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HUGHES AIRCRAFT COMPANY, et al., PETITIONERS
v. STANLEY I. JACOBSON et al.
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
[January 25, 1999]
Justice Thomas delivered the opinion of the Court.
Five retired beneficiaries of a defined benefit plan, subject to the terms of the Employee Retirement Income Security Act of 1974 (ERISA), 88 Stat. 832, as amended, 29 U.S.C. § 1001 et seq., filed a class action lawsuit against their former employer, Hughes Aircraft Company (Hughes), and the Hughes Non-Bargaining Retirement Plan (Plan). They claim that Hughes violated ERISA by amending the Plan to provide for an early retirement program and a noncontributory benefit structure. The Ninth Circuit held that ERISA may prohibit these amendments. We reverse.
I
According to the complaint, Hughes has provided the Plan for its employees since 1955. Prior to 1991, the Plan required mandatory contributions from all participating employees, in addition to any contributions made by Hughes.1 Section 3.1 of the Plan defines Hughes funding obligations:
The cost of Benefits under the Plan, to the extent not provided by contributions of Participants shall be provided by contributions of [Hughes] not less than in such amounts, and at such times, as the Plan Enrolled Actuary shall certify to be necessary, to fund Benefits under the Plan .
In addition, §3.2 provides that Hughes contributions shall not fall below the amount necessary to maintain the qualified status of the Plan
and to comply with all applicable legal requirements. But §6.2 of the Plan gives Hughes the right to suspend its contributions to the Plan at any time, so long as doing so does not create an accumulated funding deficiency
By 1986, as a result of employer and employee contributions and investment growth, the Plans assets exceeded the actuarial or present value of accrued benefits by almost $1 billion. In light of this Plan surplus, Hughes suspended its contributions in 1987, which it has not resumed. Pursuant to the terms of the Plan, the employee contribution requirement remains operational.
Two amendments Hughes made to the Plan are the subject of the present litigation. In 1989, Hughes established an early retirement program that provided significant additional retirement benefits to certain eligible active employees. Subsequently, Hughes again amended the Plan to provide that, effective January 1, 1991, new participants could not contribute to the Plan, and would thereby receive fewer benefits. Existing members could continue to contribute or opt to be treated as new participants. The Plan obligations created by these amendments constitute the only use of the Plans assets other than paying the pre-existing obligations under the original contributory benefit structure. The Plans assets substantially exceed the minimum amount needed to fund all current and future defined benefits.
In January 1992, respondents filed this class action on behalf of all Plan participants who had contributed to the Plan and who are or may become eligible to receive benefits designated for contributing participants. The District Court granted Hughes motion to dismiss the complaint for failure to state a claim. A divided panel of the Ninth Circuit reversed. 105 F.3d 1288 (1997), amended, 128 F.3d 1305 (1998). The majority concluded that the 1991 amendment may have terminated the Plan and created two plans: one consisting of pre-existing members and the other consisting of new participants. Distinguishing Lockheed Corp. v. Spink, 517 U.S. 882 (1996), as concerning a plan funded solely by employer contributions, the majority held that the act of amending the Plan triggered ERISAs fiduciary provisions. The majority also thought that the employees who were members of the contributory structure had a vested interest in the Plans surplus.
Accordingly, the Court of Appeals concluded that respondents had alleged six causes of action in their complaint. Specifically, respondents claimed that Hughes had violated ERISAs prohibition against using employees vested, nonforfeitable benefits to meet its obligations by depleting the surplus to fund the noncontributory structure. §203, 29 U.S.C. § 1053(a). They further argued that Hughes had violated ERISAs anti-inurement prohibition, §403(c)(1), 29 U.S.C. § 1103(c)(1), by benefiting itself at the expense of the Plans surplus. Respondents also alleged that Hughes had breached its fiduciary duties under ERISA in three ways: amending the Plan in 1989 to fund a program outside of the Plans purposes violated §404(a)(1)(D), 29 U.S.C. § 1104(a)(1)(D); amending the Plan in 1991 to create the noncontributory structure violated §406(a)(1)(D), 29 U.S.C. § 1106(a)(1)(D); and using the surplus assets to fund noncontributory benefits for those who had never contributed to the Plan violated §404, 29 U.S.C. § 1104. Finally, respondents claimed that the alleged termination of the Plan had violated §4044(d)(3)(A), 29 U.S.C. § 1344(d)(3)(A), which requires that residual assets in a terminated plan be distributed to its beneficiaries.
The dissenting judge concluded that the District Court properly dismissed the complaint. He reasoned that an amendment to a pre-existing plan does not affect the availability of the plans pool of assets for funding pre-existing obligations and cannot be characterized as a termination; interpreted Spink to stand for the proposition that the act of amending a plan does not trigger fiduciary duties; and observed that employees who contribute to a defined benefit plan do not have an interest in that plans surplus.
The majoritys decision is in tension with our decision in Spink, where we held that the act of amending a pension plan does not trigger ERISAs fiduciary provisions, 517 U.S., at 891, and with other Circuits decisions. See, e.g., Brillinger v. General Elec. Co., 130 F.3d 61 (CA2 1997), cert. pending, No. 971834; American Flint Glass Workers Union v. Beaumont Glass Co., 62 F.3d 574 (CA3 1995); Malia v. General Elec. Co., 23 F.3d 828 (CA3), cert. denied, 513 U.S. 956 (1994); Johnson v. Georgia-Pacific Corp., 19 F.3d 1184 (CA7 1994); Phillips v. Bebber, 914 F.2d 31 (CA4 1990)(per curiam). We granted certiorari, 523 U.S. __ (1998), and now reverse.
II
Our review of the six claims recognized by the Ninth Circuit requires us to interpret a number of ERISAs provisions. As in any case of statutory construction, our analysis begins with the language of the statute. Estate of Cowart v. Nicklos Drilling Co., 505 U.S. 469, 475 (1992). And where the statutory language provides a clear answer, it ends there as well. See Connecticut Nat. Bank v. Germain, 503 U.S. 249, 254 (1992).
A
Respondents vested-benefits and anti-inurement claims proceed on the erroneous assumption that they had an interest in the Plans surplus, which, with respect to the anti-inurement claim, was used exclusively to benefit Hughes. These claims fail because the 1991 amendment did not affect the rights of pre-existing Plan participants and Hughes did not use the surplus for its own benefit.
To understand why respondents have no interest in the Plans surplus, it is essential to recognize the difference between defined contribution plans and defined benefit plans, such as Hughes. A defined contribution plan is one where employees and employers may contribute to the plan, and
The structure of a defined benefit plan reflects the risk borne by the employer. Given the employers obligation to make up any shortfall, no plan member has a claim to any particular asset that composes a part of the plans general asset pool. Instead, members have a right to a certain defined level of benefits, known as accrued benefits. That term, for purposes of a defined benefit plan, is defined as the individuals accrued benefit determined under the plan [and ordinarily is] expressed in the form of an annual benefit commencing at normal retirement age. ERISA §3(23)(A), 29 U.S.C. § 1002(23)(A).3 In order to prevent a subsequent downward adjustment in benefits below a members contribution amount, a defined benefit plan participant has a nonforfeitable right to the greater of (1) the benefits provided under the plan or (2) an amount derived from the employees accumulated contributions, determined using an interest rate fixed by statute. See §204(c)(2)(B); 29 U.S.C. § 1054(c)(2)(B); see also §3(23)(A), 29 U.S.C. § 1002(23)(A); §204(c)(2)(C), 29 U.S.C. § 1054(c)(2)(C). Given this accumulated contribution floor, plan members generally have a nonforfeitable right only to their accrued benefit, so that a plans actual investment experience does not affect their statutory entitlement. Since a decline in the value of a plans assets does not alter accrued benefits, members similarly have no entitlement to share in a plans surpluseven if it is partially attributable to the investment growth of their contributions.
Therefore, Hughes could not have violated ERISAs vesting requirements by using assets from the surplus attributable to the employees contributions to fund the noncontributory structure. ERISAs vesting requirement is met if an employees rights in his accrued benefit derived from his own contributions are nonforfeitable, assuming that such are not limited to a certain percentage of benefits depending on the employees years of service. §203(a)(1)(2), 29 U.S.C. § 1053(a)(1)(2). The vesting provision sets the minimum level of benefits an employee must receive after accruing specified years of service. Teamsters v. Daniel, 439 U.S. 551, 569 (1979). Otherwise, the level of benefits is determined by the private parties, not the Government. Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 511 (1981). Hence, this provision does not concern items such as a return on investment that fall outside of the definition of accrued benefit. ERISA §§3(23)(A), 203(a); 29 U.S.C. § 1002(23)(A), 1053(a). Assuming that an employees minimum accrued benefit is provided, this section is not implicated. Hughes never deprived respondents of their accrued benefits. Indeed, when it implemented the noncontributory structure, Hughes permitted the Plans existing participants to switch into the new structure. Since respondents do not allege that Hughes has ever withdrawn accrued benefits or otherwise nonforfeitable interests from the pre-existing members, this vesting claim is meritless.
Respondents further contend that, even if they have no interest in the Plans assets, the creation of the new contributory structure permitted Hughes to use assets from the surplus attributable to employer and employee contributions for its sole and exclusive benefit, in violation of ERISAs anti-inurement provision. This section provides, in relevant part:
[T]he assets of a plan [except as otherwise provided in the statute] shall never inure to the benefit of any employer and shall be held for the exclusive purposes of providing benefits to participants in the plan and their beneficiaries and defraying reasonable expenses of administering the plan. §403(c)(1); 29 U.S.C. § 1103(c)(1).
As the language makes clear, the section focuses exclusively on whether fund assets were used to pay pension benefits to plan participants, without distinguishing either between benefits for new and old employees under one or more benefit structures of the same plan, or between assets that make up a plans surplus as opposed to those needed to fund the plans benefits. Respondents do not dispute that Hughes used fund assets for the sole purpose of paying pension benefits to plan participants. Furthermore, at all times, Hughes satisfied its continuing obligation under the provisions of the Plan and ERISA to assure that the Plan was adequately funded. See Plan §6.2; ERISA §302; 29 U.S.C. § 1082. In other words, Hughes did not act impermissibly by using surplus assets from the contributory structure to add the noncontributory structure to the Plan. The act of amending a pre-exising plan cannot as a matter of law create two de facto plans if the obligations (both preamendment and postamendment) continue to draw from the same single, unsegregated pool or fund of assets. ERISA provides an employer with broad authority to amend a plan, see Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73, 78 (1995), and nowhere suggests that an amendment creating a new benefit structure also creates a second plan.4 Because only one plan exists and respondents do not allege that Hughes used any of the assets for a purpose other than to pay its obligations to the Plans beneficiaries, Hughes could not have violated the anti-inurement provision under ERISA §403(c)(1).
B
Each of respondents fiduciary duty claims must fail because ERISAs fiduciary provisions are inapplicable to the amendments. This conclusion follows from our decision in Spink, where we considered whether amending a plan to require the conditioning of benefit payments under an early retirement program on the participants release of employment-related claims was a prohibited transaction under ERISA §406(a). 517 U.S., at 885. We explained that:
Plan sponsors who alter the terms of a plan do not fall into the category of fiduciaries. As we said with respect to the amendment of welfare benefit plans, [e]mployers or other plan sponsors are generally free under ERISA, for any reason at any time, to adopt, modify, or terminate welfare plans. When employers undertake those actions, they do not act as fiduciaries, but are analogous to the settlors of a trust. Id., at 890 (quoting Curtiss-Wright, supra, at 78 (citations omitted)).
