Financial Institutions Retirement Fund v. Office of Thrift Supervision
| Decision Date | 15 May 1992 |
| Docket Number | D,No. 929,929 |
| Citation | 964 F.2d 142 |
| Parties | , 15 Employee Benefits Cas. 1494 FINANCIAL INSTITUTIONS RETIREMENT FUND, Plaintiff-Appellee, Federal Home Loan Bank of Boston; Federal Home Loan Bank of New York; Federal Home Loan Bank of Pittsburgh; Federal Home Loan Bank of Atlanta; Federal Home Loan Bank of Cincinnati; Federal Home Loan Bank of Indianapolis; Federal Home Loan Bank of Chicago; Federal Home Loan Bank of Des Moines; Federal Home Loan Bank of Dallas; Federal Home Loan Bank of Topeka; Federal Home Loan Bank of San Francisco and Federal Home Loan Bank of Seattle, Intervenor-Plaintiffs-Appellees, v. OFFICE OF THRIFT SUPERVISION and T. Timothy Ryan, Director, Office of Thrift Supervision, Defendant-Counter-Claim-Plaintiffs-Appellants, Thomas A. BARNES; Barry S. Burke; Ronald B. Carreker; Charles A. Deardorff; Allen Dermody; William J. Durbin; Jane Marie Johnson; Ronald R. Lake and Penny D. Marshall, Counter-Claim-Plaintiffs-Appellants, v. James R. FAULSTICH; Ronald R. Morphew; John W. Bagwill, Jr.; George M. Barclay; John A. Becker; J.C. Benage; Leo B. Blaber, Jr.; Larry J. Brandt; James M. Cirona; Stephen E. Clear; Ramiro Luis Colon, Jr.; Thurman C. Connell; Brian D. Dittenhafer; Charles T. Firth; William H. Glencorse; Lyle R. Grimes; Michael A. Jessee; Jerry H. Lassiter; Frank A. Lowman; Ellen Ann Roberts; James D. Roy; Robert E. Showfety; Robert F. Stoico; Charles L. Thiemann; Norman L. Tirey; Roy E. Webber; Richard L. White and John B. Zanetti, individually and as Directors of the Financial Institutions Retirement Fund, Counterclaim-Defendants-Appellees. ocket 91-7906. |
| Court | U.S. Court of Appeals — Second Circuit |
William F. Hanrahan, Washington, D.C. (Gary M. Ford, Lonie Hassel, Lincoln Weed, Groom and Nordberg, Chtd., Harris Weinstein, Dwight C. Smith, Office of Thrift Supervision, Washington, D.C., of counsel) for appellants.
Thomas C. Morrison, New York City (Patterson, Belknap, Webb & Tyler, New York City, Robert D. Alin, Financial Institutions Retirement Fund, White Plains, N.Y., of counsel) for plaintiffs-appellees.
Charles Lee Eisen, Washington, D.C. (Christopher M. McMurray, Kirkpatrick & Lockhart, Washington, D.C., William T. Cullen, Kirkpatrick & Lockhart, Pittsburgh, Pa., of counsel) for intervenor-plaintiffs-appellees.
Before MINER and McLAUGHLIN, Circuit Judges, and AMON, District Judge. *
This is a dispute over a surplus accumulated by the Financial Institutions Retirement Fund (the "Fund"), a multiple employer pension fund established in 1943 to serve financial institutions. The disputed portion of the Fund's surplus relates to contributions made by the twelve Federal Home Loan Banks (the "Banks") to fund the retirement benefits of approximately 2,500 former employees who were transferred to the Office of Thrift Supervision ("OTS") pursuant to statute. After the employees were transferred, both OTS and the Banks claimed the surplus. The Fund allocated it to the Banks and then sued in the District Court for the Southern District of New York (Goettel, Judge ) for a declaration that the allocation was proper. OTS, joined by intervening participants in the Fund, counterclaimed against the Fund's directors for breaches of their fiduciary duties under the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et seq. (1988). The district court granted summary judgment for the Fund and the Banks, holding that the Banks were entitled to the disputed surplus, and that the Fund's directors did not breach their fiduciary duties by allocating the surplus to the Banks. See Financial Insts. Retirement Fund v. Office of Thrift Supervision, 766 F.Supp. 1302 (S.D.N.Y.1991). We agree with these conclusions but write to clarify a participant's 1 standing to sue for breaches of fiduciary duty under ERISA.
