The Association of U S West Retirees






September 4, 2008



Mimi Hull, AUSWR President

Nelson Phelps, AUSWR Executive Director





3rd Circuit Appeals Court Rules Lucent Pension Death Benefits Are Not Protected Under ERISA


As you know in January 2003 Lucent ended the long standing Bell System practice of paying Pension Death Benefits to the mandatory beneficiaries of Lucent retirees.  In the case of Foss v. Lucent filed in Newark Federal Court, a group of retirees who were transferred to Lucent when the spin-off of Lucent from AT&T occurred filed suit seeking to have the Pension Death Benefit restored.  In November 2006, the federal trial court judge ruled that the Foss case must be dismissed on the grounds that the Pension Death Benefit was not a protected benefit under federal law ERISA.  The Plaintiffs/Retirees appealed to the 3rd Circuit Federal Court of Appeals based in Philadelphia.


The National Retiree Legislative Network filed an amicus brief arguing on behalf of the Plaintiffs/Retirees and that brief is posted at the AUSWR website:


In mid-April of this year, a panel of three appellate judges heard oral argument.  Just over 4 months later on August 28, 2008 the appellate court published its unanimous decision.  The appellate court ruled to uphold dismissal of the lawsuit on the grounds that the Pension Death Benefit were welfare benefits, not protected by ERISA, and there was no evidence that the pension plan sponsor intended give special protection or vest the welfare benefits.  Therefore, the appellate court ruled that Lucent was free to end the practice of paying Pension Death Benefits from the pension plan.  The ruling adversely affects thousands of Lucent retirees and their families.



The Foss appellate court decision is posted at the federal appeals court website:



The Lucent Plaintiffs/Retirees' attorneys had argued that the Pension Death Benefit, established by AT&T long prior to the spin-off of Lucent in 1996, was “designed and treated as a defined pension benefit for nearly 40 years,” and that Lucent therefore had no right to eliminate it.  The attorneys argued that the Pension Death Benefit provided retirement income and that “it was described in the plan … in mandatory language. The plan said it ’shall be paid.”


But the appellate judges disagreed, ruling that the evidence showed that the Lucent Pension Death Benefit does not meet ERISA’s definition of a pension benefit. “The pensioner death benefit neither provides retirement income to employees nor results in a deferral of income by employees,” U.S. Circuit Judge Thomas L. Ambro wrote in the opinion joined by 3rd Circuit Judge D. Michael Fisher and visiting Federal Circuit Chief Judge Paul R. Michel.  “Moreover, it could not be an accrued pension benefit since it is not ‘an annual benefit’ and it does not ‘commence at normal retirement age,’” Judge Ambro wrote.


Instead, the appellate judges found that because the Pension Death Benefit does not “directly relate to an accrued benefit” by paying out an accumulated amount of accrued benefits, it “fits readily within the definition of a welfare benefit.”  Judge Ambro wrote, “The amount and calculation method of the pensioner death benefit, the identity of the recipient of payment, and the treatment of the pensioner death benefit for tax, accounting, and plan termination purposes, are relevant details for administrators of the plan, but they do not change the fundamental character of the benefit,” Judge Ambro wrote.


In the 17 page opinion, the appellate judges re-iterated the ruling expressed in many cases that “ERISA provides elaborate requirements for the vesting of pension benefits, but it does not provide automatic vesting of welfare benefits.”   Judge Ambro wrote that while an accrued pension benefit is protected by ERISA’s anti-cutback provision without any showing that it has vested, a welfare benefit, such as the Pension Death Benefit, is “protected from elimination only if the plaintiff proves by a preponderance of the evidence that the plan provider had intended the welfare benefit to have vested — despite not being obliged to do so by ERISA.”


Then, looking at the evidence and allegations made in the Plaintiffs/Retirees’ complaint that had been dismissed, the appellate judges turned to the question of whether the Pension Death Benefit was nonetheless protected by virtue of the Plan sponsor taking action or intending that the benefit be vested.   The appellate judges concluded that it was not.  The opinion states, “Nothing in the plan documents suggests that the pensioner death benefit vests during the life of the pensioner and the plan documents certainly do not state such vesting in clear and express language.”


In the case of the Pension Death Benefit paid out of the Lucent pension plan, the appellate judges found that although the plan states that the death benefit payment “shall be made,” it was also clear from the plan’s language that “the vesting event remains the pensioner’s death.”  In other words, Judge Ambro said, “the pensioner death benefit does not belong irrevocably to living pensioners.   The mandatory language merely indicates how the pensioner death benefit should be distributed once death causes the benefit to vest.”


How Might the
Foss Appellate Court Ruling Affect the Outcome of the Kerber v. Qwest Pension Plan Case Pending in Denver Federal Court Before Judge Boland?


The facts and claims in the Kerber v. Qwest Pension Plan case are remarkably different than those facts and claims in the Foss case.   As repeatedly explained in court filings, including Plaintiffs/Retirees' legal brief opposing Qwest Defendants’ pending motion for summary judgment, unlike the situation in Foss, the Pension Death Benefit at issue in Kerber was represented and treated by Plan sponsor U S WEST to be a protected defined pension benefit.  For instance, when U S WEST created a new optional form of early retirement benefit - a single sum payment - the Pension Death Benefit was made an integral part of the lump sum payment.  That option was first extended to thousands of managers during the 5+5 early retirement offering made in December 1989 through February 1990.   Then, the optional form of early retirement distribution was made permanent.   From 1997 through 2003, the U S WEST/Qwest Pension Plan stated:

 If a Participant . . . elects a lump sum (or a partial lump sum) benefit at his retirement, then the lump sum paid to the Participant shall be increased  by the DLS Equivalent of the Death Benefit described in Section 7.3(a).  For this purpose, only, the DLS Equivalent shall include an assumption that the Participant will be survived by a Beneficiary. . . If such an increase is paid, no other Death Benefit shall be payable pursuant to this Article VII at any time, including the Participant’s death. . .

With respect to the Lucent retirees, they were never given the option of electing a lump sum early retirement distribution.   Lucent retirees receive their pension benefit only in the form of a monthly annuity.  Therefore, we strenuously argue in our Kerber case that, since the formula devised by U S WEST for calculating the optional form of benefit required the added dollar value of the Pension Death Benefit, U S WEST considered and treated the Pension Death Benefit as a protected benefit.   Furthermore, the Pension Death Benefit, upon becoming a necessary component of the optional early retirement benefit, became protected by operation of both IRS Section 411(d)(6) and ERISA Section 204(g).



During a 7 year span (1997-2003), the optional lump sum early retirement benefit, which included the present dollar value of the Pension Death Benefit, was provided to well over 15,000 pension plan participants regardless of whether they were married or would have mandatory beneficiaries.



In short, we contend in our pending Kerber case that, certainly, we can meet the necessary standard as reiterated in the Foss appellate decision of “showing by a preponderance of evidence that the plan provider [U S WEST]  had intended the welfare benefit to have vested — despite not being obliged to do so by ERISA.”



That is the major difference between our Kerber case and the Lucent retirees’ Foss case.  And, we expect Judge Boland, after considering the Foss appellate decision, will enter a ruling in favor of U S WEST/Qwest retirees.



Curtis L. Kennedy
8405 E. Princeton Ave.
Denver, CO  80237-1741
Tele: 303-770-0440
Fax:  303-843-0360