Peick v. Pension Ben. Guar. Corp.

• Decision Date: 19 December 1983
• Docket Number: No. 82-2081,82-2081
• Citation: 724 F.2d 1247
• Parties: Louis F. PEICK, et al., Plaintiffs-Appellants, v. PENSION BENEFIT GUARANTY CORPORATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1247

724 F.2d 1247

Louis F. PEICK, et al., Plaintiffs-Appellants, v. PENSION BENEFIT GUARANTY CORPORATION, Defendant-Appellee.

No. 82-2081.

United States Court of Appeals, Seventh Circuit.

Argued April 13, 1983.

Decided Dec. 19, 1983.

Sherman Carmell, Peter M. Sfikas, Chicago, Ill., for plaintiffs-appellants.

Baruch A. Fellner, Pension Benefit Guaranty Corp., Washington, D.C., for defendant-appellee.

Before CUDAHY and ESCHBACH, Circuit Judges, and SWYGERT, Senior circuit judge.

CUDAHY, Circuit Judge.

In this appeal, involving a suit seeking a declaratory judgment, we are asked to consider the constitutionality of the Multiemployer Pension Plan Amendments Act of 1980 (the "MPPAA"). Specifically, we are called upon to decide issues concerning the justiciability of this case and whether the district court erred in upholding the withdrawal liability provisions of the MPPAA against challenges based on the due process clause, the takings clause, and several other constitutional provisions. The district court granted defendant Pension Benefit Guaranty Corporation's (the "PBGC") cross motion for summary judgment and dismissed the case, thereby sustaining the constitutionality of the MPPAA. For the reasons detailed below, we affirm the district court in all respects.

I

A. The Background of the MPPAA ¹

The 1974 enactment of the Employee Retirement Income Security Act ("ERISA") marks the initial attempt by the federal government to regulate pension plans in a comprehensive manner. ² This statute contains numerous provisions:

Title I attacks the lack of adequate "vesting" provisions in many plans. Before ERISA, for example, if a plan did not provide for vesting until retirement, an employee with 30 years of service could lose all rights in his pension benefits in the event that his employment was terminated prior to retirement. Title I establishes minimum vesting standards to ensure that after a certain length of service an employee's benefit rights would not be conditioned upon remaining in the service of his employer. Employers were required to amend the terms of their plans to reflect these minimum standards effective January 1, 1976. [29 U.S.C.] Sec. 1053(a) [ (1976) ]. A second area of difficulty was the inadequacy of the funding cycle used by many plans. To improve the fiscal soundness of these pension funds, Title II amends the Internal Revenue Code to require minimum funding. Title III imposes fiduciary responsibilities on the trustees of the pension funds and provides for greater information and disclosure to employee-participants. The final area of concern addressed by ERISA was the loss of employee benefits which resulted from plan terminations. In order to protect an employee's interest in his accrued benefit rights when a plan failed or terminated with insufficient funds, Title IV establishes a system of termination insurance, effective September 2, 1974.

Nachman Corp. v. Pension Benefit Guaranty Corp., 592 F.2d 947, 951 (7th Cir.1979), aff'd, 446 U.S. 359, 100 S.Ct. 1723, 64 L.Ed.2d 354 (1980). The most relevant provision of ERISA for present purposes is the termination insurance program contained in Title IV. This program is run by the PBGC, a governmental entity which receives no direct federal appropriations. The PBGC relies instead primarily on premium payments: Under pre-MPPAA ERISA, multiemployer plans paid $.50 per covered employee per year while single employer plans--those created, operated and maintained by a single employer acting alone--paid $1.00 per covered employee per year to fund the PBGC. 29 U.S.C. Sec. 1306 (1976).

