Pension Benefit Guaranty Corporation 

Protecting America's Pensions 1200 K Street, N.W., Washington, D.C. 20005-4026 

July 22, 2016 

Re: Remand Case No. 200185; The 

Co. Cash Balance Pension Plan (the "Plan") 

Dear Mr.-: 

This Appeals Board decision constitutes PBGC's final agency action regarding the request of 

your client, for a lump-sum payment of his Plan benefit. As you are aware, the 

United States District Court for the District of Columbia ("District Court") issued a Memorandum 

Opinion and Order (Enclosure 1) that remanded claim to the Appeals Board. 1 The 

District Court instructed the Board to conduct further proceedings consistent with its Opinion.2 

Having reviewed-factual, statutory and regulatory challenges in accordance with 

the District Comi's remand order, the Appeals Board decides that -is not entitled to a 

lump-sum payment of his Plan benefit from PBGC. 

Prior to the District Comi's remand order, the Appeals Board issued a decision on 

September 29, 2011 (Enclosure 3), that denied lump-sum payment claim. This 

decision modifies the Board's September 29, 2011 decision by: (1) discussing relevant statutory 

and regulatory provisions that we did not address in our prior decision; (2) more fully responding 

to the issues-raised in his January 28, 2010 appeal; and (3) providing a revised and more 

complete explanation of the reasons we are denying - lump-sum payment claim. 

1 United States District Judge Randolph D. Moss issued his Memorandum Opinion ("Opinion") and Order on 

February 25, 2016, after the Plaintiff and the Defendant (PBGC) had filed separate Summary 

Judgment motions in-v. PBGC, Civil Action No. 14-1275 (RDM). In this Appeals Board decision, we cite to 

the pages of the District Court's slip opinion. 

A March 15, 2016 letter from William F. Condron, Jr., Manager of PBGC's Appeals Division (Enclosure 2), 

informed you that (1) the Appeals Board received the District Court's remand order for s case, which was 

sent back to the Board for fmiher proceedings, and (2) the Appeals Board "will issue a decision based on the 

administrative record and consistent with the Comi's guidance not later than September 30, 2016." 

2 Opinion, at 16-17. 
I. Introduction 

A. Tlte Appeals Board's prior decisions and -s civil action 

•••• filed a civil action, - v. PBGC, in the District Comi after he exhausted his 

administrative remedies before PBGC's Appeals Board. In addition to the above-mentioned 

September 29, 2011 decision, the Appeals Board issued a final decision to him on November 14, 

2012 (Enclosure 4). In those two decisions, which addressed-'s PBGC-payable benefit 

under the Plan, the Board: 

• found no reason to change PBGC's determination that PBGC must pay 's Plan 

benefit as a monthly annuity. The Board concluded that applicable provisions under the 

Employee Retirement Income Security Act of 1974, as amended ("ERISA"),3 PBGC 

regulations, and PBGC policy do not permit PBGC to pay him a lump sum; and 

• upheld PBGC's revised determination that is entitled to a monthly benefit of 

$866.54 in the form of a Joint and 50% Survivor Annuity, after application of the statutory 

limits on PBGC's guarantee. (The $866.54 amount is an increase from the $452.77 

monthly benefit that PBGC had determined initially.)4 

We discuss the Board's prior decisions in more detail later in this decision. 

In his civil action, disputed PBGC's denial of a lump-sum payment. He asserted 

that PBGC should have honored the lump-sum payment application that he had submitted to the 

former Plan Administrator before the Plan terminated. 

B. Tlte District Court's remand order 

As the District Co mi's Opinion states, made the following two arguments before 

the Appeals Board as to why, in his view, ERISA and PBGC's regulations did not prohibit the 

former Plan Administrator from honoring his request for a lump-sum payment: 

- argued, first, that [ERISA § 4041(c)(3)(D)(i)(I)], which prohibits the 

payment of lump-sum benefits beginning "on the date on which the plan 

administrator provides a notice of distress termination" to the PBGC, did not bar a 

lump-sum payment because-had denied his request before it submitted 

a notice of distress termination to the PBGC. . . . also argued that [PBGC 

regulation] § 4044.4(b), which prohibits the distribution of assets "in anticipation 

of plan termination" in a manner not consistent with ERISA, did not bar a lump-sum 

3 29 United States Code ("U.S.C.") §§ 1301-1461 (2012 & Supp. II 2014). This decision generally cites the 

applicable sections ofERISA without providing the parallel U.S.C. citations . 

4 ••• currently is receiving a monthly PBGC-payable benefit of $866.54. 

2 
payment because the regulation was ultra vires and, in any event, inapplicable 

under the circumstances. 5 

With respect to -' sfirst argument, the District Court concluded that the Appeals 

Board's September 29, 2011 decision failed to address "potentially dispositive aspects" of-

-'s ERISA § 4041(c) contentions because the Board's decision relied on a PBGC policy that 

did not specifically address the situation where a lump-sum payment request "was not only 

submitted but also denied before the plan administrator submitted its termination notice to 

PBGC."6 For his second argument, the District Court concluded that the Board's prior decision 

failed to address "whether and how" PBGC regulation§ 4044.4 might apply to-s claim. 7 

Based on the above conclusions, the District Court decided that the Appeals Board's decision 

must be set aside and remanded to the agency due to "a cardinal rule of judicial review that the 

Court 'cannot exercise [its] duty of review unless [it is] advised of the considerations underlying 

the action under review. "'8 The District Court emphasized, however, the following two points 

regarding the scope of its Opinion:9 

First, nothing here should be read to cast doubt on the agency's interpretation of 

[ERISA § 4041] as embodied in [PBGC] Policy 5 .4-9 and as applied to a request 

for lump-sum benefits that is made (but is not denied) before a notice of plan 

termination is submitted to the PBGC. The validity of that interpretation is not 

before the Court today. Second, nothing here should be read to suggest that the 

agency in fact acted outside its authority in denying-s request for a lump-sum 

payment. ... Without opining on the scope of the PBGC's authority, the Comi 

emphasizes that its decision to set aside the Appeals Board's decision is based 

solely on the agency's failure to explain adequately its resolution of-'s 

statutory and regulatory challenges. 

C. Overview oft/tis Appeals Board decision. 

For the reasons explained in this decision, the Appeals Board decides the following in 

accordance with the District Court's remand order: 

• PBGC regulation § 4044.4, which prohibits the distribution of assets "in anticipation of 

plan termination," applies to-' s lump-sum payment request. The former Plan 

Administrator correctly denied a lump-sum distribution of his Plan benefit in 

accordance with PBGC regulation§ 4044.4. 

5 Opinion, at 7. PBGC's regulations are published in the Code of Federal Regulations at 29 C.F.R. §§ 4000-4999. 

This decision generally cites the applicable sections ofPBGC's regulations without providing the full C.F.R. citations. 

6 Opinion, at 11-13. 

7 Opinion, at 13-14. 

8 Opinion, at 14-15. The District Court cites SEC v. Chene1y Corp., 318 U.S. 80, 94 (1943) and SEC v. CheneJ)J 

Corp., 332 U.S. 194 (1947). 

