from Musto/Walling is less egregious than the scenario of this case. Musto posited that a plan amendment that would redistribute a finite asset pool among members of a single plan would be subject to fiduciary duties. The conclusion is all the more appropriate in this case, which involves the diversion of a finite plan asset pool (the stream of employer contributions) away from certain plans and their participants entirely. This is a matter of plan administration and management, which acts are fiduciary in nature.

For these reasons, it is apparent that the limited ruling in Walling was not intended to immunize trustees whose amendments to multiemployer plans are acts of managing and diverting employer contribution streams from the protective fiduciary duty and prohibited transaction rules.¹³

13 Defendants seem to forget that even if they were not fiduciaries for these purposes, they still would be subject to the stringent prohibited transaction rules, which bind both fiduciaries and other "parties in interest" of a plan, such as the trustees, and make them subject to relief. See 29 U.S.C. § 1106, 1002(14); Harris Trust Savings Bank v. Salomon Smith Barney, Inc., 530 U.S. 238 (2000); Dole v. Compton, 753 F. Supp. 563, 569 n. 10 (E.D. Pa. 1990) ("a party in interest, as well as a fiduciary, may be found liable under ERISA for participation in a prohibited transaction"), aff'd in pertinent part sub nom. Reich v. Compton, 57 F.3d 270, 285-87 (3d Cir. 1995).

Furthermore, none of the other cases defendants cite stands for the proposition that defendants have or deserve this immunity from ERISA's strict fiduciary and prohibited transaction rules. First, Hughes Aircraft Co. v. Jacobson, 525 U.S. 432 (1999), addressed a single-employer, defined benefit plan that did not have a finite asset pool; instead it was alleged to have a surplus. Indeed, Hughes Aircraft specifically noted that the employer there had an "obligation to make up any shortfall" in the plan's funding if one later materialized. Id. at 440. Moreover, like Walling, Hughes Aircraft involved decisions about how to apply existing, asserted surplus assets that were already held by a plan to fund benefits for some or all of the participants within that single plan. Second, Lockheed Corp. v. Spink, 517 U.S. 882 (1996), also dealt with a single employer, defined benefit plan without a finite asset pool, and there was no allegation that the amendments resulted in any threat to the plan's funding or vesting requirements under ERISA. Indeed, the Court took pains to note that no such issue was presented. 517 U.S. at 892 n. 5 ("there is no claim in this case that the amendments resulted in any violation of the participation, funding or vesting requirements"). Moreover, like Walling and Hughes Aircraft, Spink involved a decision to use some plan assets to create and fund benefits under that plan for participants of that plan. Id. at 885-87.

Defendants' circuit-level decisions also do not stand for their rule of broad immunity. Pope v. Central States Southeast and Southwest Areas Health and Welfare Fund, 27 F.3d 211 (6th Cir. 1994), dealt with an amendment to one multiemployer medical plan that simply reduced, on a prospective basis, the level of benefits under the plan for a certain procedure in order to ensure the plan's "financial stability." In addition, the general rule was that such medical plans do not provide vested benefits and thus generally can be amended to reduce or end benefits. The court in Walling quoted from the Pope decision, but only to the extent of recapitulating it, expressing neither approval nor disapproval. Walling at 118. Walling afforded greater weight to cases, such as Siskind and Musto, which explicitly recognized that trustees of multiemployer plans having "finite asset pools" were subject to fiduciary duties when they acted to affect the allocation of these plan assets, because that is an administrative act subject to fiduciary duties.

Gard v. Blankenburg, 33 Fed.Appx. 722, 2002 WL 261817 (6th Cir. Feb. 21, 2002) (unpublished opinion), like Walling, Spink, Hughes, and Pope, dealt with an amendment that altered benefits within a single plan, or "acts of plan design"; no diversion of contributions and assets was involved. Mushalla v. Teamsters Local Union No. 863 Pension Fund, 152 F. Supp.2d 613 (D.N.J. 2001), dealt with an entirely different sort of claim arising from an amendment to a multiemployer, defined benefit plan. The claim was for fiduciary misrepresentation, based upon the defendant's failure to inform the plaintiffs that an amendment was being considered that would have afforded them increased retirement benefits if they retired after the amendment was enacted. Id. at 616. As with Hughes, Spink, Gard, Pope, and Walling, this case related to establishment of benefits within a single plan. Moreover, the issue in Mushalla was limited to whether the trustees had a fiduciary duty to disclose information. Id. at 623. Indeed, the Third Circuit, in affirming Mushalla, noted the dramatic difference between that case and Walling: "Unlike this case, where the duties of plan administrators in communicating changes in benefits to plan participants are at issue, Walling considered the fiduciary duty of plan administrators toward plan participants when the administrator amends the plan." Mushalla v. Teamsters Local No. 863 Pension Fund, 300 F.3d 391, 397 (3d Cir. 2002). Finally, Boucher v. Williams, 13 F. Supp.2d 84, 95-97 (D. Me. 1998), like the other cases cited by defendants, related to an amendment which only affected the use of assets (unused participant accounts for health expenditures) that were held within a single health and welfare plan; the plan was freely amendable for this purpose.

For all of these reasons, Walling and the other cases cited by defendants do not establish their immunity from ERISA's fiduciary duty and prohibited transaction rules when they acted to reallocate contributions payable to the plans. That function of managing plan assets necessarily was fiduciary in nature, and the conflict of interests between plans and their participants was stark. ERISA prohibits trustees from acting in this manner, whatever their motivations.

C. The Decision Over Many Years to Issue a "Thirteenth Check" Presents A Straightforward Claim for Breach of Fiduciary Duty .

Plaintiffs allege that for a number of years, from 1987 to and including 2000, defendant Trustees and defendant Fund Administrator violated their fiduciary duties by allowing and causing the DB Plan to pay out a "thirteenth check" to retired plan participants (who by definition include none of the plaintiffs or members of the proposed class) under circumstances where the Plan in fact did not permit the payment of this benefit due to lack of the required funding which was a condition for this benefit. The lack of adequate funding was masked in party by use of inappropriate mortality tables. In other words, plaintiffs claim that these defendants squandered plan assets by paying out assets for benefits that were not even authorized under the very terms of the Plan. Plaintiffs do not challenge the fact that the DB Plan allowed the payment of a thirteenth check under the stated circumstances, if the conditions for payment actually had been satisfied. Plaintiffs instead claim that these defendants made unauthorized benefits payments. Although the recipients of these unauthorized benefits were not strangers to the Plan, the violation in substance is not different than the defendants writing pension checks each month that were in amounts greater than those specified in the plan. The result is the same — waste of plan assets which jeopardized the security of authorized benefits for all participants, including those like plaintiffs who had not yet retired.

At pages 21-22 of their Memorandum, defendants contend that this challenged conduct is immune from the fiduciary standards because the presence of the plan term allowing the "thirteenth check" was a result of plan settlor benefits design. But this argument misconceives the claim entirely. There is no challenge to the plan term, only a challenge to its implementation under circumstances which the plan itself declared to be unauthorized.

The claim therefore is that these defendants breached their strict duty to faithfully follow and implement the terms of the DB Plan, as well as their general duty to act prudently in determining whether the payment of a benefit in fact was authorized. It is fundamental that a fiduciary must act "in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions of [Titles I and IV of ERISA]." ERISA Section 404(a)(1)(D), 29 U.S.C. § 1104(a)(1)(D). Plaintiffs allege that the DB Plan specified that the thirteenth checks could be paid out only under specific circumstances, where a minimum funding threshold of the Plan was present; but defendants proceeded to pay the checks under circumstances where the minimum funding was not present. (Am. Compl. ¶¶ 37-39, 64(a)). In addition, a fiduciary violation occurs where compliance with a plan document would be imprudent by objective standards. "Accordingly, if the benefits levels as set forth in the Fund's governing plan documents are excessive, the Trustee Defendants may not avoid their fiduciary duties to Members by hiding behind documents which are inconsistent with ERISA." Gruby v. Brady, 838 F. Supp. 820, 829 (S.D.N.Y. 1993) (denying motion to dismiss claim that trustees imprudently raised or failed to reduce benefits levels in plan which was in financial difficulty). Accordingly, defendants' "settlor function" defense has no bearing on the viability of this claim, both because the plan specified conditions which were breached, and because the payment of the benefit could have been imprudent generally.

In their final attack on this particular fiduciary breach claim, defendants maintain (Def. Mem. at 22) that the claim about the issuance of the thirteenth check is subject to the administrative exhaustion requirement. This, too, misconceives the claim. Plaintiffs are not seeking payment of thirteenth checks to themselves (they are not retired and hence would not be eligible for this benefit, even if it had been authorized and prudent). Although defendants proclaim that plaintiffs must exhaust their administrative remedies with the DB Plan, defendants never explain just what those administrative remedies would be in a circumstance where the claim is that a benefit should not have been paid to someone else. Plaintiffs' claim to remedy the serious financial loss to the DB Plan owing to the unauthorized payment of the thirteenth checks plainly is not a "claim for benefits" that could be redressed under plan administrative procedures.¹⁴ D. Plaintiffs Have Adequately Pled a Straightforward Claim for Breach of Fiduciary Duty Relating to the Imprudent Investments of Plan Assets .

