Connolly v. Pension Ben. Guar. Corp.

• Decision Date: 04 May 1978
• Docket Number: No. 76-2777,76-2777
• Citation: 581 F.2d 729
• Parties: , 1 Employee Benefits Ca 1410 John L. CONNOLLY et al., etc., Appellees, v. PENSION BENEFIT GUARANTY CORPORATION, etc., Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 729

581 F.2d 729

51 A.L.R.Fed. 542, 1 Employee Benefits Ca 1410

John L. CONNOLLY et al., etc., Appellees, v. PENSION BENEFIT GUARANTY CORPORATION, etc., Appellant.

No. 76-2777.

United States Court of Appeals Ninth Circuit.

May 4, 1978.

As Amended on Denial of Rehearing and Rehearing En Banc Sept. 9, 1978.

Henry Rose (argued), of Pension Benefit Guaranty Corp., Washington, D. C., for appellant.

Wayne Jett, Los Angeles, Cal., for appellees.

Judith Burghardt (argued), of Dept. of Labor, Washington, D. C., amicus curiae for appellees.

On Appeal from the United States District Court for the Central District of California.

Before ELY and MERRILL, Circuit Judges, and HARPER, Senior District Judge. ^*

HARPER, Senior District Judge.

This is an appeal by the Pension Benefit Guaranty Corporation (hereinafter referred to as PBGC) from a summary judgment entered in favor of the Board of Trustees of the Operating Engineers Pension Trust (Trustees) which exempted the Operating Engineers Pension Plan (Plan) from coverage under the insurance provisions of Title IV of the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq. (ERISA or Act).

Federal jurisdiction over this action exists pursuant to 29 U.S.C. § 1303(f).

On December 1, 1974, the Trustees paid a termination insurance premium of $12,043.00 to the PBGC. On April 10, 1975, the Trustees applied to the PBGC for a determination that the Plan was a defined contribution plan exempt from coverage under the insurance provisions contained in Title IV of the Act, 29 U.S.C. § 1301 et seq. The PBGC informed the Trustees that the Plan was a defined benefit plan subject to the plan termination insurance coverage. Thereafter, the Trustees made a demand for return of their termination insurance premium, which was refused by PBGC.

On June 17, 1975, the Trustees filed a complaint in the district court for a declaratory judgment, damages and injunctive relief against the PBGC, challenging its determination that the Plan was a defined benefit plan subject to insurance coverage. Upon cross motions for summary judgment, the district court granted summary judgment in favor of the Trustees. Connolly v. Pension Benefit Guaranty Corp., 419 F.Supp. 737 (D.C.Calif.1976). In its order the district court declared the Plan to be a defined contribution plan exempt from insurance coverage under the Act, enjoined the PBGC from acting inconsistently therewith, and required the PBGC to return the Trustees' premium payment. Connolly v. PBGC, supra at 741-42. This appeal followed.

Initially it should be noted that the determination of the PBGC herein is entitled to great deference in the construction and application of ERISA. Griggs v. Duke Power Co., 401 U.S. 424, 433-34, 91 S.Ct. 849, 28 L.Ed.2d 158 (1971). In General Electric v. Gilbert, 429 U.S. 125, 141-42, 97 S.Ct. 401, 411, 50 L.Ed.2d 343 (1976), quoting from Skidmore v. Swift & Co., 323 U.S. 134, 140, 65 S.Ct. 161, 89 L.Ed. 124 (1944), the Supreme Court stated:

" 'We consider that the rulings, interpretations and opinions of the Administrator under this Act, while not controlling upon the courts by reason of their authority, do constitute a body of experience and informed judgment to which courts and litigants may properly resort for guidance. The weight of such a judgment in a particular case will depend upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which gave it power to persuade, if lacking power to control.' "

The Operating Engineers Pension Trust is a joint labor-management trust established in conformance with § 302(c)(5) of the Labor Management Relations Act of 1947, as amended in 1959, 29 U.S.C. § 186(c)(5). This trust was created in 1960 by agreement between eleven home builders associations and the International Union of Operating Engineers. The trust agreement created the multiemployer pension plan at issue here. The Plan is a tax qualified employee pension plan within the meaning of § 4021(a)(2) of ERISA, 29 U.S.C. § 1321(a) (2). It is administered by a fourteen-member Board of Trustees appointed in equal part by the employers and the union. The individual plaintiffs are the trustees of the trust. The purpose of the trust is to create a pension fund to which a number of employers make contributions and from which their employees may draw benefits when they reach a stated age of retirement.

