Protecting America's Pensions

PBGC Pension Benefit Guaranty Corporation

1200 K Street, N.W., Washington, D.C. 20005-4026

March 30, 2007

 

 

 

Re: Appeal 2 Case 194672, Outboard Marine

Corporation Employees Retirement Plan (the "Plan")

Dear 

We are responding to your appeal of PBGC's September 24,

2004 determination of your benefit under the Plan. For the

reasons stated below, we are denying your appeal.

PBGC's Benefit Determination and Your Appeal

PBGC determined that you are entitled to a monthly benefit

of $2,247.12 payable as a Straight Life Annuity starting on April

1, 2012. PBGC also included a Benefit Statement, which: (1)

listed your type of retirement benefit as Deferred Vested; (2)

stated that you terminated employment on March , 2001, and had

earned 29. years of Vesting Service; and (3) provided

information concerning how PBGC calculated your final benefit

amount. The Benefit Statement also indicated that, if you

retired on your Earliest PBGC Retirement Date of April 1, 2007,

you would receive a monthly benefit of $1,572.98.

In your appeal letter of November , 2004, you contended

that PBGC should find you eligible f or the Plan's Advanced

Retirement benefit, which would allow you to start your benefits

as of June , 2001. You noted that you signed an agreement on

December , 1993, on a form provided by the Plan that allowed

you to retain your Advanced Retirement eligibility by opting out

of the corporation's matching 401(k) program.1

We agree that you retained your ligibility to qualify for an

Advanced Retirement based on this December , 1993 document. However, for

the reasons discussed in this decision, PBGC correctly denied you an Advanced

Retirement benefit because you did not meet the service requirement for the

benefit.
2

You also asserted that Outboard Marine Corporation ("OMC")

had a documented history of 'bridging" terminated employees who

were within three years of being eligible for an Advanced

Retirement benefit. You claimed a right to similar treatment

because, at the time OMC terminated your active service on March

, 2001, you had 29 years of Continuous Service, and you were 3 

days short of attaining eligibility for Advanced Retirement. You

also stated that ONC's human resources department was negligent

in not providing hlbridgingu service . to you and to some other

participants. With your appeal, you included additional

documents and correspondence regarding retirement from the Plan,

including documents showing that other Plan participants had

qualified for Advanced Retirement based on "bridging" service.

Background

When the Plan terminated on December 6, 2002, it did not

have sufficient assets to provide all benefits PBGC guarantees

under Title IV of the Employee Retirement Income Security Act

("ERISA"), and PBGC became the Plan's trustee. As trustee, PBGC

pays pension benefits to Plan participants based on the terms of

the Plan's documents, subject to the limitations and requirements

set by Congress under ERISA.

1. Relevant Plan Provisions

On September 9, 1999, OMC adopted the September 30, 1999

Restatement of the OMC Employees Retirement Plan ("Restatement").

The Restatement applies to "exempt 1' employees such as you who

worked at OMC's Corporate office ("Location 0")

Section 2 of the Restatement defines "Normal Retirement Age"

as the later of age 65 or when the participant completes five

years of service or participation. Restatement § 2.l(dd) (1)

This document further provides that a participant reaches his

'Advanced Retirement Age" when either: (1) he attains both age 62

and 10 years of Continuous Service; or (2) completes 30 years of

Continuous Service or has at least 88 "Retirement Units,"

provided that the participant elected to retain eligibility for

"Advanced Retirement" as of December 31, 1993. Restatement

§ 2.l(dd) (2).

Section 4 of the Restatement, which describes the types of

benefits that the Plan provides, states a participant may

receive: (1) a Normal Retirement benefit, if he retires after

reaching his Normal Retirement Age ( 4.2); (2) an Advanced
3

Retirement benefit, if retires after having attained his Advanced

Retirement Age ( 4.3); (3) an Early Retirement benefit, if he

retires after attaining age 60 with at least 10 years of

Continuous Service ( 4.4); or (4) a Vested Deferred Retirement

Benefit, if he has earned at least five years of Continuous

Service when he terminates employment, but has not qualified for

a Normal Retirement, Advanced Retirement, Early Retirement, or

disability benefit.

