In two suits initiated in New Jersey state court, retired
employees who had received workers' compensation awards subsequent
to retirement challenged the validity of provisions in their
employers' pension plans reducing a retiree's pension benefits by
an amount equal to a workers' compensation award for which the
retiree is eligible. These private pension plans are subject to
federal regulation under the Employee Retirement Income Security
Act of 1974 (ERISA). The employers independently removed the suits
to Federal District Court, where the judges in each suit held that
the pension offset provisions were invalid under a provision of the
New Jersey Workers' Compensation Act prohibiting such offsets; that
Congress had not intended ERISA to preempt such state laws; that
the offsets were prohibited by ERISA's provision, 29 U.S.C. §
1053(a), prohibiting forfeitures of pension rights except under
specified conditions inapplicable to these cases; and that a
Treasury Regulation authorizing offsets based on workers'
compensation awards was invalid. The Court of Appeals consolidated
appeals from the two decisions, and reversed.
Held:
1. Congress contemplated and approved the kind of pension
provisions challenged here. Pp.
451 U. S.
509-521.
(a) Pension plan provisions for offsets based on workers'
compensation awards do not contravene ERISA's nonforfeiture
provisions. While § 1053(a) prohibits forfeitures of vested rights,
with specified exceptions that do not include workers' compensation
offsets, nevertheless other provisions make it clear that ERISA
leaves to the private parties creating the pension plan the
determination of the content or amount of benefits that, once
vested, cannot be forfeited. The statutory definition of
"nonforfeitable" pension benefits, 29 U.S.C. § 1002(19), assures
that an employee's claim to the protected benefit is legally
enforceable, but it does not guarantee a particular amount or a
method for calculating the benefit.
Cf. Nachman Corp. v.
Pension Benefit Guaranty Corp., 446 U.
S. 359.
Page 451 U. S. 505
It is particularly pertinent that Congress did not prohibit
"integration," a calculation practice under which benefit levels
are determined by combining pension funds with other public income
streams available to the retired employee. Rather, Congress
accepted the practice by expressly preserving the option of pension
fund integration with benefits available under both the Social
Security Act and the Railroad Retirement Act. Offsets against
pension benefits for workers' compensation awards work much like
the integration of pension benefits with Social Security or
Railroad Retirement payments, and thus the nonforfeiture provision
of § 1053(a) has no more applicability to the former kind of
integration than it does to the latter. Pp.
451 U. S.
510-517.
(b) Although neither ERISA nor its legislative history mentions
integration with workers' compensation, ERISA does not forbid the
Treasury Regulation permitting reductions of pension benefits based
on awards under state workers' compensation laws, or Internal
Revenue Service rulings to the same effect. There is no merit in
the argument that integration of pension funds with workers'
compensation awards, which are based on work-related injuries,
lacks the rationale behind ERISA's permission of integration of
pension funds with Social Security and Railroad Retirement
payments, which supply payments for wages lost due to retirement.
Both the Social Security and Railroad Retirement Acts also provide
payments for disability, and ERISA permits pension integration with
such benefits, as well as with benefits for wages lost due to
retirement. Moreover, when it enacted ERISA, Congress knew of the
IRS rulings permitting integration with workers' compensation
benefits and left them in effect. Pp.
451 U. S.
517-521.
2. The New Jersey statute in question is preempted by federal
law insofar as it eliminates a method for calculating pension
benefits under plans governed by ERISA. The provision of ERISA, 29
U.S.C. § 1144(a), stating that the Act's provisions shall supersede
any state laws that "relate to any [covered] employee benefit
plan," demonstrates that Congress meant to establish pension plan
regulation as exclusively a federal concern. Regardless of whether
the purpose of the New Jersey statute might have been to protect
the employee's right to workers' compensation disability benefits,
rather than to regulate pension plans, the statute "relate[s] to
pension plans" governed by ERISA because it eliminates one method
for calculating pension benefits -- integration -- that is
permitted by federal law, and the state provision thus is an
impermissible intrusion on the federal regulatory scheme. It is of
no moment that New Jersey intrudes indirectly, through a workers'
compensation law, rather than directly, through a statute called
"pension
Page 451 U. S. 506
regulation," since ERISA makes clear that even indirect state
action bearing on private pensions may encroach upon the area of
exclusive federal concern. Moreover, where, as here, pension plans
emerge from collective bargaining, the additional federal interest
in precluding state interference in labor-management negotiations
calls for preemption of state efforts to regulate pension term. Pp.
451 U. S.
521-526.
616 F.2d 1238, affirmed.
MARSHALL, J., delivered the opinion of the Court, in which all
other Members joined, except BRENNAN, J., who took no part in the
decision of the case.
Page 451 U. S. 507
JUSTICE MARSHALL delivered the opinion of the Court.
Some private pension plans reduce a retiree's pension benefits
by the amount of workers' compensation awards received subsequent
to retirement. In these cases, we consider whether two such offset
provisions are lawful under the Employee Retirement Income Security
Act of 1974 (ERISA), 88 Stat. 829, as amended, 29 U.S.C. § 1001
et seq. (1976 ed. and Supp. III), and whether they may be
prohibited by state law.
I
Raybestos-Manhattan, Inc., and General Motors Corp. maintain
employee pension plans that are subject to federal regulation under
ERISA. Both plans provide that an employee's retirement benefits
shall be reduced, or offset, by an amount equal to workers'
compensation awards for which the individual is eligible. [
Footnote 1] In 1977, the New Jersey
Legislature
Page 451 U. S. 508
amended its Workers' Compensation Act to expressly prohibit such
offsets. The amendment states that
"[t]he right of compensation granted by this chapter may be set
off against disability pension benefits or payments but shall not
be set off against employees' retirement pension benefits or
payments."
N.J.Stat.Ann. 34:15-29 (West Supp. 19801981) (as amended by 1977
N.J. Laws, ch. 156).
Alleging violations of this provision of state law, two suits
were initiated in New Jersey state court. The plaintiffs in both
suits were retired employees who had obtained workers' compensation
awards subject to offsets against their retirement benefits under
their pension pans. [
Footnote
2] The defendant companies independently removed the suits to
the United States District Court for the District of New Jersey.
There, both District Court Judges ruled that the pension offset
provisions were invalid under New Jersey law, and concluded that
Congress had not intended ERISA to preempt state laws of this sort.
The District Court Judges also held that the offsets were
prohibited by 203(a) of ERISA, 29 U.S.C. § 1053(a). This section
prohibits forfeitures of vested pension rights except under four
specific conditions inapplicable to these cases. [
Footnote 3] The judges concluded that offsets
based on workers' compensation awards would be forbidden
forfeitures,
Page 451 U. S. 509
and struck down a contrary federal Treasury Regulation
authorizing such offsets. [
Footnote
4]
The United States Court of Appeals for the Third Circuit
consolidated the appeals from these two decisions, and reversed.
616 F.2d 1238 (1980). It rejected the District Court Judges' view
that the offset provisions caused a forfeiture of vested pension
rights forbidden by § 1053. Instead, the Court of Appeals reasoned,
such offsets merely reduce pension benefits in a fashion expressly
approved by ERISA for employees receiving Social Security benefits.
Accordingly, the Court of Appeals found no conflict between ERISA
and the Treasury Regulation approving reductions based on workers'
compensation awards and ERISA. Finally, the court concluded that
the New Jersey statute forbidding offsets of pension benefits by
the amount of workers' compensation awards could not withstand
ERISA's general preemption provision, 29 U.S.C. 1144(a). We noted
probable jurisdiction of the appeal taken by the former employees
of Raybestos-Manhattan, Inc., and granted certiorari on the
petition of former employees of
General Motors Corp., 449
U.S. 949 and 950 (1980). For convenience, we refer to the former
employees in both cases as retirees. We affirm the judgment of the
Court of Appeals.
II
Retirees claim that the workers' compensation offset provisions
of their pension plans contravene ERISA's nonforfeiture provisions
and that the Treasury Regulation to the contrary is inconsistent
with the Act. Both claims require examination of the relevant
sections of ERISA.
Page 451 U. S. 510
A
As we recently observed, ERISA is a "comprehensive and
reticulated statute," which Congress adopted after careful study of
private retirement pension plans.
Nachman Corp. v. Pension
Benefit Guaranty Corp., 446 U. S. 359,
446 U. S. 361
(1980). In
Nachman, we observed that Congress, through
ERISA, wanted to ensure that
"if a worker has been promised a defined pension benefit upon
retirement -- and if he has fulfilled whatever conditions are
required to obtain a vested benefit -- . . . he actually receives
it."
Id. at
446 U. S. 375.
[
Footnote 5] For this reason,
the concepts of vested rights and nonforfeitable rights are
critical to the ERISA scheme.
See id. at
446 U. S. 370,
446 U. S. 378.
ERISA prescribes vesting and accrual schedules, assuring that
employees obtain rights to at least portions of their normal
pension benefits even if they leave their positions prior to
retirement. [
Footnote 6] Most
critically, ERISA establishes that
"[e]ach pension plan shall provide that an employee's right to
his normal retirement benefit is nonforfeitable
Page 451 U. S. 511
upon the attainment of normal retirement age."
29 U.S.C. § 1053(a). [
Footnote
7]
Retirees rely on this sweeping assurance that pension rights
become nonforfeitable in claiming that offsetting those benefits
with workers' compensation awards violates ERISA. Retirees argue
first that no vested benefits may be forfeited except as expressly
provided in § 1053. Second, retirees assert that offsets based on
workers' compensation fall into none of those express exceptions.
Both claims are correct; § 1053(a) prohibits forfeitures of vested
rights except as expressly provided in § 1053(a)(3), and the
challenged workers' compensation offsets are not among those
permitted in that section. [
Footnote 8]
Despite this facial accuracy, retirees' argument overlooks a
threshold issue: what defines the content of the benefit that, once
vested, cannot be forfeited? ERISA leaves this question largely to
the private parties creating the plan. That the private parties,
not the Government, control the level of benefits is clear from the
statutory language defining nonforfeitable rights, as well as from
other portions of ERISA. ERISA defines a "nonforfeitable" pension
benefit or right as
"a claim obtained by a participant or his beneficiary to that
part of an immediate or deferred benefit under a pension plan which
arises from the participant's service, which is unconditional, and
which is legally enforceable against the plan.
Page 451 U. S. 512
29 U.S.C. § 1002(19). In construing this definition last Term,
we observed:"
"[T]he term 'forfeiture' normally connotes a total loss in
consequence of some event, rather than a limit on the value of a
person's rights. Each of the examples of a plan provision that is
expressly described as not causing a forfeiture listed in [§
1053(a)(3)] describes an event -- such as death or temporary
reemployment that might otherwise be construed as causing a
forfeiture of the entire benefit. It is therefore surely consistent
with the statutory definition of 'nonforfeitable' to view it as
describing the quality of the participant's right to a pension,
rather than a limit on the amount he may collect."
Nachman Corp. v. Pension Benefit Guaranty Corp., 446
U.S. at
446 U. S.
372-373. Similarly, the statutory definition of
"nonforfeitable" assures that an employee's claim to the protected
benefit is legally enforceable, but it does not guarantee a
particular amount or a method for calculating the benefit. As we
explained last Term, "it is the claim to the benefit, rather than
the benefit itself, that must be
unconditional' and `legally
enforceable against the plan.'" Id. at 446 U. S.