The Banks were established in 1932 pursuant to the Federal Home Loan Bank Act, ch. 522, 47 Stat. 725 (1932) (), and collectively are owned by federally insured savings institutions. The Banks provide liquidity to the thrift industry and, until recently, they also supervised and examined savings associations. When the thrift industry was deregulated in the early 1980s, self-regulation proved disastrous; inadequate "supervision and examination of thrifts was one of the primary causes of the thrift crisis." H.R.Rep. No. 54, 101st Cong., 1st Sess. 301 (1989), reprinted in 1989 U.S.Code Cong. & Admin.News 86, 97. See generally Annual Survey of Financial Institutions and Regulation, The S & L Crisis: Death and Transfiguration, 59 Fordham L.Rev. S1-S459 (1991) ().
Congress responded to the S & L debacle by overhauling regulation of the industry. See Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA") Before OTS came into the picture, the Fund had already accumulated a surplus, i.e., its assets exceeded the actuarially determined present value of pension benefits accrued by employee-participants. This surplus was generated when the Fund's investments performed better than had been projected. Proving once again that no good deed goes unpunished, this enviable surplus position created an anomalous situation for the Fund under then-prevailing law. Consideration of this irony requires us to make a brief detour into the Byzantine world of pension plan accounting and funding.
Pub.L. No. 101-73, 103 Stat. 183 (1989) (principally codified at scattered sections of 12 U.S.C.). FIRREA stripped the Banks of their supervisory and examination functions and vested them in OTS. Accordingly, FIRREA mandated that some 2,500 Bank employees involved in regulatory activities be transferred to OTS and become federal employees. See FIRREA §§ 403(c) & 722(a), 103 Stat. 361, 426, reprinted at 12 U.S.C. § 1437 note (Supp.1990). OTS therefore became responsible for paying these employees and funding their retirement benefits. See id. § 723(b), 103 Stat. 428, reprinted at 12 U.S.C. § 1437 note (Supp.1990). Before the transfer, OTS made arrangements to join the Fund as a participating employer so that the transferred employees could continue to accrue benefits in the Fund
Prior to 1988, multiple employer pension funds were treated for tax and funding purposes as though they were single employer plans. See, e.g., 26 U.S.C.A. §§ 413(c)(4) & (6) (1988) (amended 1988) (minimum funding standards and deductibility of contributions to multiple employer plans "determined as if all participants in the plan were employed by a single employer"). Thus, a multiple employer plan could not require its participating employers to make additional contributions to a fully funded plan and indeed any such contributions would not be tax deductible. See id. § 404(a)(1)(A)(i). This had two perverse results (each contrary to ERISA's goals): first, it allowed employers who, on an employer-by-employer basis, were actually underfunded to free-ride on the plan's surplus. Second, it provided employers who, on an employer-by-employer basis, were overfunded with an incentive to withdraw from the plan to capture their surpluses. 2
Recognizing the absurdity of the law, the Fund endeavored to change it by lobbying Congress. At the same time, the Fund calculated the surplus amounts attributable to each employer based on its contributions to the Fund and its projected liabilities for its participating employees. The amount of the surplus attributable to each employer was denominated as a Future Employer Contribution Offset ("FECO"); FECO is simply an accounting entry indicating an employer's share of the Fund's surplus.
Congress finally responded by amending the Code to permit 3 existing multiple employer plans to treat participating employers as maintaining separate accounts for funding purposes. See Technical and Miscellaneous Revenue Act of 1988, Pub.L. No. 100-647, § 6058, 102 Stat. 3342, 3698-99 (1988) (codified at 26 U.S.C. § 413(c)); see also H.R.Rep. No. 1104, 100th Cong., 2d Sess. 159 (1988), reprinted in 1988 U.S.Code Cong. & Admin.News 5048, 5220 (). This allowed the Fund's participating employers with FECO balances to take a credit for their share of the Fund's surplus in lieu of making actual contributions for their current benefit obligations. Employers All of the Banks enjoyed FECO balances when FIRREA became effective and mandated the transfer of approximately 2,500 employees to OTS. As of April 1, 1990, OTS became responsible for the pay and benefits of these transferred employees. See FIRREA § 723(b), 103 Stat. at 428, reprinted in 12 U.S.C. § 1437 note (Supp.1990). When the Fund billed OTS in June 1990 for its contributions on behalf of the transferred employees, OTS refused to pay, demanding that a portion of the Banks' FECO balances be allotted to OTS. OTS took the position that the $21 million of the Banks' FECO balances attributable to the transferred employees should, like so much baggage, "follow" the employees to OTS. Not surprisingly, the Banks objected, arguing that since they had contributed the monies that created the surplus, the surplus was theirs.
with FECO balances could therefore forego making cash contributions to the Fund until they had reduced their FECO balances to zero.
On October 23, 1990, the Fund convened a meeting of a Special Committee of its Board of Directors to address the dispute. The Special Committee comprised twelve board members unaffiliated with the Banks. 4 The Special Committee debated the views of OTS and the Banks and, acting on the advice of the Fund's outside counsel, concluded that OTS was not entitled to any portion of the Fund's surplus.
The Fund initiated this...
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