14 Once again, defendants' cited cases are readily distinguishable. In the unpublished decision, Gard v. Blankenburg, No. 00-1234/2224, 2002 WL 261817 at * 5 (6th Cir. Feb. 21, 2002) (unpublished), the court ruled that the challenged acts were exclusively matters of plan design; the case did not challenge "the actions taken to implement the amended DB Plan," which would have been fiduciary acts. In this case, the presence in the DB Plan of the "thirteenth check" benefit is not in issue; the claim instead concerns defendants' implementation of the plan, both in violating the conditions that the plan attached to the benefit and the general imprudence of paying this optional benefit given the fiscal condition of the plan. In Regional Employers' Assurance League Vol. Employees' Beneficiary Ass'n Trust v. Sidney Charles Markets, Inc., No. 01-CV-693, 2003 WL 220181 at * 7 (E.D. Pa. Jan. 29, 2003), the court concluded that the fiduciary breach claims were "artfully pleaded benefit claims."

Plaintiffs allege that defendant Trustees and defendant Fund Administrator violated their fiduciary duties by failing to prudently and effectively monitor and oversee the performance of the outside investment advisors and managers who were responsible for the investment of plan assets, even continuing to employ them "despite their unusually poor results from 1998 to 2000" — a period when the equity markets experienced a dramatic increase in values. (Am. Compl. ¶ 64(g); see also ¶¶ 41-42). The factual background for this claim is provided elsewhere in the Amended Complaint:

41. During the years 1998 to 2000, the DB Plan and the RIP 87 Plan experienced a poor return on their investments. The same period was one of rapid growth in the values of assets held and invested by similar multi-employer pension funds. The deficient, sub-par performance of the plans' investments was the result of mismanagement by the investment managers appointed by the Trustees to manage plan assets. This sub-par performance and mismanagement was either known to the Trustees and Fund Administrator, or would have been discovered by them had they made prudent and proper efforts to monitor and supervise the performance of the managers who had been engaged to invest plan assets.

42. Upon information and belief, defendant Trustees and defendant Fund Administrator did not investigate, consider pursuing, or pursue a legal cause of action or other remedies either against the plans' investment advisors and managers for their poor and imprudent investment treatment of plan assets, or against the current and former Trustees who failed to take prudent action to remove, discipline, or sue those advisors and managers, in the face of the unusually poor investment results experienced by the plans.

(Am. Compl. ¶¶ 41-42). As a result of the violation of this duty to prudently oversee investments of plan assets, the DB Plan underfunding was made more severe, and the individual account balances of plaintiffs and the members of the class in the RIP '87 and 2000 Plans were diminished. (Am. Compl. ¶ 64(g)).

Defendants do not dispute that this investment conduct is governed by ERISA's strict fiduciary duties. The fiduciary nature of activities relating to management and investment of plan assets, and a fiduciary's duty to act prudently and loyally in these activities, are fundamental principles under ERISA. See, e.g., ERISA sections 3(21)(A) and 404(a)(1)(B)-(C), 29 U.S.C. § 1002 (21)(A), 1104(a)(1)(B)-(C); In re Unisys Corp. Savings Plan Litigation, 74 F.3d 420, 433-35 (3d Cir. 1996); Fechter v. Conn. Gen'l Life Ins. Co., 798 F. Supp. 1120, 1124 (E.D. Pa. 1991). This legal principle also is not challenged by defendants. Finally, the fiduciary status and involvement of defendants in this investment conduct is alleged in paragraphs 11 and 41-42 of the Amended Complaint. Accordingly, plaintiffs have adequately pled defendants' fiduciary status and participation in the investment conduct complained of, the fact that these defendants were subject to ERISA's strict fiduciary duties; their breach of these duties as they pertained to the investment conduct; and the resulting losses to the Plans. The claim is adequately alleged.

Defendants' sole challenge to this claim, accordingly, is their argument that plaintiffs have not set forth evidentiary details in the Amended Complaint sufficient to plead the claim. (Def. Mem. at 23-24). There are several responses to this argument. First, as noted, the essential elements of the claim are alleged. Second, the federal rules do not require a party to plead evidence, only to put the opposing party on notice of the nature of the claim. See Fed.R.Civ.P. 8(a)(2) ("a short and plain statement of the claim showing that the pleader is entitled to relief); Forms 9-10; Conley v. Gibson, 355 U.S. 41, 47-48 (1957) ("the Federal Rules of Civil Procedure do not require a claimant to set out in detail the facts upon which he bases his claim."). As this Court has ruled, "In general, our federal courts have adopted a very light, notice pleading standard." Steedle v. Zimmerman, 2002 WL 1925702 at * 4 (E.D. Pa. 2002) (Van Antwerpen, J.), quoting Nami v. Fauyer, 82 F.3d 63, 65 (3d Cir. 1996). Here, the allegations are more than sufficient to give defendants' notice of the nature of the claims.

Few cases discuss the adequacy of pleading a fiduciary breach claim involving investments and other financial management issues, but they likewise establish that plaintiffs' allegations are sufficient. See, e.g., Gruby v. Brady, 838 F. Supp. 820, 824-26, 829-30 (S.D.N.Y. 1993) (denying motion to dismiss breach of fiduciary duty claims alleging mismanagement of plan by maintaining excessive benefit levels and failing to collect adequate funds from employers, due in part to concerns about collective bargaining).