371.
Rather than imposing mandatory pension levels or methods for
calculating benefits, Congress in ERISA set outer bounds on
permissible accrual practices, 29 U.S.C. § 1054(b)(1), and
specified three alternative schedules for the vesting of pension
rights, 29 U.S.C. § 1053(a)(2). In so doing, Congress limited the
variation permitted in accrual rates applicable across the entire
period of an employee's participation in the pension plan.
[
Footnote 9] And Congress
disapproved
Page 451 U. S. 513
pension practices unduly delaying an employee's acquisition of a
right to enforce payment of the portion of benefits already
accrued, without further employment. [
Footnote 10] These provisions together assure, at
minimum, a legally enforceable claim to 100% of the pension
benefits created by a covered plan for those employees who have
completed 15 years of service and for those employees aged 45 or
older who have completed 10 years of service. [
Footnote 11] Other than these restrictions,
ERISA permits the total benefit levels and formulas for determining
their accrual before completion of 15 years of service to vary
Page 451 U. S. 514
from plan to plan.
See 29 U.S.C. §§ 1002(22), (23)
(benefits defined merely as those "under the plan").
It is particularly pertinent for our purposes that Congress did
not prohibit "integration," a calculation practice under which
benefit levels are determined by combining pension funds with other
income streams available to the retired employees. Through
integration, each income stream contributes for calculation
purposes to the total benefit pool to be distributed to all the
retired employees, even if the nonpension funds are available only
to a subgroup of the employees. The pension funds are thus
integrated with the funds from other income maintenance programs,
such as Social Security, and the pension benefit level is
determined on the basis of the entire pool of funds. Under this
practice, an individual employee's eligibility for Social Security
would advantage all participants in his private pension plan, for
the addition of his anticipated Social Security payments to the
total benefit pool would permit a higher average pension payout for
each participant. The employees as a group profit from that higher
pension level, although an individual employee may reach that level
by a combination of payments from the pension fund and payments
from the other income maintenance source. In addition, integration
allows the employer to attain the selected pension level by drawing
on the other resources, which, like Social Security, also depend on
employer contributions.
Following its extensive study of private pension plans before
the adoption of ERISA, Congress expressly preserved the option of
pension fund integration with benefits available under both the
Social Security Act, 42 U.S.C. § 401
et seq. (1976 ed. and
Supp. III), and the Railroad Retirement Act of 1974, 45 U.S.C. §
231
et seq. (1976 ed. and Supp. III); 29 U.S.C. §§
1054(b)(1)(B)(iv), 1054 (b)(1)(C), 1054(b)(1)(G). Congress was well
aware that pooling of nonpension retirement benefits and pension
funds would limit
Page 451 U. S. 515
the total income maintenance payments received by individual
employees and reduce the cost of pension plans to employers.
Indeed, in considering this integration option, the House Ways and
Means Committee expressly acknowledged the tension between the
primary goal of benefiting employees and the subsidiary goal of
containing pension costs. The Committee Report noted that the
proposed bill would
"not affect the ability of plans to use the integration
procedures to reduce the benefits that they pay to individuals who
are currently covered when social security benefits are
liberalized. Your committee, however, believes that such practices
raise important issues. On the one hand, the objective of the
Congress in increasing social security benefits might be considered
to be frustrated to the extent that individuals with low and
moderate incomes have their private retirement benefits reduced as
a result of the integration procedures. On the other hand, your
committee is very much aware that many present plans are fully or
partly integrated, and that elimination of the integration
procedures could substantially increase the cost of financing
private plans. Employees, as a whole, might be injured, rather than
aided, if such cost increases resulted in slowing down the growth,
or perhaps even eliminat[ing], private retirement plans."
H.R.Rep. No. 93 807, p. 69 (1974), reprinted in 2 Legislative
History of the Employee Retirement Income Security Act of 1974
(Committee Print compiled for the Senate Committee on Labor and
Public Welfare) 3189 (1976) (Leg.Hist.). [
Footnote 12]
Page 451 U. S. 516
The Committee called for further study of the problem, and
recommended that Congress impose a restriction on integration of
pension benefits with Social Security and Railroad Retirement
payments. Congress adopted this recommendation, and forbade any
reductions in pension payments based on increases in Social
Security or Railroad Retirement benefits authorized after ERISA
took effect. 29 U.S.C. § 1056(b).
See 29 U.S.C. §§
1054(b)(1)(B)(iv), 1054(b)(1) (C); H.R.Rep. No. 93-807, at 69, 2
Leg.Hist. 3189.
See also 26 U.S.C. § 401(a)(15).
In setting this limitation on integration with Social Security
and Railroad Retirement benefits, Congress acknowledged and
accepted the practice, rather than prohibiting it. Moreover, in
permitting integration at least with these federal benefits,
Congress did not find it necessary to add an exemption for this
purpose to its stringent nonforfeiture protections in 29 U.S.C. §
1053(a). Under these circumstances, we are unpersuaded by retirees'
claim that the nonforfeiture provisions, by their own force,
prohibit any offset of pension benefits by workers' compensation
awards. Such offsets work much like the integration of pension
benefits with Social Security or Railroad Retirement payments. The
individual employee remains entitled to the established pension
level, but the payments received from the pension fund are reduced
by the amount received through workers' compensation. The
nonforfeiture provision of § 1053(a) has no more applicability to
this kind of integration than it does to
Page 451 U. S. 517
the analogous reduction permitted for Social Security or
Railroad Retirement payments. Indeed, the same congressional
purpose -- promoting a system of private pensions by giving
employers avenues for cutting the cost of their pension obligations
-- underlies all such offset possibilities.