Upon enactment of ERISA in 1974, the PBGC immediately insured the receipt of all "nonforfeitable benefits" that had been earned by employees in single employer Multiemployer plan benefits were treated differently. They were not insured unconditionally upon enactment, but rather were guaranteed solely at the discretion of the PBGC until January 1, 1978. At that time, the guarantees were to become mandatory. Id. at Sec. 1381(c)(1). In the interim, the PBGC was authorized to determine on a case-by-case basis whether it would pay a terminating plan's beneficiaries the difference between the value of their guaranteed benefits and the value of the plan's assets on the date of termination. Id. at Sec. 1381(c)(2). As in the single employer context, secondary employer liability was imposed in all cases in which PBGC funds were actually expended. Specifically, all employers that contributed to a terminated multiemployer plan during the five years immediately preceding termination were collectively liable to the PBGC for the amount the latter had disbursed, each employer for its proportionate share of the total. As in the case of single employer plans, no individual employer's termination liability could exceed thirty per cent of its net worth. Id. at Sec. 1364. Employers that withdrew from an on-going (i.e., non-terminating) multiemployer plan thus incurred a contingent liability. It was contingent first upon the plan's terminating within the next five years, and second, in the absence of mandatory benefit insurance, upon the PBGC's deciding to insure the plan's benefits. ERISA did not, in general, obligate a withdrawing employer to provide the PBGC with any security for this potential obligation. An exception was recognized, however, in the case of a "substantial" employer, one that had contributed at least ten per cent of all contributions received by the plan over a specified period of time. Id. at Sec. 1301(a)(2). Withdrawing employers meeting this description were required to place in escrow an amount equaling what their termination liability would have been had the plan terminated on the date of withdrawal. Id. at Sec. 1363(b). Alternatively the employer could furnish a bond. Id. at Sec. 1363(c)(1). If no termination actually occurred during the next five years, the escrow was refunded or the bond cancelled. Id. at Sec. 1363(c)(2).

                plans. 3   A single employer that wished to terminate its plan was thus first required to notify the PBGC.  29 U.S.C. Sec. 1341(a).  If an investigation subsequently revealed that the plan lacked sufficient assets to pay its "nonforfeitable benefits," the PBGC itself became obligated for the shortfall.  Id. at Sec. 1341(b), (c).  Any amounts so expended could be recovered from the terminating employer, id. at Sec. 1362, but the latter's liability could in no event exceed thirty percent of its net worth.  Id. at Sec. 1362(b)(2). 4
                

There were several reasons why Congress chose not to insure all multiemployer plan benefits immediately in 1974. Congress viewed multiemployer plans as more stable and secure than single employer plans and thus saw less need to insure the former. See Connolly v. Pension Benefit Guaranty Corp., 581 F.2d 729, 734 (9th Cir.1978); 126 CONG.REC. 12,179 (1980) (remarks of Rep. Biaggi). Congress, moreover, was concerned about the potential costs of such a program. These worries became more prevalent as January 1, 1978 approached. Senator Javits warned his colleagues in late 1977 that he knew of several multiemployer plans which planned to terminate soon after the first of the year. See id. at S10099 (daily ed. July 29, 1980). Recognizing that it needed more time to study the entire problem, Congress delayed the effective date of the mandatory guarantee program and extended the PBGC's discretionary authority through June 30, 1979. Pub.L. No. 95-214, 91 Stat. 1501 (1977). At the same time Congress ordered the PBGC to prepare a comprehensive report analyzing the multiemployer situation.

The PBGC submitted its report on July 1, 1978. The major factual findings of the report were that:

1. There were about two thousand covered multiemployer pension plans with approximately eight million participants. Pension Benefit Guaranty Corporation, Multiemployer Study Required by P.L. 95-214, at 1, 20 (1978) (hereafter cited as PBGC Report).

2. About ten per cent of these plans were experiencing financial difficulties that could result in plan terminations before 1988. These plans had about 1.3 million participants. Id. at 1, 138.

3. If all of these troubled plans were to terminate, it could cost the insurance system about $4.8 billion to fund all plan benefits then covered by Title IV's guarantee. The annual premium needed to fund this liability would be unacceptably high. Id. at 2, 16, 139.

4. Limiting consideration to only those covered multiemployer pension plans which were experiencing sufficiently serious financial difficulties that it was likely they would become insolvent before 1988, the cost to the insurance system to fund all guaranteed plan benefits could be approximately $560 million. The annual per capita premium needed to fund this liability could rise from fifty cents to as much as nine dollars. Id. at 2, 16, 140.

The PBGC derived these figures by using a computer model that analyzed and predicted the projected financial health of a selected sample of plans. The PBGC stressed that it relied solely on economic data and statistical analysis in forecasting the expected number of terminations. It did not attempt to factor in as well any incentives favoring termination which ERISA itself might provide. Id. at 137, Appendix XIV. Nevertheless the PBGC argued that such incentives were both present and troubling:

Under the current statutory provisions, mandatory termination insurance for multiemployer plans would protect virtually all vested benefits in multiemployer plans, since the maximum guaranteeable benefit of $1,000 per month at age 65 is well above the average vested benefit level in multiemployer plans....

Since all, or nearly all, of the vested benefits of participants would be guaranteed upon termination under the current law, the cost of plan termination to participants would be greatly reduced. This does not necessarily mean that participants will have an incentive to bargain for plan termination...