In contrast, defendants' five cited decisions are not pertinent and do not support dismissal. In fact, three of the cases are merits decisions, not rulings on the adequacy of pleadings. See DeBruyne v. Equitable Life Assurance Society of the United States, 920 F.2d 457 (7th Cir. 1990) (review of summary judgment ruling); Foltz v. U.S. News World Report, Inc., 865 F.2d 364 (D.C. Cir. 1989) (review of summary judgment ruling); Marshall v. Glass/Metal Assn. and Glaziers and Glassworkers Pension Plan, 507 F. Supp. 378 (D. Haw. 1980) (decision following evidentiary hearing on preliminary injunction). The two decisions which did rule on the sufficiency of pleadings rested on the absolute failure to allege required elements of a claim, not any failure to plead evidence. See Crowley v. Corning, Inc., 234 F. Supp.2d 222, 230 (W.D.N.Y. 2002) (all of fiduciary breach claims against committee members "rest on the assumption that they possessed the 'adverse information'" but complaint "makes no specific allegation that the Committee members actually possessed the 'adverse information.'"); Blue Cross of California v. SmithKline Beecham Clinical Laboratories, Inc., 62 F. Supp.2d 544, 554 (D. Conn. 1998) ("amended complaint is devoid of any allegation that any one of the plaintiffs exercised any discretionary authority or control with respect to the management or administration of any plan" so as to confer fiduciary status and standing to sue.). In this case, however, plaintiffs' allegations sufficiently plead each element of the fiduciary breach claims.

Therefore, there is no basis to conclude at this time that there is no set of facts under which plaintiffs could be entitled to relief on these fiduciary breach claims, or that the claims fail as a matter of law. V. THE PLAN DOCUMENTS, CONSIDERED AS A WHOLE, DO NOT GRANT DISCRETIONARY AUTHORITY TO THE TRUSTEES TO ALLOCATE CONTRIBUTIONS AMONG THE SEPARATE ERISA PLANS .

Defendants' defense to allegations of fiduciary and statutory breaches rests on the same three primary, but interrelated, boot-strapping arguments, which in part depend on resolution of questions of fact that are not before the Court: (1) employers contribute to the "Fund", not to "Plans", and the Trustees therefore have unlimited discretion to "allocate" those contributions as they deem appropriate; (2) consequently, say defendants, the diversion of employer contributions at their source — i.e., at the point they enter the Fund — from one plan to another, is not a "transfer" of assets from that plan to the other; and (3) since benefits in a defined contribution plan never "accrue" until the Trustees actually place the assets into the individual defined contribution accounts, the diversion of the contribution stream from its intended recipient individual accounts does not diminish "accrued benefits." It is respectfully submitted, however, that these arguments ignore the plan documents when taken and considered together as an integrated whole. As will be demonstrated, at best for defendants, these arguments hinge on untested assertions of fact. There is no basis to conclude that plaintiffs' allegations cannot be proven once the factual record is developed.

A. Employer Contributions Owed to the RIP '87 Plan and the RIP 2000 Plan are Plan Assets .

The Second Amended and Restated Trust Agreement defines "Contribution" as "a payment made or required to be made by an Employer pursuant to the terms of a Collective Bargaining Agreement or other written document approved by the Trustees." Second Amended Trust Agreement, Section 1.1 F (Exhibit 5 at p. 4) (emphasis added). Similarly, the Trust Agreement specifies that employer contributions "shall constitute an absolute obligation to the Fund." Id., Section 4.1 A (Exhibit 5 at p. 17) (emphasis added). The Trustees and Administrator thus "have the power to demand, collect and receive Contributions from Employers and payments and all other monies and/or property to which the Fund may be entitled, and shall hold the same pursuant to the terms of the Trust Agreement." Id., Section 4.3A (Exhibit 5 at p. 18). Finally, neither employers, employees, unions, nor any other parties "shall have any right, title or interest in or to the Fund or any part thereof." Id., Section 7.1 (Exhibit 5 at p. 35).

Under the plan documents, therefore, all employer contributions due and owing to each plan constitute "plan assets" within the meaning of ERISA. See PMTA-ILA Containerization Fund v. Rose, 1995 WL 461269 at * 4 (E.D. Pa. 1995) (fund held exclusive title to all money due to it); Galgay v. Gangloff, 677 F. Supp. 295, 301 (M.D. Pa. 1987), aff'd mem., 932 F.2d 959 (3d Cir. 1991) (trustees had title to all money due and owing to fund). Defendants' actions and decisions with respect to the contributions due to each plan constitute the exercise of "authority or control respecting management or disposition of [plan] assets," 29 U.S.C. § 1002(21)(A), an activity governed by ERISA's strict fiduciary rules. Inasmuch as these monies become plan assets when the contributions are "required to be made," the fiduciary rules apply to defendants' actions regarding these contributions even before they have been received by the Fund or a particular plan.

