Pineiro v. Pension Benefit Guar. Corp.
| Decision Date | 26 August 2003 |
| Docket Number | No. 96 Civ.7392 GEL.,96 Civ.7392 GEL. |
| Citation | 318 F.Supp.2d 67 |
| Parties | Al PINEIRO, Richard Brooks, and Leonard Beaumont, on behalf of themselves and others similarly situated, Plaintiffs, v. PENSION BENEFIT GUARANTY CORPORATION, as Trustee of the Pan American World Airways, Inc., Cooperative Retirement Income Plan, Defendant. |
| Court | U.S. District Court — Southern District of New York |
Harvey Katz, Brown Rudnick Berlack Israels LLP, New York, N.Y. (John P. Biedermann and Adam B. Cantor, on the brief), for Plaintiffs Al Pineiro, Richard Brooks, and Leonard Beaumont.
Charles L. Finke, Assistant General Counsel, Pension Benefit Guaranty Corporation, Washington, DC (James J. Keightley, General Counsel, and Jeffrey B. Cohen, Karen L. Morris, Shannon Novey, Joseph Krettek, and Virginia Neiswender, Pension Benefit Guaranty Corporation, Washington, DC; and Lewis R. Clayton, Paul, Weiss, Rifkind, Wharton & Garrison, New York, NY, on the brief), for Defendant Pension Benefit Guaranty Corporation.
Plaintiffs Al Pineiro, Richard Brooks, and Leonard Beaumont (collectively, "plaintiffs")1 are participants in the Cooperative Retirement Income Plan (the "Plan") that was maintained by Pan American World Airways ("Pan Am") until it was terminated in 1991 as a result of Pan Am's bankruptcy. They bring this action against defendant Pension Benefit Guaranty Corporation ("defendant" or "PBGC"), alleging that, after it was appointed to serve as trustee for the Plan and to oversee its termination, it breached its fiduciary duty to plaintiffs by taking a number of actions that were not in their best interests, and by failing to act with due care. Plaintiffs bring this suit pursuant to the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq., seeking removal of PBGC as trustee and other equitable relief, and under the Administrative Procedure Act, 5 U.S.C. § 706(1), seeking an order compelling PBGC to complete its process of issuing benefit determinations to Plan participants. Both parties now move for summary judgment. For the reasons discussed below, both motions will be granted in part and denied in part.
ERISA was enacted in 1974 to regulate the nation's employee retirement plans, after Congress concluded 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." 29 U.S.C. § 1001(a). Thus, in addition to establishing the standards for ongoing pension plans, ERISA regulates the process by which plans are terminated, in order to ensure that beneficiaries of terminated plans receive the benefits to which they are entitled. To this end, Title IV of ERISA, which governs plans subject to termination, provides that PBGC, a wholly-owned government corporation, will insure certain benefits provided by all employer-sponsored defined benefit plans, so that employees will receive them even when the plan itself does not have enough assets to cover its benefit liabilities.2 PBGC v. LTV Corp., 496 U.S. 633, 636-37, 110 S.Ct. 2668, 110 L.Ed.2d 579 (1990).
When an employer is no longer financially able to sponsor its retirement plan, PBGC may apply to a court for a decree of termination, in order to prevent the continued accrual of benefits from exponentially increasing PBGC's liability for insured benefits. 29 U.S.C. §§ 1341, 1342(a), (c). When the court finds that a plan must be terminated, Title IV mandates that the court appoint a trustee "to terminate" the plan, and to replace the plan administrator, which oversaw the plan while it was ongoing. Id. § 1342(c). In practice, PBGC has always applied to be appointed the trustee of terminated plans, and courts have invariably granted its application. LTV Corp., 496 U.S. at 637, 110 S.Ct. 2668. The trustee is given a number of powers that, combined, allow it to invest or liquidate plan assets, pay benefits, litigate, and generally perform any necessary task in administering the plan. Id. § 1342(d).
