Pension Ben. Guar. Corp. v. Heppenstall Co., s. 1601 and 7378

• Decision Date: 30 July 1980
• Docket Number: Nos. 1601 and 7378,Nos. 79-2224,AFL-CIO,79-2225,s. 1601 and 7378,s. 79-2224
• Citation: 633 F.2d 293
• Parties: 2 Employee Benefits Ca 1884 Pension Agreements Between Heppenstall Company and the United Steelworkers of America, Local UnionPENSION BENEFIT GUARANTY CORPORATION, Appellant, v. HEPPENSTALL COMPANY and United Steelworkers of America, Local 1601 and United Steelworkers of America, Local 7378. Pension Agreements Between Heppenstall Company and the United Steelworkers of America, Local UnionPENSION BENEFIT GUARANTY CORPORATION, Applicant, v. HEPPENSTALL COMPANY and United Steelworkers of America, Local 1601 and United Steelworkers of America, Local 7378. Appeal of UNITED STEELWORKERS OF AMERICA,
• Court: U.S. Court of Appeals — Third Circuit

Page 293

633 F.2d 293

2 Employee Benefits Ca 1884

Pension Agreements Between Heppenstall Company and the

United Steelworkers of America, Local Union Nos.

1601 and 7378.

PENSION BENEFIT GUARANTY CORPORATION, Appellant, v. HEPPENSTALL COMPANY and United Steelworkers of America,

Local 1601 and United Steelworkers of America, Local 7378.

Pension Agreements Between Heppenstall Company and the

United Steelworkers of America, Local Union Nos.

1601 and 7378.

PENSION BENEFIT GUARANTY CORPORATION, Applicant, v. HEPPENSTALL COMPANY and United Steelworkers of America,

Local 1601 and United Steelworkers of America, Local 7378.

Appeal of UNITED STEELWORKERS OF AMERICA, AFL-CIO.

Nos. 79-2224, 79-2225.

United States Court of Appeals,

Third Circuit.

Argued May 22, 1980.

Decided July 30, 1980.

Henry Rose, Mitchell L. Strickler, James N. Dulcan, Stephen D. Schreiber, argued, Renae R. Hubbard, Washington, D. C., for appellant, Pension Benefit Guaranty Corp.; Bernard Kleiman, Chicago, Ill., of counsel.

William H. Powderly, III, argued, Richard D. Brown, Hollis J. Garfield, Reed, Smith, Shaw & McClay, Pittsburgh, Pa., for appellee, Heppenstall Co.

Daniel P. McIntyre, argued, Pittsburgh, Pa., for appellees, cross-appellants, United Steelworkers of America.

Before SEITZ, Chief Judge, and GIBBONS and ROSENN, Circuit Judges.

GIBBONS, Circuit Judge.

Pension Benefit Guaranty Corporation (PBGC) appeals from an order of the district court fixing June 28, 1979, as the date of termination of a pension plan maintained by Heppenstall Company (the employer) and covered by Subtitle B of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1321 et seq. (1976). The United Steelworkers of America (the union), a collective bargaining representative which negotiated for the terminated plan, cross appeals, urging that the court improperly granted summary judgment terminating the plan and fixing a termination date. The employer urges that the termination was proper and the termination date selected is mandated by the governing statute. We vacate and remand.

I.

The Termination Insurance Scheme

A feature of ERISA which in this case comes under judicial scrutiny for the first time is the insurance program for payment of vested pension benefits when a pension plan is terminated with assets which are insufficient to pay those benefits in full. The statute creates a United States Government corporation (PBGC) which administers a self-financing pension plan termination insurance program. PBGC guarantees the payment of vested benefits, subject to a limit of the lesser of 100 percent of the employee's wage during his highest paid 5 years, or $750 a month. When a plan provision has been in effect for less than 5 years on the date of termination insurance coverage is prorated at the rate of 20 percent a year. 29 U.S.C. § 1322 (1976). To pay for the cost of this insurance all covered pension plans must pay PBGC an annual premium. 29 U.S.C. § 1307 (1976). The statute imposes liability upon employers who terminate a plan and thereby cause PBGC to be liable on its guaranty for the lesser of the difference between plan assets and plan liabilities, or 30 percent of the employer net worth on a date chosen by PBGC not more than 120 days prior to the date of termination. 29 U.S.C. § 1362 (1976). This contingent employer liability may be insured against by an optional additional insurance coverage for which an employer must pay an additional annual premium. 29 U.S.C. § 1323 (1976). Thus the statutory scheme provides for mandatory insurance of benefits and optional insurance of employer contingent liability. Its purposes are,

(1) to encourage the continuation and maintenance of voluntary private pension plans for the benefit of their participants,

(2) to provide for the timely and uninterrupted payment of pension benefits to participants and beneficiaries under plans to which this subchapter applies, and

(3) to maintain premiums established by (PBGC) under section 1306 of this title at the lowest level consistent with carrying out its obligations under this subchapter.