B. The Plan Documents Require Employer Contributions into Specific Plans .

1. The Relevant Provisions of the Trust Agreement and Plan Documents.

Related plan documents must be considered as an integrated whole. See, e.g., Central States, Southeast and Southwest Areas Pension Fund v. The Kroger Co., 73 F.3d 727 (7th Cir. 1996); Murphy v. Keystone Steel Wire Co., 61 F.3d 560, 565 (7th Cir. 1995). The 1999 plan documents, taken as a whole, clearly require, in mandatory terms, that defendant Trustees and Plan Administrator place employer contributions into one of two specific plans, each of which is separate and distinct for purposes of ERISA and the tax laws. Pursuant to these provisions, employer contributions, although paid to the "Fund", are clearly owed to specific plans. Neither the Trust Agreement nor the separate plan documents grant defendant Trustees and Plan Administrator the unbridled (and allegedly unreviewable) latitude and license that they claim to have, to "allocate" the incoming contributions however they please. See Exhibit 5, the 1999 Second and Restated Trust Agreement — Article II, Section 2.1; Exhibit 12, the 19899 Amended and Restated Defined Benefit Plan; Exhibit 13, the 1999 Amended and Restated RIP '87 Plan; and Exhibit 14, the 1999 Amended and Restated RIP 2000 Plan. The Trust Agreement states, for example, "all Contributions paid to the Fund by RIP 1987 Employers shall be paid to RIP 1987. . . ."¹⁵ (emphasis added). Exhibit 5, Article II, Section 2.3. at p. 9. This mandate is echoed in the Amended and Restated Retirement Income Plan 1987 plan document, which specifies further, again in mandatory terms, that the payments into the RIP '87 shall occur as soon as is practicable after the contributions are received. See Exhibit 13 at p. 21, Article VI, Section 6.2 — "Allocations of Contributions to Participant Accounts: "As soon as administratively practicable after receipt, the Plan Administrator shall credit Contributions to each Account." (emphasis added).

15 The Trust Agreement contains a similarly mandatory directive regarding contributions to the RIP 2000 Plan. See Exhibit 5 at p. 9, Article II, Section 2.2.

2. The Collective Bargaining Agreements.

Contrary to defendants' argument that the relevant CBAs in this case are neither relevant nor binding on the Trustees, these documents, insofar as they govern employer contributions to the Fund, are "plan documents" for the purposes of ERISA; and, as plan documents, these CBAs direct contributions into particular plans.¹⁶ First, the CBAs, (including their associated "participation agreements signed by Employers" — see Exhibit 5, 1999 Trust Agreement at p. 4 — are specifically identified as "plan documents" in the SPDs. See, e.g., SPD for the RIP '87 Plan-Benefit Level J (Exhibit 15). Although the CBAs may not contain provisions that are in conflict with plan documents, employer contributions still must be allocated according to the appropriate plan — RIP '87 Plan employers contribute to the RIP '87 Plan, and so forth. Whereas some of these agreements ( e.g., the UPS Master Agreement and the National Master Freight Agreement), standing alone may not specifically direct employer contributions under that CBA to a particular plan, other governing documents do. The "participation agreements" signed by contributing employers or employer associations will control the direction of the contributions.¹⁷ See Exhibit 5 at p. 1, ¶ 3, p. 4, Section 1.1 E; and p. 5, Section 1.1J.4. These participation agreements in turn are incorporated into the definition of "collective bargaining agreement" by the specific terms of the individual plans. For example, both the RIP '87 Plan and the RIP 2000 Plan define "Collective Bargaining Agreement" as including the employer participation agreements:

16 Although defendants also claim to have unreviewable discretion to redirect contributions by amendment, they make no argument that the relevant CBAs were amended consistently with the March 2002 Amendment No. 4, or with the later Amendment No. 6, effective January 1, 2002.

17 Defendants present none of these individual agreements in connection with their motion; and none has yet been produced to plaintiffs. Plaintiffs can only obtain the relevant participation agreements through further discovery.

An agreement between an Employer and a Union that governs the terms and conditions of employment for Employees, and requires Contributions to this Plan on behalf of such Employees. This term shall include those other written agreements, including participation agreements and joinder agreements, between the plan or Trust and an Employer governing Contributions to this Plan on behalf of Employees.

Exhibit 13 at p. 2 — Article II, Section 2.1g.; Exhibit 14 at p. 2 — Article II, Section 2.1g. In addition, the RIP '87 Plan has a separate agreement for each of its several "benefit levels" which specify the monetary rate at which the participating employers contribute to that plan. See Exhibit 16 — Central PA Teamsters Pension Fund Consolidated Fund Agreement (CFA) — Benefit Level-J Retirement Income Plan. See also Exhibits 17, 18, 19 — CBAs specifically directing contributions pursuant to the Trust Agreement and to the CFA for a particular RIP '87 Plan contribution level.

