Sullivan et al v. CUNA Mutual Insurance Society

Filing 31

ORDER granting 14 Motion to Dismiss; judgment to be entered dismissing case with prejudice. Signed by Chief Judge Barbara B. Crabb on 2/12/2010. (llj)

IN THE UNITED STATES DISTRICT COURT FO R THE WESTERN DISTRICT OF WISCONSIN --------------------------------------------JO H N F. SULLIVAN, WILLIAM E. PHILLIPS, K A R E N N. WITHEE, PAUL J. SPECHT and T H O M AS O. OLSON, on behalf of themselves and all others similarly situated, OPINION AND ORDER Plaintiffs, 0 9 - c v -4 5 5 - v i s 1 v. C U N A MUTUAL INSURANCE SOCIETY and C U N A MUTUAL GROUP MEDICAL CARE PL AN FOR RETIREES, D efendan ts. --------------------------------------------T his is a civil action in which plaintiffs John F. Sullivan, William E. Phillips, Karen N . Withee, Paul J. Specht and Thomas O. Olson contend that defendants Cuna Mutual Insurance Society and Cuna Mutual Group Medical Care Plan for Retirees have violated the pro vision s of the Employee Retirement Income Security Act of 1974 and Wisconsin co m m on law by eliminating the payment of a percentage of retirees' health premiums

The parties have declined the jurisdiction of the magistrate judge in this case and i t has been set for assignment to a visiting judge. Because no Article III judge has been assigned as of yet, I am assuming jurisdiction over this case for the purpose of this order.

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throu gh employer contributions and sick leave accounts. Defendants filed a motion to dism iss plaintiffs' claims under Fed. R. Civ. P. 12(b)(6). Dkt. #14. Plaintiffs believe that they were guaranteed a lifetime benefit by defendant CUNA M utual Insurance Society, but the facts of the case and the applicable law do not support their belief. Their rights never vested and defendant never made an irrevocable promise to them that it would maintain the healthcare benefits at their initial level. Instead, it always reserved its right to make changes in the benefits. Nothing in ERISA or state law makes that reservation of rights improper or invalid. It is clear that the allegations in plaintiffs' complaint and in the documents attached to the complaint do not state a claim for relief under ERISA, no matter how favorably to p la i n tiffs they are construed, and that the state law claims are preempted by ERISA. T herefore, defendants' motion to dismiss will be granted. Before discussing the pertinent facts, a word about the source of those facts is in o r d er . Generally, in deciding a motion to dismiss, a court should consider only the

allegations in the complaint. Centers v. Centennial Mortgage, Inc., 398 F.3d 930, 933 (7th Cir. 2005). However, a court may also consider written instruments attached to the

co m p lain t . Fed. R. Civ. P. 10(c) ("A copy of a written instrument that is an exhibit to a pleading is part of the pleading for all purposes."); Tierney v. Vahle, 304 F.3d 734, 738 (7th C ir. 2002) (court may consider attachments to complaint without converting motion to

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dism iss into motion for summary judgment). Although the court accepts as true well-pleaded, that is, non-conclusory, allegations, R iley v. Vilsack, ___ F. Supp 2d ___, 2009 WL 3416255, at *7 (W.D. Wis. Oct. 21, 2009), "[w]here an exhibit and the complaint conflict, the exhibit typically controls." Forrest v. U niversal Savings Bank, F.A., 507 F.3d 540, 542 (7th Cir. 2007). In other words, "[a] court is not bound by the party's characterization of an exhibit and may independently examine and form its own opinions about the document." Forrest, 507 F.3d at 542 (citing McCready v. eBay, Inc., 453 F.3d 882, 891 (7th Cir. 2006) (citation omitted)). "Thus, a plaintiff `may p lead himself out of court by attaching documents to the complaint that indicate that he or sh e is not entitled to judgment.'" Massey v. Merrill Lynch & Co., Inc., 464 F.3d 642, 645 (7th Cir. 2006) (quoting Centers, 398 F.3d at 933). Plaintiffs attached 62 pages of exhibits to their complaint. Those exhibits include succeeding versions of defendants' postretirement health benefit plan, amendments to the plan, plan election forms, company memorandums and portions of defendants' consolidated finan cial statements. All those attached exhibits will be considered in deciding defendants' m otio n, along with a page of defendants' financial statement, which they attached to their m o tio n . Dkt. #16, exh. 2. Wright v. Associated Insurance Companies Inc., 29 F.3d 1244, 1 2 4 8 (7th Cir. 1994) ("documents attached to a motion to dismiss are considered part of the pleadings if they are referred to in the plaintiff's complaint and are central to his claim");

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see also 188 LLC v. Trinity Industries, Inc., 300 F.3d 730, 735 (7th Cir. 2002) (quoting W right). I find that the following facts are fairly alleged in the complaint and attached exhibits.

A LL EG A T IO N S OF FACT A. Parties D efendant CUNA Mutual Insurance Society is a mutual insurance company that was organized and existed under the laws of Wisconsin until 2007 when it reorganized under the law s of Iowa. Defendant CUNA Mutual is the employer and plan sponsor of defendant C U N A Mutual Group Medical Care Plan for Retirees, which is an employee welfare benefit plan under section 3(1) of ERISA, 29 U.S.C. § 1002(1). (All further references to CUNA M utual will be to the insurance society, as employer and plan sponsor.) Plaintiffs John F. S u llivan , William E. Phillips, Paul J. Specht and Thomas O. Olson are retired employees of d efen dan t CUNA Mutual who elected to participate in the CUNA Plan upon retirement and w ere not subject to any collective bargaining agreement. Sullivan retired in 1996, Phillips in 1993, Specht in 2008 and Olson in 2001. Plaintiff Karen N. Withee is a retired

em ployee of defendant CUNA Mutual who chose to participate in the CUNA Plan and, as a union member, was subject to a collective bargaining agreement.

