Babb v. Olney Paint Co.

• Decision Date: 15 November 1977
• Citation: 764 F.2d 240
• Parties: 6 Employee Benefits Ca 1756 Johnny BABB, William R. Foster, Jr. and Rebecca Q. Owens, Appellants, v. OLNEY PAINT COMPANY, B. Leroy Dodson, L. Paul Barnes, David R. Alley, Randall Dodson as members of the Committee for the Olney Paint Company Money Purchase Pension Plan and Trust dated
• Court: U.S. Court of Appeals — Fourth Circuit

Page 240

764 F.2d 240

6 Employee Benefits Ca 1756

Johnny BABB, William R. Foster, Jr. and Rebecca Q. Owens, Appellants, v. OLNEY PAINT COMPANY, B. Leroy Dodson, L. Paul Barnes, David R. Alley, Randall Dodson as members of the Committee for the Olney Paint Company Money Purchase Pension Plan and Trust dated November 15, 1977 and Olney Paint Company Profit Sharing Plan and Trust dated November 15, 1977; The Citizens and Southern National Bank of South Carolina, Trust Department as Trustee for Olney Paint Company Money Purchase Pension Plan and Trust dated November 15, 1977 and Olney Paint Company Profit Sharing Plan and Trust dated November 17, 1977, Appellees.

No. 84-1985.

United States Court of Appeals Fourth Circuit.

Argued April 4, 1985.

Decided June 13, 1985.

Arthur H. McQueen, Jr., Spartanburg, S.C. (McQueen & Lettman, Spartanburg, S.C. on brief), for appellants.

William O. Pressley, Jr., Columbia, S.C. (Dwight F. Patterson Jr., Perrin, Perrin, Mann & Patterson, Spartanburg, S.C. on brief), for appellees.

Before MURNAGHAN, ERVIN and WILKINSON, Circuit Judges.

MURNAGHAN, Circuit Judge.

A divorce between individuals and a split up of a corporate entity have some similar characteristics. In particular, disputes are apt to arise over the division of property. Even claims of beneficiaries of the principals are likely to be disputed.

Such was the situation here. Olney Paint Company ("Olney") operated two divisions, one manufacturing paint, the other producing other types of wallcoverings. A time came when it was decided to split off the paint division, and such occurred effective November 30, 1981, the end of the fiscal year for Olney and for its money purchase pension plan and profit sharing plan. The paint manufacturing division's assets, including inventory and accounts receivable, as well as liabilities were transferred to the newly formed Alley Paint Company, Inc. ("Alley").

Problems concerning the rights of several employees who left Olney to work for Alley arose with respect to interests in the Olney pension and profit sharing plans which had been organized under the Employment Retirement Income Security Act of 1974, 29 U.S.C. Sec. 1001, et seq. ("ERISA"). Three employees have brought an action against Olney, members of the administrative committees for the pension and profit sharing plans and the Citizens and Southern National Bank of South Carolina as trustee for the two plan trusts. The three employees found themselves in the awkward position of facing forfeiture of their accrued but non-vested interests under the pension plan and the profit sharing plan. Vesting was called for on an annual percentage basis, and no further vesting was to occur for any employee upon termination of employment with Olney. Johnny Babb, on November 30, 1981, was 50% vested in the profit sharing plan. The unvested portion which he stood to lose amounted to $11,220.68. His 55% non-vested share in the pension plan amounted to $9,724.01. William R. Foster, Jr., also 50% vested in the profit sharing plan, faced forfeiture under it of $9,050.72. His 55% non-vested share in the pension plan amounted to $7,850.25. Rebecca Q. Owens, being 30% vested in the profit sharing plan, stood to forfeit under it $2,494.00. Not being vested at all under the pension plan, her prospective loss amounted to $3,527.61.

As of November 30, 1981, 109 employees participated in the profit sharing plan and the pension plan. Faced with termination if they did not resign from Olney and accept employment with the split-off Alley Paint Company, Inc., sixteen employees made the transfer. Two of them were fully vested in each of the plans. The percentage of those excluded from in futuro participation including vesting (16 of 109) amounted to 14.7%. The fourteen not fully vested amounted to 12.84% of all employees.

With the advent of ERISA, a new factor of considerable importance for the interpretation and governance of profit sharing and pension plans appeared on the scene. While Internal Revenue Service Rulings do not have binding effect upon courts faced with interpretation of such plans, nevertheless, the IRS' interpretations of a statute it administers are entitled "to great weight." Trafficante v. Metropolitan Life Ins. Co., 409 U.S. 205, 210, 93 S.Ct. 364, 367, 34 L.Ed.2d 415 (1972); Treadco Tires, Inc. v. United States, 604 F.2d 14, 16 (5th Cir.1979).

ERISA provides that, upon complete or partial termination of a plan, "benefits accrued to the date of such ... termination ... are nonforfeitable." 26 U.S.C. Sec. 411(d)(3). Both the profit sharing plan and the pension plan explicitly provided:

Upon the termination or partial termination of the Plan or upon the complete discontinuance of the Employer's contributions, the Trust Fund shall be segregated and ... the interests of all Participants shall become fully vested, shall not thereafter be subject to forfeiture and shall be distributed to the Participants as and when the Committee shall designate....

The thrust of appellants-plaintiffs' claims is that a complete or partial termination of the profit sharing plan and a partial termination of the pension plan ¹ had, in fact, occurred on or before November 30, 1981 while they were still participants and, consequently, they were entitled to full vesting. The defendants argued to the contrary and prevailed in a court trial.

The IRS has ruled that a partial termination shall be deemed to have occurred when a "significant percentage" of employees covered by the plan is excluded from coverage. Rev.Rul. 81-27, 1981-1 C.B. 228. The significant percentage which serves to determine whether there has been a partial termination has not been reduced to any specific number. What constitutes a significant percentage is preeminently a matter of fact. The Secretary of the Treasury has provided that:

Whether or not a partial termination of a qualified plan occurs (and the time of such event) shall be determined by the Commissioner with regard to all the facts and circumstances in a particular case. Such facts and circumstances include: the exclusion by reason of a plan amendment or severance by the employer, of a group of employees who have previously been covered by the plan; and plan amendments which adversely affect the rights of employees to vest in benefits under the plan.

Treas.Reg. Sec. 1.411(d)-2(b)(1). ² See also Treas.Reg. Sec. 1.401-6(b)(2) (1963). Cf. Weil v. Retirement Plan Administrative Committee for the Terson Company, Inc., et al., 750 F.2d 10, 12 (2d Cir.1984).

In the ensuing bench trial, the district judge carefully considered all the factual presentations of the parties. As is not uncommonly the case, there was evidence in support of both positions sufficient to make not clearly erroneous a decision either way. ³ Federal Rule of Civil Procedure 52(a) mandates that the result reached by the district judge is not to be disturbed if there are adequate facts to support it, even though we might have preferred a determination to the contrary. ⁴ Anderson v. City of Bessemer, --- U.S. ----, 105 S.Ct. 1504, 1511-12, 84 L.Ed.2d 518 (1985).

The district judge not only relied on the 12.4% figure as not constituting a "significant percentage" in reaching a decision on whether a partial termination had occurred, he further determined, in concluding that neither a partial nor a complete termination took place, that:

1) The decision, roughly contemporaneous with the split-off of Alley Paint, not to make further contributions to the profit sharing plan was the result, thought at the time to be temporary, of unfavorable business and economic conditions and not a prelude to future total discontinuance of contributions by Olney as the employer. The addition of new participants to the profit sharing plan following the initial year in which no contributions were made was...