ADRIENNE
M. LEFKOWITZ, Plaintiff-Appellant, v. ARCADIA TRADING CO. LTD. BENEFIT PENSION
PLAN, BAY NOVELTY AND INSPECTION COMPANY LIMITED DEFINED BENEFIT PENSION PLAN,
BONUS CONSULTANTS LIMITED, COMMITTEE OF THE ARCADIA TRADING COMPANY LIMITED
DEFINED BENEFIT PENSION PLAN, COMMITTEE OF THE BAY NOVELTY AND INSPECTION
COMPANY LIMITED DEFINED BENEFIT PENSION PLAN, and THE BANK OF NEW YORK as
Preliminary Executor of the Estate of IRENE B. MARSH, Defendants-Appellees.
Docket No. 92-9030
UNITED STATES COURT
OF APPEALS FOR THE SECOND CIRCUIT
996 F.2d 600; 1993
U.S. App. LEXIS 15138; 16 E.B.C. 2516
January 6, 1993, Argued
June 22, 1993, Decided
PRIOR HISTORY: [**1] Appeal from judgment of
United States District Court for Southern District of New York, Robert J. Ward,
Judge, holding that ERISA applied to pension plans at issue and that spouse of
plan participant was entitled to Qualified Preretirement Survivor Annuity under
Retirement Equity Act of 1984, Pub. L. 98-397, 98 Stat. 1426 (1984).
DISPOSITION: Affirmed.
CORE TERMS: pension, transitional, spouse, beneficiary, died,
summary judgment, plan year, pension plan, designation, amended to provide,
pension benefits, dies, transition rule, inspection, vested, flower, sole
beneficiary, effective date, automatic, genuine issue of material fact, engaged
in commerce, surviving spouse, survivor, annuity, automatically, qualification,
pension-plan, terminated, undisputed, artificial
COUNSEL: MITCHELL L. STRICKLER, Washington DC, for
Plaintiff-Appellant.
ROBERT M. REDIS, White Plains, NY (Frank W. Streng; Howell Bramson; William F.
Macreery; Robert H. Rosh; and McCarthy, Fingar, Donovan, Drazen & Smith; of
counsel), for Defendant-Appellee The Bank of New York as Preliminary Executor
of the Estate of Irene B. Marsh.
Millbank, Tweed, Hadley & McCloy, New York, NY, for Defendants-Appellees
Arcadia Trading Co. Ltd. Benefit Pension Plan, Bay Novelty and Inspection
Company Limited Defined Benefit Pension Plan, Bonus Consultants Limited,
Committee of the Arcadia Trading Company Limited Defined Benefit Pension Plan,
Committee of the Bay Novelty and Inspection Company Limited Defined Benefit
Pension Plan.
JUDGES: BEFORE: PRATT and MAHONEY, Circuit Judges, and Daniel
M. FRIEDMAN, Circuit Judge for the United States Court of Appeals for the [**2]
Federal Circuit, sitting by designation. Judge Mahoney concurs in a separate
opinion.
OPINIONBY: PRATT
OPINION:
[*600]
PRATT, Circuit Judge:
In 1984 congress amended the Employee Retirement Income Security Act
("ERISA") with the Retirement Equity Act ("REA"), Pub. L.
98-397, 98 Stat. 1426 (1984), codified [*601]
at 29 U.S.C. §§ 1052-1056, to ensure that individuals whose spouses die before
their retirement would nevertheless receive the spouses' pension benefits. As
we recently noted in Hurwitz v. Sher, 982 F.2d 778, 781 (2d Cir. 1992), cert.
denied, 124 L. Ed. 2d 255, 61 U.S.L.W. 3772, 113 S. Ct. 2345 (1993), the
statute is intended to protect "long-term homemakers' rights to their
spouses' retirement benefits".
Plaintiff Adrienne Lefkowitz appeals from a summary judgment of the United
States District Court for the Southern District of New York, Robert J. Ward,
Judge, in favor of the Bank of New York as Preliminary Executor of the Estate
of Irene Marsh ("the estate"). The district court concluded that the
estate was entitled to benefits from two pension plans that had covered
Nicholas V. Marsh, Irene's husband. The district court held that [**3]
the REA applied to these pension plans and, because Irene had not waived her
REA-established rights, her estate was entitled to the benefits.
Adrienne Lefkowitz -- daughter of Nicholas and Irene -- principally claims on
appeal that the REA does not apply to these pension plans and, because her
father had designated her as sole beneficiary of the plans, that she is
entitled to the pension benefits. For the reasons set forth below we affirm the
judgment in favor of the estate of Nicholas's widow.
BACKGROUND
This case arises from a bitter mother-daughter dispute between Irene and
Adrienne over Nicholas's pension benefits.
A. The Pension Plans.
The Marsh Family -- Nicholas, Irene, and their three children -- controlled two
Hong Kong corporations, Arcadia Trading Company ("Arcadia") and Bay
Novelty and Inspection Company ("Bay Novelty"), which specialized in
the export and inspection of artificial flowers. Both corporations employed
Nicholas, a United States citizen and resident of New York, and in 1980 adopted
defined benefit pension plans with Nicholas as their only participant. In
January 1983 the IRS determined that each pension plan qualified for various
tax advantages under [**4]
26 U.S.C. § 401 and § 501.
In May 1983 Nicholas and Irene executed mutual wills and simultaneously entered
into an agreement which provided that neither party would "revoke his or
her Will" or "execute a new Will, a codicil or a trust agreement
disposing of his or her property at death". Three years later, Irene and
Nicholas experienced a falling-out, which led Irene to initiate divorce
proceedings in January 1987. In April 1987 Nicholas signed two beneficiary
designation forms that named Adrienne as the sole beneficiary of the pension
plans. Needless to say, Irene did not consent to this designation. Four months
later, Nicholas commenced his own divorce proceeding, claiming that Irene had
abandoned him. When Nicholas died on March 15, 1988, he and Irene were
estranged, but it is undisputed that they were still married. Nicholas's death
triggered a struggle over the pension benefits. In a related case, widow Irene
in February 1990 commenced a turnover proceeding in New York County surrogate's
court seeking payment of the benefits to her. Relying on 28 U.S.C. § 1441(a),
daughter Adrienne on March 14, 1990, removed [**5]
the case to the United States District Court for the Southern District of New
York, where it was assigned to Hon. Kevin Thomas Duffy, Judge. On April 6,
1990, Adrienne filed this action, which was also assigned to Judge Duffy,
seeking the pension-plan benefits for herself, based on Nicholas's 1987
designation of her as his sole beneficiary under the plans. The two cases were
never consolidated. Irene died on May 13, 1990, and the Bank of New York
represents her estate in this action.
In ruling on the parties' cross-motions for summary judgment, Judge Duffy
concluded that ERISA in general and the REA in particular applied to Nicholas's
pension plans; that the REA conferred a Qualified Preretirement Survivor
Annuity (QPSA) upon Irene; and that since Irene had never waived her right to
the benefits, she was entitled to the QPSA notwithstanding Nicholas's
designation in 1987 of Adrienne as his [*602]
beneficiary. In re Lefkowitz, 767 F. Supp. 501 (S.D.N.Y. 1991).
Judge Duffy then referred the matter to Magistrate Judge Kathleen A. Roberts to
determine the amount of the QPSA to be paid to the Bank of New York. Magistrate
Judge Roberts addressed the QPSA matter [**6]
in a report and recommendation dated June 23, 1992.
Based on Judge Duffy's memorandum and order and Magistrate Judge Roberts'
report and recommendation, the district court on August 18, 1992, entered
judgment (1) declaring ERISA applicable to the pension plans; (2) denying
Adrienne's motion for partial summary judgment and dismissing her complaint; (3)
granting the estate's motion for partial summary judgment; (4) determining that
the estate was entitled to a QPSA of $ 2,178,432; and (5) awarding costs
against Adrienne under Fed. R. Civ. P. 54(d).
Adrienne now appeals, contending (1) that title I of ERISA, which contains the
REA, does not apply to the plans because they were maintained by foreign
corporations; and (2) that the REA does not apply because the corporations did
not amend the pension plans to provide QPSAs.
DISCUSSION
We review the district court's grant of summary judgment de novo, see Burtnieks
v. City of New York, 716 F.2d 982, 985 (2d Cir. 1983), drawing all inferences
in favor of Adrienne, the losing party.
A. ERISA Applies to the Pension Plans.
Adrienne first asserts that summary judgment was improper because there are
genuine [**7]
issues of material fact over whether these plans are covered by title I of
ERISA, see 29 U.S.C. §§ 1001-1461, which contains the REA. Title I imposes
obligations on pension-plan fiduciaries and applies only to those plans that
are maintained "by any employer engaged in commerce or in any industry or
activity affecting commerce". 29 U.S.C. § 1003(a)(1). Plans
"maintained outside of the United States primarily for the benefit of persons
substantially all of whom are nonresident aliens" are exempt from
coverage. 29 U.S.C. § 1003(b)(4). Adrienne argues that because Hong Kong
corporations established these plans, there is a genuine issue of material fact
as to whether the plans are affected by ERISA.
