Albedyll v. Wisconsin Porcelain Co. Revised Retirement Plan, s. 89-3067
| Decision Date | 22 October 1991 |
| Docket Number | 89-3453 and 89-3622,Nos. 89-3067,s. 89-3067 |
| Citation | 947 F.2d 246 |
| Parties | , 14 Employee Benefits Cas. 1622 Darrell ALBEDYLL, Jane Albedyll, Rachel Albedyll, Michael Andreas, Ronald Ary, Judy Bakken, Orville Becker, Helen Bishofberger, Russell Brill, and Antoinette Bronner, et al., Plaintiffs-Appellees, v. WISCONSIN PORCELAIN COMPANY REVISED RETIREMENT PLAN, Wisconsin Porcelain Company, a Missouri General Partnership, Donald W. Bussmann, Joseph J. McCabe, and James F. Bussmann, as Trustees of the Plan and in their individual capacities, Defendants-Appellants. |
| Court | U.S. Court of Appeals — Seventh Circuit |
John D. Varda, Jon P. Axelrod, William D. Mollway, John H. Lederer (argued), Dewitt, Porter, Huggett, Schumacher & Morgan, Madison, Wis., for plaintiffs-appellees.
Richard M. Burnham, Earl H. Munson, LaFollette & Sinykin, Madison, Wis., Willis J. Goldsmith (argued), Patricia A. Dunn, Laurie W. Finneran, Jones, Day, Reavis & Pogue, Washington, D.C., for defendants-appellants.
Before BAUER, Chief Judge, CUDAHY and RIPPLE, Circuit Judges.
In 1976 the "active partners" of Wisconsin Porcelain Company--six of the more than twenty-member partnership--amended the company's pension plan to provide, among other things, for reversion of surplus plan assets to the partnership if the plan were terminated. In 1988 the four "managing partners" terminated the plan as part of their duties in winding up the partnership's affairs. Once the participants and beneficiaries had been paid, the managing partners attempted to have the remainder of the surplus assets distributed to the partners. But plaintiffs sued, claiming that the 1976 amendment was void because not all partners had signed it, as required by the plan's amendment procedure. The district court agreed with the participants, and the plan, company and trustees then appealed.
Wisconsin Porcelain (WPC) was a general partnership that owned and operated a porcelain products business. In 1947 the partners of WPC executed a trust agreement that established the company's pension plan. Paragraph 15.04 of the plan provided for pro rata distribution to participants upon termination. 1 An outline of the plan distributed to employees in January 1948 2 and the outline distributed with membership certificates 3 implied that the company could not recover plan assets.
The 1947 trust agreement was amended and revised in 1952 by all of the partners to become a self-insured plan; no change was made in the provision covering surplus assets. (We call the 1952 version the "Prior Plan.") Article 11 of the 1952 plan specified the amendment procedure:
11.01. Except as hereinafter provided, the Company shall have the right to amend the Plan at any time and from time to time and to any extent that it may deem advisable.
11.02. Any such amendment shall be set out in writing and executed by all of the partners of the Company. Upon delivery to the Trustees by the company of such amendment, this Plan shall be deemed to have been amended in the manner and to the extent set forth in said amendment.
11.03. No amendment shall have the effect (at any time prior to the satisfaction of all liabilities under the Plan with respect to Participants under the Plan, former Participants under the Plan, or their beneficiaries) of using or diverting any part of the contributions of the Company or of such Participants or the income of the trust for purposes other than the exclusive benefit of such Participants or their beneficiaries.
Article 13 governed termination. It provided in relevant part:
13.01. The Company has established the Plan with the bona fide intention and expectation that from year to year its Active Partners will deem it advisable to make contributions and to provide the benefits herein established. However, the Company realizes that circumstances not now foreseen may make it necessary or desirable, and the Company reserves the right, to change or discontinue the Plan at any time.
13.02. In the event that the Company decides to discontinue the Plan and not to continue to provide the benefits, herein provided, which are still unfunded, such decision shall be evidenced by an instrument in writing executed in the name of the Company by its Active Partners. Such instrument shall be delivered to the Committee 4 and as soon as possible thereafter the Committee shall send or deliver to each then Participant under the Plan and to the Trustees a copy of said instrument. The Company's decision shall be effective upon such date as it may specify.
WPC amended the Prior Plan in 1956, 1958 and 1966, with all partners assenting to each change. The partnership sought again to amend the plan in 1976 (resulting in what we call the "Revised Plan"), in part to respond to the recent enactment of the Employee Retirement Income Security Act of 1974 (ERISA), Pub.L. 93-406, 88 Stat. 832 (). The 1976 amendment also included a provision to divert residual assets to the partners upon termination:
11.05. Subject to the limitations contained in § 4044(b) of the Employee Retirement Income Security Act of 1974, any funds remaining after the satisfaction of all liabilities to such members, qualified terminated members, retired members, disabled members, beneficiaries, spouses, and contingent beneficiaries under this plan due to erroneous actuarial computation shall be returned to the employer. 5
Unlike previous amendments, this one was signed by only the six active partners. The 1976 summary plan description, distributed to participants, did not discuss distribution rights upon termination.
The WPC partnership, now comprising ninety-one partners, was dissolved on December 31, 1986, pursuant to the fifty-year-old 1943 partnership agreement. All company assets except plan assets were sold. In a Wisconsin state court judgment of October 12, 1988, the court held that the management committee--four partners, not all of whom were active partners--had proper authority to wind up the partnership's affairs. On May 23, 1988, the four managing partners adopted a resolution terminating the plan, which provided that the plan's residual assets would revert to the company. The resolution also provided that "the Plan and Amendments thereto are hereby ratified and confirmed." The trustees notified participants and made necessary filings with the Internal Revenue Service and Pension Benefit Guaranty Corporation, neither of which objected to termination.
The partnership subsequently had each of the ninety-one general partners execute a "Ratification/Amendment" during November and December 1988, which purported to ratify the 1976 amendments or, in the alternative, to adopt a new amendment directing that any surplus be returned to the employer. On December 15, 1988, the plan distributed lump-sum benefit payments to the beneficiaries. It also distributed $1,534,387.22 of the $5,798,656.22 in surplus assets to the participants, pursuant to the regulatory requirement that surplus assets attributable to employee contributions be returned. 29 C.F.R. § 2618.31 (1990). That left a surplus of roughly $4,200,000, which remains to be distributed.
The district court found on summary judgment that the Revised Plan's reversion provision was invalid and that the surplus assets should go to the beneficiaries and participants. The court reasoned that, because the 1976 amendment was signed by only the active partners, it did not conform with the plan's explicit requirement that all partners must approve. The court also held that the attempted reversion violated ERISA's prohibition of employer reversions in the absence of a provision explicitly so providing. 6 In so holding, the court discounted a bevy of arguments offered by WPC. We review those contentions relevant to this appeal.
First, WPC contended that the plan authorizes amendments required for continued approval under the Internal Revenue Code (or, by extension, ERISA). 7 The court concluded that, even if portions of the amendment were necessary to maintain qualified status, "the procedural requirements of § 11.02 in no way hindered the ability of the plan to adopt amendments which would bring it in compliance with the Internal Revenue Code." Order at 18. Moreover, the court concluded that permitting the amendment without all partners' approval violated ERISA's requirement that a qualified plan have a specific amendment procedure. 29 U.S.C. § 1102(b)(3).
Second, the court rejected WPC's argument that the 1947 partnership agreement authorizes the active partners to act on behalf of all partners. The court noted that the 1947 and 1952 trust agreements clearly allocated responsibilities between active partners and all partners. The court noted in this regard that all partners had signed previous amendments.
Third, the court dismissed the argument that the amendment was endorsed through the "ratification and amendment" signed by all partners following the termination. The court found that this procedure violated ERISA's prohibition of post-termination amendment, citing Audio Fidelity Corp. v. Pension Benefit Guaranty Corp., 624 F.2d 513 (4th Cir.1980). WPC contended that ratification differs from amendment in that the principal ratifies the agent's action as of the time of the earlier action, not of the ratification. The court concluded, however, that ratification must take place before termination, since the partners lose authority to amend at the time the plan terminates. "[T]he act of ratification took place after the partnership lacked authority to make such amendment." Order at 23.
WPC filed a Rule 59(e) motion for reconsideration, arguing, in a new twist, that laches barred the plaintiffs' challenge and that the termination itself was invalid because only the managing partners--and not the active partners--had...
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