9 Opinion,atl6-17. 

3 
• PBGC's prohibition in PBGC regulation § 4044.4 of lump-sum distributions in 

anticipation of termination is a valid exercise of PBGC's rulemaking authority, rather than 

an ultra vires rule (as~laims). 

• Because the Plan's former administrator coffectly denied - s lump-sum 

application based on PBGC regulation § 4044.4, a lump-sum benefit was not "due and 

payable' to him as of the Plan's termination date ("DOPT"). Consequently, PBGC is not 

required to treat-slump-sum payment request as a pre-termination liability of 

the Plan (see PBGC regulation§ 4044.3) for purposes of PBGC's allocation of the Plan's 

assets as of the Plan's DOPT pursuant to ERISA § 4044. 

• As is provided under PBGC's regulation§ 4022.7 and PBGC policy, PBGC cannot pay a 

lump-sum benefit to - Instead, PBGC coffectly is paying-the annuity 

benefit he elected in accordance with the Plan's provisions and PBGC regulations, with 

his annuity benefit reduced by the guarantee limitations under ERISA § 4022 and PBGC 

regulation § 4022. 

II. The Plan's termination, PBGC's guarantee, and PBGC's allocation of the Plan's assets 

A. The Plan and its termination 

PBGC provides pension insurance in accordance with ERISA. If a plan sponsor is unable to 

support its single-employer defined benefit pension plan, PBGC becomes trustee of the plan and 

pays pension benefits as defined in the plan, subject to legal limitations and requirements under 

ERISA and PBGC's regulations. 

The Plan is a cash balance plan, which was created on May 31, 1998, as the result of the 

merger of three traditional defined benefit plans. The sponsor of the Plan, Company 

('-' or "the Company"), was a Delaware corporation that operated retail supermarkets 

a~e food distribution business in 

s principal business office was in 

was the "Plan Administrator" of the Plan. 10 s Board of Directors 

(the "Board of Directors") appointed an Administrative Committee ("Committee") to assist in the 

administration of the Plan. 11 

On May 30, 2003, filed for Chapter 11 bankruptcy. During a meeting on 

September 29, 2003, the Board of Directors resolved that would seek the distress 

te1mination of the Plan. 12 -attended the September 29, 2003 meeting as a member of 

the Board of Directors, but he was excused from the Board's deliberations involving the Plan. 13 

10 See Cash Balance Pension Plan Effective As Of Janumy I, 1998 ("Plan Document"), 

at§§ 1.11, 1.34. Excerpts from the Plan Document are provided in Enclosure 5. 

11 See Plan Document at§ 12.2. 

12 See Minutes of the September 29, 2003 meeting of the Board of Directors (Enclosure 6), at 4-5. The minutes are 

an exhibit to-s January 28, 2010 appeal to the Appeals Board. 

13 Id. 

4 
(as Plan administrator) formally initiated the distress termination process by 

issuing Notices of Intent to Terminate ("NOITs") to affected parties other than PBGC on 

November 11, 2003. also issued a PBGC Form 600 ("Distress Termination Notice 

oflntent to Terminate") to PBGC on November 19, 2003 (Enclosure 7). The Form 600 stated that 

was proposing a DOPT of January 21, 2004. 

On February 17, 2005, PBGC notified that PBGC had determined that -

-and its controlled group had met the criteria set fmih in ERISA § 4041 (c)(2)(B) for the 

distress termination of the Plan as of January 21, 2004. and PBGC executed an 

agreement on February 23, 2005, that appointed PBGC the statutory trustee of the Plan and 

established January 21, 2004, as the Plan's DOPT. 

B. PBGC's guarantee and its limits 

The pension benefit a retiree receives from PBGC initially depends on the plan's provisions; 

PBGC does not pay more than the plan would have paid. Moreover, PBGC does not guarantee all 

benefits that a pension plan provides. To be guaranteed, a benefit must, first, be "nonforfeitable" 

(i.e., vested), which means that the participant must have satisfied the pension plan's requirements 

to be eligible for the benefit by the date on which the plan terminates. 14 In -s case, his 

Plan benefit is nonforfeitable. 

ERIS A contains two limitations upon PBGC' s guarantee that significantly impact -s 

benefits. The first limit, lmown as the Maximum Guaranteed Benefit ("MGB") limit, places a cap 

upon the monthly benefit that PBGC guarantees. 15 The amount of an individual's MGB depends 

on a number of factors, including the year in which the pension plan te1minated, the participant's 

age at the later of DOPT or date of benefit commencement, the form in which the benefit is paid, 

and the age of the paiiicipant's spouse if the benefit form includes a surviving spouse benefit. 16 

For plans terminating in 2004, as the Plan did, the MGB is $3,698.86 per month ($44,386.32 per 

year) for a participant who begins receiving PBGC benefits at age 65 in the form of a straight life 

annuity ("SLA") with no survivor benefit. 

The second applicable limitation on PBGC's guarantee, known as the "phase-in limit," 

provides that PBGC's guarantee of a benefit increase under a plan amendment is phased in over 

five years from the later of the adoption or effective date of the increase. 17 

C. Allocation of the Plan's assets upon its termination 

ERISA's six-tier asset allocation structure determines how a terminated pension plan's assets 

are distributed among various categories of benefits when the assets are insufficient to pay all 

promised benefits. The six priority categories are refened to as "PCl," "PC2,'' "PC3," etc. The 

14 See BRISA§ 4001(a)(8); PBGC regulation§ 4022.3(a)(I). 

15 See BRISA§ 4022(b)(3). 

16 See PBGC regulation§ 4022.23. 

17 See BRISA§ 4022(b)(l), (7); PBGC regulations§§ 4022.2, 4022.24, and 4022.25. 

5 
Plan has no benefits in the first two priority categories (PCl and PC2), which relate to benefits 

derived from a participant's own contributions. 

The next priority category, PC3, covers a paiiicipant's or beneficiary's benefits that were "in 

pay status" (i.e., were being paid) three or more years before the plan's DOPT, or that would have 

been in pay status three years before termination ifthe paiiicipant had retired. -does not 

have a benefit in PC3 because he was not eligible to retire three years before Plan termination, as 

he had not then met the Plan's vesting requirements. PBGC determined that the Plan had 

$71,072,6S3 in PC3 liabilities, which were 100% funded by the Plan's assets. 18 

PC4 generally covers benefits guaranteed by PBGC that are not covered in higher priority 

categories. The Plan's assets covered only 20.14% of the Plan's $127,941,421 in benefit liabilities 

in PC4. 19 Because PBGC's guarantee covers 100% of the Plan's benefits in PC4,-and 

other Plan participants are receiving their full PC4 benefits. Thus, PBGC effectively is paying the 

Plan's PC4 benefits through the combination of the Plan's assets and PBGC's single-employer 

insurance fund. 

