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Under ERISA, the calculation of a worker’s pension benefits cannot exclude a period of work due to a “break in service” — even if that first stretch of work occurred before ERISA was passed — a divided panel of the 3rd U.S. Circuit Court of Appeals has ruled. The 3rd Circuit’s 27-page opinion in DiGiacomo v. Teamsters Pension Trust Fund of Philadelphia and Vicinity sharpens an existing split in the circuits. Writing for the court, Senior 3rd Circuit Judge Leonard I. Garth refused to follow a 7th Circuit decision that upheld enforcement of such break-in-service provisions in pension plans, and instead adopted the 2nd Circuit’s reasoning that such provisions are prohibited under �204 of the Employee Retirement Income Security Act. “Reading ERISA Section 204 as it is written, we are persuaded that our position and that of the 2nd Circuit is more consistent with established canons of statutory construction than the 7th Circuit’s position,” Garth wrote in an opinion joined by 3rd Circuit Chief Judge Anthony J. Scirica. Under the “plain language” of Section 204, Garth said, the pension fund was required to credit Alfred DiGiacomo with “all years of service” in computing his accrued pension benefits — including his 10 years of pre-break service. “Nothing in Section 204 of ERISA allows the fund to apply its break-in-service provisions to the calculation of accrued benefits,” Garth wrote. But in his dissent, 3rd Circuit Judge Samuel A. Alito Jr. said he believed the majority had misread �204 “by equating the accrual of benefits with an unconditional right to receive benefits, even though benefits become unconditional through vesting, not accrual.” Alito said he would have decided the case by applying �203 of ERISA, which governs vesting. “Under the minimum vesting standards in Section 203, the plan was plainly allowed to treat benefits accrued prior to 1972 as forfeitable upon a break in service,” Alito wrote. According to court papers, DiGiacomo had worked as a Teamster from 1960 to 1971, and later from 1978 to 2000. When he applied for pension benefits, DiGiacomo was told that he would not get credit for his first decade of work due to his six-year break in service. DiGiacomo filed suit, alleging that the pension plan’s break-in-service provision was barred by ERISA. But U.S. District Judge Legrome D. Davis ruled in favor of the pension fund, holding that the fund was permitted to deny credit to DiGiacomo for service preceding his six-year break because the first stretch of work occurred before ERISA took effect in 1976. Now the 3rd Circuit has ruled that, for a worker like DiGiacomo — whose pension rights have clearly “vested” — ERISA’s �204 trumps the pension plan’s break-in-service provision and requires that he be given credit for both pre- and post-break service. Lawyers for the pension fund argued that �203 clearly authorizes a plan to deny credit on the basis of a break in service. Garth found that the appeal forced the court to “examine the relationship” between �203, which governs vesting, and �204, which governs the accrual of benefits. In doing so, Garth found that Congress “has left us with a conundrum” because �203 includes language that specifically permits pension plans to disregard pre-ERISA service time rendered before a break in service with regard to vested benefits, while �204 “contains no such language” with regard to accrued benefits. Although the 3rd Circuit has never squarely addressed the question, Garth found that two other circuits have analyzed the issue and reached contrary conclusions. In its 2003 decision in McDonald v. Pension Plan of the NYSA-ILA Pension Trust Fund, the 2nd Circuit held that Section 204 trumps a plan’s break-in-service provisions. But in 1994, the 7th Circuit held in Jones v. UOP that it was improper to treat vesting and accrual of benefits differently with respect to breaks in service. Garth found that the question was “a close and difficult one,” but that the 2nd Circuit had gotten it right by holding that the issue was governed by the plain language of �204 which requires that “all years of service” must be taken into account in calculating an employee’s accrued benefit. The analysis, Garth said, was guided by two canons of statutory construction. “The first is that a court must begin with the language of the statute … . With respect to the question presented here, the statutory language is unambiguous. ERISA Section 204 establishes permissible accrual practices for pension plans. It makes no provision for break-in-service rules. Nor does it provide for disregarding pre-ERISA break-in-service time in calculating an employee’s pension,” Garth wrote. Congress, Garth said, clearly knew how to provide for break-in-service provisions in ERISA because it did so explicitly in Section 203. “In view of Congress’s failure to include a section in Section 204 for accrued benefits which parallels the section found in Section 203 for vesting, we rely on a second canon of statutory construction: It is generally presumed that Congress acts intentionally and purposely when it includes particular language in one section of a statute but omits it in another,” Garth wrote. In dissent, Alito said the majority had erred by dismissing the import of �203′s explicit authorization of break-in-service provisions. Alito said he believes the two sections must be read together because ERISA’s rules on the accrual of benefits means nothing without also considering the rules for when benefits are deemed to be vested. “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. Only then do they become legally enforceable against the plan,” Alito wrote. “Prior to vesting, accrued benefits can be, and in this case were, forfeited under the terms of a participant’s plan,” Alito wrote. In a footnote that directly responded to the dissent, Garth said Alito had “oversimplified the interplay” between the two sections. “To borrow Judge Alito’s helpful analogy,” Garth wrote, “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.” DiGiacomo was represented in the appeal by attorney Doris J. Dabrowski. The pension fund was represented by attorney Susan A. Murray of Freedman & Lorry.

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