The trustee is a fiduciary within the meaning of ERISA, id. § 1342(d)(3); id. § 1002(21), and therefore owes the plan and its beneficiaries duties of care and loyalty. The trustee must exercise its various powers for the exclusive purpose of providing benefits to participants and their beneficiaries, with the "care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity ... would use." Id. § 1104(a)(1)(A)(i), (B). In addition, the trustee is given the same duties given to Chapter 7 bankruptcy trustees, id. § 1342(d)(3), including "clos[ing] such estate as expeditiously as is compatible with the best interests of the parties in interest," and "furnish[ing] such information concerning the estate and the estate's administration as is requested by a party in interest," 11 U.S.C. § 704. The trustee's fiduciary duties are not absolute, however. Since terminating a plan usually involves allocating assets that are insufficient to cover the plan's benefit obligations, the trustee is explicitly authorized to take a number of actions that might otherwise violate its fiduciary duties, such as recovering benefits paid to participants shortly before the plan was terminated, 29 U.S.C. § 1345(a), and limiting the payment of benefits to guaranteed benefits, id. § 1342(d)(1)(A)(iv).
When the court issues a decree of termination, it sets a "termination date" as the date on which all benefits under the plan cease to accrue. Id. § 1348. Thereafter, the trustee notifies all plan participants and employers involved in the plan that it will be terminated. Id. § 1342(d)(2). As necessary, the trustee may recover debts to the plan, including benefit overpayments, and may liquidate the plan's assets. Id. § 1342(d)(1)(B). Then the "plan administrator" (in practice, the trustee) must allocate the plan's existing assets among those entitled to benefits, in the priority specified by § 1344(a).3 This may involve undertaking an intensive review of the plan documents, auditing its assets, and determining actuarial values in order to calculate the amount of benefits to which each participant is entitled under the plan. To assist in the calculations, PBGC and the plan administrator are required to provide a variety of plan information to the trustee. Id. § 1346. If the plan's current assets are insufficient to cover its liabilities — in other words, if the plan is underfunded — PBGC, as the guarantor of pension benefits, uses its own funds to pay those benefits that are "nonforfeitable" because participants' entitlement to them has vested by the date of termination. LTV Corp., 496 U.S. at 637, 110 S.Ct. 2668. The process of determining which benefits are insured by PBGC can itself be complex, as PBGC must determine which benefits are nonforfeitable under the terms of the plan, and are not subject to the lengthy list of exceptions enumerated in § 1322(b). To this end, PBGC has promulgated a number of regulations that interpret the relevant statutory provisions and specify what types of benefits are guaranteed. See 29 C.F.R. pt. 4022. Because PBGC has always had itself appointed trustee of the plans it seeks to terminate, it must fulfill all of the functions of both trustee and guarantor with respect to all plans subject to termination.
The termination framework ensures that those who are already receiving benefits at the time of the plan's termination continue to receive them, and that those who have earned benefits receive some proportion of what they were expecting. LTV Corp., 496 U.S. at 636-37, 110 S.Ct. 2668. At the same time, however, the termination of an underfunded plan inevitably creates hardship for plan beneficiaries, as the termination often occurs concurrently with the employer's bankruptcy and the loss of all of its employees' jobs, and only limited benefits will be guaranteed and paid by PBGC. Moreover, plans involving thousands of participants necessarily require extended research into plan documents and practice, and the actuarial calculations and determinations as to whether a particular participant's benefits are guaranteed can take years, subjecting the participants to financial uncertainty even as they approach the age at which they expected to retire.
The following paragraphs summarize the facts asserted by the parties, indicating the areas in which disputes exist.
Plaintiffs were employed as Pan Am ground personnel until they were involuntarily terminated on December 4, 1991, as a result of Pan Am's bankruptcy and liquidation. (Pl.Mem.7.) All three had worked for Pan Am for at least 25 years when their jobs disappeared, and all were a few years short of 55, the age at which they would have become eligible for subsidized early retirement benefits. (Pl.Mem.7-8; Am. Compl. ¶¶ 8-10.) As employees, they were participants in Pan Am's Cooperative Retirement Income Plan (the "Plan"), a defined benefit plan governed by ERISA. The plan was sponsored and administered by Pan Am, and covered over 39,000 employees. (Def.Mem.3.) Beginning in the 1980s, Pan Am's increasing financial difficulties led it to seek, and obtain, a series of minimum funding waivers that allowed it to contribute less to the Plan that otherwise required by law. (Katz Aff. Ex. 37 at 4.) By 1991, the Plan was so severely underfunded that PBGC instituted proceedings to terminate it, pursuant to 29 U.S.C. § 1342(c), on the grounds that if the plan were allowed to continue, PBGC would have to "disburse substantial sums in order to provide plan benefits to plan beneficiaries." In re Pan Am. World Airways, Inc., Cooperative Retirement Income Plan, 777 F.Supp. 1179,...
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