Significantly, this Court's opinion in Central Pa. Teamsters Pension Fund et al v W L Sales, Inc., 778 F. Supp. 820 (E.D. Pa. 1991), supports the conclusion that the CBAs pertaining to these plans and the RIP '87 CFAs are related and relevant plan documents. Although, as this Court held in W L Sales, there is no indication in this Trust Agreement that the provisions of a CBA would prevail over conflicting terms of the trust ( Id. at 829), this Court's opinion acknowledges the very point that plaintiffs are making — that it is the CBAs that determine the contribution obligations of the participating employers and which set the contribution levels for specific plans. Id. at 824-26. Moreover, where the CBA directs contributions to a particular plan, a fiduciary breach occurs by the trustees' "accepting money given for one purpose and devoting it to another." Asbestos Workers Local Union 5 v. Western Insulation Contractors Ass'n, 772 F. Supp. 493, 499 n. 13 (E.D. Cal. 1991).

The cases cited by defendants, in support of their argument that the CBAs are not controlling or even relevant in this case, are readily distinguishable, because all of them involve efforts to enforce CBA terms that were inconsistent with plan trust provisions or obligations. In Sinai Hosp. v. Nat'l Benefit Fund for Hosp. Healthcare Employees, 697 F.2d 562 (4th Cir. 1982), the employer sought through collective bargaining to prevent the fund trustees from raising benefit levels without the hospital's approval, contrary to the preexisting terms of the trust agreement that clearly accorded the trustees the sole responsibility for setting benefit levels. Where the relief sought conflicted with the discretion allocated to the trustees in the plan document, the plan document, not the CBA, controlled. The claim in this case, however, is substantially different. In this case, it is the trust agreement and other plan documents which obligate the Trustees to honor the provisions of the CBAs insofar as they relate to the employer's contribution obligations to a particular plan. In this case, the trust agreement and other related plan documents incorporate the CBAs as well as the participation agreements that link the CBAs to the trust.

The other cases cited by defendant are equally inapposite for the same or similar reasons — the parties to the collective bargaining agreement sought to impose certain provisions in the CBAs to limit or circumscribe traditional discretionary trustee functions: Accordingly, trustees could not be held to an arbitration provision contained in a CBA, see Central States, Southeast and Southwest Areas Pension Fund v. Tank Transport, Inc., 779 F. Supp. 947, 951 (N.D. Ill. 1991); trustees could not be obligated to award a disability pension benefit by sole reference to whether a particular job was "classified" according to the CBA, although the trustees could look to the CBA for guidance in making their determination, see Hale v. Trustees of UMWA Health Ret. Funds, 23 F.3d 899, 902 (4th Cir. 1994); trustees could not be bound, in the absence of express language in the trust agreement to the contrary, to any particular provision of a CBA, see Bachler v Bayless, 56 F.3d 70, 1990 WL 323689, at *2 (9th Cir. 12/30/95) (unpublished); trust funds are not bound by oral understandings or side agreements negotiated between the employer and the union, see Central States, Southeast and Southwest Areas Pension Fund v. McClellan, Inc., 23 F.3d 1256, 1258 (7th Cir. 1994); and although trust funds have the rights to "enforce the writings according to their terms", they are not bound by side agreements or other oral or written understandings between the employer and the union, or by contractual defenses that would otherwise defeat enforcement of the contract as between the employer and the union, see Central States, Southeast and Southwest Areas Pension Fund v. Gerber Truck Serv., Inc., 870 F.2d 1148, 1149 (7th Cir. 1989); see also, Central States v. The Kroger Co., supra.

Nothing in the provisions of the CBAs in this case, which expressly require that the employer contributions be paid to the RIP '87 or to the RIP 2000, in any way conflicts with the terms of the Trust Agreement. On the contrary, these documents are consistent and mutually reinforcing. In total, they require direction of employer contributions into particular plans and the Trustees do not have the discretion to do otherwise.

For these reasons, plaintiffs have adequately pled a violation of the CBAs as plan documents in Count VI.

C. A Defined Contribution Benefit "Accrues" When the Contribution is Owed to the Participant's Individual Account .

In their challenge to Count III claiming unlawful cut-backs of accrued benefits, defendants cite Izzarelli v. Rexene Prods. Corp., 24 F.3d 1506 (5th Cir. 1994), for the proposition that a defined contribution benefit never "accrues" until the trustees actually place the money in the individual defined contribution account.¹⁸ The conclusion defendants draw from this proposition is that contributions diverted at their source from their intended and agreed destination in an individual account can never become "accrued benefits" and therefore can never be unlawfully cut-back or reduced. Whatever validity the stated proposition may have in the context of a plan document that specifically and lawfully allows plan fiduciaries the complete discretion to allocate contributions between one or another of several plans, that, as argued above, is not the situation in this case, where the governing plan documents provide otherwise in mandatory terms.

