Pension Ben. Guar. v. Republic Technologies, 03-4494.

• Decision Date: 01 October 2004
• Docket Number: No. 03-4494.,03-4494.
• Citation: 386 F.3d 659
• Parties: PENSION BENEFIT GUARANTY CORPORATION, Plaintiff-Appellant, v. REPUBLIC TECHNOLOGIES INTERNATIONAL, LLC, et al., Defendant, United Steelworkers of America, AFL-CIO, CLC, Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

386 F.3d 659

PENSION BENEFIT GUARANTY CORPORATION, Plaintiff-Appellant, v. REPUBLIC TECHNOLOGIES INTERNATIONAL, LLC, et al., Defendant United Steelworkers of America, AFL-CIO, CLC, Defendant-Appellee.

No. 03-4494.

United States Court of Appeals, Sixth Circuit.

Argued: August 11, 2004.

Decided and Filed: October 1, 2004.

Appeal from the United States District Court for the Northern District of Ohio, Peter C. Economus, J.

ARGUED: Susan E. Birenbaum, Pension Benefit Guaranty Corporation, Washington, DC, for Appellant. Lonie Anne Hassel, Groom Law Group, Washington, DC, for Appellee. ON BRIEF: Susan E. Birenbaum William G. Beyer, Roger Reiersen, Ralph L. Landy, Pension Benefit Guaranty Corporation, Washington, DC, for Appellant. Lonie Anne Hassel, Groom Law Group, Washington, DC, David R. Jury, United Steelworkers of America, Pittsburgh, PA, for Appellee.

Before: BATCHELDER and GIBBONS, Circuit Judges; STAFFORD, District Judge.^*

OPINION

GIBBONS, Circuit Judge.

In this appeal plaintiff-appellant Pension Benefit Guaranty Corporation ("PBGC") seeks review of the district court's denial of a plan termination date that would permit PBGC to avoid payment of $95 million in unvested "shutdown" benefits to plan participants represented by defendant-appellee United Steelworkers of America ("USWA"). The appeal presents no issue as to the propriety of termination of the relevant benefit plans, which termination will result in the participants' receipt of $100 million in retirement benefits that they would not otherwise receive in the absence of PBGC's termination of the plans and guarantee of the benefits vested under them. PBGC's obligation to pay these vested benefits arose after the participants' employer Republic Technologies International, LLC ("RTI") declared bankruptcy and was unable to pay benefits under the plans.

PBGC initiated involuntary termination proceedings against four defined benefit plans administered by RTI after RTI filed its petition for bankruptcy pursuant to Chapter 11 of the United States Bankruptcy Code, 11 U.S.C. §§ 1101-1174. Two of the plans cover 6,027 participants represented by the USWA. These plans included provisions for shutdown benefits, which would allow eligible participants to receive an immediate unreduced early retirement benefit in the event of a permanent shutdown of one or more of RTI's facilities. The shutdown benefits were not funded or vested at the time of their negotiation. During the bankruptcy proceedings, RTI agreed to sell substantially all of its assets to a new company that had expressed an intention to hire 2,500 of RTI's 4,000 employees, but this new company did not want to assume responsibility for the pension plans. The USWA reached an agreement with RTI in April 2002, specifying that the sale of RTI's assets to the new company would constitute a "shutdown" under the plans, thereby triggering the provisions for shutdown benefits.

In the course of carrying out its statutory obligations under 29 U.S.C. § 1302(a), PBGC became concerned about the potential impact of the proposed sale on the plans and on its own financial condition. On June 12, 2002, PBGC issued notices pursuant to 29 U.S.C. § 1342(c), indicating its intent to terminate the plans, to seek its appointment as statutory trustee, and to have June 14, 2002, established as the date of plan termination. PBGC sought an immediate termination date in order to prevent the vesting of the shutdown benefit provisions that would occur with the closing of the sale of RTI's assets. PBGC also filed a complaint against RTI in federal district court for the Northern District of Ohio, seeking termination of the plans, appointment as statutory trustee, and June 14, 2002, as the date of plan termination. The USWA was later granted leave to intervene as a party defendant. On cross motions for summary judgment, the USWA opposed only the proposed date of plan termination and asked the district court to establish a termination date of August 17, 2002 — the day after the closing of the asset sale. The court found that the plan participants had a "heightened" reliance interest in the receipt of shutdown benefits and that PBGC had failed to demonstrate that a plan termination date of June 14, 2002, adequately protected its insurance fund from an unreasonable increase in liability. It established August 17, 2002, as the date of plan termination, and PBGC has appealed. We conclude that any reliance interest the plan participants had in the receipt of shutdown benefits was extinguished the day PBGC sent out the notices of termination. We also conclude that the district court failed to adhere to the governing statutory purpose and persuasive case authority and thus gave no deference to PBGC's determination that it faced an unreasonable increase in its liabilities if the court selected a termination date after "shutdown." Therefore, we reverse.

