Rettig v. Pension Ben. Guar. Corp.

• Court: U.S. Court of Appeals — District of Columbia Circuit
• Writing for the Court: Before ROBINSON, Chief Judge, WALD, Circuit Judge, and McGOWAN; WALD; Thus
• Citation: Rettig v. Pension Ben. Guar. Corp., 744 F.2d 133, 240 U.S.App.D.C. 118 (D.C. Cir. 1984)
• Decision Date: 11 September 1984
• Docket Number: No. 84-5260,84-5260
• Parties: , 5 Employee Benefits Ca 2025 Gene RETTIG, et al., Appellants, v. PENSION BENEFIT GUARANTY CORPORATION.

Page 133

744 F.2d 133

240 U.S.App.D.C. 118, 5 Employee Benefits Ca 2025

Gene RETTIG, et al., Appellants, v. PENSION BENEFIT GUARANTY CORPORATION.

No. 84-5260.

United States Court of Appeals District of Columbia Circuit.

Argued June 6, 1984.

Decided Sept. 11, 1984.

Appeal from the United States District Court for the District of Columbia (Civil Action No. 82-0517).

Mark A. Borenstein, Los Angeles, Cal., with whom Karen W. Ferguson and Stephen R. Bruce, Washington, D.C., were on brief, for appellants. Miles N. Ruthberg, Los Angeles, Cal., also entered an appearance for appellants.

Mitchell L. Strickler, Deputy Gen. Counsel, Pension Ben. Guar. Corp., Washington, D.C., with whom Renae R. Hubbard, Sp. Counsel, Pension Ben. Guar. Corp., Washington, D.C., was on brief, for appellee.

Before ROBINSON, Chief Judge, WALD, Circuit Judge, and McGOWAN, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge WALD.

WALD, Circuit Judge.

Saverio Ramputi and Herta Rettig had each worked for over thirty-five years for their employer, Lidz Brothers, Inc., when the company went out of business in 1978. Because the company's pension plan had insufficient assets to cover their vested benefits, the plaintiffs along with other plan participants turned to the Pension Benefit Guaranty Corporation (PBGC) to guarantee coverage of the benefits under the plan termination insurance provision of Title IV of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. Secs. 1301-1390. The PBGC, however, determined that plaintiffs' benefits, although vested under the company plan, were not guaranteed under ERISA because they had vested as a result of an amendment to the plan made less than one year prior to plan termination. Under the PBGC rule implementing the phase-in provisions of ERISA, 29 U.S.C. Sec. 1322(b), all such recent plan amendments were to be disregarded in determining what benefits the PBGC would guarantee. The PBGC thus disregarded the plan amendment at issue, which provided for vesting after ten years of service instead of only upon retirement, even though the amendment was itself mandatory under the minimum vesting standards of Title I of ERISA, 29 U.S.C. Sec. 1053. Plaintiffs Ramputi and Rettig sued the PBGC in district court to secure their pensions. The district court held that the PBGC's rule and its application of that rule to ERISA-mandated vesting improvements were based on a reasonable construction of the statutory phase-in provision. We now reverse the district court on the application of the rule in this case on the ground that the PBGC's decision to phase-in mandatory vesting improvements does not reflect the results of a reasoned decisionmaking process calculated to accommodate the conflicting policies underlying ERISA.

I. BACKGROUND

The question of statutory construction on which this case turns critically affects the nature of the protections afforded by ERISA to thousands of employees. Specifically, we are concerned with whether benefits to which participants are entitled under the minimum standards for pension plans set out in Title I are guaranteed under Title IV if the plan terminates. We therefore briefly review the relevant provisions of ERISA and the PBGC's implementing regulations; we then turn to the facts of this case.

A. Titles I and IV of ERISA and the Phase-In Rule

A virtually unanimous Congress ¹ enacted ERISA in order to encourage the establishment and growth of private pension plans and to protect the participants in those plans by mandating the adoption of fair and equitable plan provisions for vesting the participation, by requiring adequate funding, prudent financial management and full disclosure, and by creating a system of plan termination insurance administered by a new government agency, the PBGC. ² ERISA is a "comprehensive and reticulated statute," Nachman Corp v. PBGC, 446 U.S. 359, 361, 100 S.Ct. 1723, 1726, 64 L.Ed.2d 354 (1980), several provisions of which are directly involved in this case.

1. Minimum Vesting Standards

One of the serious shortcomings Congress identified in private pension plans was their failure to provide for vesting of accrued benefits before the time of actual retirement; employees like Mrs. Rettig and Mr. Ramputi with thirty, forty or more years of service were thus flatly denied a pension if their employment was terminated for any reason before reaching retirement age. In enacting ERISA, Congress sought to remedy this inequitable situation by requiring all ERISA-covered pension plans ³ to provide for pre-retirement vesting determined solely by years of service. Title I of ERISA provides three alternative minimum vesting standards; that selected for the Lidz plan, like most plans, ⁴ provides for one hundred percent vesting of accrued benefits after ten years of service. ⁵

For plans in existence on January 1, 1974, these requirements became effective for plan years beginning after December 31, 1975, 29 U.S.C. Sec. 1061(b)(2); for newer plans, the vesting requirements were immediately effective for plan years beginning any time after the date of enactment, September 2, 1974. 29 U.S.C. Sec. 1061(a). In selecting these particular effective dates, it is important to note, Congress rejected the less generous provisions of the House bill, which had provided for a gradual phase-in of the vesting provisions over five years. According to one of the House conferees, "[t]his change was made because, after consideration, your conferees agreed that it was essential for the protection of covered employees that they be given the full protection of the vesting provisions on the effective date without any delay, particularly since the costs involved in financing such vesting are expected to be moderate." 120 Cong.Rec. 29199 (1974) (remarks of Rep. Ullman).

2. Plan Termination Insurance

Vesting and other plan improvements required by ERISA were not adequate, however to protect participants in plans that terminated with insufficient funds to cover vested benefits. Throughout the deliberations that culminated in the enactment of ERISA, Congress was inundated with tragic stories of pension plan failures in which thousands of employees saw the destruction of the small measure of retirement security they had built up through decades of forced savings and deferred compensation. ⁶ Congress responded to this recurring tragedy by passing, as a major feature of comprehensive pension reform, a program of plan termination insurance. Under Title IV of ERISA, repeatedly hailed by legislators as one of the linchpins of the Act, ⁷ the newly-created PBGC would guarantee the payment of non-forfeitable (or vested) benefits--up to a statutorily-prescribed maximum monthly amount.

Section 4022(a) of ERISA, as it stood at the time of the Lidz plan's termination, ⁸ provided that, "subject to the limitations contained in subsection (b) of this section, the [PGBC] shall guarantee the payment of all non-forfeitable benefits ... under the terms of a [terminated] plan ...." One of the limitations on coverage in subsection (b) provides that, "[e]xcept to the extent provided in paragraph (8)," benefits under plans in effect less than sixty months are to be disregarded, and that

any increase in the amount of benefits under a plan resulting from a plan amendment which was made, or became effective, whichever is later, within 60 months before the date on which the plan terminates shall be disregarded.

ERISA Sec. 4022(b)(1)(B), 29 U.S.C. Sec. 1322(b)(1)(B). Paragraph (8) provides for the phase-in of such benefits at a rate of twenty percent or twenty dollars per month, whichever is greater, for each year the plan or the amendment has been in effect. ERISA Sec. 4022(b)(8), 29 U.S.C. Sec. 1322(b)(8). The purpose of Title IV's "phase-in provision" as we will describe the combined language of paragraphs (1) and (8) of section 4022(b), was to prevent abuse of the termination insurance program by plan administrators who might "balloon" benefits, and thus unfunded plan liabilities, in anticipation of termination. ⁹ The PGBC also contends that the provision was designed to ease the immediate financial burden on the PGBC and employers of the newly-instituted guarantee provisions of ERISA.

The precise contours of the phase-in provision, although foreshadowed in the House and Senate bills, were among the many details of Title IV hammered out in the conference committee. We will examine the corresponding provisions of the House and Senate bills, as well as the Conference Committee's explanation of its resolution of differences between them, in some detail in our discussion of the issues.

3. The PBGC's Phase-In Rule

The PBGC proposed for comment a regulation implementing the phase-in limitation. ¹⁰ The proposed rule provided that all "benefits increases" would be subject to phase-in, and defined "benefits increases" to include not only increases in the amount of monthly benefits but also "any change in plan provisions which advances a participant's ... entitlement to a benefit, such as liberalized participation requirements or vesting schedules, reductions in the normal or early retirement age under a plan, and changes in the form of benefit payments."

Several labor unions, in their comments on the PBGC's proposed rule, objected strongly to the including of vesting, participation and other plan improvements that do not increase the amount of monthly benefits in the scope of the phase-in limitation. ¹¹ They argued that the PBGC's rule entailed an unauthorized expansion of the narrow scope that Congress prescribed for the phase-in limitation. The comments pointed out that Congress deliberately used the phrase "amount of benefits" in the phase-in limitation instead of using potentially broader phrases such as "value of benefits" or "actuarial value of benefits" as it did elsewhere in the same section of the Act. ¹²

The PBGC rejected these criticisms and promulgated the rule...