preemption clause. Plaintiff argues, in essence, that not every state law which has a conceivable impact upon an ERISA plan falls within ERISA's preemption. According to plaintiff, there are "outer bounds" to the ERISA preemption clause, and the New Jersey preference statute lies beyond those outer bounds.
Whatever those outer bounds may be, defendant Fund asserts that the preference statute rests well within their borders, for its application would prevent or frustrate the payment of statutorily-mandated employer contributions in the instant case, run afoul of the Fund's trustee's fiduciary duties, and generally constitute a prohibited transaction under ERISA rules.
Plaintiff, on the other hand, argues that a state law "relates to" an ERISA plan only if that state law purports to regulate, directly or indirectly, the terms and conditions of such plans, as opposed to having a quite indirect and minor effect on the plan's financial fortunes.
In Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 68 L. Ed. 2d 402, 101 S. Ct. 1895 (1981), the Supreme Court held that ERISA preempted a New Jersey statute (N.J.S.A. 34:15-29) that prohibited pension plans from setting off Workman's Compensation payments against retirement payments. The Supreme Court noted that federal law permitted a method for calculation of pension benefits known as "integration"; the integration method, permissible under ERISA, allowed for a reduction in pension benefits based on Workman's Compensation awards. Id. at 517-521. Thus, the New Jersey state law, by forbidding such offsets, interfered with a method of calculation of retirement benefits that ERISA permits.
In reaching the conclusion that the state law "related to" an ERISA plan, the court eschewed any analysis of the purpose of the state statute, and instead focused upon its effect: interference with a method of calculation of benefits permitted by ERISA. Alessi, supra, 451 U.S. at 524-25.
The Alessi decision affirmed the Third Circuit's holding that ERISA preempted the New Jersey statute. Buczynski v. G.M. Corp., 616 F.2d 1238 (3d Cir. 1980). The Third Circuit appeared to base its holding on its conclusion that the New Jersey statute's sole purpose and effect was to set forth an additional requirement for pension plans. The Supreme Court, as noted above, did not focus upon the purpose of the statute, and expressly disavowed the Third Circuit's reasoning. Rather, the Supreme Court relied on the state statute's effect: the statute eliminated an ERISA-sanctioned method of calculating pension benefits, and so "related to" an ERISA plan.
In Alessi, the Court expressly declined to define the outer bounds of ERISA's preemptive language. Alessi, supra, 451 U.S. at 525.
Thus, the Alessi formulation concentrates our attention upon effect, but does not resolve questions about the nature or scope of effect necessary to provoke preemption. For example, Alessi does not decide whether a state statute's effect upon an ERISA plan must be general or common to all pension plans, or whether an effect may trigger preemption if the effect applies to only one or a small number of plans. Neither does Alessi determine whether a state law that interferes with an ERISA fund's ability to retain an employer's contribution into a plan, but does not in any way affect the internal workings of an ERISA plan, fails because of preemption.
A small number of authorities sketch the outlines of what qualifies as an impermissible intrusion on the federal regulatory ERISA scheme.
In Delta Airlines v. Kramarsky, 650 F.2d 1287 (2d Cir. 1981), plaintiff benefit plans challenged a provision of the New York Human Rights Law requiring that employee benefit plans provide coverage for disability due to pregnancy on the same basis on which other disabling conditions are covered. The Second Circuit originally held that ERISA did not preempt the Human Rights Law, but the court did not explain any rationale other than stare decisis. The Minnesota Supreme Court had found no ERISA preemption of a similar Minnesota law, in Minnesota Mining & Manuf. Co. v. Minnesota, 289 N.W. 2d 396 (Minn. 1979), appeal dismissed, 444 U.S. 1041, 62 L. Ed. 2d 726, 100 S. Ct. 725 (1980)). The Supreme Court's dismissal of the appeal constituted a judgment on the merits -- so the Court of Appeals held.
The original Kramarsky opinion issued before Alessi; upon reconsideration in light of Alessi, the Second Circuit reversed its ground and held the Human Rights Law preempted by ERISA. Delta Air Lines, Inc. v. Kramarsky, 666 F.2d 21 (2d Cir. 1981) ("Kramarsky II"). Observing that ERISA left to employers and collective bargaining agreements the question of disability benefits for pregnancy, the court found that the Human Rights Law requiring the payment of benefits for pregnancy impermissibly intruded upon, and therefore "related to," the federal ERISA scheme and ERISA plans. Id., 666 F.2d at 24-25.