We made clear in Spink that our reasoning applied both to pension benefit plans and welfare benefit plans, since [t]he definition of fiduciary makes no distinction between persons exercising authority over these different types of plans. 517 U.S., at 890891. Our conclusion applies with equal force to persons exercising authority over a contributory plan, a noncontributory plan, or any other type of plan. Our holding did not turn, as the Court of Appeals below thought, on the type of plan being amended for the simple reason that the plain language of the statute defining fiduciary makes no distinction. See, id., at 891; ERISA §404(a), 29 U.S.C. § 1104(a) (specifying duties of a fiduciary with respect to a plan). Rather, it turned on whether the employers act of amending its plan constituted an exercise of fiduciary duty. In Spink, we concluded it did not. 517 U.S., at 891.
The same act of amending here also does not constitute the action of a fiduciary, although Hughes Plan happens to be one to which employees contribute. In general, an employers decision to amend a pension plan concerns the composition or design of the plan itself and does not implicate the employers fiduciary duties which consist of such actions as the administration of the plans assets. See id., at 890. ERISAs fiduciary duty requirement simply is not implicated where Hughes, acting as the plans settlor, makes a decision regarding the form or structure of the plan such as who is entitled to receive plan benefits and in what amounts, or how such benefits are calculated. See Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 91 (1983) (describing how ERISA does not mandate that employers provide any particular benefits, and does not itself proscribe discrimination in the provision of employee benefits).5 A settlors powers include the ability to add a new benefit structure to an existing plan. Respondents three fiduciary duty claims are directly foreclosed by Spinks holding that, without exception, [p]lan sponsors who alter the terms of a plan do not fall into the category of fiduciaries. 517 U.S., at 890.
Respondents attempt to circumvent this conclusion by arguing that the amendments amounted to a sham transaction. Specifically, respondents argue that Hughesby effectively increasing certain employees wages through either providing increased retirement incentives or including those employees in the Plans noncontributory structurereduced its labor costs by spending down the Plans surplus to cover its own obligations. In Spink, we noted in passing that if a transaction constituted merely a sham transaction, meant to disguise an otherwise unlawful transfer of assets to a party in interest that might present a different question. Id., at 895, n. 8. Even assuming that a sham transaction may implicate a fiduciary duty, the incidental benefits conferred upon Hughes when it amended the Plan are not impermissible under the statute. It is irrelevant whether Hughes received lower labor costs or other such incidental benefits from implementing the noncontributory structure under the 1991 amendment. As we noted in Spink,
among the incidental and thus legitimate benefits that a plan sponsor may receive from the operation of a pension plan are attracting and retaining employees, paying deferred compensation, settling or avoiding strikes, providing increased compensation without increasing wages, increasing employee turnover, and reducing the likelihood of lawsuits by encouraging employees who would otherwise have been laid off to depart voluntarily. Id., at 893894 (citation omitted).
Receipt of these types of benefits no more constitutes a breach of fiduciary duties than they would constitute improper inurement or otherwise violate ERISA. To find that such benefits somehow violated the statute would forestall employers efforts to implement a pension plan. ERISA, by and large, is concerned with ensur[ing] that employees will not be left emptyhanded once employers have guaranteed them certain benefits, id., at 887, not with depriving employers of benefits incidental thereto. In sum, respondents have failed to show that Hughes labored under fiduciary duties or engaged in a sham transaction.
C
Finally, respondents allege that the 1991 amendment requires a court to order petitioners to terminate the Plan. ERISA itself plainly spells out the circumstances under which a plan terminates. In a section entitled, [e]xclusive means of plan termination, the statute provides:
Except in the case of a termination for which proceedings are otherwise instituted by the [Pension Benefit Guaranty Corporation] as provided in section 1342 of this title, a single-employer plan may be terminated only in a standard termination under subsection (b) of this section or a distress termination under subsection (c) of this section. §4041(a)(1), as set forth in 29 U.S.C. § 1341(a)(1).
Subsections (b) and (c) concern the two ways by which an employer may voluntarily terminate a plan. See 29 U.S.C. § 1341(b) and (c); see also Pension Benefit Guaranty Corporation v. LTV Corp., 496 U.S. 633, 638639 (1990). Based on the language of the statute, these means constitute the sole avenues for voluntary termination. See Germain, 503 U.S., at 254 (explaining that Congress says in a statute what it means and means in a statute what it says there).
Respondents concede that no voluntary termination has occurred, but nevertheless contend that the 1991 amendment worked an effective termination based on the common-law theory of a wasting trust. Under common law, a wasting trust is a trust whose purposes have been accomplished, such that the continuation of the trust would frustrate the settlors intent. See generally 4 A. Scott, Law of Trusts §§334, 337, 337.8 (4th ed. 1989); G. Bogert, Law of Trusts and Trustees §§1002, 1007 (2d rev. ed. 1983). This claim also fails.
As an initial matter, because ERISA is a comprehensive and reticulated statute, Nachman, 446 U.S., at 361, and is enormously complex and detailed, Mertens v. Hewitt Associates, 508 U.S. 248, 262 (1993), it should not be supplemented by extra-textual remedies, such as the common-law doctrines advocated by respondents. See Guidry v. Sheet Metal Workers Nat. Pension Fund, 493 U.S. 365, 376 (1990) (explaining that, [a]s a general matter, courts should be loath to announce equitable exceptions to legislative requirements or prohibitions that are unqualified by the statutory text). Although trust law may offer a starting point for analysis in some situations, it must give way if it is inconsistent with the language of the statute, its structure, or its purposes. Varity Corp. v. Howe, 516 U.S. 489, 497 (1996). Application of the wasting trust doctrine in this context would appear to be inconsistent with the language of ERISAs termination provisions.
Even assuming that the wasting trust doctrine might apply in certain circumstancesan extremely doubtful propositionit is by its own terms inapplicable here. As respondents concede, since the date of the 1991 amendment, the Plan has been accepting new members and paying all the promised benefits to eligible plan participants. Furthermore, thousands of active participants in the contributory benefit structure continue to accrue benefits. Simply put, these circumstances can in no way be construed to constitute an enfeebled plan whose membership has dwindled to a mere remnant that would no longer benefit from the Plans administration. Therefore, the wasting trust doctrine cannot salvage respondents termination claim.
* * *
The judgment of the Court of Appeals is therefore reversed.
Notes
1. This arrangement is commonly referred to as contributory, as compared to a plan whose members do not make contributions, which is commonly referred to as noncontributory. See generally S. Bruce, Pension Claims 22 (2d ed. 1993). But a contributory plan should not be confused with a defined contribution plan as defined by ERISA §3(34), 29 U.S.C. § 1002(34).
2. ERISA defines accumulated funding deficiency as the excess of the total charges to the funding standard account for all plan years (beginning with the first plan year to which this part applies) over the total credits to such account for such years or, if less, the excess of the total charges to the alternative minimum funding standard account for such plan years over the total credits to such account for such years. §302(a)(2), 29 U.S.C. § 1082(a)(2).
3. By contrast, an accrued benefit for purposes of defined contribution plans means the balance of the individuals account. ERISA §3(23)(B); 29 U.S.C. § 1002(23)(B).
4. Our conclusion is consistent with other Government pronouncements in this area. For example, the Internal Revenue Service has promulgated a treasury regulation that provides, for income tax purposes, a pension plan will not fail to be a single plan merely because the plan has several distinct benefit structures. Treas. Reg. §1.414(l)1(b)(1)(i), 26 CFR § 1.414(l)1(b)(1)(i) (1998). It further provides that [a] plan is a single plan if and only if, on an ongoing basis, all of the plan assets are available to pay benefits to employees who are covered by the plan. Ibid.; see also 29 CFR § 2520.1024 (1998). ([A]n employee benefit plan may provide different benefits for various classes of participants and beneficiaries).
5. Respondents suggest that they may be regarded as cosettlors because they have contributed to the plans corpus. However, merely making contributions does not make one akin to a settlor who is responsible for creating the plan. See generally G. Bogert, Law of Trusts and Trustees §1, p. 4 (rev. 2d ed. 1984) (footnote omitted; emphasis deleted) (The settlor of a trust is the person who intentionally causes it to come into existence). Certainly, respondents do not contend that they are responsible for the creation of the Plan.