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B . The CUNA Plan and 1982 Memorandums In 1976, defendant CUNA Mutual issued a written instrument to evidence its em ployee welfare benefit plan. A portion of the plan states that 12. The Employer may amend, modify, suspend, withdraw or terminate the Plan at any time, including any Exhibit A, and, by agreement with the insurer or insurers involved, any Policy. E xh . to Cpt., dkt. #2, at PL-COMP 000002. B egin n in g in 1982, CUNA Mutual created personal sick leave accounts for m an agem en t employees. em p lo yees, explaining Y o u r CUNA Mutual Insurance Group employer has modified its Policy on prem ium contributions for a Qualified Management Retiree's coverage under the group contract providing insurance for the CUNA Mutual Group Health Plan. This Memorandum is to inform you about the new Policy on premium con tribution s. . . . This Policy applies only to Qualified Management Retirees who retire on or after January 1, 1982 and while this Policy continues in effect. .... While this Policy continues in effect, a CUNA Mutual Insurance Group form er employer will make the following contribution toward payment of the prem ium for coverage of Qualified Management Retiree under the Group H ealth Contract: first, payment of the percentage of the premium shown for the Q ualified Management Retiree's status in the table under (2) above, excep t the percentage shall be 60% if the Qualified Management On July 9, 1982, it issued a memorandum to management

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R etiree is eligible under (1) above; and second, payment of the balance of the premium to the extent of any then available sick leave credit as determined by multiplying the Q ualified Management Retiree's earned and unused sick leave hours at retirem ent by 70% of the [retiree's] hourly salary rate just prior to retirem ent and thereafter reducing the resulting dollar credit by each am ou nt the former employer pays under this sick leave credit. Id., dkt. #2, at PL-COMP 000052. Creating the sick leave accounts was a successful policy. B y the time of retirement, many employees had obtained sick leave credit levels that could pay in excess of $100,000 toward premium payments, which would have been enough to pay the full amount of anticipated expenses for retiree health benefits for a retiree and his or her b e n e f i ci a r i e s . I n 1983, union employees were given two options with respect to their sick leave accou nts. Upon retirement, they could either (1) convert their accumulated, unused sick days into a non-cash account that would be used to pay the premiums on their insurance p ro vid ed for under the retirement health benefits plan or (2) take a cash payout. Non-union em ployees did not have the second option. To keep track of an employee's accumulated, unused sick days, CUNA Mutual maintained ledger entries. The non-cash accounts could be used only to pay annual health insurance premiums for retirees participating in the C U N A Plan.

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C . Plan Election Forms R etiring CUNA Mutual employees were provided a group health election form allow ing them to choose whether to participate in defendant CUNA Mutual's group health coverage, known as the CUNA Plan. The election forms provided the percentage of the m on thly premiums for which CUNA Mutual was responsible and the percentage for which the retired employee was responsible. For example, the form signed by plaintiff Sullivan stated in relevant part: I elect to continue the CUNA Mutual Group Health coverage family (em plo yee & spouse) plan by paying 60% of the monthly premium. (CUNA M utual pays 40%.) Id ., dkt. #2, at PL-COMP 000055. The form signed by plaintiff Specht stated in relevant part: I elect the CUNA Mutual Group Health coverage by paying 44% of the m on thly premium. (CUNA Mutual pays 56%). Id ., dkt. #2, at PL-COMP 000057. T he forms also gave enrollees information about their non-cash sick leave accounts. For example, Sullivan's form stated: Effective July 1, 1996, the premium will be paid from the sick-leave dollar valu e calculated at retirement in accordance with the administrative ruling d ated July 9, 1982. Id., dkt. #2, at PL-COMP 000055; Olson's stated:

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M y 60% monthly contribution will be deducted from my estimated sick leave do llar balance, $145,443.08 until it is exhausted. After that time, my prem ium s will be deducted from my monthly Pension check if I wish to con tinue coverage. Id., dkt. #2, at PL-COMP 000056; and Specht's stated: M y premium will be deducted from my sick leave dollar balance, $71,838.29, u ntil it is exhausted. After that time, I will be notified how to pay for prem ium if I wish to continue coverage. Id., dkt. #2, at PL-COMP 000057. Election forms stated that "I understand the premium is subject to change," or "I understand the premiums and/or benefits are subject to change." Id ., dkt. #2, at PL-COMP 000055-000058.

D . The 1995 Modification of the CUNA Plan I n 1995 defendant CUNA Mutual modified the CUNA Plan. The purpose of the C U N A Plan was "to provide group health care coverage to Retirees and Dependents." Id., dkt. #2, at PL-COMP 000010. The "established and executed" portion of the CUNA Plan set out the "terms and conditions pursuant to which the Plan shall be maintained[.]" Id., dkt. #2, at PL-COMP 000007. The "terms and conditions" of the CUNA Plan included the follow ing two paragraphs: 7. Benefits to be provided under the Plan shall be exclusively those provided un der the policies in accordance with their terms, conditions and provisions, an d this exclusive manner of providing benefits shall be the funding policy and m eth od of the Plan.