The district court correctly noted that since Nicholas was an American citizen
the plans did not qualify for the § 1003(b)(4) exemption. While the district
court did not address the interstate commerce issue, our review of the record
shows that there is no genuine issue of material fact as to whether the
corporations were engaged in commerce. There is evidence, including letters [**8]
from the corporations' directors, that refers to the corporate business as
providing "inspection services in connection with the supply of artificial
flowers and flower arrangements to the USA." While Arcadia and Bay Novelty
do not conduct their business in the United States, this does not determine
whether the corporations affect United States commerce. Clearly they do, because
their principal markets are in this country. Adrienne fails to raise any
genuine issue as to this element.
B. The REA Applies to Unamended Pension Plans.
Although contributions to the pension plans were terminated on December 31,
1984, Judge Duffy concluded that the plans themselves had not terminated for
the purposes of REA applicability. In re Lefkowitz, 767 F. Supp. at 508-09.
Thus, the question is whether the REA applies to pension plans that have not
been amended to provide for QPSAs. The REA provides in relevant part:
Each pension plan to which this section applies shall provide that -
*
* *
(2) in the case of a vested participant who dies before the annuity starting
date and who has a surviving spouse, a qualified preretirement survivor annuity
[**9]
shall be provided to the surviving spouse of such participant.
29 U.S.C. § 1055(a)(2) (emphasis added).
Congress enacted the REA on August 24, 1984, but provided that the statute
would not be effective until after December 31, 1984. [*603]
Nevertheless, it enacted a transitional rule, § 303(c)(2), that provided in
relevant part:
In the case of any participant --
(A) who has at least 1 hour of service under the plan on or after the date of
the enactment of this Act or has at least 1 hour of paid leave on or after such
date of enactment,
(B) who dies before the annuity starting date, and
(C) who dies on or after the date of the enactment of this Act and before the
first day of the first plan year to which the amendments made by this Act
apply,
the amendments made by sections 103 and 203 shall be treated as in effect as of
the time of such participant's death.
Pub. L. 98-397, Title III, § 303(c)(2) (emphasis added).
Thus, the transitional rule applied the QPSA provisions to pension plans where
a plan participant died after August 24, 1984, the day of enactment, but before
the first day of the first plan year [**10] that began after
December 31, 1984. The relevant treasury regulation indicates that in such
cases the REA will apply even where the plan was not amended to comply with the
statute:
Q-42: Must a plan be amended to provide for the QPSA required [by the
transition rule]?
A-42: A plan will not fail to satisfy the qualification requirements of [the
transition rule] merely because it is not amended to provide a QPSA [required
by the transition rule]. The plan, however, must satisfy those requirements in
operation.
26 C.F.R. § 1.401(a)-20 (1992) (emphasis added).
The district court relied on this "transition rule" in reaching its
conclusion that the REA applied to the pension plans in this case,
notwithstanding Arcadia and Bay Novelty's failure to amend the plans in
compliance with the statute. While the district court's ultimate conclusion was
correct, it erred when it applied the transitional rule directly to the plans
in this case. For these plans, the relevant plan year began on March 1, 1985.
Thus, the transitional rule would apply only if Nicholas had died between
August 24, 1984, and March 1, 1985, the first day of the first plan year after
the effective date of [**11]
the act. Nicholas, however, died in 1987; thus, Adrienne correctly argues, the
transitional rule does not directly apply to the plans in this case. Any other
reading would turn the transitional rule into a permanent rule.
Adrienne further contends that the REA does not apply because the pension plans
were not amended to comply with the REA. From the statutory provision that
"each pension plan * * * shall provide" for a QPSA, she would infer
that compliance by any particular plan with the REA is optional. We disagree.
First, Adrienne's reading of the statutory language is flawed. "Much of
the trouble in statute drafting originates in the use of shall." Bryan A.
Garner, A Dictionary of Modern Legal Usage 516 (1987). As Professor Garner
notes, "the word shall ordinarily connotes language of command". Id.
at 502. Adrienne, however, would read the word "shall" as if it did
not command an obligation. Under her interpretation, the REA would
automatically apply via the transitional rule to unamended pension plans where
a participant dies before the first day of the first plan year after the
statute's effective date, but would apply in all other [**12]
circumstances only if the plans themselves formally adopted the REA's QPSA
provisions.