Thus, Alessi preempted a state statute governing calculation of ERISA benefits; Kramarsky preempted a state law that regulated the extent of disability coverage under an ERISA plan. That is to say, the state laws in Alessi and Kramarsky effect, or "related to," the internal workings of a plan. More specifically, they nullified an internal plan rule which ERISA either approved or permitted.
In the instant case, the New Jersey preference law does not have any effect upon the rules, procedures or policies of an ERISA-governed plan. Rather, in the specific case before the court, the state law would merely require the return of certain employer's contributions made to the plan within four months of insolvency to the extent that those payments fit the state law's definition of a "preference."
Defendant invokes the recent decision of the Second Circuit in Stone & Webster Engineering Corp. v. Ilsley, 690 F.2d 323 (2d Cir. 1982), to support its view that the New Jersey preference law sufficiently "relates to" ERISA to suffer preemption under § 515.
In Stone & Webster, an employer challenged the applicability of a Connecticut statute requiring the continuation of employer contributions to an ERISA fund on behalf of employees who were receiving workman's compensation. The relevant collective bargaining agreement did not contain any provision requiring continuing contributions by the employer when an employee is collecting workman's compensation benefits, rather than working. The collective bargaining agreement under which the Fund received employer contributions required the employer to pay into the Fund 75 cents per hour only for hours actually worked by each employee. The parties to the agreement had the power under ERISA to define the employer's contribution obligations. The parties did so, limiting contributions to 75 cents per hour for every hour actually worked. The State of Connecticut's statute, however, imposed a further contributory obligation on the employer for hours not worked by a worker on workman's compensation. Thus, the Connecticut statute directly encroached upon an ERISA benefit plan's method of assessing an employer's contributory obligation; as such, the state law "related to" the plan and was not preempted.
Stone & Webster is, like Alessi, readily distinguishable from the case at bar. The Connecticut statute directly and expressly regulated employer's obligations under ERISA plans. The New Jersey preference law, in contrast, does not directly regulate plans or employer contributions to plans. It neither adds nor subtracts anything from those plans. In § 514 of ERISA, Congress "clearly eliminated the threat of conflicting state and local regulation of employee benefit plans." Stone & Webster, supra, 690 F.2d at 329. But the New Jersey preference statute does not constitute such a regulation, unlike the Connecticut statute in Stone & Webster.
Thus, § 514, standing alone, does not by itself invalidate or preempt the New Jersey's preference law, nor that law's application to the payment of contributions in the instant case. The state preference law here does not in any way affect the internal workings or rules and regulations of the ERISA plan. It is a law of general application, applying to all creditors who receive payment from a debtor within four months of the commencement of a receivership action against the debtor. The court holds that such a law does not "relate to" an ERISA plan within the meaning of § 514.
There remains first defendant's argument that numerous supposed conflicts between specific ERISA provisions and the preference statute amount to sufficient interference with the plan to make the state statute one that "relates to" an ERISA plan. Derivatively or alternatively, defendant seizes on those conflicts as grounds for preemption, independent of § 514.
A. § 515 of ERISA
The defendant argues that, as in Alessi, the preference statute treads upon § 515 of ERISA, 29 U.S.C. § 1145, reading in relevant part:
Delinquent Contributions. Every Employer who is obligated to make contributions to a multi-employer plan under the terms of the plan or under the terms of a collectively bargained agreement shall, to the extent not inconsistent with law, make such contributions in accordance with the terms and conditions of such plan or such agreement.
29 U.S.C. § 1145.
Conceptually, § 1145 could enter this discussion in two ways: first, it might stand as a factor to be considered in determining whether the preference statute "relates to" an ERISA governed plan, 29 U.S.C. § 1144; second, and quite apart from the specific preemptive provision of ERISA, § 1145 raises the related but distinct argument that Congress has so occupied the field of employer contributions to plans that a preference statute may not interfere with that federal scheme. The questions are so closely intertwined, despite their conceptual differences, that the answer to one suggests the resolution of the other.
At least one district court has concluded that when the state law has only an indirect effect on the plan and where it is one of general application which pertains to an area of important state concern, a court should decline to find preemption. Provience v. Valley Clerks Trust Fund, 509 F. Supp. 388, 391 (E.D. Cal. 1981).
As the court in Provience observed, this conclusion finds analogy in New York Telephone Co. v. New York State Dept. of Labor, 440 U.S. 519, 59 L. Ed. 2d 553, 99 S. Ct. 1328 (1979) (plurality opinion). In New York Telephone Co., the Court held that a state law requiring payment of unemployment benefits to striking employees was not preempted by federal labor law. The state law did not directly regulate the relations between management and labor but was a law of general applicability. The law implemented a broad state policy that did not primarily concern labor relations, but rather a policy implicated whenever members of the labor force become unemployed. That policy was one New York State considered important to the community's interest in the welfare of persons affected by a strike. Id. at 533-34. As such, the law exhibited certain indicia that rendered it a poor candidate for preemption.
Under such an analysis, the New Jersey preference law should escape preemption by ERISA, for the preference law affects the ERISA plan in only the most tangential way -- indeed, if it affects the "plan" at all. Looked at in one light, the law merely impairs the fortunes of the ERISA plan by requiring the disgorgement of some contribution payments made by an insolvent employer-contributor. In a different light, the preference law might be said to impair the Fund's retention of delinquent (or non-delinquent) contributions if payment is made within four months of receivership. But under conditions established by the statute, strictly speaking, the preference law does not impair the employer's obligation to make the payments. It merely provides for those payments return when those payments are rendered a "preference" under the state law. Thus the ultimate impact is to treat an ERISA plan as any other creditor of an insolvent employer-contributor is treated. The Fund, it would seem, still is eligible to participate, like all other creditors, in the disposition of the corporation-in-receivership's assets. So the impact upon the "plan" itself -- its content or ways of operation -- is non-existent. The conflict, if any, between § 515 and the New Jersey statute is insubstantial. The preference law is one of general application and insofar as it protects creditors and shareholders of insolvent corporations, it is one of great concern to the State of New Jersey. See In Re: Distillers Factors Corp., 91 F. Supp. 796 (D. N.J.), aff'd, 187 F.2d 685 (3d Cir. 1951), cert. denied, 342 U.S. 825, 72 S. Ct. 45, 96 L. Ed. 623 (1951).
Based on the foregoing, the court thinks it clear that this preference statute does not "relate to" an ERISA plan in the sense envisioned by Alessi, nor does it substantially conflict with § 515.
Indeed, the court cannot conclude that § 515's provision regarding payment of delinquent contributions manifests a congressional intent so to occupy the field of employer contributions to benefit plans as to preempt the preference law.
In determining a statute's preemptive effect, the courts focus upon Congress' intent in framing a statute. See New York Telephone Co. v. New York Labor Dept., 440 U.S. 519, 526-27, 59 L. Ed. 2d 553, 99 S. Ct. 1328. The Supreme Court has rehearsed the legislative history of § 1145 in Kaiser Steel Corp. v. Mullins, 455 U.S. 72, 102 S. Ct. 851-860, 70 L. Ed. 2d 833 (1982). The Court concluded that Congress intended by enacting § 1145 solely to give trustees of pension plans a federal statutory cause of action to collect contributions from employers who are delinquent in making payments according to their contractual agreements. Id.
As discussed above, the preference law in no way restricts the employer from making contributions to the pension plan, and in no way eliminates the federal statutory cause of action by a trustee against an employer who is delinquent in his contributions. The New Jersey statute, therefore, has no impact whatsoever in the field of the obligation of the employer to make contributions, or in the ability of a trustee to bring suit against the employer. An employer who is delinquent in his pension contributions can find no defense within N.J.S.A. 14A:14-14 to his obligations, as this statute has no bearing, whatsoever, upon whether or not he should make his contributions. The New Jersey law merely requires that the defendant be given no higher priority than any other creditor in a similar class upon disbursement of the assets of an insolvent corporation. Section 515 does not serve to preempt the preference statute.
B. Alleged Conflicts with §§ 403 and 404.
Section 403(c)(1) of ERISA, 29 U.S.C. § 1103(c)(1), states that:
Except as provided in paragraph (2), (3), or (4) or subsection (d) of this section, or under Section 4042 and 4044 of this title (relating to termination of insured plans), the assets of a plan shall never inure to the benefit of any employer and shall be held for the exclusive purposes of providing benefits to participants in the plan and their beneficiaries and defraying reasonable expenses of administering the Plan. (Emphasis Supplied.)