Nonetheless, ERISA does not mention integration with workers'
compensation, and the legislative history is equally silent on this
point. An argument could be advanced that Congress approved
integration of pension funds only with the federal benefits
expressly mentioned in the Act. A current regulation issued by the
Internal Revenue Service, however, goes further, and permits
integration with other benefits provided by federal or state law.
We now must consider whether this regulation is itself consistent
with ERISA.
B
Codified at 26 CFR §§ 1.411(a)-(4)(a) (1980), the Treasury
Regulation provides that
"nonforfeitable rights are not considered to be forfeitable by
reason of the fact that they may be reduced to take into account
benefits which are provided under the Social Security Act or under
any other Federal or State law and which are taken into account in
determining plan benefits."
The Regulation interprets 26 U.S.C. § 411, the section of the
Internal Revenue Code which replicates for IRS purposes ERISA's
nonforfeiture provision, 29 U.S.C. § 1053(a). [
Footnote 13] The Regulation plainly
encompasses
Page 451 U. S. 518
awards under state workers' compensation laws. In addition, in
Revenue Rulings issued prior to ERISA, the IRS expressly had
approved reductions in pension benefits corresponding to workers'
compensation awards.
See, e.g., Rev.Rul. 69-421, Part
4(j), 1969-2 Cum.Bull. 72; Rev.Rul. 68-243, 1968-1 Cum.Bull. 157.
[
Footnote 14]
Retirees contend that the Treasury Regulation and IRS rulings to
this effect contravene ERISA. They object first that ERISA's
approval of integration was limited to Social Security and Railroad
Retirement payments. This objection is precluded by our conclusion
that reduction of pension benefits based on the integration
procedure are not,
per se, prohibited by § 1053(a), for
the level of pension benefits is not prescribed by ERISA. Retirees'
only remaining objection is that workers' compensation awards are
so different in kind from Social Security and Railroad Retirement
payments that their integration could not be authorized under the
same rubric.
Developing this argument, retirees claim that workers'
compensation provides payments for work-related injuries, while
Social Security and Railroad Retirement supply payments solely for
wages lost due to retirement. Because of this distinction, retirees
conclude that integration of pension funds with workers'
compensation awards lacks the rationale
Page 451 U. S. 519
behind integration of pension funds with Social Security and
Railroad Retirement. Retirees' claim presumes that ERISA permits
integration with Social Security or Railroad Retirement only where
there is an identity between the purposes of pension payments and
the purposes of the other integrated benefits. But not even the
funds that the Congress clearly has approved for integration
purposes share the identity of purpose ascribed to them by
petitioners. Both the Social Security and Railroad Retirement Acts
provide payments for disability as well as for wages lost due to
retirement, and ERISA permits pension integration without
distinguishing these different kinds of benefits.
Furthermore, when it enacted ERISA, Congress knew of the IRS
rulings permitting integration and left them in effect. [
Footnote 15] These rulings do not
draw the line between permissible
Page 451 U. S. 520
and impermissible integration where retirees would prefer them
to, and instead they include workers' compensation offsets within
the ambit of permissible integration. The IRS rulings base their
allowance of pension payment integration on three factors: the
employer must contribute to the other benefit funds, these other
funds must be designed for general public use, and the benefits
they supply must correspond to benefits available under the pension
plan. The IRS employed these considerations in approving
integration with workers' compensation benefits.
E.g.,
Rev.Rul. 69-421, Part 4 (j), 1969-2 Cum.Bull. 72; Rev.Rul. 68-243,
1968-1 Cum.Bull. 157. In contrast, the IRS has disallowed offsets
of pension benefits with damages recovered by an employee through a
common law action against the employer. Rev.Rul. 69-421, Part
4(j)(4), 1969-2 Cum.Bull. 72; Rev.Rul. 68-243, 1968-1 Cum.Bull.
157-158. [
Footnote 16] The
IRS also has not permitted
Page 451 U. S. 521
integration with reimbursement for medical expenses or with
fixed sums made for bodily impairment, because such payments do not
match up with any benefits available under a pension plan qualified
under the Internal Revenue Code and ERISA. Rev.Rul. 78-178, 1978-1
Cum.Bull. 118. [
Footnote 17]
Similarly, the IRS has disapproved integration with unemployment
compensation, for, as payment for temporary layoffs, it too is a
kind of benefit not comparable to any permitted in a qualified
pension plan.
Id. at 117-118.
Without speaking directly of its own rationale, Congress
embraced such IRS rulings.
See H.R.Conf.Rep. No. 93-1280,
p. 277 (1974), 3 Leg.Hist. 4544 (approving existing
antidiscrimination rules). Congress thereby permitted integration
along the lines already approved by the IRS, which had specifically
allowed pension benefit offsets based on workers' compensation. Our
judicial function is not to second-guess the policy decisions of
the legislature, no matter how appealing we may find contrary
rationales.
As a final argument, retirees claim that we should defer to the
policy decisions of the state legislature. To this claim we now
turn.
III
The New Jersey Legislature attempted to outlaw the offset
clauses by providing that
"[t]he right of compensation granted by [the New Jersey Workers'
Compensation Act] may be set off against disability pension
benefits or payments, but
shall not be set off against
employees' retirement pension benefits or payments."
N.J.Stat.Ann. § 34:15-29 (West
Page 451 U. S. 522
Supp. 1980) (emphasis added). [
Footnote 18] To resolve retirees' claim that this state
policy should govern, we must determine whether such state laws are
preempted by ERISA. Our analysis of this problem must be guided by
respect for the separate spheres of governmental authority
preserved in our federalist system. Although the Supremacy Clause
invalidates state laws that "interfere with, or are contrary to the
laws of Congress . . . ,"
Gibbons v.