18 It also should be noted that Izzarelli's, precedential value is limited by its unique facts. The plaintiffs were trying to claim as "accrued benefits" unpaid contributions, which, if paid into the accounts according to the formula, would have disqualified the plan because the contributions discriminated in favor of the highly compensated.

Moreover, defendants' argument, that diverted money paid to fund a benefit on a dollar for dollar basis can never be deemed a benefit, proves too much. The logic of defendants' position in the context of this case would be to permit defendants to prevent participants from accruing benefits indefinitely by simply not crediting any contributions into their individual accounts, by holding them in escrow or placing them in other plans in which the participants have no interest. The only legal conclusion in the context of this case, under these defined contribution plans, that would be consistent with ERISA's strict, protective requirements is that benefits "accrue" to the individual accounts when the contributions are "owed" and plan documents require the contributions to be directed into those individual accounts. Thus, when benefits are owed but not paid into a defined contribution individual account, that participant's accrued benefit is reduced just as surely as if someone had drained the account from the bottom.

The Second Circuit, in John Blair Communications, Inc. v. Telemundo Group, Inc., 26 F.3d 360, 367 (2d Cir. 1994), takes a broader view on the question of when a benefit becomes an accrued benefit of a defined contribution individual account plan. In John Blair, the court considered a transfer of assets from one defined contribution plan to a newly created defined contribution plan, where the trustees allocated 100% of investment gains (i.e., the earnings on all of the accounts between the account valuation date and the final date of transfer) to about 10% of the participants who remained in the older plan. The Second Circuit found that it was a breach of fiduciary duty to allocate the earnings on assets to one group of participants to the detriment of the other. By strong implication, the court in effect concluded that benefits were accruing to the other participants by the amount of the pro rata interest with which they should have been credited, even though that amount had never been placed into their individual accounts.

D. Defendant Trustees and Plan Administrator Have Transferred Assets from the RIP '87 Plan to the RIP 2000 Plan and to the DB Plan .

Defendants' related assertion that assets were never "transferred" from one plan to another is incorrect, even based on the limited record available in advance of discovery. For example, the 1999 Form 5500 for the RIP 2000 Plan shows that it began life with 458 participants and assets of $8,549,631, with no employer contribution to the plan in that year. See Exhibit 20, Part II, line 7a; Schedule H, Part I, lines lb(1) and k. See also Exhibit 21 — 1999 Financial Report for the RIP 2000. Defendants' position relies on the fiction, discussed above, that since the Trustees supposedly have unlimited discretion to reallocate employer contributions, there can never be a "transfer" so long as the contribution is diverted at its source before it actually reaches the individual accounts. A similar fiction supports their argument that the RIP '87 Plan forfeitures which were redirected into the DB Plan in a two-step transaction are not "transfers", because the amount of the forfeitures in this plan year will not be physically "removed" from the RIP '87 Plan in this plan year. It will merely "reduce" the employer's RIP '87 Plan contribution obligation in the following year. When the plan documents are integrated, however, these fictions fall by the wayside.

For the same reason, the effect of the March 2002 selection of Option 2, when viewed in this perspective, is de facto a "transfer" of the employers' obligation to contribute to individual RIP '87 Plan accounts by diverting a percentage of the obligation, without regard to whether the participant had any interest in the DB Plan or would (at that point in time) ever receive a benefit from that plan.¹⁹ This "direct or indirect . . . transfer to or use by or for the benefit of another plan and its parties in interest, 29 U.S.C. § 1106(a)(1)(D), where there is not 100% identity of participants in the two plans, directly contravenes the authority of this Circuit in Cutaiar v. Marshall, 590 F.2d 523 (3d Cir. 1979). The reallocation by the trustees that "advantaged the participants of one plan to the disadvantage of the participants of the other" is a prohibited transaction.

19 The Trustees have yet to account for the contributions owed to RIP '87 Plan participants from March 1, 2002 through December 31, 2002, that were diverted from the RIP '87 Plan individual accounts according to the percentages required by the formula adopted by the March 2002 amendments.

VI. PLAINTIFFS HAVE ADEQUATELY PLED AN UNLAWFUL CUT-BACK AND REDUCTION IN ACCRUED BENEFITS .

Plaintiffs allege in Count III that defendants' transfers and diversions of plan assets from the RIP '87 Plan, first to the RIP 2000 Plan and ultimately to the underfunded DB Plan, unlawfully cut-back accrued benefits in violation of ERISA Section 204(g)(1), 29 U.S.C. § 1054(g)(1). Count IV alleges that those same transfers and diversions effect unlawful forfeitures of accrued benefits in violation of ERISA Section 203(a), 29 U.S.C. § 1053(a). Plaintiffs have alleged the factual foundation to establish that the challenged transactions adversely affected the values of the individual participants' accounts in the RIP '87 Plan, by either preventing earmarked contributions from being credited to their accounts in the first place, or by reducing the amount of the total pooled contributions available for investment purposes.²⁰ This factual foundation shows that the individual account balances were thereby reduced just as assuredly as if the contributions (or the pro rata investment results) had been first credited but then deducted from the accounts. Again, it would make a mockery of the statute to forbid the latter transaction but to permit the former transaction which so readily evades the strict protections of the statute.