29 U.S.C. § 1302(a)(1), (2), (3) (1976). PBGC must prescribe such insurance rates, based on its experience in each category of risk, as may be necessary to provide sufficient revenue to fund the insured benefits. 29 U.S.C. § 1306 (1976).

Since both the mandatory and optional insurance coverages only apply upon termination of a pension plan, the date of termination is critical for the determination of PBGC's liability. Prolongation of a financially unsound plan may increase PBGC's liability exposure in several ways. First, in many instances the level of vested pension benefits due employees will increase because they are calculated as a multiple of years of service or a percentage of highest years' wages. Second, some plans provide for the payment of kinds of benefits which are not insured, or for benefits in excess of the insurance limits. Before the plan is terminated its assets may be depleted by such payments. The statute makes provision for recovery of some payments from participants in excess of insured amounts, but in limited amounts and for limited times. 29 U.S.C. § 1345 (1976). Finally, if an employer has not elected to insure its contingent liability, the amount which PBGC can recover pursuant to 29 U.S.C. § 1362 may decrease because the employer's net worth is declining, at the same time that PBGC's liability to participants is increasing. PBGC's exposure (and its future premium level) thus depends on: 1) plan liabilities to holders of vested pension rights; 2) plan assets; 3) recapture of benefit payments; and 4) recovery from uninsured employers. Each of these amounts, in turn, vary with the date of termination of an insured plan. The statute provides for several methods of plan termination.

A plan administrator ¹ may, pursuant to the terms of the plan, decide upon termination. If it does so it must give PBGC ten days advance notice, and may not within 90 days after the proposed termination date make payouts pursuant to the plan's termination procedure. In that 90 day period PBGC, if it determines that the plan's assets are sufficient to discharge the plan's obligations, must notify the plan administrator of such determination. 29 U.S.C. § 1341 (1976). For such voluntary terminations the termination date is that agreed upon by the plan administrator and PBGC. 29 U.S.C. § 1348 (1976). The court plays no role in selecting the date.

Because termination and asset preservation are so critical to PBGC's liability exposure the statute also provides for involuntary termination. PBGC may under 29 U.S.C. § 1342 (1976) institute proceedings to terminate a plan whenever it determines that certain events have transpired. For present purposes the most significant ones are inability of the plan to pay benefits when due, and the reasonable expectation of increases in possible long-run losses to PBGC. When it makes such a determination PBGC may apply to a district court, upon notice to the plan administrator, for the appointment of a trustee, 29 U.S.C. § 1342(b), and "for a decree adjudicating that the plan must be terminated in order to protect the interests of the participants and to avoid any further deterioration of the financial condition of the plan or any further increase in the liability of the fund." 29 U.S.C. § 1342(c). The appointment of a trustee and the decree of termination are separate events. A trustee appointed under section 1342(b) is authorized to take a position respecting termination different from that of PBGC, ² although that authority is difficult to reconcile with the provision that "(PBGC) may request that it be appointed as trustee in any case." 29 U.S.C. § 1342(b). Moreover, even when PBGC commences an involuntary termination proceeding it and the plan administrator can agree that the plan be terminated and a trustee appointed "without proceeding in accordance with the requirements of this subsection." 29 U.S.C. § 1342(c). If PBGC and the plan administrator so agree, the date of termination is the date they agree upon. 29 U.S.C. § 1348(2) (1976).

Section 1341 dealing with voluntary termination provides that either the plan administrator or PBGC may apply to the court for the appointment of a trustee "if the interests of the participants and beneficiaries would be better served by the appointment of the trustee." 29 U.S.C. § 1341(g). Such a trustee appears to have authority to continue the operation of a plan. 29 U.S.C. § 1342(d)(1)(A). However, the statute provides that "(a)s soon as practicable after his appointment, the trustee shall give notice to interested parties of the institution of proceedings under this subchapter to determine whether the plan should be terminated or to terminate the plan, whichever is applicable." 29 U.S.C. § 1342(d)(2). Interested parties include the plan administrator, each participant, each beneficiary of a deceased participant, and each employer who may be subject to liability to PBGC. 29 U.S.C. § 1342(d)(2)(A), (B), (C). Peculiarly, this subsection dealing with the duty of a trustee is the only place in which the statute makes express provision for notice to participants prior to termination. Moreover, section 1348 contemplates that the plan administrator and the trustee can agree on the date of termination.

Thus, it is only in the case where the plan administrator and PBGC or a trustee fail to agree upon a date of termination that the court has any role in fixing it. When "no agreement is reached between the plan administrator and (PBGC) (or the trustee), the date (is) established by the court." 29 U.S.C. § 1348(3). Nowhere in the statute, however, is there any explicit standard for the court's guidance in selecting a date. Moreover, the parties have not called to our attention any legislative history suggesting any specific congressional attention to that problem. Still, we do not think that the court's...