Brillinger v. General Elec. Co., 238

• Decision Date: 03 December 1997
• Docket Number: No. 238,D,238
• Citation: 130 F.3d 61
• Parties: 21 Employee Benefits Cas. 2185, Pens. Plan Guide (CCH) P 23939K Kenneth BRILLINGER, Christine Grudzien, Frederick A. Holmes, Fred M. Sloan, Laureen Warrick, for themselves and all others similarly situated, Plaintiffs-Appellants, v. GENERAL ELECTRIC COMPANY, RCA Corporation, Retirement Plan for the Employees of RCA Corporation and Subsidiary Companies, And GE Pension Plan, Defendants-Appellees. ocket 97-7092.
• Court: U.S. Court of Appeals — Second Circuit

Page 61

130 F.3d 61

21 Employee Benefits Cas. 2185,

Pens. Plan Guide (CCH) P 23939K

Kenneth BRILLINGER, Christine Grudzien, Frederick A. Holmes Fred M. Sloan, Laureen Warrick, for themselves and all others similarly situated Plaintiffs-Appellants, v. GENERAL ELECTRIC COMPANY, RCA Corporation, Retirement Plan for the Employees of RCA Corporation and Subsidiary Companies, And GE Pension Plan, Defendants-Appellees.

No. 238, Docket 97-7092.

United States Court of Appeals Second Circuit.

Argued Sept. 3, 1997.

Decided Dec. 3, 1997.

Norman Zolot, Woodbridge, CT, for Plaintiffs-Appellants.

Mark S. Dichter, Philadelphia, PA (Brian J. Dougherty, Philadelphia, PA and Richard G. Rosenblatt Philadelphia, PA, on the Brief), for Defendants-Appellees.

BEFORE: MINER, LEVAL Circuit Judges, and GRIESA, District Judge. ^*

The Claim

GRIESA, District Judge:

Two class actions were brought in the district court, one by plaintiffs Brillinger, Grudzien, Holmes and Sloan, and the other by plaintiff Warrick. The complaints in the two actions asserted essentially the same claim. The actions were consolidated and both complaints were dismissed by Judge Dorsey. This appeal covers both actions.

The complaints make the following allegations. The statutory references are to sections of the Employee Retirement Income Security Act, 29 U.S.C. §§ 1001 et seq. ("ERISA").

RCA had a defined benefit pension plan within the meaning of 29 U.S.C. § 1002(35). Members of the plaintiff class made contributions to this plan. In 1986 RCA merged into a wholly-owned subsidiary of GE, which also had a defined benefit pension plan. Effective January 1, 1989 the RCA plan and the GE plan merged.

As of January 1, 1988, the RCA plan had assets of $2,812,386,957 and liabilities of $1,486,009,771, leaving "residual assets" of $1,344,377,186. The residual assets were even greater as of the time of the plans' merger, although the exact figure is not shown. Plaintiffs claim that, when the two plans merged, this was an event which should have led to a revision of benefits to be paid to the former RCA employees to take into account the residual assets in the RCA plan attributable to employee contributions. It is claimed that this revision was required by 29 U.S.C. §§ 1058 and 1344(d)(3). No such revision has been made. Plaintiffs seek a judgment declaring their rights.

Discussion

The definition of "defined benefit plan" is given in 29 U.S.C. § 1002(35):

(35) The term "defined benefit plan" means a pension plan other than an individual account plan, ...

An "individual account plan," also referred to as a "defined contribution plan," is defined in 29 U.S.C. § 1002(34). In a defined contribution plan the benefits are based upon the contributions, subject to gains or losses which occur in the plan's assets.

(34) The term "individual account plan" or "defined contribution plan" means a pension plan which provides for an individual account for each participant and for benefits based solely upon the amount contributed to the participant's account, and any income, expenses, gains and losses, and any forfeitures of accounts of other participants which may be allocated to such participant's account.

By contrast, a defined benefit plan is one where the employee, upon retirement, is entitled to a fixed periodic payment regardless of the performance of the plan's assets. Commissioner v. Keystone Consolidated Industries, 508 U.S. 152, 154, 113 S.Ct. 2006, 2009, 124 L.Ed.2d 71 (1993). If unsuccessful investment of the plan assets impairs the plan's ability to make up the scheduled payments from the plan assets, the employer must nonetheless make up any deficiency from its own assets. By the same token, if the investment of plan assets is successful and produces a surplus, the employer benefits. Malia v. General Electric Co., 23 F.3d 828, 830 n. 2 (3d Cir.1994).

ERISA contains a provision, 29 U.S.C. § 1058, dealing with the merger of pension plans:

A pension plan may not merge or consolidate with, or transfer its assets or liabilities to, any other plan ..., unless each participant in the plan would (if the plan then terminated) receive a benefit immediately after the merger, consolidation, or transfer which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation, or transfer (if the plan had then terminated).

Under this provision, a merger may not cause reduction of the benefit below what it would be upon a hypothetical termination of the plan.

In so providing, Congress obviously intended to refer to those portions of ERISA which deal with the termination of a plan. However, § 1058 does not specify which of the several provisions relating to termination are to be applied.

In contending that the present merger violates § 1058, plaintiffs point to the section which deals with distribution of residual assets at the time a plan is terminated. According to this portion of ERISA, if there are more than enough assets to cover the accrued benefit liabilities, the excess--or the residual assets--may be distributed to the employer. 29 U.S.C. §§ 1344(d)(1) and (2). However, the right of the employer to receive the residual assets is qualified by § 1344(d)(3)(A) which states:

(3)(A) ... if any assets of the plan attributable to employee contributions remain after satisfaction of all liabilities described in subsection (a) of this section, such remaining assets shall be equitably distributed to the participants who made such contributions or their beneficiaries.

Thus, upon termination of a plan, in the event there are residual assets attributable to employee contributions, such assets must be distributed to the contributing employees.

Plaintiffs argue that, since a merger is to be treated under § 1058 like a termination for the purpose of benefit calculation, then a plan's participants should receive whatever they would receive upon a termination, including residual assets, as provided for in § 1344(d)(3)(A). They argue that § 1058 should be construed as requiring that the amount of such residual assets be converted into increased benefits.

We do not agree with plaintiffs' view of the statute.

Section 1058 deals with the level of post-merger benefits, and in dealing with this issue resort must be had to those parts of the termination provisions which deal with the analogous subject--i.e. the level of benefits following termination. When the termination provisions are analyzed, it will be seen that those dealing with benefits are quite distinct from those dealing with distribution of residual assets.

The basic procedures to be followed when a plan is terminated are specified in 29 U.S.C. §§ 1341 and 1342. There must be an assessment of the terminating plan's assets and accrued benefit liabilities. Assets must be allocated to various types of benefit liabilities in order of priority pursuant to § 1344(a). To the extent that assets are sufficient to cover liabilities under a plan, the administrator of a terminating...