Under the pension trust, the employers periodically enter into collective bargaining agreements to establish the amount of their contribution to the Plan. In fulfillment of their obligation under those agreements, the employers contribute a certain amount of money to the Plan each month. The amount contributed by each employer is determined by multiplying their employees' hours of service by a rate specified in the current agreement.

The monthly amount of the pension payable to an eligible participant is determined by multiplying the Pension Factor in the Plan by the employee's Pension Credits and Prior Service Credits. The Pension Factor is an actuarial tool, calculated to translate plan experience into retirement benefits. In setting the Pension Factor, the Trustees take into account the investment income, gains and losses, expenses, any forfeitures by participants, the mortality experience of the Plan and any variance between actual and anticipated employer contributions and delinquencies. The Pension Factor is periodically revised by the Trustees.

The Pension Credit is a service-related formula determined in part by the amount of time spent on the job by the participant. The Plan also provides for some participants to be entitled to Prior Service Credits, for time spent on the job prior to the execution of this trust and Plan. Pension Credits are earned even if the employer fails to contribute the full amount of his obligation. The employee receives the appropriate pension benefit, as calculated by the above described formula, even though sufficient contributions have not been made on his behalf by his employer to the Plan.

By the express terms of the Plan, the employer's sole obligation to the pension fund is to pay such contributions as required by the collective bargaining agreements. The trust agreement clearly states that the employer's obligation for pension benefits to the employee is ended when the employer pays the appropriate contribution to the fund. This is true even though the contributions agreed upon are insufficient to pay the benefits under the Plan.

ERISA is the product of several years of legislative effort to improve the American pension system. ERISA is a complex piece of legislation which addresses itself to many problems. One of the foremost concerns of Congress in enacting the Act was to assure workers that retirement benefits would be available when needed. 29 U.S.C. § 1001(a), (c) provides:

"The Congress finds that . . . owing to the inadequacy of current minimum standards, the soundness and stability of plans with respect to adequate funds to pay promised benefits may be endangered; that owing to the termination of plans before requisite funds have been accumulated, employees and their beneficiaries have been deprived of anticipated benefits . . .

"It is hereby further declared to be the policy of this Chapter to protect . . . the interests of participants in private pension plans and their beneficiaries by improving the equitable character and the soundness of such plans by requiring them to . . . meet minimum standards of funding, and by requiring plan termination insurance."

Consistent with ERISA's remedial function, Congress sought to effectuate the purpose of the Act as far as possible. In a report accompanying an earlier version of the bill, the Senate Committee on Labor and Public Welfare stated:

"It is intended that coverage under the Act be construed liberally to provide the maximum degree of protection to working men and women covered by private retirement programs. Conversely, exemptions should be confined to their narrow purpose."

S.Rep.No. 93-127, 93d Cong., 1st Sess. 18 (1973); U.S.Code Cong. & Admin.News 1974, p. 4854.

The issue before the Court is whether the Plan is a defined benefit plan under 29 U.S.C. § 1002(35) or an individual account or defined contribution plan under 29 U.S.C. § 1002(34). If the Plan is a defined benefit plan, it is covered by the termination insurance provisions of the Act. If it is an individual account or defined contribution plan it is not covered by the termination insurance provisions, 29 U.S.C. § 1321(b)(1), unless the Plan is a "plan under which a fixed benefit is promised if the employer or his representative participated in the determination of that benefit." 29 U.S.C. § 1321(c)(1). By definition, any plan that is not an individual account or defined contribution plan, must necessarily be a defined benefit plan. 29 U.S.C. § 1002(35).

The district court ruled that the Plan is a defined contribution plan, not subject to termination insurance coverage under ERISA. This determination is erroneous.

In its decision the district court looked to the obligation which the employers participating in the Plan have contractually agreed to assume. Because the employers have agreed only to make specified contributions, and have disclaimed any obligation to pay any pension benefit, the district court held that the plan was a defined contribution plan under which no fixed benefit is promised. The district court reached its conclusion by considering that to subject the Plan to ERISA's termination insurance provisions would force upon the employer a greater obligation and liability than he had originally agreed to in his contract. Connolly v. PBGC, 419 F.Supp. at 740.

However, this is precisely what the termination insurance provisions of the Act were intended to do. Whenever the PBGC pays pension benefits to...