Tabor v. Joint Bd. for Enrollment of Actuaries

• Decision Date: 22 July 1977
• Docket Number: No. 76-1947,76-1947
• Citation: 185 U.S.App.D.C. 40,566 F.2d 705
• Parties: , 1 Employee Benefits Ca 1335 Sol TABOR et al., Appellants, v. JOINT BOARD FOR the ENROLLMENT OF ACTUARIES et al.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 705

566 F.2d 705

185 U.S.App.D.C. 40, 1 Employee Benefits Ca 1335

Sol TABOR et al., Appellants, v. JOINT BOARD FOR the ENROLLMENT OF ACTUARIES et al.

No. 76-1947.

United States Court of Appeals District of Columbia Circuit.

Argued Feb. 16, 1977.

Decided July 22, 1977.

Solaman G. Lippman, Washington, D. C., with whom Thomas J. Hart, Washington, D. C., was on the brief, for appellants.

John K. Villa, Atty., Dept. of Justice, Washington, D. C., with whom Irving Jaffe, Acting Asst. Atty. Gen., Washington, D. C., at the time the brief was filed, Earl J. Silbert, U. S. Atty., and Ronald R. Glancz, Atty., Dept. of Justice, Washington, D. C., were on the brief, for appellees.

Before BAZELON, Chief Judge, and McGOWAN and MacKINNON, Circuit Judges.

BAZELON, Chief Judge:

This appeal involves regulations promulgated by the Joint Board for Enrollment of Actuaries (Board) that implement section 3042 of the Employment Retirement Income Security Act of 1974 (ERISA), 29 U.S.C.A. § 1242 (1975). Appellants, experienced actuaries adversely affected by the regulations, brought a class action ¹ to restrain implementation of the regulations. 20 C.F.R. § 901.12. The district court granted the appellee Board's motion for summary judgment. ² On this appeal, appellants continue to press many of the substantive and procedural arguments that were rejected below. Although most of these arguments lack merit, a remand is required because the Board failed to comply with the Administrative Procedure Act in adopting the regulations.

I. BACKGROUND

ERISA is a comprehensive statutory program designed to protect the pension rights of private employees from a variety of abuses. 29 U.S.C. § 1001. Section 3042 reflects Congress' determination that only competent actuaries should be permitted to service private pension plans. To this end, Congress directed the Secretaries of Labor and the Treasury to establish a Joint Board that would superintend a process of certifying actuaries for competence.

Congress did not, however, definitively list the standards to be employed by the Board. Section 3042 empowers the Board to establish "reasonable qualifications" for certification and states that those qualifications "shall include" certain specified requirements. ³ The standards for individuals applying for enrollment after December 31, 1975 (post-1975 or new applicants) "shall include" educational training in actuarial mathematics and an appropriate period of responsible experience. The minimum educational requirement is met by a degree in actuarial mathematics or its equivalent from an accredited college or university, or successful completion of an examination. The minimal possible standards for individuals applying before the end of 1975 (pre-1976 or experienced applicants) are less rigorous. Those standards need only include an appropriate period of responsible actuarial experience relating to pension plans. Nothing in the language or the history of § 3042 suggests what additional requirements, if any, would be appropriate.

The Board was duly constituted in February 1975 and in March of that year invited public comment on implementing the statute. 40 Fed.Reg. 11918. Following issuance of proposed rules, additional comments were invited. 40 Fed.Reg. 20326. A hearing was held on June 2, 1975. On August 27, 1975, the Board withdrew a substantial portion of the initial proposed rules in deference to widespread criticism. On the same date, a second set of proposed rules was issued which was to operate as temporary rules. 40 Fed.Reg. 38147. Again, comments were invited and a hearing was scheduled for November 24, 1975. On October 21, 1975, before the hearing was held, appellants brought this law suit challenging the then temporary regulations. Those regulations were adopted as final on January 14, 1976, without substantial alteration.

The regulatory standards for experienced actuaries are substantially more rigorous than those set out in the statute. In fact, the regulatory requirements for experienced actuaries are substantially the same as those statutorily mandated for the new applicant group. ⁴ Under the regulations, experience is not the sole criteria. In addition experienced actuaries must either pass a Board exam, ⁵ obtain membership by proctored examination in a national actuarial society, or possess a bachelor's or higher degree from a program geared to actuarial science or mathematics. ⁶ The post-1975 regulations are also somewhat more rigorous than the minimum statutory requirements, requiring, for example, satisfaction of a formal educational requirement and successful completion of an exam or successful completion of two exams. The Board did not prepare a contemporaneous explanation of the basis and purpose of these regulations. It did append a "statement of reasons" to its motion to dismiss appellants' complaint filed March 9, 1976. This statement has never been made available for public consideration.

II. STATUTORY REQUIREMENTS

Appellants argue that the rigorous requirements for experienced applicants violate ERISA in several respects. ⁷ They read § 3042 as a " grandfather" clause for experienced applicants, under which the Board must enroll all actuaries with "an appropriate period of responsible actuarial experience relating to pension funds." App.Br. at 24-25. The force of this argument stems from the fact that there are several statutory requirements for new applicants, while experience is the only one for experienced applicants.

The short answer to this argument is that by its terms § 3042 does not grandfather actuaries solely on experience. That section provides that the enrollment requirements "shall include" experience. It follows that the Board may impose enrollment requirements in addition to experience. Nothing in the legislative history is to the contrary. ⁸ However, as explained in Section III, the Board has not provided a reliable explanation of the basis and purpose of the additional requirements it imposed. Consequently, their reasonableness cannot now be ascertained.

Appellants also claim that Congress intended the Board to provide for a "two-tier" method of enrollment under which less stringent requirements would be required to service small plans. The statute does not expressly require such an enrollment practice. Appellants, however, rely on legislative history, in particular a Report of the Ways and Means Committee on H.R. 12855 (H.Rep.No.93-807, 93rd Cong., 2d Sess.), the bill from which the language of Section 3042 was derived.

In formulating enrollment regulations (including regulations relating to applications for enrollment after 1975), it is your committee's intent that the Secretary recognize to the extent feasible the varying degrees of actuarial skill required in the examination of different types of plans. . . . The limited number of persons with a high level of actuarial skills makes it desirable that the standards acceptable for those examining small and simpler plans not be as restrictive as in the case of those examining the larger plans. (Emphasis added.)

See also House Senate Conference Committee Report, H.Rep.93-1280 93rd Cong., 2d Sess. (1974). Although this history would support a two-tier system, it does not mandate one. But since the Board has not provided an explanation of why such a system is not "feasible," we cannot now review its decision. ⁹

III. COMPLIANCE WITH THE ADMINISTRATIVE PROCEDURE ACT

The rules in this case were adopted pursuant to notice-and-comment rulemaking, section 4(b) of the APA, 5 U.S.C. § 553(c). That section requires the adopting agency to "incorporate in the rules adopted a concise general statement of their basis and purpose." The Board published no such statement with the rules. The Board did append an unpublished "statement of reasons" to its motion to dismiss. But, as appellants point out, agency action cannot be sustained on post hoc rationalizations supplied during judicial review. See e. g., SEC v. Chenery,318 U.S. 80, 63 S.Ct. 454, 87 L.Ed. 626 (1942) (Chenery I ); 332 U.S. 194, 67 S.Ct. 1575, 91 L.Ed. 1995 (1946) (Chenery II ); and KIRO v. FCC, 178 U.S.App.D.C. 126, 130, 545 F.2d 204, 208 (1976).

We cannot agree with the Board's assertion that Chenery applies only to agency adjudications and therefore does not apply to informal rulemaking. First of all, under this theory, regulations would be affirmed whenever the reviewing court could divine a reasonable explanation for their adoption; an agency would have no reason to comply with § 4(b). Furthermore, the principles that underlie Chenery apply forcefully to informal rulemaking.

If an order is valid only as a determination of policy or judgment which the agency alone is authorized to make and which it has not made, a judicial judgment cannot be made to do service for an administrative judgment. For purposes of affirming no less than reversing its orders, an appellate court cannot intrude upon the domain which Congress has exclusively entrusted to an administrative agency.

318 U.S. at 88, 63 S.Ct. at 459. A rule no less, and perhaps more, than an order depends upon a "determination of policy or judgment which the agency alone is authorized to make . . ." Finally, nothing in Chenery or subsequent cases suggests it applies only to adjudications. ¹⁰ Chenery has been relied on by the Supreme Court in contexts other than adjudications, ¹¹ and has been cited favorably in informal rulemaking cases. ¹²

Apart from disputing the applicability of Chenery, the Board also disputes how it should be applied. The Board insists that a statement of reasons filed with the district court during litigation satisfies § 4(b). Although some authority supports this position, we hold that the statement of reasons filed with the district court does not substantially comply with § 4(b) and is an inadequate basis for judicial review.

Section 4(b) has not been interpreted technically, in recognition of its limited...