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

• Decision Date: 01 June 1987
• Docket Number: No. 86-8123,86-8123
• Citation: 817 F.2d 1528
• Parties: , 8 Employee Benefits Ca 1929 George G. BLESSITT and Willie Neal, Jr., Plaintiffs-Appellants, v. RETIREMENT PLAN FOR EMPLOYEES OF DIXIE ENGINE CO., et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1528

817 F.2d 1528

56 USLW 2043, 8 Employee Benefits Ca 1929

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.

June 1, 1987.

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

David M. Leonard, Daniel P. Johnson, Harvey R. Spiegel, Atlanta, Ga., for defendants-appellees.

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

Before HILL and JOHNSON, Circuit Judges, and HENLEY ^*, Senior Circuit Judge.

HENLEY, Senior Circuit Judge:

George G. Blessitt and Willie Neal, Jr. appeal from the entry of summary judgment in favor of Dixie Engine Co. and J.P. Jung on their claim that appellees violated the Employee Retirement Income Security Act, 29 U.S.C. Secs. 1001-1461 (ERISA), and on their claim for attorney's fees. We affirm in part, reverse in part and remand with instructions.

On December 31, 1982 Dixie Engine's retirement plan was terminated. The employees' benefits were calculated and benefit checks were mailed beginning September 30, 1983. Upon receiving his check, Blessitt noticed that his benefits seemed low. After Blessitt brought this to the attention of Dixie Engine, his benefits were recalculated. Blessitt's check proved to have been $592.85 too low, and Dixie Engine offered to pay the shortfall in exchange for a general release. Blessitt refused.

On August 22, 1984 appellants filed a five-count class action complaint against Dixie Engine alleging violations of ERISA. Count I challenged the method used by Dixie Engine to get the employees to select the form of their benefits. Count II alleged that Dixie Engine used the wrong formula to calculate benefits and that appellants had therefore not received all benefits promised under the plan. Count III alleged that Dixie Engine used incorrect actuarial assumptions in calculating the benefits. Count IV alleged that even under Dixie Engine's method of calculation, Blessitt's benefits were $592.85 too low. Count V charged Dixie Engine with bad faith and asked for attorney's fees. Appellants subsequently dropped Count III.

Upon cross motions for summary judgment, the district court granted summary judgment for Dixie Engine on Count II, granted summary judgment for Blessitt on Counts I and IV, and refused to award any attorney's fees and granted summary judgment for Dixie Engine on Count V.

Appellants challenge the district court's grant of summary judgment in favor of Dixie Engine on Counts II and V. They contend that Dixie Engine used the wrong formula to calculate the benefits of the employees. As a result, they contend that Dixie engine was allowed to receive over $225,000.00 in residual plan assets while the employees were not paid all benefits promised in the plan, all in violation of ERISA. They also argue that the court erred in not awarding them attorney's fees.

Upon termination of a single-employer defined benefit plan, residual assets may revert to the employer if "(A) all liabilities of the plan to participants and their beneficiaries have been satisfied, (B) the [reversion] does not contravene any provision of law, and (C) the plan provides for such a distribution in these circumstances." 29 U.S.C. Sec. 1344(d)(1). In this case there are no allegations that reversion of assets was unlawful. It is also clear that Dixie Engine's pension plan provided for such a reversion. The dispute rather is over the question whether all liabilities of the plan were paid prior to reversion.

Under Dixie Engine's pension plan, accrued monthly benefits (in the form of an annuity) were calculated as follows:

1. Determination on or subsequent to a participant's normal retirement date:

(a) 15% of the first $650 of participant's average monthly earnings at the determination date plus 20% of average monthly earnings exceeding $650, multiplied by

(b) a fraction, not to exceed 1, the numerator of which is the total number of years of credited service completed and the denominator of which shall be 20.

2. Determination on date prior to participant's normal retirement date:

(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.

Normal retirement date is defined in the plan as the later of ten years of service or age sixty-five.

