Blessitt v. Retirement Plan For Employees of Dixie Engine Co.

• Citation: 848 F.2d 1164
• Decision Date: 08 July 1988
• Docket Number: No. 86-8123,86-8123
• Parties: , 9 Employee Benefits Ca 2265 George G. BLESSITT and Willie Neal, Jr., Plaintiffs-Appellants, v. RETIREMENT PLAN FOR EMPLOYEES OF DIXIE ENGINE CO., et al., Defendants- Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (11th Circuit)

Page 1164

848 F.2d 1164

57 USLW 2050, 9 Employee Benefits Ca 2265

George G. BLESSITT and Willie Neal, Jr., Plaintiffs-Appellants, v. RETIREMENT PLAN FOR EMPLOYEES OF DIXIE ENGINE CO., et al.,

Defendants- Appellees.

No. 86-8123.

United States Court of Appeals, Eleventh Circuit.

July 8, 1988.

James S. Altman, Richard D. Ellenberg, P.C., Atlanta, Ga., for plaintiffs-appellants.

David M. Leonard, Hugh C. Griffin, Atlanta, Ga., Larry A. Hansen, Carol B. Kiersky, Chicago, Ill., for defendants-appellees.

Hugh C. Griffin, Lord, Bissell, & Brook, Chicago, Ill., for Retirement Plan.

Harry V. Lamon, Jr., Kenneth R. Russell, Jr., Martha McGhee Glisson, Atlanta, Ga., for amicus curiae American Society of Pension Actuaries.

Gary M. Ford, Office of Gen. Counsel, Pension Ben. Guar., Edward Thomas Veal, Jeanne K. Beck, Washington, D.C., for amicus curiae Pension Ben. Guar. Corp.

Christopher Mackaronis, American Assn. of Retired Persons, Steven S. Zaleznick, Cathy Verbtrell-Monsees, Washington, D.C., Norman Stein, University of Alabama, School of Law, Tuscaloosa, Ala., for amicus curiae American Ass'n of Retired Persons.

Steven J. Sacher, John Will Ongman, Evan Miller, Pepper, Hamilton & Scheetz, Washington, D.C., for amicus curiae Ass'n of Private Pension & Welfare Plans.

William L. Sollee, Daniel B. Stone, Laurie E. Keenan, Kurt L.P. Lawson, Washington, D.C., for amicus The Nat. Employee Benefits Institute.

Robin S. Conrad, Nat. Chamber Litigation Center, Inc., Washington, D.C., for amicus curiae Chamber of Commerce.

Karen W. Ferguson, Pension Rights Center, Washington, D.C., for amicus curiae Pension Rights Center.

Appeal from the United States District Court for the Northern District of Georgia.

Before RONEY, Chief Judge, TJOFLAT, HILL, FAY, VANCE, KRAVITCH, JOHNSON, HATCHETT, ANDERSON, CLARK, and EDMONDSON, Circuit Judges. ^*

ANDERSON, Circuit Judge:

The narrow but important issue in this case is whether, when a defined benefit

plan terminates, the Employee Retirement Income Security Act ("ERISA") requires that a defined benefit plan pay an employee the full, unreduced pension benefit the employee would have received had he continued to work until normal retirement age. We conclude that when a plan terminates. ERISA does not require that employees receive the normal retirement benefit they would have received had they continued to work to normal retirement age. In other words, ERISA does not require that employees receive a benefit which is calculated on the basis of anticipated future years of service which have not actually been worked as of the termination date. As applied to this case, the employees were entitled to receive upon plan termination only the benefit provided for under the plan--i.e. a benefit calculated on the basis of their actual years of service as of the termination date.

I. BACKGROUND

Appellants George Blessitt and Willie Neal Jr. represent the class of Dixie Engine Co. employees who were participants in appellee Dixie Engine's defined benefit pension plan ("plan") and who were entitled to receive benefits when the plan terminated. ¹ The plan was established in 1972 and was terminated on December 31, 1982, pursuant to the sale of substantially all of Dixie Engine's assets. Blessitt was hired prior to the establishment of the plan and was continuously employed by Dixie Engine throughout the eleven year period in which the plan was in effect. On the termination date, Blessitt was 46 years old.

Blessitt elected to receive his benefits in the form of a present lump-sum distribution rather than as an annuity commencing at normal retirement age. ² Dixie Engine calculated his benefits in accordance with the terms of the plan. After its asset distribution plan received the approval of the Pension Benefit Guaranty Corporation ("PBGC"), Dixie Engine paid out each employee's lump-sum distribution in late 1983. Approximately forty-six percent of the plan assets ($225,000) remained as surplus following satisfaction of all the plan liabilities, including the distributions to the employees. This amount reverted to Dixie Engine in accordance with Article XI Paragraph 11 of the plan. ³

In August 1984, appellants commenced a class action suit against Dixie Engine, alleging inter alia that Dixie Engine used the wrong formula to calculate benefits and that therefore some of the benefits promised to the appellants under the plan had reverted to Dixie Engine, in violation of ERISA. ⁴ The district court granted summary judgment for Dixie Engine on this claim and this appeal followed. The

panel reversed. 817 F.2d 1528 (11th Cir.1987). A petition for rehearing in banc was granted, thus vacating the panel opinion. 836 F.2d 1571 (11th Cir.1988). We now affirm the district court.