The Restatement provides that a participant who qualifies

for an Advanced Retirement Benefit will receive both: (1) a

monthly retirement benefit unreduced for early commencement, and

(2) a monthly temporary supplemental benefit payable until age

62. Restatement § 4.3. The Vested Deferred Retirement Benefit,

however, (1) is not payable before age 60; (2) is reduced for

early commencement if payments begin before age 65; and (3) does

not include a temporary supplement. Restatement § 4.6.

The Restatement provides that Continuous Service "is

determined in completed full years and completed twelfths of

years in excess of completed full years" (Restatement

§ 2.1(j) (1)), and is computed as follows:

An Employee shall receive credit for one full year of

Continuous Service for any calendar year during which

he has at least 1000 Hours of Service. If an employee

has less than 1000 Hours of Service for any calendar

year, he shall receive credit for Continuous Service in

monthly increments during that calendar year at the

rate of one month for each full 190 Hours of Service he

has during the calendar year. An employee who is

actively employed on a full-time basis for at least one

day in any calendar month is credited with 190 Hours of

Service for that month.

Restatement § 2.1(j) (2)

The Restatement's "Hour of Service" provision states that an

OMC employee receives credit for each hour for which he •is

directly or indirectly paid by the employer. Restatement

§ 2.1 (s) (1), (2) . Additionally, an employee is credited for

service based on:
4

The number of normally scheduled work hours for

each day of authorized leave Of absence granted by the

Employer or non-participating Subsidiary for which the

Employee is not compensated, and each day of layoff for

which credit is allowed.

Restatement § 2.i(s)(3); see also Restatement § 2.1(s) (3)(F).

2. The Plan's Practice of "Bridging Servicer!

The Plan's governing documents do not contain the term

"bridging.' Based on the correspondence that PBGC has received

from the Plan's participants and their representatives, we have

concluded that "bridging" was understood by the Plan's

administrators and participants to mean any method by which a

participant with less than 30 years of active service with OMC

could nevertheless become eligible for an Advanced Retirement

Benefit.

One method by which Plan participants obtained bridging

service was through Plan amendments. These amendments granting

additional service were limited to a specific time period and

covered a well-defined subset of OMC's workforce. For example,

Plan § 4.20 provided up to three (3) additional years of age

and/or Continuous and Credited Service to exempt employees at the

OMC Corporate Data Processing Center or at the OMC SysteMatched

Parts and Accessories Data Processing Center who were currently

employed at those locations as of July 22, 1993.2

A second way that OMC and the Plan's administrators provIded

bridging service to certain participants was by allowing them to

accrue additional hours of service based on unpaid "leaves of

absence." If a participant had earned 27 or more years of

Continuous Service and was to have his employment ended as the

result of a permanent lay-off or reduction-in-force, OMC's usual

practice was to provide the participant with a General Release

and Settlement Agreement ("Settlement Agreement") . The

Settlement Agreements generally specified that: (1) the

individual's employment in his current job position was to be

terminated; and (2) the employee would be placed on an "unpaid

2 In order to receive the additional service under this amendment,

such an employee had to elect to retire on December 31, 1993. This retirement

incentive was available only to affected employees who would have attained

their Advanced Retirement Age or their Early Retirement Age on or before

December 31, 1996.
5

leave of absence until a specified date (which usually was the

first date at which they would reach or surpass 30 years of

Continuous Service) . Among other items, the General Release and

Settlement Agreements stated that the employee agreed to release

ONC from all claims directly or indirectly based on his

employment relationship with OMC, including any claims based on

age discrimination.

Based on our review of participant data received from OMC,

the Appeals 'Board found that OMC had always (starting at least as

early as 1993) granted leaves of absence to participants who had

at least 27 but less than 30 years of Continuous Service when

they lost their jobs due to a permanent layoff. OMC stopped this

practice, however, on the day before OMC filed for bankruptcy on

December 22, 2000. The Appeals Board found no evidence that any

participant was granted a bridging leave of absence after

December 10, 2000. Also, our research indicated that 14

participants with over 27 years of service were laid off on

December 21, 2000, and none of the 14 was granted a bridging

leave of absence.