Reading the statute as a whole, we are satisfied that congress intended the
QPSA provisions of the REA to be mandatory, not optional. The transitional rule
was designed to provide immediate protection for spouses of participants who
might die soon after the statute was enacted. This concern for immediate
protection upon enactment, notwithstanding that the other provisions of the
amendment had a delayed effective date, indicates that congress clearly did not
intend that the REA could be accepted or rejected at the discretion of pension
plan administrators.
Second, experts in the field believe that the QPSA benefit is automatic
"unless it is specifically and effectively waived". Ronald J. Cooke,
ERISA Practice and Procedure [*604]
§ 4.44, at 4-136 (1992); see also Research Institute of America, Pension
Coordinator P 51,040 (1993) (QPSA required whether or not plan seeks tax
qualification).
Third, the statute that confers federal jurisdiction over this matter permits a
plan beneficiary, such as a spouse claiming an entitlement to a QPSA, to seek
judicial enforcement of a benefit conferred by ERISA. [**13]
A plan beneficiary may bring a civil suit "(A) to enjoin any act or
practice which violates any provision of this subchapter or the terms of the
plan, or (B) to obtain other appropriate equitable relief (i) to redress such
violations or (ii) to enforce any provisions of this subchapter or the terms of
the plan." 29 U.S.C. § 1132(a)(3) (emphasis added). See also Massachusetts
Laborers' Health & Welfare Fund v. Starrett Paving Corp., 845 F.2d 23, 27
(1st Cir. 1988) (statute permits plan beneficiary "to enforce a plan's
terms or to enforce other, substantive provisions" of ERISA).
Finally, REA's legislative history also demonstrates congress's intent to
ensure the mandatory application of REA to pension plans. Congress felt it was
"inequitable" for a participant's spouse to receive "no survivor
benefits under the plan even though the participant had accrued significant
vested benefits before death. Therefore, * * * it is appropriate to provide
automatic survivor benefits to the spouses of vested participants." S.
Rep. No. 98-575, 98th Cong., 2d Sess. 12 (1984), reprinted in 1984 U.S.C.C.A.N.
2547, 2558; see [**14]
also Hurwitz, 982 F.2d at 781. This desire to benefit spouses of pension plan
beneficiaries implies an intent to apply the REA to pension plans whether or
not they were amended to provide a QPSA, because to hold otherwise would permit
recalcitrant administrators of pension plans to avoid providing spousal
benefits simply by declining to amend their plans after the transitional rule
expired.
We conclude that the district court properly determined that the automatic QPSA
provisions of the REA applied to these pension plans. Since it is undisputed
that Irene did not consent to Nicholas's 1987 designation of Adrienne as the
beneficiary, see 29 U.S.C. § 1055(c)(2); see also Cooke, supra, § 4.44, her
estate is entitled to the QPSA.
Affirmed.
CONCURBY: MAHONEY
CONCUR:
MAHONEY, Circuit Judge, concurring:
I concur in the opinion of the court. I write separately only to note that the
operation of the transitional rule, § 303(c)(2) of the REA, lends additional
support to the court's ruling. The transitional rule provides that as to
certain participants who died after the enactment of the REA but before it
became effective as to [**15]
the plan covering that participant (i.e., before the first plan year commencing
after December 31, 1984), "the amendments made by sections 103 and 203
shall be treated as in effect as of the time of such participant's death."
Section 103 of the REA enacted amended § 1055 of title 29, the ERISA provision
at issue in this case, and section 203 enacted the counterpart provisions of
the Internal Revenue Code.
Unless, however, § 1055 acts automatically to effect the amendment requiring
QPSAs in pension plans subject to § 1055, the fact that § 1055 was "in
effect" at the time of the death of a participant to whom the transitional
rule applied would ordinarily be meaningless, since no plan amendment would
normally have been adopted at that premature juncture.
It nonetheless seems to me somewhat extraordinary to rule that a statute which
requires that pension plans "shall provide" for QPSAs has the effect
of injecting the required provisions into covered plans whether or not the
provisions are ever actually adopted and incorporated into the plans. Reading §
1055 in context, however, this appears to be what Congress intended, and I
therefore join in the ruling that this is what Congress [**16]
enacted.