Ogden, 9 Wheat. 1,
22 U. S. 211
(1824), the "
exercise of federal supremacy is not lightly to be
presumed,'" New York Dept. of Social Services v. Dublino,
413 U. S. 405,
413 U. S. 413
(1973), quoting Schwartz v. Texas, 344 U.
S. 199, 344 U. S. 203
(1952). As we recently reiterated,
"[p]reemption of state law by federal statute or regulation is
not favored 'in the absence of persuasive reasons -- either that
the nature of the regulated subject matter permits no other
conclusion, or that the Congress has unmistakably so
ordained.'"
Chicago & North Western Transp. Co. v. Kalo Brick Tile
Co., 450 U. S. 311,
450 U. S. 317
(1981), quoting
Florida Lime & Avocado Growers v.
Paul, 373 U. S. 132,
373 U. S. 142
(1963).
See Jones v. Rath Packing Co., 430 U.
S. 519,
430 U. S.
525-526 (1977);
Perez v. Campbell, 402 U.
S. 637,
402 U. S. 649
(1971);
Rice v. Santa Fe Elevator Corp., 331 U.
S. 218,
331 U. S. 230
(1947);
Hines v. Davidowitz, 312 U. S.
52,
312 U. S. 61-62
(1941).
In this instance, we are assisted by an explicit congressional
statement about the preemptive effect of its action. The same
chapter of ERISA that defines the scope of federal protection of
employee pension benefits provides that
"the provisions of this subchapter . . . shall supersede any and
all State laws insofar as they may now or hereafter relate to any
employee benefit plan described in section 1003(a) of this title
and not exempt under section 1003(b) of this title."
29 U.S.C. § 1144(a).
Page 451 U. S. 523
This provision demonstrates that Congress intended to depart
from its previous legislation that "envisioned the exercise of
state regulation power over pension funds,"
Malone v. White
Motor Corp., 435 U. S. 497,
435 U. S. 512,
514 (1978) (plurality opinion), and meant to establish pension plan
regulation as exclusively a federal concern. [
Footnote 19] But for the preemption provision to
apply here, the New Jersey law must be characterized as a state law
"that relate[s] to any employee benefit plan." 29 U.S.C. § 1144(a).
[
Footnote 20] That phrase
gives rise to some confusion
Page 451 U. S. 524
where, as here, it is asserted to apply to a state law
ostensibly regulating a matter quite different from pension plans.
The New Jersey law governs the State's workers' compensation
awards, which obviously are subject to the State's police power. As
a result, one of the District Court Judges below concluded that the
New Jersey provision
"is in no way concerned with pension plans
qua pension
plans. On the contrary, the New Jersey statute is solely concerned
with protecting the employee's right to worker's compensation
disability benefits."
Buczynski v. General Motors Corp., 456 F.
Supp. 867, 873 (NJ 1978). Similarly, the other District Court
Judge below reasoned that the New Jersey law "only has a collateral
effect on pension plans."
Alessi v. Raybestos-Manhattan,
Inc., Civ. No. 78-0434 (NJ, Feb. 15, 1979). The Court of
Appeals rejected these analyses on two grounds. It read the "relate
to pension plans" language in "its normal dictionary sense" as
indicating a broad preemptive intent, and it also reasoned that the
"
only purpose and effect of the [New Jersey] statute is to
set forth an additional statutory requirement for pension plans," a
purpose not permitted by ERISA. 616 F.2d at 1250 (emphasis in
original).
We agree with the conclusion reached by the Court of Appeals but
arrive there by a different route. Whatever the purpose or purposes
of the New Jersey statute, we conclude that it "relate[s] to
pension plans" governed by ERISA because it eliminates one method
for calculating pension benefits -- integration -- that is
permitted by federal law. ERISA permits integration of pension
funds with other public income maintenance moneys for the purpose
of calculating benefits, and the IRS interpretation approves
integration with the exact funds addressed by the New Jersey
workers' compensation law. New Jersey's effort to ban pension
benefit offsets based on workers' compensation applies directly to
this calculation
Page 451 U. S. 525
technique. We need not determine the outer bounds of ERISA's
preemptive language to find this New Jersey provision an
impermissible intrusion on the federal regulatory scheme. [
Footnote 21]
It is of no moment that New Jersey intrudes indirectly, through
a workers' compensation law, rather than directly, through a
statute called "pension regulation." ERISA makes clear that even
indirect state action bearing on private pensions may encroach upon
the area of exclusive federal concern. For the purposes of the
preemption provision, ERISA defines the term "State" to
include:
"State, any political subdivision thereof, or any agency or
instrumentality of either, which purports to regulate,
directly
or indirectly, the terms and conditions of employee benefit
plans covered by this subchapter."
29 U.S.C. § 1144(c)(2) (emphasis added). ERISA's authors clearly
meant to preclude the States from avoiding through form the
substance of the preemption provision.
Another consideration bolsters our conclusion that the New
Jersey provision is preempted insofar as it bears on pensions
regulated by ERISA. ERISA leaves integration, along with other
pension calculation techniques, subject to the discretion of
pension plan designers.
See supra at
451 U. S.
514-516. Where, as here, the pension plans emerge from
collective bargaining, the additional federal interest in
precluding state interference with labor-management negotiations
calls for preemption of state efforts to regulate pension terms.
See Teamsters v. Oliver, 358 U. S. 283,
358 U. S. 296
(1959); Railway Employees v. Hanson,
351 U.
S. 225,
351 U. S. 232
(1956).
Cf. Motor Coach Employees v. Lockridge,
403 U. S. 274
(1971);
San
Page 451 U. S. 526
Diego Building Trades Council v. Garmon, 359 U.
S. 236 (1959). [
Footnote 22] As a subject of collective bargaining,
pension terms themselves become expressions of federal law,
requiring preemption of intrusive state law. [
Footnote 23]
IV
We conclude that N.J.Stat.Ann. § 34:15-29 (West Supp. 1980) is
preempted by federal law insofar as it bears on pension plans
governed by ERISA. We find further that Congress contemplated and
approved the kind of pension provisions challenged here, which
permit offsets of pension benefits based on workers' compensation
awards. The decision of the Court of Appeals is
Affirmed.
JUSTICE BRENNAN took no part in the decision of these cases.
* Together with No. 80-193,
Buczynski et al. v. General
Motors Corp. et al., on certiorari to the same court.
[
Footnote 1]
The Raybestos-Manhattan, Inc., plan provides:
"All Retirement Income payments shall be reduced by the entire
amount of any and all payments the Member is eligible to receive
under any and all statutes pertaining to workmen's compensation,
occupational disease, unemployment compensation, cash sickness
benefits, and similar laws, other than primary Social Security
benefits, Presently in effect or which may be enacted from time to
time, which payments are paid concurrently with the Retirement
Income."
The offset clause under the General Motors Corp. plan
provides:
"In determining the monthly benefits payable under this Plan, a
deduction shall be made unless prohibited by law, equivalent to all
or any part of Workmen's Compensation (including compromise or
redemption settlements) payable to such employee by reason of any
law of the United States, or any political subdivision thereof,
which has been or shall be enacted, provided that such deductions
shall be to the extent that such Workmen's Compensation has been
provided by premiums, taxes or other payments paid by or at the
expense of the Corporation, except that no deduction shall be made
for the following:"
"(a) Workmen's Compensation payments specifically allocated for
hospitalization or medical expense, fixed statutory payments for
the loss of any bodily member, or 100% loss of use of any bodily
member, or payment for loss of industrial vision."
"(b) Compromise or redemption settlements payable prior to the
date monthly pension benefits first become payable."
"(c) Workmen's Compensation payments paid under a claim filed
not later than two years after the breaking of seniority."
[
Footnote 2]
In No. 79-1943, former employees of Raybestos-Manhattan, Inc.,
sought permanently to enjoin such offsets and to recover damages
for the offsets already made. Similar relief was pursued in No.
80-193, where several former employees of General Motors Corp.
brought suit for themselves and on behalf of others similarly
situated.
[
Footnote 3]
See n 8,
infra.
[
Footnote 4]
The Regulation provides that
"nonforfeitable rights are not considered to be forfeitable by
reason of the fact that they may be reduced to take into account
benefits which are provided under the Social Security Act or under
any other Federal or State law and which are taken into account in
determining plan benefits."
26 CFR § 1.411(a)-4(a) (1980).
[
Footnote 5]
In its statement of findings and declaration of policy, Congress
noted that,
"despite the enormous growth in such plans, many employees with
long years of employment are losing anticipated retirement benefits
owing to the lack of vesting provisions in such plans."
29 U.S.C. § 1001(a). ERISA was designed to prescribe minimum
vesting and accrual standards in response to such problems.
Ibid. To ensure that employee pension expectations are not
defeated, the Act establishes minimum rules for employee
participation, §§ 1051-1061; funding standards to increase solvency
of pension plans, §§ 1081-1085; fiduciary standards for plan
managers, §§ 1101-1114; and an insurance program in case of plan
termination, §§ 1341-1348 (1976 ed. and Supp. III).
[
Footnote 6]
ERISA establishes three accrual techniques for pension plans
covered by the Act. 29 U.S.C. § 1054 (b)(1).
See n 9,
infra. Similarly, ERISA
establishes several approved vesting schedules. Under any of the
approved schedules, at a time prior to normal retirement age but
after a given period of service or a combination of age and length
of service, the employee is to be guaranteed 100% interest in the
pension benefit. 29 U.S.C. § 1053(a)(2).
See n 10,
infra.
[
Footnote 7]
ERISA defines "normal retirement benefit" as "the greater of the
early retirement benefit under the plan, or the benefit under the
plan commencing at normal retirement age." 29 U.S.C. §
1002(22).
[
Footnote 8]
The statute expressly exempts from its forfeiture ban offsets
that: (1) are contingent on the employee's death, 29 U.S.C. §
1053(a)(3)(A); (2) occur when the employee takes a job under
certain circumstances, § 1053(a)(3)(B); (3) are due to certain
retroactive amendments to a pension plan, § 1053(a)(3)(C); or (4)
result from withdrawals of benefits derived from mandatory
contributions, § 1053(a)(3)(D). Retirees correctly point out that
workers' compensation offsets fall into none of these
categories.
[
Footnote 9]
The three different accrual practices approved for defined
benefits plans are described in 29 U.S.C. § 1054(b)(1). One
prescribes a minimum percentage of the total retirement benefit
that must be accrued in any given year. § 1054(b)(1)(A). Another
permits the use of any accrual formula as long as the accrual rate
for a given year of service does not vary beyond a specified
percentage from the accrual rate of any other year under the plan.
§ 1054(b)(1)(B). The third is essentially a
pro rata rule
under which, in any given year, the employee's accrued benefit is
proportionate to the number of years of service as compared with
the number of total years of service appropriate to the normal
retirement age. § 1054(b)(1)(C).
[
Footnote 10]
Congress approved some delay in an employee's acquisition of a
vested right to portions of his pension derived from employer
contributions. Thus, ERISA specifies that this right could be
hinged on a minimum length of service, but an employee reaching the
minimum should not lose that right even if he does not continue
working for that particular employer until reaching retirement age.