II. DISCUSSION

A. DISPUTED BENEFIT FORMULAS

At the root of this dispute is the question of which of the plan's two formulas for calculating benefits applies to employees who had not reached normal retirement age at the termination date. The relevant provisions of the plan are set out below:

ARTICLE V

Accrued Benefits and Retirement Benefits

1. Accrued Benefit

[FORMULA 1]

The Monthly Accrued Benefit as of any date of determination on or subsequent to a Participant's Normal Retirement Date ⁵ shall be an amount equal to:

(a) 15% of the first $650 of a Participant's Average Monthly Earnings at such date of determination plus 20% of such earnings in excess of $650, multiplied by

(b) a fraction, not to exceed 1, the numerator of which is the total number of years of Credited Service ⁶ completed by a Participant and the denominator of which shall be twenty (20).

[FORMULA 2]

The Monthly Accrued Benefit as of any determination date prior to a Participant's Normal Retirement Date shall be equal to:

(a) the amount of the Participant's Monthly Accrued Benefit which would have become payable at his Normal Retirement Date had he continued in the employ of the Employer and had he continued to earn a monthly salary or wage in the same amount as his Average Monthly Earnings, multiplied by,

(b) a fraction, not to exceed 1, the numerator of which is the total years of Credited Service completed by the Participant as of the date of determination, and the denominator of which is the number of years of Credited Service he would have completed had he continued in employment to his Normal Retirement Date.

(emphasis supplied). Hereafter we refer to the two formulas as Formula 1 and Formula 2, respectively.

Blessitt contends that Formula 1 should have been applied as if he had worked until normal retirement age because this is the retirement benefit he expected to receive when he retired and that Dixie Engine therefore was entitled to a reversion of only those plan assets remaining after all benefits were calculated under his interpretation of Formula 1. ⁷ Dixie Engine applied Formula 2 to calculate the benefits of all employees who had not reached normal retirement age (65) on the termination date. ⁸ The parties agree that Blessitt is entitled to the Formula 2 amount; the disputed benefit amount is the difference between the Formula 2 amount and the amount Blessitt seeks. In monetary terms, the Formula 2 amount determined by Dixie Engine is approximately 38% of the amount Blessitt seeks.

In terms of legal significance, the difference between the two formulas as applied by the parties is that under Blessitt's application of Formula 1, he would receive credit for his anticipated future employment with Dixie Engine, which encompasses a period of approximately eighteen years. The issue before us is whether Blessitt has a legitimate, enforceable claim to benefits based on these eighteen years of anticipated future service which he did not actually work. Put another way, we must determine whether such benefits constitute plan liabilities that must be satisfied from plan assets prior to any reversion of residuary assets to the employer upon termination of a defined benefit plan funded entirely by employer contributions. As indicated in the analysis which follows, the statutes themselves, authoritative interpretations by the regulatory agencies, the caselaw, and policy considerations all point ineluctably to the conclusion that Blessitt's position is untenable.

B. STATUTES AND INTERPRETATIONS BY REGULATORY AGENCIES

Section 4044 of ERISA, 29 U.S.C. Sec. 1344, contains detailed provisions applicable to the post-termination allocation and distribution of plan assets to plan participants. In addition, Sec. 403(c) and Sec. 4044(d) of ERISA, 29 U.S.C. Sec. 1103(c) and Sec. 1344(d), and Sec. 401(a)(2) of the Internal Revenue Code, 26 U.S.C. Sec. 401(a)(2), specifically allow surplus assets remaining after satisfaction of a plan's liabilities to revert to the employer or plan sponsor when a defined benefit plan terminates. ⁹ These provisions create exceptions to the general rule that plan assets must be held for the exclusive benefit of employees and may never inure to the benefit of the plan sponsor. We address in turn the ERISA allocation provisions, the ERISA and Internal Revenue Code exceptions to the exclusive benefit and non-inurement rules, and the pertinent regulations interpreting these statutes.

As a preliminary matter, we note that we owe great deference to the interpretations and regulations of the Pension Benefit Guaranty Corporation ("PBGC"), the Internal Revenue Service ("IRS") and the Department of Labor, which are the administrative agencies responsible for enforcing and interpreting ERISA. As the Supreme Court stated, "a court that tries to chart a true course to the Act's purpose embarks on a voyage without a compass when it disregards the agency's views." Ford Motor Co. v. Milhollin, 444 U.S. 555, 568, 100 S.Ct. 790, 798, 63 L.Ed.2d 22 (1980). The Supreme Court has consistently advised that courts must adhere to the "venerable principle that the construction of a statute by those charged with its execution should be followed unless...