Upon termination of the plan, Dixie Engine calculated the benefits due employees who had not yet reached normal retirement date by using the second formula above. These employees therefore only received benefits that had accrued up to the date of termination. Appellants contend that these employees were entitled to benefits calculated at normal retirement date using the first formula. This would give these employees their accrued benefits plus the unaccrued benefits to which they would have been entitled at normal retirement age. They therefore argue that Dixie Engine had not satisfied all liabilities under the plan and could not receive the residual assets.

The benefits to be paid upon termination of a plan and their order of priority are set out in Sec. 1344(a) as follows:

(1) First, to that portion of each individual's accured [sic] benefit which is derived from the participant's contributions to the plan which were not mandatory contributions.

(2) Second, to that portion of each individual's accrued benefit which is derived from the participant's mandatory contributions.

(3) Third, in the case of benefits payable as an annuity--

(A) in the case of the benefit of a participant or beneficiary which was in pay status as of the beginning of the 3-year period ending on the termination date of the plan, to each such benefit, based on the provisions of the plan (as in effect during the 5-year period ending on such date) under which such benefit would be the least,

(B) in the case of a participant's or beneficiary's benefit (other than a benefit described in subparagraph (A)) which would have been in pay status as of the beginning of such 3-year period if the participant had retired prior to the beginning of the 3-year period and if his benefits had commenced (in the normal form of annuity under the plan) as of the beginning of such period, to each such benefit based on the provisions of the plan (as in effect during the 5-year period ending on such date) under which such benefit would be the least.

* * *

(4) Fourth--

(A) to all other benefits (if any) of individuals under the plan guaranteed under this subchapter (determined without regard to section 1322b(a) of this title), and

(B) to the additional benefits (if any) which would be determined under subparagraph (A) if section 1322(b)(5) of this title did not apply.

* * *

(5) Fifth, to all other nonforfeitable benefits under the plan.

(6) Sixth, to all other benefits under the plan.

A nonforfeitable benefit is defined as

a benefit for which a participant has satisfied the conditions for entitlement under the plan or the requirements of this subchapter (other than submission of a formal application, retirement, completion of a required waiting period, or death in the case of a benefit which returns all or a portion of a participant's accumulated mandatory employee contributions upon the participant's death), whether or not the benefit may subsequently be reduced or suspended by a plan amendment, an occurrence of any condition, or operation of this chapter or Title 26[.]

29 U.S.C. Sec. 1301(a)(8).

This plan was completely funded by Dixie Engine; therefore priorities Secs. 1344(a)(1) and (2) do not apply. Section 1344(a)(3) does not apply because the employees whose benefits are at issue here had not reached their normal retirement dates prior to the termination of the plan. The accrued benefits paid by Dixie Engine to these employees fall under Sec. 1344(a)(4) because they were nonforfeitable and therefore guaranteed by the Pension Benefit Guaranty Corporation (PBGC) under 29 U.S.C. Sec. 1322(a). The remaining unaccrued and forfeitable benefits must either fit under Sec. 1344(a)(6) or else the employees are not entitled to those benefits. In Amato v. Western Union International, Inc., 773 F.2d 1402, 1415-16 (2d Cir.1985), cert. dismissed, --- U.S. ----, 106 S.Ct. 1167, 89 L.Ed.2d 288 (1986), the Second Circuit determined that upon termination of a pension plan, employees are entitled to unaccrued forfeitable benefits under Sec. 1344(a)(6). Following an excellent discussion of statutory language, regulations and legislative history, the court concluded that "Congress thus decided not to limit the allocation requirement to accrued benefits but to require that, as long as assets were available, they should be used to meet participants' benefit expectations based upon the Plan's full benefit structure." Amato, 773 F.2d at 1416.

We agree with the Second Circuit that with Sec. 1344(a)(6) Congress determined that if assets remain, employees should be paid benefits promised under the plan but not yet accrued before the employer receives the residual assets in the fund. We also note that this is consistent with the theory of construction that "ERISA ... is remedial legislation which should be liberally construed in favor of protecting participants in employee benefits plans." Smith v. CMTA-IAM Pension Trust, 746 F.2d 587, 589 (9th Cir.1984); see also Rettig v. Pension Benefit Guaranty Corp., 744 F.2d 133, 155 n. 54 (D....