Memorable Benefits Quote: “Accrued Benefits Are Like Chalk Marks . . . “

In a recent case-DiGiacomo v. Teamsters Pension Trust Fund of Philadelphia and Vicinity, the Third Circuit grappled with the nuances of the vesting and accrual requirements of ERISA, and added its voice to an issue which has split the Circuit…

In a recent case–DiGiacomo v. Teamsters Pension Trust Fund of Philadelphia and Vicinity, the Third Circuit grappled with the nuances of the vesting and accrual requirements of ERISA, and added its voice to an issue which has split the Circuit Courts. The court framed the issue before the court as follows:

In deciding this appeal, we must therefore examine the relationship between the vesting (§ 203) and accrual of benefit (§ 204) provisions of ERISA. As discussed more fully below, Congress in enacting these provisions has left us with a conundrum: § 203 specifically includes language permitting plans or employers to disregard pre-ERISA service time rendered before a break-in-service with regard to vested benefits; § 204, by contrast, contains no such language with regard to accrued benefits. While this appeal involves the accrual of benefits, as distinct from vesting, the Fund nonetheless urges us to read the relevant language in § 203 (allowing the disregard of service time prior to ERISA and prior to a break-in-service for vesting purposes) into the text of § 204 (lacking similar language for accrual of benefit purposes).

The District Court had granted the Fund’s motion to dismiss, holding that ERISA permitted the Fund to disregard DiGiacomo’s service time preceding his break-in-service, which occurred before ERISA’s effective date. However, the Third Circuit rejected the Fund’s argument, relying on the express language of the statute and held that the Fund was required to credit DiGiacomo with all years of credited service for benefit accrual purposes. In reaching its holding, the court acknowledged the split in the Circuits over the issue and rejected the Seventh Circuit’s stance in Jones v. UOP, 16 F.3d 141, 143 (7th Cir. 1994), siding then with the Second Circuit in McDonald v. Pension Plan of the NYSA-ILA Pension Trust Fund, 320 F.3d 151, 153 (2d Cir. 2003).

In his dissent, Third Circuit Judge Samuel A. Alito, Jr., provides us with this memorable benefits quote:

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 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.

In a footnote, the majority directly responded to Alito’s analogy to “chalk marks” and stated:

To borrow Judge Alito’s helpful analogy, see dissenting opinion at 2, DiGiacomo’s 10.5 years of accrued benefit credit might be equated to chalk marks beside the employee’s name, but they are not necessarily erased merely because related marks in a separate category for vested benefit credits have been lost due to a break-in-service.

This article from Law.comERISA Bars Pension Plan’s ‘Break-in-Service’ Exclusion–also discusses the case.

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