Nachman Corporation v. Pension Benefit Guaranty Corporation

• Citation: 446 U.S. 359,100 S.Ct. 1723,64 L.Ed.2d 354
• Decision Date: 12 May 1980
• Docket Number: No. 78-1557,78-1557
• Parties: NACHMAN CORPORATION, Petitioner, v. PENSION BENEFIT GUARANTY CORPORATION et al
• Court: United States Supreme Court

446 U.S. 359

100 S.Ct. 1723

64 L.Ed.2d 354

NACHMAN CORPORATION, Petitioner,

v PENSION BENEFIT GUARANTY CORPORATION et al.

No. 78-1557.

Argued Jan. 7, 1980.

Decided May 12, 1980.

Rehearing Denied June 30, 1980.

See 448 U.S. 908, 100 S.Ct. 3051.

Syllabus^*

As one of the means of protecting the interests of beneficiaries under private pension plans for employees, Title IV of the Employee Retirement Income Security Act of 1974 (ERISA) created a plan termination insurance program that became effective in four successive stages. Section 4022(a) of Title IV provides that if benefits are "nonforfeitable" they are insured by respondent Pension Benefit Guaranty Corporation (PBGC), and under § 4062(b) of that Title PBGC has a right to reimbursement from the employer for insurance paid to cover nonforfeitable benefits. Section 3 of Title I of ERISA provides that "[f]or purposes of this title [t]he term 'nonforfeitable' when used with respect to a pension benefit or right means a claim obtained by a participant or his beneficiary to that part of an immediate or deferred benefit under a pension plan which arises from the participant's service, which is unconditional, and which is legally enforceable against the plan." Petitioner employer, pursuant to a collective-bargaining agreement, established a pension plan covering employees represented by respondent union at one of petitioner's plants, and his plan contained a clause limiting benefits, upon termination of the plan, to the assets in the pension fund. Petitioner, upon closing such plant, terminated the pension plan the day before January 1, 1976, the date on which much of ERISA became effective, at which time the pension fund assets were sufficient to pay only about 35% of the vested benefits to those employees entitled thereto. Petitioner thereafter filed an action against the PBGC in Federal District Court seeking a declaration that it has no liability under ERISA for any failure of the pension plan to pay all of the vested benefits in full, and an order enjoining the PBGC from taking actions inconsistent with that declaration. Granting summary judgment for petitioner, the District Court held that the limitation of liability clause in the plan was valid on the date of termination and that such clause prevented the benefits at issue from being characterized as "nonforfeitable." The Court of Appeals reversed, concluding, in reliance on the Title I definition of "nonforfeitability," that the limitation of liability clause merely affected the extent to which the benefits could be collected, without qualifying the employees' rights against the plan.

Held : The plan's limitation of liability clause does not prevent the vested benefits from being characterized as "nonforfeitable" and thus covered by the insurance program. Petitioner's argument that the Title I definition of "nonforfeitable" determines which benefits are insured under Title IV, that thus benefits are not insured unless they are "unconditional" and "legally enforceable against the plan," that because of the limitation of liability clause such elements of the definition are not satisfied, and that therefore the benefits are forfeitable and necessarily uninsurable, is without merit. Such argument is not supported by a literal reading of the definition on which it relies, and it is inconsistent with the clear language, structure, and purpose of Title IV. Pp. 370-386.

(a) To view the term "nonforfeitable" as describing the quality of the participant's right to a pension rather than a limit on the amount he may collect is consistent with the Title I definition of such term and accords with the interpretation of the term in Title IV adopted by the PBGC, the agency responsible for administering the Title IV insurance program. Pp. 370-374.

(b) There is no evidence that Congress intended to exclude otherwise vested benefits from the insurance program solely because the employer had disclaimed liability for any deficiency in the pension fund. To the contrary, § 4062(b), the reimbursement provision, makes it clear that Congress was not only worried about plan terminations resulting from business failures but was also concerned about the termination of underfunded plans, such as the one here, by solvent employers. And the fact that the provision of § 4062(b) limiting the amount of employer liability for reimbursement to 30% of the employer's net worth would be meaningless unless the employer has disclaimed direct liability demonstrates that Congress did not intend such a disclaimer to render otherwise vested benefits "forfeitable" within the meaning of § 4022. Pp. 374-382.

(c) Petitioner's proposed construction of the statute, whereby cost-free terminations of pension plans would be authorized prior to January 1, 1976, with full liability for all promised benefits thereafter, would distort the orderly phase-in of the statutory program designed by Congress. It appears that Congress intended to discourage unnecessary terminations even during the phase-in period and to place a reasonable ceiling on the potential cost of a termination during the principal life of ERISA—the period after January 1, 1976. Pp. 382-386.

592 F.2d 947 (7th Cir.), affirmed.

Robert W. Gettleman, Chicago, Ill., for petitioner.

Henry Rose, Washington, D. C., for respondent Pension Benefit Guaranty Corp.

M. Jay Whitman, Detroit, Mich., for respondent UAW.

Mr. Justice STEVENS delivered the opinion of the Court.

On September 2, 1974, following almost a decade of studying the Nation's private pension plans, Congress enacted the Employee Retirement Income Security Act of 1974 (ERISA), 88 Stat. 829, 29 U.S.C. § 1001 et seq. As a predicate for this comprehensive and reticulated statute,¹ Congress made detailed findings which recited, in part, "that the continued well-being and security of millions of employees and their dependents are directly affected by these plans; [and] that owing to the termination of plans before requisite funds have been accumulated, employees and their beneficiaries have been deprived of anticipated benefits. . . ." ERISA § 2(a), 29 U.S.C. § 1001(a). As one of the means of protecting the interests of beneficiaries, Title IV of ERISA created a plan termination insurance program that became effective in successive stages. The question in this case is whether former employees of petitioner with vested interests in a plan that terminated the day before much of ERISA became fully effective are covered by the insurance program notwithstanding a provision in the plan limiting their benefits to the assets in the pension fund.

Stated in statutory terms, the question is whether a plan provision that limits otherwise defined, vested benefits to the amounts that can be provided by the assets of the fund prevents such benefits from being characterized as "nonforfeitable" within the meaning of § 4022(a) of ERISA, 29 U.S.C. § 1322(a).² If the benefits are "nonforfeitable," they are insured by the Pension Benefit Guaranty Corporation (PBGC) under Title IV.³ And if insurance is payable to the former employees, the PBGC has a statutory right under § 4062(b) to reimbursement from the employer.⁴ It was petitioner's interest in avoiding liability for such reimbursement that gave rise to this action for declaratory and injunctive relief.

The relevant facts are undisputed. In 1960, pursuant to a collective-bargaining agreement, petitioner established a pension plan covering employees represented by the respondent union at its Chicago plant. The plan, as amended from time to time, provided for the payment of monthly benefits computed on the basis of age and years of service at the time of retirement.⁵ Benefits became "vested"—that is to say, the employee's right to the benefit would survive a termination of his employment—after either 10 or 15 years of service. The 15-year vesting provisions would not have complied with the minimum vesting standards in Title I of ERISA that were to become effective on January 1, 1976,⁶ the day after termination of the plan.

Petitioner agreed to, and did, make regular contributions sufficient to cover accruing liabilities, to pay administrative expenses, and to amortize past service liability over a 30-year period.⁷ Consistent with the agreement and with accepted actuarial practice, it was anticipated that the plan would not be completely funded until 1990.

Petitioner retained the right to terminate the plan when the collective-bargaining agreement expired merely by giving 90 days' notice of intent to do so. The agreement specified that upon termination the available funds, after payment of expenses, would be distributed to beneficiaries, classified by age and seniority, but only to the extent that assets were available. The critical provision of the agreement, Art. V, § 3, stated:

"Benefits provided for herein shall be only such benefits as can be provided by the assets of the fund. In the event of termination of this Plan, there shall be no liability or obligation on the part of the Company to make any further contributions to the Trustee except such contributions, if any, as on the effective date of such termination, may then be accrued but unpaid. App. 24.⁸

In 1975 petitioner decided to close its Chicago plant. Its collective-bargaining agreement expired on October 31, 1975, and it terminated the pension plan covering the persons employed at that plant on December 31, 1975, the day before ERISA would have required significant changes in at least the vesting provisions of the plan. At that time 135 employees had accrued benefits with an average value of approximately $77 per month. Those benefits were concededly "vested in a contractual sense." ⁹ The assets in the fund were sufficient to pay only about 35% of the vested benefits.

In 1976 petitioner filed an action against the PBGC, seeking a declaration that it has no liability under ERISA for any failure of the plan to pay all of the vested...