PCS covers other nonforfeitable benefits, including the amounts that PBGC does not 

guarantee for-due to the MGB and phase-in limitations. PC6 covers all other benefits 

under the plan (i.e., non-vested benefits).20 Because the Plan's assets were insufficient to fully 

fund PC4, there were no remaining assets to fund benefits in PCS or PC6.21 

Additionally, as provided under BRISA § 4022( c ), a p01iion of the recoveries that PBGC 

obtains from plan sponsors for pension plan underfunding is allocated to the unfunded 

nonguaranteed benefits of pension plan participants and beneficiaries. The BRISA § 4022( c) 

amount for the Plan does not increase the benefit-s entitled to receive from PBGC. 22 

18 Actuarial Case Memo for ash Balance Plan ("Case Memo"), at 12. We provide relevant 

excerpts from the Case Memo in Enclosure 8. 

19 Id. at 12. 

20 PBGC determined that the Plan had benefit liabilities of $1,S49,979 in PCS and benefit liabilities of $6,40S,736 in 

PC6. Id. at 12. 

21 Overall, the Plan had $96,841,191 in assets and $206,969,788 in (total) benefit liabilities as of the Plan's DOPT, 

resulting in a total Plan underfunding of$110,128,S97. Id. at 1. 

22 PBGC allocated the ERISA § 4022(c) amount for the Plan, $272,022, to benefit liabilities under the Plan in PCS. 

Id. at 12. ERISA § 4044(b)(4), which establishes subcategories within PCS, gives the highest priority within PCS to 

nonguaranteed benefit liabilities under the Plan's provisions that were in effect five or more years before the Plan's 

DOPT. PBGC "used the entire amount in PCS to partially restore benefits lost to participants from the Accrued at 

Normal Limitation and the Maximum Insurance Limitation." Id. at 12. 

•••Is benefit in PCS, which is based on a plan amendment adopted within five years ofDOPT, is in a PCS 

subcategory that is not funded by the Plan's ERISA § 4022(c) amount. 

6 
III. Factual background 

A. -'s employment and participation in the Plan 

- was born on 

November 23, 1998. He was employed a 

("CEO") and was a member of its Board ofDirectors.23 

began working at on 

s President and Chief Executive Officer 

On August 6, 2003, -resigned his position a 's President and CEO but 

remained on - Board of Directors. 24 s employment with 

ended on Au~ which is a little earlier than five years after he started employment. 

-had met the Plan's vesting requirements when his employment ended. 

B. The Plan's cash balance (ormula 

A cash balance plan is one type of defined benefit pension plan. Unlike most defined benefit 

plans that describe the participant's benefit in te1ms of the participant's annuity at no1mal 

retirement age, a cash balance plan generally will define the participant's benefit by reference to 

the amount of a hypothetical account balance. 25 

A typical cash balance plan provides that each year the plan will credit a participant's 

hypothetical account balance with a pay credit (i.e., a percentage of the participant's pay for the 

year) and an interest credit (i.e., the hypothetical earnings on the account balance). The plan's 

documents must specify both the pay credit and the interest credit. The plan's documents also must 

specify the conversion factor that the plan will use to determine the annuity from the account 

balance. 

Additionally, while a participant in a typical ongoing cash balance plan who separates from 

employment has the right to receive his or her benefits in an annuity form, the participant often 

will choose (with spousal consent) to receive a lump-sum distribution of the entire plan benefit. 

As is the case in a typical cash balance plan, the Plan provided annuity benefits and offered a 

lump-sum distribution option upon separation of employment. 

The Plan's cash balance provisions, which went into effect on June 1, 1998, essentially contain 

the typical features described above. Specifically, the Plan's cash balance provisions for salaried 

employees provide that: 

• an employee who had been a participant in a prior plan on December 31, 1997, and entered 

the Cash Balance Plan on June 1, 1998, has an "Opening Account Balance" that equals the 

23 See Enclosure 9 •••• press release). 

24 Id. 

25 Chapter 5.12-1 of PBGC's Operating Policy Manual (Enclosure 10) describes the features of cash balance pension 

plans. 

7 
actuarial equivalent (based on the assumptions stated in the Plan) of the benefit he or she 

had accrued under the prior plan;26 

• a salaried employee with a year of Credited Service after December 31, 1997, accrues a 

"Basic Pay-Based Credit" each year, which equals 3.0% of the "Plan Year Compensation" 

for the year;27 

• in addition to the Basic Pay-Based Credit, a salaried employee with compensation of 

$60,000 or more during the Plan Year accrues a "Supplemental Pay-Based Credit" each 

year;28 and 

• the participant has interest credited to his or her Account Balance each year, with the 

interest credit based on the 30-Year Treasury Rate in effect for the August that precedes 

the beginning of the Plan Year. 29 

We observe that, under the cash balance provisions that were in effect when started 

employment, did not have an Opening Account Balance because his 

employment started afte1 had ended accruals under the prior plans. 

We further note that, as required by Internal Revenue Code ("IRC") § 40l(a)(l 7), the Plan 

limited the annual compensation that could be used to compute the participant's Basic Pay-Based 

Credit and Supplemental Pay-Based Credit. This meant that, based on the $200,000 

IRC § 401(a)(l 7) limit that was in effect in 2002, the maximum Basic Pay-Based Credit that a 

participant could earn for that year is $6,000 (i.e., $200,000 x 3% = $6,000) and the maximum 

Supplemental Pay-Based Credit also is $6,000, for a total Pay-Based Credit for 2002 of $12,000. 

~trast, under a Plan amendment that applied only to-see explanation below), 

- received a Pay-Based Credit of $100,028 for each Plan Year, stmiing on 

January 31, 2002. 

c. 

-began accruing a benefit under the Plan's existing cash balance fonnula when he 

stmied his employment. Because of his high salary, IRC § 401(a)(l 7) limited the 

benefit amount he could accrue under the Plan's existing cash balance formula. 

To increase -s pension benefits, established the Supplemental 

Executive Retirement Plan for ("SERP"), effective January 31, 2001. The SERP 

was separate from the Plan, was not tax-qualified, and thus was not subject to IRC limitations. 

26 Plan Document § 3 .1. 

27 Plan Document§ 3.2. 

28 Plan Document§ 3.3. For example, a salaried employee with compensation of$100,000 or more in a Plan Year 

accrues a Supplemental Pay-Based Credit that equals 3% of all Plan Year Compensation earned during the year. Thus, 

for an employee with compensation of $100,000 or more, the combination of the Basic Pay-Based Credit and the 

Supplemental Pay-Based Credit equals 6% of all Plan Year Compensation. 

29 Plan Document§ 3.4. 

8 
Fmihermore, the SERP was not covered by the PBGC insurance program under Title IV of 

ERISA. 30 

D. -'s tax-qualified benefit under the Plan's Second Amendment 

In 2002, adopted a Plan amendment, titled "Second Amendment to the -

- Company Cash J3alance Pension Plan" ("Second Amendment"). 31 The Second 

Amendment, which is applicable only to - replaced his (non-qualified) SERP benefit 

with a significantly larger Plan benefit.32 

As the Appeals Board stated in its September 29, 2011 decision, the copy of the Second 

Amendment that PBGC received from (1) bears the signature of_ 

a former Vice President of (2) is dated as if signed on April 26, 

2002, and (3) contains text that suggests that the amendment was approved by the former Board 

of Directors of . The stated purpose of the Second Amendment is as follows: 

The employer desires to amend the Qualified Plan to provide as much of the benefit 

to be provided to-under the SERP as may be so provided while still 

complying in all respects with the applicable requirements of the [IRC] and 

[ERISA]. 

The Second Amendment attempted to meet its intended purpose by adding a new 

"Schedule VI" to the Plan's provisions, which applied only to-and which increased his 

(pre-amendment) cash balance benefit under the Plan. The Second Amendment contained the 

following features: 

• - s "Participant Account" under the Plan was credited with an "Opening Account 

Balance" of $318,449, effective January 31, 2001;33 

' 30 Also, -·s obligations to nder the SERP were not secured or segregated from -·s 

other corporate obligations. Consequently, i~ had retained a SERP benefit, he would have had only an 

unsecured claim against-'s corpora~r his SERP benefit when went into bankruptcy 

on May 30, 2003. 

31 The Appeals Board's September 29, 2011 decision for•••l(Enclosure 3) provides a copy of the Second 

Amendment. 

32 A pension arrangement of the type-provided to through the Second Amendment is 

commonly referred to as a QSERP (i.e., a "Qualified Supplemental Executive Retirement Plan") because it provides 

a highly-compensated employee or employees with a supplemental benefit under a tax-qualified pension plan that is 

often based on a benefit formula that is more favorable than that which applies to other plan paiiicipants. 

33 The term "Participant Account" refers to -s (hypothetical) account under the Plan's cash balance 

provisions. 

9 
• -s Participant Account was to receive an (additional) Pay-Based Credit of 

$100,028 effective as of January 31 of each year from 2002 through 2005, which was 

contingent upon being employed by the Employer on such date (and subject to 

certain additional conditions based on the Employment Agreement betwee~nd 

; and 

• s Participant Account further was increased by "Interest Credits" based on an 

interest rate of 6%, in lieu of the regular interest rate under the Plan. 

When the Second Amendment was adopted, which was fewer than two years before the Plan's 

DOPT, the value of-s benefit under the SERP was $318,449, which corresponded to 

the Opening Account Balance provided to him under the Second Amendment. Accordingly, the 

replacement of his prior (unfunded) SERP benefit with a tax-qualified benefit under the Plan 

immediately increased the Plan's benefit liabilities. Moreover, unlike his SERP benefit, .. 

-'s Plan benefit under the Second Amendment was guaranteed by PBGC, subject to ERISA's 

limitations. 

Additionally, because the Second Amendment increased the Plan's liabilities, Penn Traffic's 

minimum funding obligations under the IRC increased with respect to the Plan.34 Under the 

funding rules in effect at that time, however, the increased pension costs resulting from the Second 

Amendment could be funded through a series of minimum funding contributions, which -

- could make over several years. 35 

E. -'s efforts to obtain a lump-sum distribution from the former Plan 

Administrator 

On August 15, 2003, which was nearly three months after 's bankruptcy filing, 

-dated and signed a Plan benefit election form (Enclosure 12), which requested that his 

entire Plan benefit be paid as a lump sum. s employment with ended on 

August 29, 2003. 

On September 29, 2003, the Board of Directors directed the Committee to deny-s 

request for a lump-sum distribution. See Enclosure 6, at 5. This denial of a lump-sum payment 

occurred at the same meeting when the Board of Directors resolved to seek termination of the Plan. 

The Committee, in a letter dated October 17, 2003 (Enclosure 13), notified-that his 

request for a lump sum was denied. The October 17, 2003 letter explained: 

34 The impact of the Second Amendment upon the Plan's funding is discussed in the Actuarial Valuation Repo1t for 

the Plan year beginning on January 1, 2002 (excerpts in Enclosure 11). The Actuarial Valuation Repo1t states, in part: 

Changes in Plan Provisions 

Effective January 31, 2001, the Plan was amended to provide benefits that were reviously provided 

from a Supplement Executive Retirement Plan ("SERP") for The increase in 

benefits from the Cash Balance Plan to -results in a o ar or o ar ecrease in benefits 

provided from the SERP. The increase in normal cost of the Cash Balance Plan resulting from this 

amendment is approximately $106,000 in 2002. 

35 See IRC § 412. 

10 
At its September 29, 2003 meeting, the Board of Directors of the 

Company resolved to terminate the Plan. Because applicable law prohibits the 

payment of lump sum distributions in anticipation of the termination of the Plan, 

your benefit request is being denied. We can, however, begin pension distributions 

to you in the form of a monthly annuity (the only distribution form permitted under 

a te1minating plan): payout will ultimately be subject to the Pension Benefit 

Guaranty Corporation's maximum guaranteed benefit limitations. 

-appealed the denial of his request for a lump sum on November 3, 2003 (Enclosure 

14). He also made a supplemental appeal filing to the former Plan Administrator on 

November 17, 2003 (Enclosure 15). We found no evidence that-·eceived a decision 

from regarding his November 3, 2003 appeal. 

F. -s request to PBGC {or a lump-sum payment and the Appeals Board's two 

prior decisions 

On the General Information Form (PBGC Form 702) that-signed and dated on 

July 12, 2005 (Enclosure 16), he informed PBGC of his view that that he is entitled to a lump 

sum. 36 He submitted a benefit application to PBGC on April 15, 2007 (Enclosure 17), which 

requested that PBGC start his payments on May 1, 2007, in the form of a Joint and 50% Survivor 

Annuity ("J&50%SA"), which was the Plan's automatic benefit form for a married paiiicipant. 

PBGC started pa yin an estimated pension benefit effective May 1, 2007, in the 

amount of $275.90 per month. PBGC then finished its valuation of the Plan's benefits and sent 

-a benefit determination dated December 16, 2009 (Enclosure 18), which increased his 

monthly PBGC-payable benefit to $452.77. PBGC's benefit calculation did not include the 

increase in-s Plan benefit resulting from the Second Amendment because PBGC found 

that this amendment had not been properly executed. 

- submitted a timely appeal to the Appeals Board on January 28, 2010 

(Enclosure 19). His appeal raised two issues: (1) whether he is entitled to a lump-sum payment 

from PBGC, and (2) if his lump-sum payment request is denied, whether PBGC miscalculated the 

annuity amount he is entitled to receive. 

The Appeals Board's September 29, 2011 decision (Enclosure 3) affirmed PBGC's 

determination that 's Plan benefit was payable as a monthly annuity, rather than as a 

lump sum. A divided Appeals Board, however, decided (by a 2 to 1 vote) that the Second 

Amendment was executed by the former Plan Administrator and was a valid amendment to the 

Plan. Accordingly, the Board ordered PBGC to: (1) recalculate s monthly benefit to 

take into account any increases in his PBGC-payable benefit resulting from the Plan's Second 

36 •••lstated: 

Under terms of my Pension Plan, I am entitled to a lump sum. I am entitled to a greater benefit than I am 

informed the PBGC is required to pay. Absent breaches of fiduciary duty by the Plan's fiduciaries, I would 

have received a lump sum well in advance of the PBGC's takeover of the Plan. Therefore, my 

communication with the PBGC concerning this matter as well as any acceptance of benefits from the PBGC 

are without prejudice to my claims for those breaches of fiduciary duty. 

