In Hunter v. Berkshire Hathaway, Inc., the plaintiffs challenged amendments to an employer's defined contribution plan and defined benefit plan under ERISA and the merger agreement between the company and its parent (No. 15-10854, (5th Cir. Jul. 11, 2016)). The changes included:

The US Court of Appeals for the Fifth Circuit held that the merger agreement between the parent company and its subsidiary allowed the subsidiary to make these amendments but also created contractual obligations for the parent company not to reduce future benefits. Therefore, the court affirmed the dismissal of claims against the subsidiary but reversed the district court's dismissal of the plaintiffs' claims against the parent company.

In 2000, Berkshire Hathaway, Inc. (Berkshire) bought Justin Industries, Inc. (Justin). At that time, Acme Building Brands, Inc. (Acme), a subsidiary of Justin, offered eligible employees an opportunity to participate in either a defined benefit plan (pension plan) or a 401(k) plan.

Acme was the named sponsor and fiduciary of both plans. Each plan was administered by its own committee. Acme matched 50% of an employee's contributions to the 401(k) Plan on an annual basis, up to 5% of the employee's compensation.

Under Section 5.7 of the Agreement and Plan of Merger (Merger Agreement) between Berkshire and Justin, Berkshire agreed to honor the terms of all of Acme's employee benefit plans. It provided that Berkshire or Acme could amend, modify, or terminate any individual plans in accordance with the terms of the Plans and applicable law, except that Berkshire would not cause Acme to reduce plan benefits, including:

The plaintiffs in this case, current and retired Acme employees, alleged that:

In 2014, Berkshire allegedly contacted Acme about reducing or eliminating benefits in Acme's retirement plans. The plan committees concluded that Section 5.7 of the Merger Agreement prohibited Acme from implementing a hard freeze on the pension plan and from making the 25% reduction in company contributions requested by Berkshire. The committees filed reports under Berkshire's code of ethics and sought guidance from Berkshire's audit committee. They also demanded that Acme's board of directors retroactively restore the 50% matching contribution for 2010 to 2013, and threated to take legal action if this was not done.

Berkshire responded that the committees had to agree to either:

Acme chose the first option and implemented the freeze in August 2014.

The plaintiffs filed suit against Acme and Berkshire, seeking declaratory, equitable, and injunctive relief, and asserting breach of fiduciary duty claims. Specifically, they sought a declaratory judgment and injunctive relief under ERISA Section 502(a)(3) (29 U.S.C. § 1132(a)(3)), alleging that:

The plaintiffs also asserted:

The US District Court for the Northern District of Texas granted defendants' motion to dismiss all claims, and the plaintiffs appealed to the Fifth Circuit.

On appeal, the Fifth Circuit:

The Fifth Circuit dismissed the claims against Acme because Section 5.7 of the Merger Agreement expressly allows Acme to amend, modify, or terminate the retirement plans. Therefore Acme did not:

However, the Fifth Circuit held that the plaintiffs pleaded sufficient facts to assert a plausible claim against Berkshire under the provision of the Merger Agreement that contractually prohibited Berkshire from causing Acme to reduce benefit accruals or employer contributions. The district court interpreted the plaintiffs' complaint to seek unalterable, lifetime benefits, and rejected the plaintiffs' complaint because:

However, the Fifth Circuit held that the plaintiffs did not have to allege the specific duration of time during which amendment would be considered unreasonable because they argued that the amendment is unreasonable under the circumstances and violates the Merger Agreement, regardless of when it occurs.

Furthermore, the Fifth Circuit held that the plaintiffs did not seek only vested benefits but the enforcement of the Merger Agreement, which is an extra-ERISA contractual commitment. Extra-ERISA contractual obligations are enforceable under contract law (Spacek v. Mar. Ass’n, 134 F.3d 283, 287 (5th Cir. 1998), abrogated on other grounds by Cent. Laborers’ Pension Fund v. Heinz, 541 U.S. 739 (2004)).

The Fifth Circuit referred to Halliburton Co. Benefits Comm. v. Graves, in which it enforced a merger-agreement clause limiting the scope of future ERISA plan amendments (463 F.3d 360 (5th Cir. 2006)). In Halliburton, the merger agreement allowed Halliburton, at any time and for any reason, to amend or terminate the retiree medical plan of Dresser Industries (the acquired company), as long as it did the same for Halliburton's similarly situated active employees. Halliburton then amended the Dresser plan but did not make corresponding changes to the plans for its similarly situated employees. In litigation, the district court ordered Halliburton to maintain the Dresser Retiree Medical Program for eligible participants, changing plan benefits only if it made identical changes to benefits for similarly situated active employees.

On appeal, the Fifth Circuit rejected Halliburton's argument that the district court's order was an impermissible vesting of benefits. An employer vests a benefit under ERISA when it intends to confer unalterable and irrevocable benefits on its employees, and it does so by using clear and express language.

The Fifth Circuit found the Merger Agreement in Hunter to be comparable to the agreement in Halliburton, in that:

Accordingly, the Fifth Circuit held that plaintiffs pleaded sufficient facts to assert a plausible claim to relief against Berkshire to enforce the terms of the Merger Agreement.

Parties to a merger agreement that limits how the parties can change the terms of retirement plans should be mindful of the Fifth Circuit's decision in Hunter. In the Fifth Circuit, plan participants affected by plan changes made under a merger agreement will be able to assert claims seeking enforcement of the terms of the merger agreement itself. For more information on retirement plan considerations in mergers and acquisitions, see: