Pension Benefit Guaranty Corp. v. Ky. Bancshares, Inc.
| Decision Date | 17 March 2014 |
| Docket Number | Civil Action No. 13–cv–143–KSF. |
| Citation | 7 F.Supp.3d 689 |
| Parties | PENSION BENEFIT GUARANTY CORPORATION, Plaintiff v. KENTUCKY BANCSHARES, INC., Defendant. |
| Court | U.S. District Court — Eastern District of Kentucky |
Sara B. Eagle, Elisabeth Boyan Fry, Pension Benefit Guaranty Corporation, Washington, DC, for Plaintiff.
Christopher L. Thacker, David T. Royse, J. David Smith, Jr., Stoll Keenon Ogden, PLLC, Lexington, KY, for Defendant.
The plaintiff, Pension Benefit Guaranty Corporation (“PBGC”), has filed this action pursuant the Employment Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001 –1461 (“ERISA”), to enforce the provisions of Title IV of ERISA and to enforce a final agency determination that violations of Title IV have occurred in connection with the defendant's termination of a single-employer, defined-benefit pension plan. Currently before the Court are the parties' cross-motions for summary judgment [DE 19, 22]. This matter is fully briefed and is ripe for review.
Congress enacted ERISA in 1974 “to ensure that employees and their beneficiaries would not be deprived of anticipated retirement benefits by termination of pension plans before sufficient funds [had] been accumulated in the plans.” Pension Benefit Guaranty Corporation v. R.A. Gray & Co., 467 U.S. 717, 720, 104 S.Ct. 2709, 81 L.Ed.2d 601 (1984) (citing Nachman Corp. v. Pension Benefit Guaranty Corporation, 446 U.S. 359, 361–62, 100 S.Ct. 1723, 64 L.Ed.2d 354 (1980) ). See also 29 U.S.C. § 1001(a) (). ERISA is divided into three principal subchapters. Subchapter 1 addresses the protection of employee pension benefit rights by establishing “rules for reporting and disclosure, participation and vesting, funding of pension trust, fiduciary responsibility, and administration and enforcement.” A–T–O, Inc. v. Pension Benefit Guaranty Corporation, 634 F.2d 1013, 1014 (6th Cir.1980) ; see 29 U.S.C. §§ 1001 –1191. Subchapter 2 establishes the enforcement jurisdiction of various federal departments and agencies over the statute's provisions, as well as creates the joint pension task force. See 29 U.S.C. §§ 1201 –1242. Finally, Subchapter 3 provides insurance coverage for pension benefit plans. See 29 U.S.C. §§ 1301 –1461.
Subchapter 3 is the “key to the congressional plan,” Page v. Pension Benefit Guaranty Corp.,
968 F.2d 1310, 1311 (D.C.Cir.1992), designed to guarantee that “if a worker has been promised a defined pension benefit upon retirement-and if he has fulfilled whatever conditions are required to obtain a vested benefit-he actually will receive it.” R.A. Gray & Co., 467 U.S. at 720, 104 S.Ct. 2709. In order to ensure this guarantee, Congress created the Pension Benefit Guaranty Corporation (“PBGC”), “a wholly-owned United States government corporation within the Department of Labor, modeled after the Federal Deposit Insurance Company.” Pension Benefit Guaranty Corp. v. LTV Corp., 496 U.S. 633, 636–37, 110 S.Ct. 2668, 110 L.Ed.2d 579 (1990). PBGC is vested with the authority to enforce and administer a mandatory Government insurance program that currently protects the pension benefits of millions of private-sector American workers who participate in defined benefit pension plans. See generally 29 U.S.C. § 1302.
One of PBGC's principal operations is to monitor, and under limited circumstances, initiate the termination of defined benefit plans where the plans have insufficient assets to satisfy their obligations to participants. In the case of an underfunded pension plan termination, PBGC “becomes the trustee of the plan, taking over the plan's assets and liabilities.” LTV Corp., 496 U.S. at 637, 110 S.Ct. 2668. Once trustee, PBGC then merges the remaining assets of the terminated plan with its own funds to “ensure payment of most of the remaining ‘non-forfeitable benefits.’ ” 29 U.S.C. § 1301(a)(8), 1322(a) & (b) ; LTV Corp., 496 U.S. at 638, 110 S.Ct. 2668. PBGC then pays the benefits according to congressionally prescribed limits. 29 U.S.C. § 1322(b)(3)(B).
This case, however, does not involve an involuntary termination. Rather, the defendant, Kentucky Bancshares, Inc. (“Kentucky Bancshares”), performed a voluntary “standard termination” under 29 U.S.C. § 1341(b). A standard termination is appropriate when the pension plan has sufficient assets to pay all of a pension plan's benefit liabilities. Standard termination procedures “are exhaustive, setting detailed rules” for all phases of the process. See Beck v. PACE Int'l Union, 551 U.S. 96, 102–03, 127 S.Ct. 2310, 168 L.Ed.2d 1 (2007) ; Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 446, 119 S.Ct. 755, 142 L.Ed.2d 881 (1999). In a standard termination, the Plan administrator is required to provide notice to plan participants of the intent to terminate the plan (the “NOIT”). 29 U.S.C. § 1341(a)(2), and (b)(1)(A) ; 29 C.F.R. § 4041.23. The NOIT serves as written notice to plan participants of the intended plan termination and includes a proposed date of termination as well as notice of plan benefits, explaining the benefits owed to each affected party. See 29 U.S.C. § 1341(a)(2), (b)(2)(B) ; 29 C.F.R. §§ 4041.23, 4041.24. The termination date may be changed by the Plan administrator under certain circumstances not applicable here. 29 U.S.C. § 1348(a)(1).
Before distribution of any assets, a Standard Termination Notice–PBGC Form 500 (“Form 500”) must be filed with PBGC, stating the intent to terminate the plan, as well as the proposed date of plan termination, and providing, inter alia, detailed information regarding plan assets and benefit liabilities. See 29 U.S.C. § 1341(b)(2)(A) ; 29 C.F.R. 4041.25. Form 500 provides detailed instructions for completing the standard termination process.
Upon receipt of the Form 500, PBGC has 60 days to make the statutorily required determination that “there is no reason to believe” that the plan is not sufficient for benefit liabilities based upon its review of the required documentation from the plan administrator, the plan's actuary or other affected parties, including an attestation that the plan is sufficient for benefit liabilities (the “60 Day Review Period”). 29 U.S.C. § 1341(b)(2)(C) ; 29 C.F.R. § 4041.25. In the absence of a finding from PBGC that the plan is not sufficient for all benefit liabilities, the plan administrator must distribute plan assets in accordance with Title IV of ERISA within a specified time period. 29 U.S.C. § 1341(b)(2)(D) and (B)(3) ; 29 C.F.R. § 4041.28. When distributing assets in a standard termination, the plan's administrator must either (1) purchase “irrevocable commitments” (i.e., annuities) from a private insurer to satisfy all benefit liabilities, 29 U.S.C. § 1341(b)(3)(A)(i), or (2) provide an alternative form of distribution (e.g., lump sum payment) “in accordance with the provisions of the plan and any applicable regulations....” 29 U.S.C. § 1341(b)(3)(A)(ii). To determine the value of a lump sum distribution, the regulations set out a two-step process. First, the amount of the monthly pension benefit must be calculated in accordance with plan provisions. Then, the projected stream of future benefit payments must be discounted to present value, as of the date of distribution, 29 C.F.R. § 4041.28(c)(2), using assumptions for mortality and interest specified in the plan. See 26 U.S.C. § 401(a)(25). The interest rate used to discount to present value are inversely related to the amount of the lump sum (i.e., the greater the interest rate, the lower the lump sum).
Thirty days after the last distribution of plan assets, a Post–Distribution Certification for Standard Termination–PBGC Form 501 (“Form 501”) must be filed with PBGC, attesting that all benefits under the plan have been paid in accordance with Title IV. See 29 U.S.C. § 1341(b)(3)(B) ; 29 C.F.R. 4041.29. Following the filing of Form 501, PBGC continues to have authority regarding matters relating to the plan. 29 U.S.C. § 1341(b)(4). Additionally, PBGC is required by 29 U.S.C. § 1303(a) to audit a statistically significant number of standard terminations to determine, inter alia, if affected parties have received their benefits. 29 U.S.C. § 1303(a). These determinations are subject to PBGC's administrative review procedures. 29 C.F.R. § 4003.1(b)(3)(iii).
In addition to ERISA, other statutory and regulatory provisions are relevant to the standard termination at issue in this case. The first is § 401(a) of the Internal Revenue Code (“I.R.C.”), 26 U. S.C. § 401(a). Under this statute, a pension plan must comply with the requirements of I.R.C. § 411 to qualify for favorable tax treatment. To obtain advanced assurance that a pension plan satisfies the I.R.C. qualification requirements under 26 U.S.C. § 401, a taxpayer may request a determination letter that the plan provisions meet qualification requirements. See 26 C.F.R. § 601.201(a)(3), (c)(5), and (o ) ; IRS Publication 794. While the determination letter may speak to the issue of tax qualification, it does not make any “determination regarding the effect of other federal or local statutes.” 26 C.F.R. 601.201(c)(5).
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