In your case, you filed a formal written request with ONC on

February , 2001, asking for bridging service. You also may

have attempted to notify OMC of your request on other occasions.

HQwever, it appears - based on the information available to the

Appeals Board - that OMC never responded to you regarding your

request for the additional bridging service.

3. OMC's Bankruptcy Filing and P.BGC's Termination of the Plan

Beginning in 1997, OMC lost considerable market share and

restructured itself, closing several manufacturing facilities and

reducing corporate staff. One of the last major group layoffs of

OMC employees occurred on December 21, 2000, the day before OMC

filed a Chapter 11 Bankruptcy petition.

On February 1, 2001, the Bankruptcy Court issued an order

that allowed certain OMC employees to work for OMC under an

incentive package for the period of time while OMC searched for a

buyer to purchase the company as an on-going concern. On

February 9, 2001, the Bankruptcy Court approved the sale of

substantially all of OMC T s assets to a joint venture of Genmar,

Inc. and Bombardier Motor Corp. of America. The sale of OMC's

operations occurred on March 9. Three days later, upon.the

motion o creditors 1 OMC's bankruptcy case was converted to one
under Chapter 7 of the Bankruptcy Code.

Earlier, on February 22, 2001, PBGC had issued a Notice of

Determination that PBGC intended to terminate the Plan effective

February 28, 2001. This Notice was subsequently rescinded and

replaced by a second Notice of Determination dated September 20,

2001, which stated that PBGC intended to terminate the Plan as of

August 17, 2001. The Plan was terminated effective August 17,

2001, by an agreement between PBGC and OMC dated October 3, 2001.

This agreement also provided for PBGC's appointment as the

terminated Plan's trustee.

Discussion

PBGC's Determination of Your Continuous Service

The documents PBGC obtained from the Plan's former

administrator indicate you were working for OMC on December ,

2000, when the last major group layoffs of OMC employees

occurred. Also, as noted above, the Bankruptcy Court issued an

order on February 1, 2001, that allowed certain OMC employees to

work for OMC under an incentive package for a limited period of

time. You signed a retention agreement on February , 2001, that

provided for such employment. On March , 2001, the date that

OMC's assets were sold, your employment ended under the retention

agreement.

PBGC determined, based on Plan records, that your date of

hire was October 1, 1971, and your date of termination of

employment was March , 2001 (when your work under the retention

agreement ended). Applying the Plan's definitions of "Continuous

Service" and "Hours of Service" (see discussion of Plan

Provisions above), to the above dates of employment, your total

years of Continuous Servióe is 29 years and months or 29. .

The following table breaks down the calculation:

Period of EmploylTLent Continuous Service

10 /1971 - 12/3 1971 0 Years & Months

01/ /1972 - 12/3 2000 29 Years & Months

01/ /2001 - 03/0 2001 0 Years & Months

Total: 29 Years & Months
7

Thus, the Appeals Board found that PBGC correctly had determined

that you had earned less than 30 years of Continuous Service as

of your March , 2001 termination of employment date, and

therefore you did not then qualify f or Advanced Retirement)

PBGC's Denial of "Bridging Service"

Shortly after PBGC became the Plan's trustee, certain exempt

salaried employees at Location 0 petitioned PBGC to receive

bridging service. These employees asserted that the Plan's

consistent practice was to award bridging service to employees

who terminated employment within three years of becoming eligible

for an Advanced Retirement benefit, and they asked that PBGC

continue that practice. PBGC J however, concluded that the Plan's

governing documents did not provide for the automatic bridging of

service for the Location 0 employees. Therefore, PBGC denied

Advanced Retirement benefits to those Location C employees who

were credited with less than 30 years of Continuous Service at

the time they terminated employment.