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.... 10. The Employer expects the Plan to be permanent, but since future conditions affecting the employer cannot be anticipated or foreseen, the Em ployer must necessarily and does hereby reserve the rights to amend, m odify or terminate the Plan including all or any part of Exhibit A at any time b y action of its Board. The Employer may also make any modification or am endm ents to the Plan retroactively, if necessary or appropriate, to qualify or maintain the Plan as a plan meeting the requirements of the Internal R evenue Code of 1954 or the Act as now in effect or hereafter amended or the regulations issued thereunder. No amendment of the Plan shall cause any part of the Plan to be used for, or diverted to purposes other than for the exclusive b en efit of the Participants or their dependents covered by the Plan. Id. Article V of the CUNA Plan provided information on the funding of the plan. Specifically, subsection 5.1, entitled "Premium," stated: For Participants, the Employer shall contribute toward the cost of group m ed i c a l care coverage elected under this Plan according to the Enrollment Fo rm . Id., dkt. #2, at PL-COMP 000017. Article VII of the CUNA Plan provided miscellaneous in fo rm atio n , including the following regarding termination and changes to the plan: T h e Plan may at any time be amended or terminated by a written instrument s igned by the President of the Employer and approved by the Board of D irectors. From time to time, the Plan Administrator shall update the En rollm ent Form to show the maximum amount of contributions. Id., dkt. #2, at PL-COMP 000020. The CUNA Plan stated that "[t]his Plan shall not be deem ed to constitute a contract between the Employer and any Participant or to be a

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co n sid eratio n or an inducement for the employment or participation in the Plan of any Participant." Id.

E. Amendments to the CUNA Plan In 2000, the 1995 version of the CUNA Plan was amended in several respects, one o f which was to provide benefits under the plan on a self-funded basis. In 2002, the 1995 version of the CUNA Plan was amended again in several respects not relevant to this case. O n August 1, 2007, the CUNA Plan was amended and restated. The amended and restated version did not include a "established and executed" portion or the "terms and co nditio ns" under that portion in the 1995 version of the plan. The funding for the CUNA Plan did not change: "the Employer shall contribute toward the cost of the coverage elected u nd er this Plan according to the Enrollment Form." Id., dkt. #2, at PL-COMP 000035. T he 2007 amended and restated plan stated that "[t]he Employer may amend or terminate th e Plan at any time." Id., dkt. #2, at PL-COMP 000043. O n December 31, 2008, the CUNA Plan was amended again. This amendment elim inated any further contributions or subsidies by defendant CUNA Mutual. Specifically, the amendment stated: Effectiv e as of the end of business on December 31, 2008, the Employer shall no t make any further contributions and eliminate any other subsidies under the Plan for any Participant, except:

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.... (c) Represented employees who retired after April 1, 1983, with respect to sick lea ve that was converted to a non-cash account. Such non-cash accounts shall con tinue to be available to those employees. [E]ffective as of the end of business on December 31, 2008, the Employer shall eliminate all contributions and subsidies, including sick leave converted i nto non-cash accounts . . . . Participants shall be responsible for the entire cost of premiums. Id., dkt. #2, at PL-COMP 000049. (The elimination of contributions and subsidies includes addition al exemptions not relevant to this case.)

F. Accounting for Retiree Benefits T he effect of eliminating the contributions and subsidies for retirement health b en efits resulted in a $121,823,000 pre-tax increase in defendant CUNA Mutual's 2008 inco m e. Although retirement health benefits were funded on a pay-as-you-go basis, CUNA M utual was required to recognize the cost of those benefits as a liability on an accrual basis as employees performed services that could entitle them to the benefits. CUNA Mutual did not maintain a segregated trust or "res" to fund retiree health benefits, but paid the costs out of its general assets.

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O PIN IO N A. Rule 12(b)(6) Standard U nder Fed. R. Civ. P. 12(b)(6), a claim or entire complaint may be dismissed for a "failu re to state a claim upon which relief can be granted." Although a plaintiff does not have to include detailed factual allegations, it must allege enough facts to raise its right to relief above the speculative level. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007); see also Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (plaintiff must plead "factu al content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged"). Dismissal under Rule 12(b)(6) is proper "when the allegations in a complaint, however true, could not raise a claim of entitlement to relief," id. at 558, including instances in which the plaintiff pleads himself out of court by pleading facts precluding recovery. Hefferman v. Bass, 467 F.3d 596, 600 (7th Cir. 2006) (citing M cCready, 453 F.3d at 888 ("if a plaintiff pleads facts which show he has no claim, then he has pled himself out of court").

B . The ERISA Claims In their complaint, plaintiffs assert three claims against defendants under ERISA: (1) b reach of fiduciary duty under § 404(a)(1), 29 U.S.C. § 1104(a); (2) involvement in a p ro hib ited transaction under § 406(a)(1)(D), 29 U.S.C. § 1106(a)(1)(D); and (3) violation

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of the plan document. Before addressing whether plaintiffs' allegations and the attached exhibits support these claims, I must resolve some foundational issues about the CUNA Plan and its terms. The parties' disputes stem from differing interpretations of the CUNA Plan and the application of the law to the plan. In particular, the parties dispute whether the plan pro vides vested benefits and they disagree about the scope of the exclusive benefits clause and the nature of the non-cash sick leave accounts. Resolution of these disputes will resolve plaintiffs' claims. (I note that although plaintiffs do not discuss the issue, all plaintiffs cann ot pursue the same arguments in support of the claims raised in the complaint. Because plaintiff Withee was a union employee subject to a collective bargaining agreement, her claim s against defendants depend only on the termination of their contribution to her health insuran ce premiums. The other arguments raised by plaintiffs regarding termination of sick leave accounts do not apply to Withee because her non-cash sick leave account was not term inated by the 2008 Amendment.)

1. Interpreting the CUNA Plan a. Vested or unvested benefits "E R IS A is a comprehensive statute designed to protect the interests of employees and their beneficiaries in pension and welfare benefit plans." Anweiler v. American Electric Pow er Service Corp., 3 F.3d 986, 989-90 (7th Cir. 1993). An employee benefit plan can be

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classified as a pension benefit plan under § 3(2) or a welfare benefit plan under § 3(1). 29 U .S.C . §§ 1002(1) & (2). A pension benefit plan provides retirement income to employees or allows employees to defer the receipt of income until or beyond the termination of the covered employment. 29 U.S.C. § 1002(2)(A). A welfare benefit plan provides medical ben efits or benefits in the event of some other occurrence, such as death or unemployment. 29 U.S.C. § 1002(1). The difference in classification is crucial. Pension benefits are subject to strict vesting and funding requirements but welfare benefits, such as health and life insurance, are not. Bland v. Fiatallis North America, Inc., 401 F.3d 779, 783 (7th Cir. 2005 ) (citing 29 U.S.C. § 1051(1)). For example, welfare benefits "vest[ ] only if the plan con tract so provides." Id. Plaintiffs allege in their complaint that the CUNA Plan "is an employee benefit plan as defined in 29 U.S.C. § 1002(3)." Cpt., dkt. #1, at 3 ¶8. Section 3(3) states that "`em ployee benefit plan'" . . . means [1] an employee welfare benefit plan or [2] an employee pension benefit plan or [3] a plan which is both an employee welfare benefit plan and an em ployee pension benefit plan." 29 U.S.C. § 1002(3). Plaintiffs do not say which of the three categories listed under § 3(3) describes the CUNA Plan. Nonetheless, the other allegatio ns in the complaint and the attached plan documents make it clear that the CUNA Plan's purpose and function was to provide medical benefits in the form of health insurance. T hus, the CUNA Plan is an employee welfare benefit plan. 29 U.S.C. § 1002(1).

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Because the CUNA Plan is a welfare benefit plan, the employer and plan sponsor, CU N A Mutual, is "generally free under ERISA, for any reason at any time, to adopt, modify, or terminate" the plan. Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73, 78 (1995). Lim itations on alterations to welfare benefit plans must come from the terms of a particular con tract. Bland, 401 F.3d at 783. For example, welfare benefits may vest if the employer elects "to enter into a private contract with employees as set forth in benefit plan docum ents." Id. D eterm inin g whether the CUNA Plan provided plaintiffs with vested benefits is a m atter of contract interpretation. Id. Under applicable federal principles of contract

co n str u c t i o n , "a document should be read as a whole with all its parts given effect, and related documents must be read together." Id. Because "[u]pon vesting, benefits become forever unalterable, and because employers are not legally required to vest benefits, the intention to vest must be found in `clear and express language' in plan document." Id. at 784 (citation omitted). However, the plan documents need not "use the word `vest' or some varian t of it" to create rights that do not expire. Id. Initially, it is necessary to determine which documents are plan documents. D e fen dan ts contend in their reply brief that the court should look only to the 2007 am en dm en t and restatement of the CUNA Plan, not the 1995 version, in addressing plaintiffs' claims. Defs.' Reply Br., dkt. #28, at 4. However, defendants have waived this

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argum ent by raising it for the first time in their reply brief. Nelson v. La Crosse County D i strict Attorney, 301 F.3d 820, 836 (7th Cir. 2002). At any rate, because the 2007 version of the CUNA Plan was an amendment and did not contain an "established and executed" po rtion to replace the portion set out in the 1995 and 1976 versions, it is reasonable to infer that the 2007 plan did not completely replace the 1995 version but merely amended it. T h us, I will consider both the 1995 and 2007 versions of the CUNA Plan. W hen deciding what other documents are plan documents, the court one must keep in mind that an ERISA plan is more than a piece of paper; it is "a more inchoate group of righ ts, benefits and procedures (literally, a `plan') set up by an employer to create pension or welfare benefits." Orth v. Wisconsin State Employees Union Council 24, 500 F. Supp 2 d 1130, 1140 (E.D. Wis. 2007) aff'd, 546 F.3d 868 (7th Cir. 2008). Although many different documents may evidence a plan, it is the information the documents provide that m atters. E.g., id. (plan may be evidenced by any documents "that describe the rights of beneficiaries or such things as how the plan is administered, how premiums are collected, etc."). Here, in addition to the different versions of and amendments to the CUNA Plan, it is proper to consider the 1982 Memorandum and the retirees' enrollment forms. Both the m em ora nd um and enrollment forms gave retirees information on how health insurance p r e m iu m s would be paid. Further, the memorandum says specifically that it is modifying the premium payment policy on retirees' health coverage.

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In reviewing all the pertinent CUNA Plan documents, I can find no clear and express language providing for the vesting of retiree health care benefits. None of the plan

d ocu m e nts provide "life-time" language, such as "benefits will continue" or "shall remain" as long as the member is living or even that any benefit is provided "for life." Plaintiffs fail to point to any language regarding duration in plan documents from which one could infer that the benefits are vested. In addition to being silent on vesting, the plan documents contain clear and express reservation of rights clauses. The Court of Appeals for the Seventh Circuit has found that even when a welfare plan provides benefits "for life," the words do not support a finding that benefits have vested when the plan includes a reservation of rights clause. Vallone v. CNA Fina ncial Corp., 375 F.3d 623, 633 (7th Cir. 2004). In this instance, the "for life" language m ay be construed as "`good for life unless revoked or modified.'" Id. Put another way, "the `lifetim e' nature of a welfare benefit does not operate to vest that benefit if the employer reserved the right to amend or terminate the benefit . . . ." Id. at 634. Every version of the CU N A Plan contains a clause granting CUNA Mutual the right to "amend or terminate the Plan at any time." Exh. to Cpt., dkt. #2, at PL-COMP 000043; see also id. at PL-COMP 0 0 0 00 2 , 000007 and 000020. Plaintiffs contend that the election forms vested their benefits in their sick leave accounts because the forms said that the accounts would be used to pay premiums until the

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accou nts were "exhausted." Id., dkt. #2, at PL-COMP 000056-57. As with "for life" language, reconciling the CUNA Plan's reservation of rights clause with the "until exhausted" lan guage requires construing the language as meaning "until exhausted unless the plan is revo ked or modified." This interpretation is further confirmed by examining the 1982 m em o ran du m creating the sick leave account policy, which states that the sick leave account po licy would last only while the overall policy on employer premium contributions continued to exist. Id., dkt. #2, at PL-COMP 000051-52. Plaintiffs deny that the CUNA Plan is silent on vesting, arguing that the reservation of rights clause is limited by the exclusive benefits clause found in the 1995 version of the plan, which states, "No amendment of the Plan shall cause any part of the Plan to be used for, or diverted to purposes other than for the exclusive benefit of the Participants[.]" Exh. to Cpt. ,dkt. #2, at PL-COMP 000007. They are mistaken. A plain reading of this language do es not imply that plaintiffs have a vested right to retiree health care benefits. T h e exclusive benefit clause does not say anything about the duration of benefits and it does not say that benefits cannot be terminated. Nonetheless, plaintiffs read the clause as providing vested benefits. They do this by interpreting the clause to prohibit CUNA M utual from amending the CUNA Plan in any way that would reduce participants' benefits below the levels provided for under the 1995 version of the plan. Under plaintiffs'

interpretation , the plan's exclusive benefit clause would contradict its reservation of rights

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clause, which reserves to CUNA Mutual the right to amend, modify or terminate the plan because "future conditions affecting the employer cannot be anticipated or foreseen[.]" Id., dkt. #2, at PL-COMP 000007. If plaintiffs are correct, the reservation of rights clause w ould drop out of the picture and CUNA Mutual would be prohibited from modifying the CU N A Plan in any way that would reduce participant benefits, including terminating the p la n . In plaintiffs' view, the exclusive benefit clause merely modifies the reservation of rights by limiting the type of amendments allowed. However, plaintiffs' reading of the clause does not merely modify the clause--it contradicts it. The CUNA Plan states that future con dition s could necessitate amending or even terminating the CUNA Plan; under plaintiffs' read in g such conditions could never be considered if the result would be a decrease in b en efits. Simply put, the plan could never be terminated despite language providing o th erw i se. Plaintiff's interpretation cannot be correct. Because the CUNA Plan is silent on the duration of benefits and includes reservation of rights clauses, I conclude that the health care benefits are not vested.

b. Exclusive benefits clause Although plaintiffs' interpretation of the exclusive benefits clause is incorrect, the C U N A Plan's exclusive benefit clause does prohibit certain types of amendments, as

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evidenced by the "no amendment . . . shall" language. This leads to the question: what does the exclusive benefit clause prohibit? The answer is relevant to determining whether

defendan ts' actions violated the terms of the CUNA Plan. When there are potentially conflicting clauses in a single contract formed of several docum ents, the court must "seek an interpretation that reconciles those provisions." Diehl v. Twin Disc, Inc., 102 F.3d 301, 307 (7th Cir. 1996). It is not necessary to look outside th e plan documents unless a clause is ambiguous. Kamler v. H/N Telecommunication Services, Inc., 305 F.3d 672, 680 (7th Cir. 2002). The court should interpret ERISA plan term s "in an ordinary and popular sense." Id. (internal quotation omitted). As I explained above, the exclusive benefits clause is in some tension with the reservation of rights clause. To reach an interpretation that resolves that tension, it is helpful to consider the dual capacities in which employers act under ERISA. ERISA

regulates both the "employer's right to modify or abolish a plan--which it may do without acting as a fiduciary for the worker--and the employer's duty to provide employees the benefits of existing plans." Heath v. Varity Corp., 71 F.3d 256, 258 (7th Cir. 1995). The "anti-inurem ent" rule, 29 U.S.C. § 1103(c)(1), provides further guidance for interpreting the C U N A Plan's exclusive benefits clause. The rule states that "the assets of a plan shall never in ure to the benefit of any employer and shall be held for the exclusive purposes of providing ben efits to participants." This rule is not considered a limitation on an employer's ability

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to modify or administer a plan, only on using a plan's assets for any purpose besides providing currently existing benefits to participants. Similarly, the CUNA Plan's exclusive b en efit clause is read properly as not prohibiting an employer from amending or terminating benefits, but only as limiting the way an employer may use the assets that have become part o f a plan. Plaintiffs contend that the anti-inurement rule is not comparable to the exclusive benefits clause in the CUNA Plan because the rule limits only the use of assets whereas the clause covers the use of "any part of the plan." Plaintiffs note correctly that the CUNA Plan has no assets, that is, no segregated trust or res from which benefits are paid. Instead, the plan is unfunded and health insurance premiums are paid out of CUNA Mutual's general assets. E.g., Shields v. Local 705, International Brotherhood of Teamsters Pension Plan, 188 F .3 d 895, 900 n.3 (7th Cir. 1999) ("In the case of an unfunded welfare plan, there is no particular fund which is depleted by paying benefits."). However, the absence of specific p la n assets actually supports treating the rule and the clause as compatible. Because the CU N A Plan is unfunded and has no plan assets, it would not fall within the scope of the anti-inurem ent rule. The exclusive benefits clause fills in for the anti-inurement rule by insuring that assets such as insurance policies, stock, cash, etc., that do become part of the plan are used for the exclusive benefit of plan participants. T h is interpretation is further supported by other terms of the plan. The reservation

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o f rights clause protects CUNA Mutual from having to provide health care benefits to retirees when doing so is no longer financially viable, by granting it the right to terminate the plan. Interpreting the exclusive benefits clause as prohibiting only amendments that alter the use of things that have already become part of the plan would not lessen the pro tection afforded by the reservation of rights clause. Once CUNA Mutual has contributed so m ething to the plan, which would make it a "part of the plan," it would not hurt CUNA M utual to require it to use that contribution for the exclusive benefit of plan participants. F in ally, the exclusive benefits clause prohibits amendments that cause "any part of the plan" to be used or diverted for purposes other than the exclusive benefit of retirees. For som ething to be used or diverted, that thing must be tangible. Therefore, I find it proper to lim it "any part of the plan" to things akin to assets that the plan takes into possession. Although to a layperson this interpretation of "any part of the plan" may seem less than intuitive, it resolves the tension in the welfare benefit plan at issue within the framework created by ERISA. E.g., Diehl, 102 F.3d at 307 (construing terms in welfare benefits plan "m ay compel a rather forced construction" because "of what it takes to overcome the presum ption that welfare benefits do not vest, combined with the court's reluctance to interpret a contract as being at war with itself").

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c. Sick leave accounts T he last dispute about plan terms involves the non-cash sick leave accounts. R eso lvin g this dispute will determine whether defendants' termination of the accounts falls w ithin the scope of ERISA. Plaintiffs contend that the non-union employee sick leave accounts were either tangible plan assets or part of a payroll practice that falls outside the p lan . They are incorrect on both accounts. The sick leave accounts were an accounting con struct used by the CUNA Plan to help determine how a plan participant's health insuran ce premiums would be paid. (The policy creating union retirees' sick leave accounts w as different from the policy creating non-union retirees' accounts. The union retirees could cho ose a cash payout as opposed to having a non-cash sick leave account to pay insurance prem ium s. However, the nature of sick leave accounts for union retirees is irrelevant in this ca se because the 2008 amendment states that their non-cash sick leave accounts "shall co n tin ue to be available for those employees." Exh. to Cpt., dkt. #2, at PL-COMP 000049. T herefore, their accounts were not terminated and they have no claim regarding defendants' term ination of the non-union retirees' accounts.) CUNA Mutual kept track of employee sick leave accounts with ledger entries reflecting unused sick days. Although it recognized the liabilities associated with the sick leave accounts on an accrual basis on its balance sheet, the health benefits were funded on a pay-as-you-go basis. In other words, no money was set aside in a specific fund matching

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the cash value of the non-cash sick leave accounts. Instead, when premiums were to be paid, C U N A Mutual made the payments out of its general assets and decreased the value assigned to sick leave accounts accordingly. Except for union employees, retirees were never entitled to the option of a cash payout on their sick leave accounts. Plaintiffs contend that CUNA Mutual's accounting for the sick leave accounts on an accrual basis transformed those accounts into assets of the plan as the retirees performed services to earn sick days. However, accruing future liabilities does not create plan assets. In accounting for sick leave accounts on an accrual basis, CUNA Mutual was merely follow ing the Financial Accounting Standards Board Statement No. 106, which requires that po stretirem ent benefits be accounted for on an accrual basis according to expected costs. It is common for employers to account for future non-pension, postretirement benefits without settin g aside assets to offset the future liability. E.g., Charles M. Meyer, Accounting and Fina nce for Lawyers in a Nutshell 310 (4th ed. 2009) ("[N]onpension benefits are much less likely to be funded by the employer prior to the actual payment of benefits. Thus, as the expen se for the nonpension benefits is recognized, there is likely to be a significant liability repo rted in the balance sheet since there are no plan assets to offset the liability."). Because, as plaintiffs agree, the CUNA Plan was unfunded, no assets were set aside to counter the future liabilities created by the sick leave accounts. Further, plan liabilities and plan assets are two separate things. Cf. Johnson v.

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G eo rgia-P acific Corp., 19 F.3d 1184, 1189 (7th Cir. 1994) ("Consider what the `surplus' of a defined-benefit plan is. It is not a pile of assets stacked in the corner. It is instead an accounting construct. The plan determines the value of its assets--stocks, bonds, real property, cash, and so on. It also estimates the cost of fulfilling all of the promises to pay vested benefits. The former computation yields the asset side of the balance sheet, the latter the liability side. The difference between these is the `surplus' or `deficit'[.]"). It is true that rem oving these liabilities from its balance sheet gave CUNA Mutual a $121,823,000 pre-tax increase in income. However, all this meant was that general assets in CUNA Mutual's corp ora te treasury that would have gone to pay for those liabilities were now free to be used elsew here. To find that the liabilities created by the sick leave accounts were a plan asset w ou ld impress a trust on CUNA Mutual's general assets, something ERISA does not permit. E.g., Sutton v. Weirton Steel Division of National Steel Corp., 724 F.2d 406, 412 (4th Cir. 1983 ) ("In short, ERISA does not impress a trust upon National's corporate treasury for the paym ent of the contingent benefits."). Plaintiffs contend that if the non-union sick leave accounts are not plan assets, they m u st be part of a payroll practice outside the purview of ERISA. The regulations

p ro m u lgated by the Secretary of Labor exclude certain "payroll practices" from being co nsidered welfare benefit plans. 29 C.F.R. § 2510.3-1(b). Plaintiffs contend that CUNA M utu al's sick leave account policy for non-union employees falls under the following payroll

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practice: Payment of an employee's normal compensation, out of the employer's general assets, on account of periods of time during which the employee is physically o r mentally unable to perform his or her duties, or is otherwise absent for m edical reasons . . . . 29 C.F.R. § 2510.3-1(b)(2). If the sick leave account policy at issue had provided a payout upon retirement, I m ight be inclined to agree that it was an exempt payroll practice. Traditional sick leave as w ell as vacation wages paid out of an employer's general assets are the type of payroll practices excluded from ERISA by the regulations. Shea v. Wells Fargo Armored Service C o rp ., 810 F.2d 372, 376 (2d Cir. 1987). The fact that the payments are made for

accum ulated and unused sick or vacation time does not affect the exemption. Massachusetts v. Morash, 490 U.S. 107, 199-120 (1989). However, CUNA Mutual's sick leave account p o licy was not a traditional sick leave policy. Instead, as previously stated, it was a method fo r paying health insurance premiums under CUNA Mutual's welfare benefit plan. The nonunion plaintiffs were never entitled to a payout of any accumulation of sick hours. Further, u se of the sick leave accounts was contingent on the CUNA Plan's remaining in effect, a m atter that was out of plaintiffs' control. Cf. Morash, 490 U.S. at 115 ("Because ordinary vacatio n payments are typically fixed, due at known times, and do not depend on con tingencies outside the employee's control, they present none of the risks that ERISA is

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intend ed to address."); see also Shea, 810 F.2d at 376 (" The sick leave and vacation wages at issue here fall within the `payroll practices' provisions because they are payable . . . w ithout additional conditions or contingencies of any kind."). The sick leave accounts were non-cash accounts that could be used only to pay annual health insurance premiums for non-union retirees participating in the CUNA Plan. They w e re not plan assets. Instead, CUNA Mutual created them as a modification of its payment o f health insurance premiums. Accordingly, the sick leave account policy falls within the sco p e of ERISA. Cf. Orth v. Wisconsin State Employees Union Counsel 24, 546 F.3d 868, 870-71 (7th Cir. 2008) (although no issue of payroll practice issue was raised, monetary value of unused sick leave used to pay insurance premiums was considered under ERISA plan).

2. Plaintiffs' ERISA claims a. Fiduciary duty to administer the plan in the interest and for the benefit of plan participan ts Plaintiffs contend that defendants violated § 404(a)(1) of ERISA when they amended the CUNA Plan in 2008 to eliminate all employer contributions and subsidies for health insuran ce premiums. This is incorrect. The CUNA Plan is a welfare benefit plan that does no t provide for any vested benefits. For that reason, CUNA Mutual is free under ERISA to

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am en d or terminate the plan "for any reason at any time." Curtiss-Wright Corp., 514 U.S. at 78. In fact, the Supreme Court has explained that regardless whether the plan is a welfare or pension plan, "[p]lan sponsors who alter the terms of a plan do not fall into the category of fiduciaries. . . . When employers [adopt, modify or terminate a plan], they do not act as fiduciaries, but are analogous to the settlors of a trust." Lockheed Corp. v. Spink, 517 U.S. 882, 890 (1996). Simply put, "an employer's decision to amend a [ ] plan concerns the com position or design of the plan itself and does not implicate the employer's fiduciary duties which consist of such actions as the administration of the plan's assets." Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 444 (1999). T he 2008 amendment to the CUNA Plan changed the plan participants entitled to receive certain plan benefits, such as use of non-cash sick leave accounts to pay health insuran ce premiums, and the amount of benefits that would be received, such as health in su ran ce with or without employer contributions to premiums. The action does not

im plicate defendant CUNA Mutual's fiduciary duty under § 404(a). Id. Defendants were free to alter or amend the health care benefits without considering the plan participants' interests. Young v. Standard Oil (Indiana), 849 F.2d 1039, 1045 (7th Cir. 1988). Plain tiffs contend that if defendants did not violate their fiduciary duty under ERISA w ith the 2008 amendment, they violated that duty by misinforming plan participants about the permanency of their benefits. However, the written information plaintiffs were provided

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in plan documents was clear. term inated.

Defendants told employees that the benefits could be

Plaintiffs were not misinformed about the permanency of their benefits.

D e fen dan ts did not breach their fiduciary duty under ERISA. Vallone, 375 F.3d at 642.

b . Prohibited transaction Plaintiffs contend that defendants violated § 406(a)(1)(D) of ERISA, 29 U.S.C. § 11 06 (a)(1)(D ), by terminating their premium subsidies provided for through the non-cash sick leave accounts. However, defendants could not have violated § 406(a)(1)(D). Such a vio latio n requires the "transfer to, or use by or for the benefit of a party in interest, of any assets of the plan" id. (emphasis added). As previously explained, the CUNA Plan did not con tain any plan assets. It is an unfunded plan that pays benefits out of CUNA Mutual's general assets. The accounting for the liabilities created by the sick leave accounts on an accrual basis did not turn those liabilities into plan assets. To find otherwise would impress a trust on CUNA Mutual's general assets, something that ERISA does not authorize. Sutton, 724 F.2d at 412.

c. Violation of the CUNA Plan Plaintiffs contend that the 2008 amendment to the CUNA Plan violated the terms

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o f the plan.

Specifically, plaintiffs contend that ending employer contributions and

term inating the non-union non-cash sick leave accounts violated the exclusive benefits clause. Their contention fails in light of the proper interpretation of the CUNA Plan's reservation of rights clause read in conjunction with the exclusive benefits clause. T he 2008 Amendment terminated two benefits that retirees had been offered under th e CUNA Plan: employer contributions to insurance premiums and the subsidization of non-union retirees' portion of premiums with their non-cash sick leave accounts. As I have already explained, the CUNA Plan does not provide for any vested benefits. The unvested nature of the benefits means that they could be terminated at any time for any reason. The term s of the plan do not state otherwise. Further, the amendment's termination of benefits did not redirect the use of a part o f the plan. The non-cash sick leave accounts were an accounting construct used in a form ula for determining a non-union retiree's premium subsidy. The accounts were never tied to something tangible, such as assets, but were part of the method defendants used in adm inistering the plan. The termination of the benefits to which the sick leave accounts w ere attached, that is, the unvested premium subsidies, removed the need to administer the plan using the sick leave accounts. Thus, the amendment did not violate the exclusive b en efits clause of the CUNA Plan.

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3. Summary It is understandable that plan participants might have been confused about the duration of welfare benefits. What seemed to them to be lifetime benefits turned out to be som ething else altogether, because of the reservation of rights clause in the plan. No doubt plaintiffs feel cheated by the loss of the benefits they anticipated. However, neither the un derstandab le nor unfortunate nature of the circumstances changes the result of this case. U nd er ERISA, "if accurate written information is provided, as it was here, then the plaintiffs are [ ] out of luck." Id. at 642. P lain tiffs have failed to state a claim upon which relief can be granted under ERISA. W hen the allegations in their complaint are read in conjunction with the documents attached to their complaint it is clear that plaintiffs would not prevail under the most genero us reading of their allegations. Thus, defendants' motion to dismiss the ERISA claims w ill be granted.

C . State Law Claim The non-union plaintiffs Sullivan, Phillips, Specht and Olson also assert four state law claim s against defendants: breach of contract; promissory estoppel; breach of unilateral pro m ise; and conversion. (Plaintiffs have not asserted any state law claim on plaintiff W ithee's behalf.) All four claims arise from the termination of the premium subsidies

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pro vided using the non-cash sick leave accounts. Defendants contend that all of the state law claim must be dismissed because they are preempted by ERISA. I agree. Congress enacted ERISA to provide a uniform regulatory regime over employee benefit plans. Aetna Health Inc. v. Davila, 542 U.S. 200, 208 (2004). To enforce that purp ose, ERISA contains an expansive preemption clause intended "to be so broad as to entirely replace any state-law claim" to enforce a claim for benefits under an ERISA-governed em ployee benefit plan. Franciscan Skemp Healthcare, Inc. v. Centra States Joint Board H ealth and Welfare Trust Fund, 538 F.3d 594, 596 (7th Cir. 2008). Courts use a two-step test for determining whether a state law claim is preempted by ERISA: (1) whether the plaintiff's claims could have been brought under ERISA's civil enforcement provision, § 50 2(a)(1 )(B), 29 U.S.C. § 1132(a)(1)(B); and (2) whether the defendant's actions implicate legal duties independent of ERISA. Id. at 597 (citing Davila, 542 U.S. at 210). U nd er the first step, a claim can brought under § 502(a)(1)(B) of ERISA "to recover benefits due [ ] under the terms of [the] plan, to enforce [ ] rights under the terms of the plan, or to clarify [ ] rights to future benefits under the terms of the plan." 29 U.S.C. § 11 32 (a)(1)(B ). All of plaintiffs' state law claims stem from defendants' decision to terminate the non-cash sick leave accounts. For each claim, plaintiffs allege that they are entitled to the use of the sick leave accounts and they seek to continue using their sick leave accounts to pay health insurance premiums.

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Plaintiffs' state law claims mirror their ERISA claims. The state law claims seek to enfo rce their rights under the terms of the plan by obtaining use of their sick leave accounts to pay health insurance premiums. The relief sought is premium subsidies, which were benefits under the terms of the plan. Further, as I explained before, creation of the sick leave accou nts was not a payroll practice outside the scope of ERISA. Instead, they were created as a modification of the CUNA Plan's method of subsidizing retiree health insurance prem ium s. Thus, plaintiffs' state law claims could have been brought under ERISA, as in fact they were. An sw ering the second question, whether defendants' actions implicated a legal duty indep enden t of ERISA, lends further support to a finding of preemption. Any right plaintiffs have to use their non-cash sick leave accounts arises solely from the terms of the CUNA P lan . The 1982 memorandum creating the sick leave accounts was created as a modification of the CUNA Plan. Therefore, any duty defendants have with respect to the sick leave accounts falls under ERISA. At the crux of all of plaintiffs' claims, including their state law claim s, is their effort to nullify defendants' 2008 amendment to the CUNA Plan. To allow them to nullify the amendment through state law claims would contradict ERISA's "aggressive form of preemption," which was intended to "`knock out any effort to use state law , including state common law, to obtain benefits under [any employee benefit] plan.'" S h arp Electronics Corp. v. Metropolitan Life Ins. Co., 578 F.3d 505, 514 (7th Cir. 2009)

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(quo ting Pohl v. National Benefits Consultants, Inc., 956 F.2d 126, 127 (7th Cir. 1992)). E R IS A 's preemptive power is meant to prevent participants in employee benefit plans from engaging in an end run around ERISA's provisions and obtaining relief that is "functio nally a benefit to which the written terms of their plan do not entitle them." Pohl, 956 F.2d at 128. As the statute states, "[ERISA] shall supersede any and all State laws inso far as they may now or hereafter relate to any employee benefit plan." 29 U.S.C. § 11 44 (a). The relationship between plaintiffs' state law claims and CUNA Mutual's

em ployee welfare benefit plan is not the tenuous, remote or peripheral connection that escapes ERISA's broad preemption. Sharp Electronics Corp., 578 F.3d at 514. Accordingly, plaintiffs' state law claims are preempted by ERISA and must be dismissed for failure to state claim s upon which relief may be granted.

OR DER IT IS ORDERED that 1. The motion to dismiss, dkt. #14, filed by defendants CUNA Mutual Insurance S ociety and CUNA Mutual Group Medical Care Plan for Retirees is GRANTED; 2. The clerk of court is directed to enter judgment dismissing the complaint filed by plaintiffs John F. Sullivan, William E. Phillips, Karen N. Withee, Paul J. Specht and Thomas

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O . Olson with prejudice. E n tered this 12th day of February, 2010. B Y THE COURT: /s/ B AR B AR A B. CRABB D istrict Judge

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