That minimum period of service can be calculated under three
different formulas, two of which permit gradual vesting of
percentages of the accrued benefits over time.
Compare 29
U.S.C. § 1053(a)(2)(A)
with §§ 1053(a)(2)(B), (C).
See
also Schiller, Proposed ERISA Vesting Regulations: Not What
They Seem To Be, 6 J.Corp.L. 263 (1981) (discussing Internal
Revenue Service implementation of vesting provisions). In essence,
pension plans qualifying for tax treatment advantageous to the
employer both must ensure nonforfeiture of all accrued benefits
derived from employee contributions, and must use vesting and
accrual rates assuring portions of the benefits derived from the
employer contributions should the employee leave the job before the
normal retirement age. 29 U.S.C. §§ 1053(a)(1), (2).
[
Footnote 11]
This minimum results from the formulas approving gradual vesting
over time of benefits derived from employer contributions.
See 29 U.S.C. §§ 1053(a)(2)(B), (C). Alternatively, a plan
may comply with ERISA
"if an employee who has at least 10 years of service has a
nonforfeitable right to 100 percent of his accrued benefit derived
from employer contributions."
29 U.S.C. § 1053(a)(2)(A).
[
Footnote 12]
The vesting, nonforfeiture, and pension benefits provisions of
the bill discussed in H.R.Rep. No. 93-07 were substantially
identical to those portions in the bill ultimately enacted as
ERISA. The bill reported out of the Conference Committee included
an additional provision to restrict temporarily any increases in
pension reductions due to increases in Social Security benefits
occurring after December 31, 1971. H.R.Conf.Rep. No. 93-1280, p.
131 (1974), 3 Leg.Hist. 4405. Senator Harrison Williams explained
that this provision ultimately was deleted because:
"We have been told that this will greatly increase the costs of
private pension plans, something that I am sure none of the
Senators would like to see occur. This is particularly true if
these increased pension costs result in the termination of private
pension plans. Certainly that is not the intent of this
legislation, which is designed to improve and encourage the
expansion of private pension plans."
120 Cong.Rec. 29928 (1974), 3 Leg.Hist. 4732.
[
Footnote 13]
The Court of Appeals characterized the Treasury Regulation as a
"legislative" regulation, entitled to a more restricted scope of
review than is applied to "interpretive rules." 616 F.2d 1238,
1242. Nonetheless, the Government here represents that the Treasury
Regulation is an interpretive rule. Brief for United States as
Amicus Curiae 19, n. 12. Because an agency empowered to
enact legislative rules may choose to issue nonlegislative
statements, we review this Treasury Regulation under the scrutiny
applicable to interpretive rules, with due deference to consistent
agency practice.
See Batterton v. Francis, 432 U.
S. 416,
432 U. S. 425,
n. 9 (1977);
Batterton v. Marshall, 208 U.S.App.D.C. 321,
332-333, 648 F.2d 694, 705-706 (1980); 2 K. Davis, Administrative
Law Treatise § 7.8 (2d ed.1979) .
[
Footnote 14]
Furthermore, integration with workers' compensation has been
approved by the agency created under ERISA to guarantee payment of
all nonforfeitable pension benefits despite termination of the
relevant pension plan. That agency, the Pension Benefit Guaranty
Corporation, has defined the benefits it guarantees to include
"a benefit payable as an annuity, or one or more payments
related thereto, to a participant who permanently leaves or has
permanently left covered employment, or to a surviving beneficiary,
which payments by themselves or in combination with Social
Security, Railroad Retirement, or workmen's compensation benefits
provide a substantially level income to the recipient."
29 CFR § 2605.2 (1980).
[
Footnote 15]
The House Ways and Means Committee Report proposed codification
of the contemporaneous administrative practice developed by the
IRS. That practice included IRS approval of integration procedures.
See, e.g., 26 CFR § 1.401-3(e) (1973); Rev.Rul. 69-421,
Part 4, 1969-2 Cum.Bull. 70-74; Rev.Rul. 12, 1953-1 Cum.Bull. 290.
These IRS rulings implemented a provision of the Internal Revenue
Code, 26 U.S.C. § 401(a)(4), which forbids favorable tax treatment
for pension plans discriminating in favor of company officers,
shareholders, or highly compensated employees. The Internal Revenue
Code, long before the enactment of ERISA, specified that such
forbidden discrimination does not include differences in benefits
"because of any retirement benefits created under State or Federal
law." 26 U.S.C. § 401(a)(5) (1976 ed., Supp. III). The IRS has
consistently interpreted this discrimination provision to permit
pension benefit integration with Social Security and other funds
receiving employer contributions and making benefits available to
the general public.
See, e.g., Rev.Rul. 69-4, 1969-1
Cum.Bull. 118; Rev.Rul. 69-5, 1969-1 Cum.Bull. 125; Rev.Rul.
68-243, 1968-1 Cum.Bull. 157; Rev.Rul. 61-75, 1961-1 Cum.Bull. 140.
Congress essentially approved these rulings when its Conference
Committee reported:
"[T]he conferees intend that the antidiscrimination rules of
present law in areas other than the vesting schedule are not to be
changed. Thus, the present antidiscrimination rules with respect to
coverage, and with respect to contributions and benefits are to
remain in effect."
H.R.Conf.Rep. No. 93-1280, p. 277 (1974), 3 Leg.Hist. 4544.
