Benefits -- 2012



Shaver v. Siemens Corp.   (3rd Circuit)

Whether sale of manufacturing plant creates liability for job separation benefits

Siemens Corp. bought a power plant from Westinghouse Corp., hiring all of the plant's then-active employees and providing them with retirement benefits that were substantially the same as had been provided under Westinghouse's pension plan. That plan offered permanent job separation (PJS) benefits until 1998. The plant was closed in 2002, and 227 former employees sued Siemens for termination benefits.

The trial court agreed, ruling that Sections 204(g) and 208 of the ERISA prevent the company from cutting back on early retirement benefits. This decision is likely to impose substantial new burdens on sponsors of employee retirement plans when a company acquires a facility and retains the workforce.

The NAM, the American Benefits Council, and the U.S. Chamber of Commerce filed an amicus brief arguing that ERISA's "spin-off" rule should not apply in this context because ERISA encourages plan sponsors to adopt employee benefit plans voluntarily and with flexibility. In addition, ERISA's Section 204(g) anti-cutback rule should not apply because the Siemens plan never included PJS benefits and compelling a purchaser to provide a seller's contingent benefit subsidy when the former employees remain ineligible for that benefit will discourage employers from entering into business transactions. We asked the court to reverse a decision in which the trial court rewrote the terms of a business transaction and circumvented the clear and express terms of an ERISA plan.

On Feb. 29, 2012, the Third Circuit ruled unanimously that the plaintiffs were not entitled to PJS benefits under any circumstance. The plaintiffs were not able to satisfy the conditions for receiving PJS benefits under the Westinghouse plan, the omission of those benefits did not diminish the plaintiffs' benefits, and the company did not undertake any obligation to provide those benefits to legacy employees.

The complexity and extensive litigation over federal law relating to employee benefit plans continues to dog manufacturers who need flexibility to weather changing economic circumstances. The lower court's unwarranted extensions of ERISA's complex rules could have encouraged protracted litigation over similar business transactions or could have discouraged employers from entering into such transactions at a time when American companies need maximum flexibility to face the challenges of global competition and rapid change. This kind of class-action litigation creates high stakes for manufacturers, and this victory is an important one for reining in such claims.


Related Documents:
NAM brief  (June 3, 2011)