PBGC J however, decided it would allow a participant to

qualify for an Advanced Retirement benefit based on bridging

service if: (1) the participant had entered into a General

Release and Settlement Agreement with OMC that credited him or

her with additional service based on an unpaid leave of absence;

and (2) the additional unpaid leave of absence hours resulted in

the participant attaining 30 years of Continuous Service prior to

the Plan's termination date (August 17, 2001). PBGC, however,

decided that a Location 0 employee was not entitled to additional

bridging service if he or she had not entered into a Settlement

Agreement or had not otherwise been granted a leave of absence by

OMC .

You provided PBGC with a listing of your "Paid Vacation" with OMc,

which you claimed would pro de you with an additional 13 hours of service

during the period of March through May , 2001. However, you still would

not have earned 1,000 hours of service for the period of employment between

January and May , 2001, even if you were credited with these additional 13 

hours. Accordingly, even if we decided to grant your additional hours of

service based on "Paid Vacation," you still would not have earned the 30 years

of Continuous Service needed to qualify for Advanced Retirement.

The PBGC policy group that reviewed the Plan's bridging service

issues decided, in May 2002, that Location 0 participants were entitled to

bridging service only in the limited situation where the participant had a

Settlement Agreement placing him or her on an unpaid leave of absence.

We identified one Location 0 participant, however, who later was
8

It is a general principle under ERISA that "all agreements

relating to pension benefits must be in writing." Smith v.

Dunham-Bush, Inc., 959 F.2d 6, 10 (2d Cir. 1992) (citing ERISA

§ 402 (a) (1)) . Similarly, the fiduciaries of a pension plan are

required, in carrying out their duties, to act "in accordance

with the documents and instruments governing the plan." ERISA

§ 404 (a) (1) (D)

Applying these principles, the Appeals Board upheld PBGC's

decision that the Plan's governing documents did not provide for

the automatic bridging of service for the Location 0 employees,

and, therefore PBGC could not grant such automatic bridging

notwithstanding the alleged "plan practice." Although many OMC

employees at Location 0 were provided with written Settlement

Agreements that granted bridging service, we concluded that these

documents did not result in an amendment of the Plan. There is

no evidence that those individuals who had the authority to amend

the Plan considered the Settlement Agreements to be Plan

amendments. Rather, the Settlement Agreements themselves

demonstrate an intent to administer the Plan within the terms of

the existing Plan documents, since the existing documents

provided that participants could accrue Hours of Service while

they were on an unpaid leave of absence. See Restatement

§ 2.1(s) (3), (3) (F) .

credited with bridging service by PBGC even though there was no signed

Settlement Agreement. In this instance, an OMC manager had hand-written the

following note on the employee's termination of employment notice: "Leave as

active non-paid employee from 1/1/01 thru 6/1/01 when he becomes retirement

eligible." Furthermore, two of the Plan's former administrative personnel

told an employee of PBGC's Benefit Processing and Administrative Department

(BAPD) that the notation on the termination notice was the "equivalent" of a

Settlement Agreement that placed an employee on an unpaid leave of absence

until a particular date. BAPD I relying on this information, then issued a

benefit determination that granted bridging service to this participant and

provided him with an Advanced Retirement benefit.

We are aware that, with respect to well-defined groups of

OMC-Milwaukee and OMC-Waukegan salaried employees, PBGC concluded that Plan

amendments had occurred in early 2000 even though the Plan's governing

documents were not formally amended. Since you were not an OMC-Milwaukee or

OMC-Waukegan salaried employee, the question of whether or not PBGC'S

determination was correct for those groups of employees is not an issue that

the Appeals Board must resolve in your appeal.

There are, however, some factual differences between the OMC-Corporate

salaried employees and the other two groups of salaried employees. For

example: (1) for non-exempt hourly employees at OMC-Milwaukee and

OMC-Waukegan, the company entered into shutdown agreements that amended the
9

The Appeals Board also decided that you are not entitled to

additional bridging service based on the Plan's leave of absence

provisions. Traditionally, a leave of absence is based on two

elements: permission to leave work and an intent to return.6

Absent specific evidence to the contrary * and having found none

in the records available to the Appeals Board - we must assume

that ONC employees could not obtain a leave of absence unless

they received specific authorization from OMC to do so. Indeed,

in the Appeals Board review of instances where the bridging of

service had occurred, there always was some written record that a

leave of absence had been granted to the employee. In your

case, there is no such written record. Thus, we are unable to

conclude that OMC had granted you a leave of absence, or that you

had a right based on your employment relationship with OMC to

obtain one.