20 The latter was accomplished by spinning-off RIP '87 Plan assets to fund the RIP 2000 Plan.

Under prevailing case precedent, and because defendants failed to follow the required amendment procedures under the Trust Agreement ( see Am. Compl. ¶¶ 35, 36, 50, 51)²¹, defendants' transfers, diversions and reallocations are not shielded from review. In the circumstances of this case, defendants obviously cannot accomplish under the guise of plan amendments that which they cannot do directly. See Argument IV, supra. "We agree with the Court of Appeals that trust documents cannot excuse trustees from their duties under ERISA, and that trust documents must generally be construed in light of ERISA's policies." Central States, Southeast and Southwest Areas Pension Fund v. Central Transport, Inc., 472 U.S. 559, 568 (1985).

21 Whether, as alleged, defendants failed to follow the requirements for amending the plans is a question of fact.

VII. PLAINTIFFS HAVE ADEQUATELY PLED ILLEGAL TRANSFERS AND PROHIBITED TRANSACTIONS FOR WHICH THE TRUSTEES ARE INDIVIDUALLY LIABLE .

Plaintiffs have alleged in Counts V and VII that the Trustees engaged in illegal transfers of plan assets and prohibited transaction for which they are personally liable. Plaintiffs have alleged an adequate factual foundation ( see Statement of Facts and Section IV, supra) for a determination that the payment of the "thirteenth check", as well as the reallocations and/or transfers of assets from one plan to another in which there is not 100% identity of participants are prohibited transactions under ERISA Section 406(a)(1)(D), 29 U.S.C. § 1106(a)(1)(D). This is true whether or not LMRA Section 302(b), 29 U.S.C. § 186(b), confers an independent basis of jurisdiction.

With respect to Count V, defendants' arguments that the transfer restrictions of ERISA Section 4231(a), 29 U.S.C. § 1411(a), do not operate in a case where the transactions are between a defined benefit plan and a defined contribution plan are mistaken. Section 4231 applies to "multiemployer plan[s]". A "multiemployer plan" is defined in Section 4001(a)(3), 29 U.S.C. § 1301(a)(3), in a way that does not distinguish between defined benefit and defined contribution plans. In addition, under Section 4021(a), 29 U.S.C. § 1321(a), Title IV clearly applies to the DB Plan involved in this case, even though Title IV does not also directly apply to individual account plans like the RIP '87 Plan per Section 4021(b)(1), 29 U.S.C. § 1321(b)(1). Where two multiemployer plans are involved in a transaction, and where one of those plans is indisputably subject to Title IV, see Section 4231 (covering transfers "to or from" a multiemployer plan), and where the restrictions of Section 4231 apply to all mergers or transfers involving any "multiemployer plan" (a term encompassing both the DB Plan and the RIP '87 Plan), it is sufficient under the statute if one such plan is covered by Title IV in order to cover the entire transaction.

The result dictated by these interrelated statutory provisions is supported by sound policy. The Pension Benefit Guaranty Corporation has the responsibility under Title IV to protect and ensure defined benefit plans. A transaction with another plan, even if that plan is otherwise not covered by Title IV, implicates the solvency of the defined benefit plan just as much as it would were the transaction with another defined benefit plan. Thus, the transaction directly implicates the interests of the PBGC. Plaintiffs therefore have stated a claim relating to multiemployer plans, including one defined benefit multiemployer plan, and thus Section 4231 is operative and governs the transactions alleged.

Even assuming the validity of defendants' position, if these inter-plan transactions and mergers were not governed by Title IV, then they still would be regulated by ERISA Section 208; 29 U.S.C. § 1058, which contains a similar prohibition regarding mergers and transfers of assets or liabilities involving "pension plan[s]." Both defined benefit and defined contribution plans are "pension plans" as defined by the statute, see 29 U.S.C. § 1002(2)(A), so this provision indisputably governs all three of the plans in issue in this case. If the Court deems it necessary, Count V can be amended to invoke Section 208 as an alternative basis for the claim.

CONCLUSION

For the foregoing reasons, plaintiffs respectfully request that the motion to dismiss be denied in its entirety.

ORDER

AND NOW, this ___ day of __________, 2003, in consideration of Defendants' Motion to Dismiss Plaintiffs' Amended Complaint, filed on September 26, 2003, plaintiffs' response thereto, filed on October 28, 2003, defendants' reply memorandum, filed on November ____, 2003, and the entire record herein, it is hereby ORDERED that:

1. Defendants' motion to dismiss be and hereby is DENIED.