11 
Amendment; and (2) send a new determination letter, with a new 45-day right to appeal 

the amount of his monthly benefit. The Board's September 29, 2011 decision also indicated that 

it was likely that the benefit amount guaranteed by PBGC would be less thm~'s Plan 

benefit amount due to ERISA's guarantee limits. 

PBGC issued a revised determination letter to on November 3, 2011 

(Enclosure 20). The Benefit Statement enclosed in PBGC's November 3, 2011 letter (also in 

Enclosure 20) shows that - is entitled to a monthly benefit of $866.54 payable as a 

J&50%SA. 

- timely appealed PBGC's revised determination on December 8, 2011 

(Enclosure 21), asserting that his PBGC-guaranteed benefit of $866.54 per month was too small 

because PBGC incotTectly applied the MGB limit before it applied the phase-in reduction. In a 

decision dated November 14, 2012 (Enclosure 4), the Appeals Board rejected -s 

contention concerning the order of calculations and denied his appeal. 

IV. Legal Background 

A. Statutory requirements relating to lump-sum payments by ongoing pension plans 

ERISA and the IRC allow ongoing defined benefit pension plans to offer lump sums as a 

benefit option, and many pension plans provide them. Under Title I of ERISA and the IRC, an 

annuity and a lump sum must be actuarially equivalent- that is, they must have the same present 

value. See ERISA § 205(g); IRC § 417(e). Thus, an annuity will have the same present value as 

the lump sum if (1) the pension plan remains ongoing, or (2) if a terminating plan has sufficient 

assets to fund the annuity benefit.37 If an underfunded plan terminates, however, ERISA's 

limitations on PBGC's guarantee may reduce the present value of the monthly payments that are 

due after the plan's DOPT. 

B. Payment o(lump sums by a terminating plan 

As discussed below, ERISA § 4041(c)(3)(D) and PBGC regulation§ 4044.4 place restrictions 

on lump-sum payments by terminating plans. 

1. ERISA § 4041(c)(3)(D) 

Congress, through the Single-Employer Pension Plan Amendments Act of 1986 

("SEPP AA"), revised the termination provisions of ERISA § 4041 to provide separate 

procedures for standard terminations and distress terminations. 38 ERISA § 404l(c)(3)(D), which 

37 If a pension plan has sufficient assets to provide all benefits when it terminates, the plan ordinarily will purchase 

insurance annuity contracts for those paiiicipants who do not receive lump-sum distributions of their entire plan 

benefits. See ERISA § 4041(b)(3). 

38 A distress termination is a termination of an underfunded pension plan initiated by a plan sponsor when, because 

of financial distress, the sponsor and its "controlled group" cannot continue the plan. See ERISA § 404 l(c)(2)(B). 

Frequently, the distress termination will occur after a bankruptcy filing. See ERISA § 4041(c)(2)(B)(i), (ii). 

12 
is one of these SBPP AA provisions, provides that beginning on the date on which the plan 

administrator provides a notice of distress termination to PBGC,39 the statutory requirements for 

approval of the te1mination will be met only if, inter alia, the plan administrator "pays benefits 

attributable to employer contributions ... only in the form of an annuity .... " PBGC's 

implementing regulations similarly provide that, beginning on the first day that a notice of intent 

to tenninate is issued, the plan administrator may not "[p]ay benefits attributable to employer 

contributions, other than death benefits, in any form other than as an annuity .... "40 

2. PBGC regulation § 4044.4 

PBGC regulation § 4044.4 precludes a plan that has not yet terminated from paying lump 

sums "in anticipation of termination" to the extent that doing so would change the way that plan 

assets would otherwise be allocated under BRISA § 4044. Specifically, under subsection (a) of 

PBGC regulation § 4044.4, a plan administrator "violates BRISA" if plan assets are "allocated or 

distributed upon plan termination" in an order other than the one prescribed in BRISA § 4044. 

Subsection (b) of the regulation fmiher provides that a distribution "made in anticipation of plan 

termination is considered to be an allocation of plan assets upon termination," and is "covered by" 

the § 4044.4(a) prohibition against an allocation that "violates BRISA."41 

C. Payment of lump sums by PBGC 

Shmily after BRISA was enacted, PBGC decided it generally would not pay guaranteed 

benefits as lump sums.42 Instead, PBGC decided that it would guarantee "the life annuity 

alternative provided in the plan. "43 

The current version of PBGC regulation § 4022. 7(a), whose wording differs only slightly 

from PBGC's 1975 proposed regulation and PBGC's 1975 final regulation, implements PBGC's 

decision not to pay guaranteed benefits as lump sums as follows: 

If a benefit that is guaranteed under this pati is payable in a single installment or 

substantially so under the terms of the plan, or an option elected under the plan by 

the paiiicipant, the benefit will not be guaranteed or paid as such, but the PBGC 

will guarantee the alternative benefit, if any, in the plan which provides for the 

payment of equal periodic installments for the life of the recipient. 

39 ERlSA § 404l(c)(3)(D) refers to the requirement in ERlSA § 404l(a)(2) for a 60-day "Notice of Intent to 

Terminate." ERISA § 404l(a)(2) provides: 

Not less than 60 days before the proposed termination date of a standard termination under subsection (b) 

of this section or a distress termination under subsection (c) of this section, the plan administrator shall 

provide to each affected paity (other than [PBGC] in the case of a standard termination) a written notice 

of intent to terminate stating that such termination is intended and the proposed termination date. The 

written notice shall include any related additional information required in regulations of [PBGC]. 

40 PBGC regulation § 4041.42. 

41 PBGC regulation§ 4044.4(a), (b). 

42 40 Fed. Reg. 24206, 24207 (June 5, 1975). 

43 Id. 

13 
PBGC's general rule that it will not pay a guaranteed benefit as a lump sum is subject to only 

limited exceptions, set fmih in PBGC regulation § 4022.7(b). Lump sums are permitted, for 

example, when the total value of the participant's benefit is $5,000 or less, or when the participant 

is entitled to a refund of his or her own contributions. None of the exceptions in PBGC regulation 

§ 4022.7(b) applies to -·s circumstances. 

D. PBGC's authoritv to recover lump-sum distribution amounts paid within three years 

o(plan termination 

BRISA § 4045, titled "Recapture of Payments," provides PBGC with additional authority to 

protect the statutory allocation structure. Under BRISA§ 4045, PBGC, as trustee, 

is authorized to recover for the benefit of a plan from a pmiicipant the recoverable 

amount (as defined in subsection (b) of this section) of all payments from the plan 

to him which commenced within the 3-year period immediately preceding the time 

the plan is terminated. 44 

The formula for determining the "recoverable amount" is complex but essentially provides 

that PBGC may recover, on behalf of the plan, that portion of a lump-sum payment that exceeds 

the present value at DOPT of the guaranteed benefit that the pmiicipant would have received as an 

annuity. 45 The decision to pursue recapture of a recoverable amount pursuant to BRISA § 4045 is 

discretionary with PBGC, rather than required by the statute. 

PBGC does not have an BRISA§ 4045 claim regarding-s Plan benefit because he 

did not receive a lump-sum distribution. If the former Plan Administrator had made a lump-sum 

distribution of his Plan benefit, however, PBGC would have been authorized to pursue repayment 

of the "recoverable amount" under BRISA§ 4045. 46 

44 ERISA § 4045 provides protection to PBGC and pension plan participants because: 

• any amounts that PBGC recovers from participants who received pre-DOPT distributions are used to increase 

the plan's assets as ofDOPT; and 

• any additional plan assets obtained through ERISA § 4045 are then allocated to (higher-priority) 

PBGC-guaranteed benefits or (higher-priority) nonguaranteed benefits of plan participants, in accordance 

with the ERISA § 4044 allocation structure. 

45 More precisely, the "recoverable amount" ordinarily is the excess of what the participant received "within the 

3-year period immediately preceding the time the plan is terminated" (e.g., as a lump sum) minus the sum of A+ B, 

where A is the amount the participant would have received during those three years ifhe or she had elected a straightlife annuity ("SLA") on the date the first payment was made, and B is the present value of the pmticipant's "future 

benefits guaranteed under this subchapter" if paid as an SLA (stmting on the date the first payment was made). 

ERISA § 4045(b)(2). 

The formula also adjusts the recoverable amount if the pmticipant's payments (including any lump-sum 

distribution) are less than $10,000 within a 12-month period. 

46 If-had received a lump-distribution of his entire Plan benefit immediately before the Plan's DOPT, the 

recoverable amount essentially would consist of the portion of his lump-sum payment that exceeds the present value 

of his guaranteed benefit. 

14 
E. The treatment of unpaid lump-sum payment requests under PBGC Policy 5.4-9 

Chapter 5.4-9 of PBGC's Operating Policy Manual, titled "Lump-Sum Payments" 

("PBGC Policy 5 .4-9"), describes "the provisions under which PBGC pays all or part of a benefit 

or estimated benefit in a lump sum to a participant, beneficiary, or alternate payee."47 PBGC has 

issued four editions of this policy, with the 1st edition (Enclosure 22) issued on June 25, 2009, and 

the (most-recent) 4th edition (Enclosure 23) issued on July 30, 2015. 

Subsection C.5. of the 4th edition (which replaced subsections D.1. and D.2 of the pt edition) 

provides: 48 

Unpaid Plan Application for a Lump-Sum Payment. PBGC generally will not 

honor a plan application for a lump-sum payment (whether de minimis or not) that 

was not paid by the plan administrator regardless of when the application was filed 

with the plan administrator or when the payment was originally due. 

V. Discussion 

- terminated his - employment on August 29, 2003. The earliest date 

that the Plan could have made a lump-sum distribution to him would have been September 1, 2003, 

which was fewer than five months before the Plan's Jan~4 DOPT. 49 In a letter dated 

October 17, 2003, the former Plan Administrator (i.e.,--) denied-slumpsum distribution request "[b]ecause applicable law prohibits the payment of lump sum 

distributions in anticipation of the termination of the Plan." 

47 PBGC Policy 5.4-9 applies "to all plans trusteed by PBGC including plans that are sufficiently funded, whether 

for guaranteed benefits or benefit liabilities." See PBGC Policy 5-4.9, at § B. ("Scope and Effective Date"). 

48 The Appeals Board's September 29, 2011 decision addressed a provision in the 1st edition of Policy 5.4-9 that 

applies to the situation where a lump-sum payment request had been received by a former plan administrator - but 

had remained unpaid as of DOPT - in a plan where a distress termination filing had occurred. The corresponding 

provision in the current (4tl') edition of the policy is broader in scope because (1) it applies to lump-sum applications 

in PBGC-initiated plan terminations (as well as distress terminations), and (2) it clarifies that PBGC will not honor a 

plan application for a lump-sum payment "regardless of when the application was filed with the plan administrator or 

when the payment was originally due." 

The 4th edition of PBGC Policy 5.4-9 (as well as each of the earlier editions) states: "This policy statement is 

effective upon issuance." Consequently, we are applying the current edition of Policy 5.4-9 in deciding_ 

appeal. Even ifthe pt edition of Policy 5.4-9 had remained in effect, however, we would deny s appeal in 

our decision on remand. This is because our denial of his lump-sum payment claim is based on the relevant provisions 

in ERISA and PBGC regulations, which provide the underlying legal authority for both the current and prior editions 

of PBGC Policy 5.4-9. 

49 - who had attained age 55 and had completed 5 years of vesting service, was eligible for Early Retirement 

under the Plan. Plan Document §§ 1.14, 1.15, and 1.51. He could elect to start receiving his Early Retirement Benefit 

as of a Benefit Commencement Date that was after his Separation from Service date (i.e., on the date after his 

employment relationship with his employer and all related employers had ended). Plan Document§§ 1.41 and 4.3. 

The Plan defines "Benefit Commencement Date" as the first day of the month for which an amount is payable from 

the Plan as an annuity or any other form." Plan Document § 1.5. Based on these Plan provisions, the earliest Benefit 

Commencement Date for was on September 1, 2003, i.e., the first day of the month after his August 29, 

2003 Separation from Service date. 

15 
The language of October 17, 2003 letter to -indicates that the denial 

of his lump-sum distribution request is based on PBGC regulation§ 4044.4. We conclude, for the 

reasons explained below, that 's denial represents a correct application of this PBGC 

regulation. We further conclude that, under ERISA and applicable PBGC regulations, PBGC is 

not required to provid with the lump-sum benefit that-had correctly denied 

him before the Plan terminated. 

A. PBGC regulation.§ 4044.4 is intended to prevent lump-sum distributions in a manner 

contrary to ERISA § 4044 

PBGC regulation § 4044.4 provides that a plan administrator "violates ERISA if plan assets 

are allocated or distributed upon plan te1mination in a manner other than that prescribed in section 

4044 of ERISA."50 The regulation fmiher provides that a distribution to a paiiicipant "made in 

anticipation of plan termination is considered to be an allocation of plan assets upon termination."51 

Consequently, the regulation precludes a lump-sum payment in anticipation of termination that 

would be in a manner contrary to ERISA § 4044. 

When PBGC regulation§ 4044.4 was issued, PBGC recognized that lump-sum distributions 

to participants would, under certain factual circumstances, detrimentally impact upon the asset 

allocation structure in ERISA § 4044 by causing benefit payments "in excess of the guaranteed 

benefit limits" and/or a "misallocation to certain priority categories." PBGC, for this reason, 

adopted PBGC regulation§ 4044.4 to "minimize the possibility of abuse" of PBGC's termination 

insurance program that could occur through the distribution of plan assets contrary to 

ERISA § 4044 during the time period when plan termination was anticipated but had not yet 

occurred. 52 See additional discussion later in this decision. 