I.

Before turning to the facts of this particular case, some background on the role that PBGC plays in our nation's pension benefit insurance system is necessary. PBGC is a federal corporation that was established by the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1301-1461 ("ERISA") for the purpose of administering the single-employer pension plan termination insurance program. PBGC's insurance program currently protects the pensions of approximately 44 million working men and women in slightly more than 35,000 private defined benefit pension plans. In fiscal year 2002, PBGC paid over $2.5 billion in benefits to almost 459,000 people. Under this insurance program, PBGC guarantees the payment of certain minimum pension benefits to pension plan participants in the event that a covered plan terminates with insufficient assets to pay the benefits in full. 29 U.S.C. §§ 1302(a)(2), 1322, and 1361. PBGC receives no funds from general tax revenues. Its operations are financed using income from four basic sources: (1) insurance premiums set by Congress and paid by sponsors of defined benefit plans, (2) investment income, (3) assets in terminated plans, and (4) recoveries, if any, from employers whose underfunded plans have terminated. See also 29 U.S.C. §§ 1302(g)(2), 1306, and 1362.

PBGC operates under the guidance of its Board of Directors, which is composed of the Secretaries of Labor, Commerce, and the Treasury. PBGC's mission is to protect participants' pension benefits and to support a healthy retirement plan system by: (1) encouraging the continuation and maintenance of voluntary private pension plans for the benefit of their participants, (2) providing timely payments of benefits in the case of terminated pension plans, and (3) making the maximum use of its resources while at the same time maintaining premiums at the lowest levels consistent with its statutory responsibilities. 29 U.S.C. § 1302(a)(1)-(3).

If a plan terminates with insufficient assets to pay guaranteed benefits, PBGC typically becomes trustee of the plan, takes over the assets and liabilities of the plan, and pays benefits to plan participants. 29 U.S.C. §§ 1322, 1342(d)(1), and 1361. ERISA provides for both voluntary termination by the plan administrator and involuntary termination by PBGC. Involuntary termination procedures may be instituted when PBGC determines that the plan is unable to pay benefits when due, 29 U.S.C. § 1342(a)(2), and when PBGC faces an unreasonable increase in liabilities with respect to the plan if the plan is not terminated. 29 U.S.C. § 1342(a)(4). If PBGC determines that a plan will be unable to pay benefits when due, it may institute court proceedings to obtain "a decree adjudicating that the plan must be terminated in order to protect the interests of the participants or to avoid any unreasonable deterioration of the financial condition of the plan or any unreasonable increase in the liability of the fund." 29 U.S.C. § 1342(c).

A plan's termination date is significant because it marks the date on which benefits for plan participants cease to accrue. Employee Retirement Income Security Act of 1974, Pension Benefit Guaranty Corp. v. Broadway Maint. Corp., 707 F.2d 647, 649 (2d Cir.1983). For involuntary terminations, the date of plan termination has additional importance. When an employer underfunds its pension plan and is unable to finance a minimum level of benefits, PBGC must pay those benefits, and it has the right to recover from the employer the lesser of the amount that the employer underfunded its plan or thirty percent of the employer's net worth on a date chosen by PBGC within 120 days prior to the plan's termination date. Id. (citing 29 U.S.C. §§ 1322 and 1362(b)). "Because involuntary termination proceedings often involve bankrupt corporations with deteriorating financial resources, the date of termination can significantly affect the extent of PBGC's recovery from the employer." Id. (citation omitted). A late termination date may mean that PBGC will have little chance of recovering anything from a bankrupt employer, while an earlier termination date could give PBGC the right to recover substantial assets from that same employer, based on its higher net worth at an earlier time. Id.

Congress expressed a clear preference that termination dates be set in advance to give plan participants warning when their benefits will stop accruing, see 29 U.S.C. § 1341(a), but ERISA does not require PBGC to give formal advance notice to plan participants in involuntary termination proceedings. "Congress apparently recognized that, when faced with bankrupt employers and substantial unfunded pension liabilities, PBGC might occasionally wish to establish a retroactive date of termination to limit its own liability." Broadway Maint., 707 F.2d at 649 (citing 29 U.S.C. § 1348(a)). However, despite the importance of termination dates, ERISA does not give PBGC unilateral authority to set them, even in involuntary proceedings. If the plan administrator does not agree with the date...