[
Footnote 16]
Retirees argue that workers' compensation should be treated the
same as common law tort damages for the purposes of integration
with pension payments. Although workers' compensation resembles
tort judgments against employers for employee injuries, there are
differences which could explain their different treatment by the
IRS. A tort judgment typically represents a finding of the
employer's fault for the employee's injury. Workers' compensation,
in contrast, is generally available with no showing of an
employer's fault or an employee's lack of fault for the
work-related injury. 1 A. Larson, Workmen's Compensation Law §§
2.10, 6.00 (1979). In treating the two sources of payments
differently, the IRS may have concluded that workers' compensation
is as much an income maintenance program, responding to wage loss,
as it is remuneration for injury, and therefore it may be
integrated with pension benefits to the advantage of the entire
employee group.
See generally 4
id. §§ 96.10,
97.10, 97.50.
Cf. Richardson v. Belcher, 404 U. S.
78,
404 U. S. 83
(1971) (reductions of Social Security based on workers'
compensation comports with due process). In this light, the agency
may well have employed the very rationale proffered by retirees --
that two benefits systems must have identical purposes before they
may be integrated -- and departed from retirees' reasoning only in
concluding that these two benefit systems share the same purpose of
replacing lost wages, whatever the cause. Regardless of which view
of workers' compensation this Court finds most compelling, we must
defer to the consistent agency position that is itself reasonable
and consonant with the Act.
[
Footnote 17]
We note that the General Motors offset clause avoids any
ambiguity on this point. It disallows deductions for medical
expenses or fixed payments for bodily impairment.
See
n 1,
supra. Although
the Raybestos-Manhattan, Inc., plan is silent on this point, it is
certainly subject to IRS regulation.
[
Footnote 18]
Adopted as an amendment to the New Jersey Workers' Compensation
Act, this provision reversed New Jersey's prior approval of
workers' compensation offsets in collectively bargained pension
agreements.
See Brief for Appellee New Jersey in No.
79-1943, pp. 7.
[
Footnote 19]
The scope of federal concern is, however, limited by ERISA
itself. The statute explicitly preserves state regulation of
"insurance, banking, or securities," 29 U.S.C. § 1144(b)(2)(A); and
"generally applicable criminal law[s] of a State," §
1144(b)(2)(B)(4). ERISA also exempts from its coverage several
kinds of plans, which may be subject to state regulation. §§
1144(a), 1144(b)(2)(B).
See also H.R.Conf.Rep. No.
93-1280, p. 383 (1974), 3 Leg.Hist. 4650.
[
Footnote 20]
ERISA's preemption clause exempts state laws relating to pension
plans that do not fall within the Act's coverage,
see
n19,
supra, but no
such exemptions are applicable here. The only exemption with any
conceivable relevance pertains to state laws governing plans
"maintained solely for the purpose of complying with applicable
workmen's compensation laws." 29 U.S.C. § 1003(b)(3). Retirees in
No. 80-193 concede that this exception is inapplicable because the
General Motors plan is not maintained solely to comply with a
workmen's compensation law. Brief for Petitioners in No. 8193, p.
44.
Retirees in No. 79-1943, however, claim that the exception
should apply more generally to plans governed by state workers'
compensation laws. They reason that,
"if a plan which is designed to 'comply with [an] applicable
workmen's compensation law' is not preempted by ERISA, then,
a
fortiori, the underlying statute with which such plan is
permitted to comply equally escapes coverage."
Reply Brief for Appellants in No. 79-1943, p. 18. This reasoning
wreaks havoc on ERISA's plain language, which preempts not plans,
but "State laws." 29 U.S.C. § 1144(a). The only relevant state
laws, or portions thereof, that survive this preemption provision
are those relating to plans that are themselves exempted from
ERISA's scope. And the relevant exemption from ERISA's coverage --
for plans maintained
solely for compliance with state
workers' compensation laws -- has no bearing on the plans involved
here, which more broadly serve employee needs as a result of
collective bargaining. As retirees do not, and cannot, claim that
the plans involved here are free from ERISA's coverage, they cannot
claim the exception to preemption restricted to laws governing such
exempted plans.
[
Footnote 21]
Other courts have reached varying conclusions as to the meaning
of ERISA's preemptive language in other contexts.
See, e.g.,
American Telephone & Telegraph Co. v. Merry, 592 F.2d 118
(CA2 1979);
Stone v. Stone, 450 F.
Supp. 919 (ND Cal.1978);
Gast v. State, 36 Ore.App.
441,
585 P.2d
12 (1978). We express no views on the merits of any of those
decisions.
[
Footnote 22]
In light of its reading of ERISA, the Court of Appeals declined
to reach the issue of preemption under the National Labor Relations
Act. 616 F.2d at 1250, n. 17. The issue was, however, addressed by
the District Court below in
Alessi v. Raybestos-Manhattan,
Inc., Civ. No. 78-0434 (NJ, Feb. 15, 1979). That court
reasoned that federal labor law preemption does not extend so far
as to preclude state regulation of conduct touching deeply rooted
local concerns.
Ibid. (citing
San Diego Building
Trades Council v. Garmon, 359 U.S. at
359 U. S.
244). Although this reasoning may apply in other
contexts, we do not find it compelling in light of the direct clash
between the state statute and the federal policy to keep
calculation of pension benefits a subject of either
labor-management negotiations or federal legislation. In this
context, integration of pension benefits with other public income
maintenance funds can be forbidden only by the terms of pension
plans themselves, or by new federal legislation.
[
Footnote 23]
This conclusion follows naturally from the view of a plurality
of this Court in
Malone v. White Motor Corp., 435 U.
S. 497 (1978). There, because Congress preserved a state
role in pension regulation before ERISA, the plurality created an
exception to the general rule preempting state regulation of
collective bargaining.
Id. at
435 U. S.
513-514. This exception no longer applies, however, now
that ERISA, with express preemptive intent, has eliminated state
regulation of most pension plans.