Your appeal in fact did not assert that you had been granted

a leave of absence, but rather you stated that OMC's human

resources department was "negligent" in not providing bridging

service to you and to some other participants. It is unclear to

us how, if we assumed OMC's human resources department had been

"negligent" in this way, you then would be entitled to an

Advanced Retirement benefit from PBGC. In any event, we denied

your claim because you failed to establish that OMC was negligent

in not providing bridging service to you.

Plan to provide for bridging service for union employees; (2) there is some

evidence that OMC intended to amend the Plan to treat salaried OP4C-Waukegan

employees similar to union ONC-Waukegan employees; and (3) for the

OMC-Milwaukee group, the "Release and Settlement Agreements" (which were

executed by all seven salaried employees in that group) contained different

language from the Settlement Agreements that were executed by OMC-Corpórate

employees (which was a much larger group, in which not all employees were

provided with settlement agreements).

6 Black's Law Dictionary 801 (5th ed. 1979); Reagan Outdoor

Advertising, Inc., V. Lundgren, 692 P.2d 776 (Utah 1984). See also, Blinn v.

Board of Trustees, 414 A.2d 263, 264 (N.J. 1980) (leave of absence is "simply

an authorized temporary absence from active service which ... implies the

right of the employee to return to active employment in the employer's service

at the conclusion of such leave of absence"); and Frank Elkouri and Edna Asper

Elkouri, How Arbitration Works, 748-49 (4th ed. 1984) (except as restricted by

agreement "the granting or denial of leaves of absence is a prerogative of

management, and the judgment of management will not be disturbed so long as

the action taken is not unreasonable or discriminatory")
10

We agree with the suggestion in your appeal that OMC's

managers should have given you an answer with respect to your

request for bridging service. We are unable to conclude,

however, that the only reasonable response would have been to

grant the request. As discussed above, the last major group

lay-of fs of OMC employees occurred on December 21, 2000, the day

before ONC filed a Chapter 11 Bankruptcy petition. After that

date, the company's efforts were focused on finding a buyer to

purchase the company as an on-going concern. It is difficult for

us to discern any reasonable business reason for OMC to continue

its employment practice of granting routine leaves of absence,

when most of OMC's employees had been laid off with little

likelihood of returning to long-term employment with the company.

Furthermore, upon filing the bankruptcy petition, OMC became

a "Debtor-in-Possession" under Chapter 11 of the Bankruptcy Code,

and thus was under the supervision of a bankruptcy court. A

Debtor-in-Possession also owes fiduciary duties to all creditors,

including the duty of loyalty and the duty of care. This in turn

includes the duty to preserve and conserve bankruptcy estate

assets, so as to maximize benefits available to all creditors.

See 11 United States Code § 1106. One of the creditors of OMC's

bankruptcy was PBGC, who had a claim for the amount of the Plan's

underfunding as of its termination date. ERISA § 4062; 29 United

States Code § 1362. Thus, if OMC had continued to grant leaves

of absences to allow participants to qualify for Advanced

Retirement benefits, the effect would be that PBGC's claim with

respect to the Plan's underfunding would increase. For this

reason, OMC's discontinuance of its practice of granting leaves

of absences, which coincided with its filing for bankruptcy, was

reasonable inlight of its fiduciary duties to creditors under

bankruptcy law.

Deci si on

Having applied Plan provisions and the law to the facts of

your case, we found no basis for changing PBGC's September 24,

2004 determination. This decision is the agency's final action

regarding the issues you raised in your appeal. You may, if you

wish, seek court review of this decision.
11

We regret the delay in responding to your appeal and

appreciate your patience while we completed our review. If you

need other information from the PBGC, please call PBGC t s Customer

Contact Center at 1-800-400-7242.

Sincerely,

Charles Vernon

Appeals Board Chair