In-s case, payment of his entire Plan benefit as a lump sum shortly before the Plan's 

termina~d have been "in a manner other than that prescribed in section 4044 of ERISA," 

as is explained below. Accordingly, a pre-DOPT lump-sum distribution of his entire Plan benefit 

would have had the impact that PBGC regulation § 4044.4 was intended to prevent. 

The Benefit Statement that PBGC enclosed with its revised determination of - s 

benefit (Enclosure 20) shows the following: 

• His monthly plan benefit, based on his May 1, 2007 retirement date and the J&50%SA 

form he elected, is $3,826.39. 

• As a result of the MGB limit upon PBGC's guarantee, the monthly Plan amount of 

$3,826.39 must be reduced to $3,229.10. 

• Additionally, because ERISA's "phase-in rule" limits PBGC's guarantee of benefit 

increases that have been in effect for fewer than five years before DOPT, the monthly 

50 PBGC regulation§ 4044.4(a). 

51 PBGC regulation§ 4044.4(b). 

52 46 Fed. Reg. 9480, 9481 (Jan. 28, 1981). 

16 
benefit after application of the MGB (i.e., $3,229.10 per month) must be further reduced, 

resulting in a PBGC-guaranteed benefit of $866.54 per month. 53 

Consequently, in the absence of a lump-sum distribution, -is entitled to a monthly 

PBGC-guaranteed benefit of $866.54, which is 22.65% of his monthly Plan benefit of $3,826.39. 

PBGC is unable to pay him the remaining $2,959.85 of his monthly Plan benefit (i.e., the remaining 

77.35%) because that portion of his benefit, which BRISA assigns to PCS, is not guaranteed and 

is not funded by the Plan's assets. 54 

Because BRISA and the IRC require that an annuity and a lump sum be actuarially equivalent, 

a pre-termination lump-sum distribution to - would have been equivalent to the 

$3,826.39 monthly annuity benefit that PBGC computed. Consequently, a pre-termination lumpsum distribution effectively would have provided - with 100% of his monthly Plan 

benefit of $3,826.39, as compared to the $866.54 monthly benefit he is entitled to receive based 

on PBGC's guarantee. 

The calculations of the Plan's former actuary indicate that a lump-sum distribution to. 

-prior to the Plan's DOPT likely would have been in excess of $563,867. 55 If the Plan had 

made such a lump-sum distribution to him, the Plan's assets would have been diminished, dollarper-dollar, by the amount of the lump-sum payment. Fmihermore, this dilution of the Plan's assets 

would not have been restored (e.g., by employer contributions) during the less-than-five-month 

period between-s earliest possible lump-sum payment date and the Plan's DOPT. 

Consequently, a pre-DOPT lump-sum payment to-would have been "in a manner 

contrary to BRISA § 4044" within the meaning of PBGC regulation § 4044.4 because the payment 

would have diminished the Plan assets available for allocation to higher priority categories upon 

53 The Benefit Statement enclosed with PBGC's revised determination noted: 

• Benefit increases that occur within S years of plan termination are guaranteed for each full year the 

amendment is in effect at the greater of(l) 20% of the monthly benefit increase, or (2) $20.00 per month. 

• For the purposes of this "phase-in" limitation, a benefit increase is in effect from the later of the adoption 

date and effective date of the amendment. 

• Because the benefit increases under the Second Amendment were adopted on April 26, 2002, with an 

effective date of January 31, 2001, and were in effect for only one full year before the date of plan 

termination, PBGC may guarantee only 20% of the increase. 

54 Under the ERISA § 4044 allocation structure: (1) none of-'s monthly Plan benefit of $3,826.39 is 

assigned to any of the highest three priority categories (i.e., PCl, PC2, and PC3); (2) $866.S4 of his monthly Plan 

benefit is assigned to PC4, which covers PBGC-guaranteed benefits; and (3) the remaining $2,9S9.8S of his monthly 

Plan benefit is assigned to PCS, which covers "all other nonforfeitable benefits under the plan." See ERISA § 4044(a). 

Although the Plan had sufficient assets at DOPT to cover all benefit liabilities through PC3 and some of the liabilities 

in PC4, there were no (remaining) Plan assets to fund PCS or PC6. 

55 An email dated April 7, 2003 from the Plan's actuarial consultant to ••••••••••• 

(Enclosure 24) indicates that llms cash balance account under the Plan was $S63,867 as of January 31, 2003. 

The actual lump-sum value of his Plan benefit may have been somewhat greater than $S63,867 as a result of benefit 

accruals that occuned between January 31, 2003, and his employment termination date. Also, under the Plan's 

provisions and as required by the IRC, the actual lump sum payable to a paiiicipant upon termination of employment 

ordinarily will differ from his or her (hypothetical) account balance under the Plan's cash balance formula. 

17 
the Plan's termination. Furthermore, a pre-DOPT lump-sum distribution to -would have 

violated PBGC regulation § 4044.4 because it would have occurred in anticipation of the Plan's 

termination, for the reasons discussed next. 

B. 

Subsection (b) of PBGC regulation § 4044.4 provides that, in determining "whether a 

distribution, transfer, or allocation of assets has been made in anticipation of plan te1mination 

PBGC will consider all of the facts and circumstances, including" the facts and circumstances that 

are specifically listed in the regulation. As explained below, the former Plan Administrator 

conectly denied - s lump-sum payment request because a lump-sum payment to him 

would have been "in anticipation of termination" under the standard set forth in the regulation. 

1. The Plan's termination was a likely prospect when- made his lump-sum 

payment reguest 

PBGC regulation § 4044.4 is designed to guide plan administrators in deciding whether to pay 

lump sums (or to purchase annuities from an insurance company) at a time when plan termination 

is a likely prospect. 56 The following circumstances demonstrate that the Plan's distress termination 

was a likely prospect when the former Plan Administrator considered and denied ••••I 

lump sum application: 

• On May 30, 2003, which was nearly three months before - applied for a lump 

sum, filed for bankruptcy. Shortly thereafter, the Company decided to stop 

making funding contributions to its pension plans. 

• In August 2003, the Company obtained funding estimates (Enclosure 25) for five 

Company-sponsored pension plans (including the Plan).57 These estimates show that as of 

June 30, 2003: (1) the Plan had assets of $84,765,470 and accrued benefit obligations of 

$121,951,000, which results in a funding deficit of $37,185,530; 58 and (2) the Plan's 

sponsor would need to make estimated minimum funding contributions totaling 

$43,422,488 for the 2003 through 2007 time period ifthe Plan were to remain ongoing. 

56 See Braniff Airways, Inc. v. Bankers Trust Co. (In re Braniff Ai1111ays, Inc.), 27 B.R. 222, 227 (Bankr. N.D. Tex. 

1982). 

57 Exhibit 5 to 's January 28, 2010 appeal is a 1-page summary (dated August 11, 2003) that shows the 

funding condition of pension plans. This document also shows estimated "required contributions" for 

the years 2003 through 2007. refers to this document in his appeal letter, stating that it is "an excerpt from 

submission by the Company's counsel in August 2003." See Enclosure 19, at 2. 

58 The Emolled Actuary Certification that the Plan's actumy signed on May 10, 2004 (Enclosure 26), which is based 

on the (different) actuarial assumptions that are required for terminating pension plans, shows that the Plan had 

$83,979,634 in assets and $209, 710,327 in benefit liabilities as of the proposed termination date of January 21, 2004, 

which results in funding deficit of$125,730,693. PBGC, in its actuarial valuation of the Plan dated August 24, 2009, 

concluded that the Plan had $96,841,191 in assets and $206,969,788 in benefit liabilities as of the Plan's January 21, 

2004 DOPT, which results in funding deficit of $110, 128,597. See Enclosure 8, at 1. 

18 
• After an extensive discussion at the September 29, 2003 meeting, the Board of Directors 

resolved to terminate all of the Company's pension plans. 59 

• The minutes for the September 29, 2003 Board of Directors meeting detail some of the 

financial difficulties that ~as experiencing before and after its bankruptcy 

filing. The minutes also reflect that the Board of Directors (1) discussed a Business Plan 

under which a number of the Company's stores would be closed, and (2) reviewed possible 

scenarios under which all or substantially all of the Company's stores and assets would be 

sold. 60 

• As discussed above, formally initiated the distress termination process on 

November 11, 2003. later filed a PBGC Form 601 ("Distress Termination 

Notice Single-Employer Plan Termination") and other supporting documents with PBGC 

(Enclosure 26). 61 The supporting documents explain the basis for 

conclusion that, "unless the Cash Balance Plan is terminated, 

to pay its debts when due and will be unable to continue its business." 

• PBGC reviewed the information in s Distress Termination filing that related 

to the financial condition of the Company and its pension plans. See PBGC Memorandum 

dated February 7, 2005 (Enclosure 27). PBGC then issued a Notice of Determination 

pursuant to ERISA § 404l(c)(2) on February 17, 2005 (Enclosure 28). PBGC's 

determination stated that the Plan's contributing sponsor - and each member 

ofits controlled group met ERISA's distress termination criteria as of the proposed January 

21, 2004 termination date for the Plan. 63 

The minutes of the September 29, 2003 Board of Directors meeting state that the Board 

reviewed background inf01mation "about the pension plan issues currently confronting the 

Company" and related materials that had been prepared by s management. 64 The 

minutes fmiher state: 

The Board then addressed whether it will be feasible to continue to maintain some or 

all of the pension plans as presently constituted, in light of the Company's Chapter 11 

business plan and the likely funding requirements needed for these plans. It was noted 

59 Enclosure 6, at 4-5. 

60 Enclosure 6, at 3-4. 

61 -s May 19, 2004 letter requested that information in its distress filing be protected as confidential 

business information. Although emerged from bankruptcy after the Plan's DOPT, the Company again 

filed for Chapter 11 bankruptcy protection in 2009. On January 25, 2010, - sold its assets to another 

company , and s 2009 bankruptcy case was closed in 2015. Consequently, we find there 

no longer is a need to treat information i~'s 2004 distress filing as confidential business information. 

62 Enclosure 26, "Statement of-Company in Support of [its Distress Termination Application]," at 1. 

63 PBGC concluded that- and six members of its controlled group met the distress criterion in 

ERISA § 404l(c)(2)(B)(iii)(I). Under that criterion, the sponsor and/or controlled group member must demonstrate 

to the satisfaction of PBGC that "unless a distress termination occurs, such person will be unable to pay such person's 

debts when due and will be unable to continue in business." PBGC also concluded that six additional members of 

-s controlled group could not suppmi the Plan because they were "shell companies" with no assets. 

64 Enclosure 19, at 4-5. 

19 
that since filing for Chapter 11, the Company's senior management and restructuring 

professionals have been reviewing the financial status of all of the Company's pension 

plans, including the Cash Balance Plan, and have engaged in on-going discussions with 

potential plan sponsors and funding sources regarding the need to terminate one or 

more of the Company's pension plans, including the Cash Balance Plan, as a condition 

to consenting to any such restructuring. 65 

Consequently, the Board of Directors' minutes show that had considered the need to 

terminate the Plan since the date the Company filed for bankruptcy, which occul1'ed nearly three 

months befor~resigned his employment as President and CEO. 

The minutes of the September 29, 2003 Board m~ state that "the Board then 

discussed the pending lump sum payout requests made b~and [another participant] and 

an extensive discussion regarding the facts and circumstances of such requests followed." The 

Board then directed the Committee to deny the requests. The Committee subsequently notified 

-hat his lump-sum distribution request was denied because it would be "in anticipation 

of termination." The information in PBGC records and i~'s appeal fully supports the 

Board of Directors' conclusion that a distribution to ould have been in anticipation of 

termination. 66 

In arguing to the contrary,-s appeal refers to the A-ust 14, 2003 letter that 

Vice President of Human Resources for had sent to 

employees (Enclosure 29), which stated that "[a]ll of our pension plans are opera mg normally and 

our retirees are receiving payments as due and employees are earning benefits under the terms of 

the plans. "67 

-·s statements in the August 14, 2003 letter do not contradict our conclusion that 

the Plan's termination was a likely prospect when - applied for a lump-sum payment 

(one day later) on August 15, 2003. Although the August 14, 2003 letter provided certain 

assurances to s employees, the letter also: (1) informed the employees that the 

company had not made pension contributions after the May 30, 2003 bankruptcy filing; (2) stated 

that the suspension of pension contributions "was common in bankruptcy," and the Company had 

initiated discussion with Union representatives to address the issue; and (3) explained that benefits 

under the Company's defined benefit pension plans were covered under PBGC's insurance 

program. Most significantly, the August 14, 2003 letter was silent concerning whether -

- s pension plans would remain ongoing after the Company exited banlauptcy. 

65 Id., at 5. 

66 The financial conditions of-and its controlled group that resulted in the Board's decision to seek a 

distress termination of the Plan likely were known to s management, including - on 

August 15, 2003, whe applied for a lump-sum payment, and on September 1, 2003, which i~st 

date that a lump-sum distribution could have been made to him. There is nothing in PBGC's records or in --'s 

appeal that would indicate the Company's financial position was materially different on those dates than on the date 

of the Board of Directors' meeting. 

67 Enclosure 19, at 3, footnote 3. ----'s letter of August 14, 2003, is also discussed in Mr. 

-s November 3, 2003 appeal to~ator and in his supplemental appeal filing to the former 

Plan Administrator dated November 17, 2003. See Enclosure 14, at 2-3, and Enclosure 15, at 2-4. 

20 
2. 

PBGC regulation § 4044.4(b) sets fmih the following standard regarding when a distribution 

will be considered to have been made in anticipation of a pension plan's termination: 

In determining whether a distribution, transfer, or allocation of assets has been 

made in anticipation of plan termination PBGC will consider all of the facts and 

circumstances including-

(1) Any change in funding or operation procedures; 

(2) Past practice with regard to employee requests for forms of distribution; 

(3) Whether the distribution is consistent with plan provisions; and 

( 4) