We often are asked why plan amendment procedures vary from plan to plan, and why it is important to follow those procedures—however written. Sometimes there are unique reasons for the specified procedures, but very possibly the answer goes back to the 1990’s and a case called Curtiss-Wright Corp. v. Schoonejongen, which took us on an amendment procedure roller coaster ride. First, the district court in Curtiss-Wright invalidated a plan amendment to cease post retirement health care coverage on the basis that the plan failed to specify a valid “procedure for amending [the] plan, and for identifying the persons who have authority to amend the plan.” On appeal, the Third Circuit affirmed. By this point, many years had passed and “undoing” the amendment retroactively would have cost millions of dollars. Finally, this case made its way to the United Stated Supreme Court, which reversed and remanded the lower court decision. Essentially, the Court held that specifying that the employer had authority to amend the plan was sufficient to satisfy ERISA, and that principles of corporate law would control who has authority to act on behalf of the employer in that amendment process.
Somewhere along this bumpy ride employers became queasy about the risk that courts might invalidate plan amendments, and so many amended their plans to set forth more a more specific amendment process. Yes, amending a plan with no adequate amendment procedure is a paradox, but we are just telling the story. Fast forward to 2011, and Curtiss-Wright Corp. v. Schoonejongen now is being applied in reverse. In Tatum v. R.J. Reynolds Tobacco Co., 2011 WL 2160893 (M.D.N.C. 6/1/11), a district court invalidated a 1999 plan amendment to remove Nabisco stock funds from a retirement plan. That plan set forth a specific procedure for plan amendments, which required amendments to be approved via either a committee meeting or a written consent in lieu of a meeting. Here, the secretary of the committee signed the amendment but there was no evidence of a meeting or a consent. Citing Curtiss-Wright, which ironically could have caused the insertion of this specific amendment procedure, the court invalidated the amendment for failure to follow procedure.
The Tatum case has been in the system for years, and now goes back for consideration of whether removal of the stock investment funds was a breach of fiduciary duty. The lesson that we learn from Tatum is that employers should confirm the terms of their plans before taking action such as plan amendments (however specific or general they may be), and should conform to those terms when adopting plan amendments. If the procedures are very specific, the employer also might want to consider whether it may be possible and preferable to amend the provisions to allow more flexibility.