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Alfred DiGiacomo v. Teamsters Pension Trust Fund of Philadelphia and Vicinity

Location: Court of Appeals, Third Circuit




On Appeal from the United States District Court for the Eastern District of Pennsylvania
(Civil Action No. 04-1090)
District Judge: Honorable Legrome D. Davis

Argued: Friday, May 27, 2005

Before: SCIRICA, Chief Judge, ALITO and GARTH, Circuit Judges

(Opinion Filed: August 24, 2005)


ALITO, Circuit Judge, dissenting:

I agree that the relevant provisions of ERISA speak in unambiguous terms, but I disagree with the majority about what they say. In my view, the majority misreads § 204 by equating the accrual of benefits with an unconditional right to receive benefits, even though benefits become unconditional through vesting, not accrual. Under the minimum vesting standards in § 203, the Plan was plainly allowed to treat benefits accrued prior to 1972 as forfeitable upon a break in service. Since I believe the plain text of the statute requires us to affirm the District Court's decision, I respectfully dissent.


The majority quotes at length from ERISA §§ 202 and 204, but these sections of the Act are largely irrelevant to the appeal. DiGiacomo admits that the Fund properly credited him with accrued benefits. An exhibit attached to his complaint indicates that he accrued benefits pursuant to the terms of the Plan at a steady rate for each year of service prior to 1972. App. at 16. The notice also indicates, however, that these accrued benefits were "lost" as a result of his "break in service" that year. Id. Since DiGiacomo does not challenge the Fund's interpretation of the Plan, the only question we must decide is whether the Fund could deny him benefits that accrued before ERISA applied to the Plan and that were forfeited under the terms of the Plan then in effect.

ERISA clearly answers this question in the affirmative. Section 203 provides that "for purposes of determining the nonforfeitable percentage" of an employee's "accrued benefit," a plan may permissibly disregard "years of service before this part first applies to the plan if such service would have been disregarded under the rules of the plan with regard to breaks in service, as in effect on the applicable date." 29 U.S.C. § 1053(a)(2), (b)(1)(F). The Plan in effect in 1972 was thus entitled to treat all benefits DiGiacomo had accrued prior to his break as "forfeitable" - that is, as conditional only. See ERISA § 3(19), 29 U.S.C. § 1002(19).

The convergence of the conditions that led to the 15 forfeitability and forfeiture of DiGiacomo's benefits illustrates why § 204 makes no mention of breaks in service. The majority ponders this omission, but a close reading of the statute reveals that § 203's break-in-service provisions would be superfluous in § 204. The loss of vesting credit as a result of a break in service under § 203(b)(1)(F) leaves a participant's pre-break accrued benefits forfeitable under the terms of his plan, but nothing in ERISA prevents a plan from making the break itself a forfeiture event. If a plan's pre-ERISA break-inservice provisions may disregard vesting credit earned prior to ERISA's effective date, it necessarily follows that the plan may call for the forfeiture of accrued benefits protected by that vesting credit.

The Plan did just that. Although it provided for benefit accrual in each year of service, see App. at 20, it also provided that a break in service would result in the loss of prior vesting credit. See id. at 19. When DiGiacomo left covered employment in 1972, his benefits accordingly became forfeitable under § 203(b)(1)(F). Since the Plan further provided that accrued benefits would be forfeited upon a break in service, see App. at 20, DiGiacomo's departure from covered employment simultaneously resulted in the forfeitability and forfeiture of his benefits.15 Observing that ERISA's minimum standards for vesting and accrual differ, the majority concludes that "the Fund was required to credit DiGiacomo with 'all years of service' in computing his accrued pension benefits." Maj. Op. at [[9]]. The majority seems to assume that ERISA also required the Plan to include all of his accrued benefits in the calculation of his Although the complaint does not mention it, DiGiacomo's 16 appellate brief appears to claim that some or all of his benefits had vested even prior to the break in service. See DiGiacomo's Br. at 16. This claim, if true, would not affect the analysis above. Regardless of how they were characterized under the 1972 version of the Plan, DiGiacomo's pre-break benefits were clearly "forfeitable" within the meaning of ERISA, since the Plan provided for their forfeiture if a break in service occurred. More to the point, ERISA did not require the Plan to treat them as nonforfeitable.

Under § 203(b)(1)(F), the Plan could treat them as forfeitable if they accrued before ERISA applied to the Plan and were so treated under the version of the Plan then in effect. Because they were treated as forfeitable by the Plan in 1972, they could be forfeited upon the occurrence of any condition set forth therein, including a break in service. pension, but ERISA says nothing of the kind. As the Supreme Court explained in Central Laborers' Pension Fund v. Heinz, accrual is simply "the rate at which an employee earns benefits to put in his pension account." 541 U.S. 739, 749 (2004). Accrued benefits, in other words, are like chalk marks beside the employee's name. They are conditional rights that do not become "irrevocably his property" until they vest. Id. Only then do they become "legally enforceable against the plan." ERISA § 3(19), 29 U.S.C. § 1002(19). Prior to vesting, accrued benefits can be, and in this case were, forfeited under the terms of a participant's plan.

DiGiacomo alleges that he became a fully vested participant after returning to covered employment, but nothing 16 in the Plan entitled him to restoration of his forfeited accrued benefits. ERISA certainly does not require their restoration. To the contrary, § 203 recognizes the enforceability of pre-ERISA break-in-service provisions as applied to benefits accrued prior to the Act's effective date. See Tanzillo v. Local Union 617, Int'l Bhd. of Teamsters, 769 F.2d 140, 145 (3d Cir. 1985). Under the Fund's unchallenged interpretation of the Plan, DiGiacomo was permanently stripped of any accrued benefits when his break in service occurred.

DiGiacomo's authorities to the contrary are unpersuasive. The Second Circuit in McDonald v. Pension Plan of the NYSAILA Pension Trust Fund concluded that the plain text of §§ 202 and 204 required a plan to provide for benefit accrual in every year of an employee's participation. See 320 F.3d 151, 156-57 (2d Cir. 2003); cf. 29 C.F.R. § 2530.210(a)(2) (requiring qualified plans to take into account "all years of participation . . . for purposes of section 204"). This conclusion simply begs the question. The question is not whether benefits must accrue in every year of participation but whether benefits accrued in years prior to ERISA's effective date may be forfeited under break-in-service provisions then in effect. The answer supplied by § 203(b)(1)(F) is clearly affirmative.


Although I agree that the Court's inquiry should begin and end with the statute's plain text, I note that the legislative history of §§ 203 and 204 confirms my interpretation. The reports on the embryonic legislation usually do not discuss accrual or, when they do, discuss it only under the rubric of vesting. See, e.g., S. Rep. No. 93-383, 1974 U.S.C.C.A.N. 4890, 4929, 4935-36; H.R. Conf. Rep. No. 93-1280, 1974 U.S.C.C.A.N. 5038, 5049, 5054-57; cf. S. Rep. No. 93-383, 1974 U.S.C.C.A.N. at 4890 (explaining, without reference to the concept of accrual, that the legislation was designed "to make sure that those who do participate in [retirement] plans do not lose their benefits as a result of unduly restrictive forfeiture provisions"); H.R. Rep. No. 93-807, 1974 U.S.C.C.A.N. 4670, 4671 (same).

Congress evidently understood accrual as simply the handmaiden to vesting. As the Senate report on S. 1179 explains, "[i]t is necessary to provide a statutory definition of an 'accrued benefit' because, unless this is a defined amount, vesting of an 'accrued benefit' in whatever form is specified by the plan has little, if any, meaning." S. Rep. No. 93-383, 1974 U.S.C.C.A.N. at 4935; see also H.R. Conf. Rep. No. 93-1280, 1974 U.S.C.C.A.N. at 5055 (explaining that accrual standards are necessary to "limit the extent of 'back-loading' permitted under the plan"); Jones v. UOP, 16 F.3d 141, 143-44 (7th Cir. 1994) (same); 1 Jeffrey D. Mamorsky, Employee Benefits Handbook § 17:36 (2004) ("The minimum vesting standards of the Code would be rendered meaningless if the plan sponsor were free to backload the plan . . . because a mandated large percentage of nothing is still nothing.").

This history confirms that § 204 was not designed to afford any right to a guaranteed retirement benefit apart from the Act's minimum vesting standards. Under those minimum vesting standards, the Plan was entitled to treat DiGiacomo's benefits as forfeitable because they accrued before ERISA applied to the Plan and because they were so treated under the terms of the Plan then in effect. See § 203(b)(1)(F). Having permissibly deemed them forfeitable, the Plan could, and did, call for their forfeiture.


Because ERISA provides DiGiacomo no right to receive the benefits that were forfeited under the Plan's break-in-service provisions in effect at the time the benefits accrued, his complaint fails to state a claim on which relief can be granted. The District Court correctly granted the Fund's motion to dismiss it. The majority errs in reversing that decision, and I respectfully dissent.

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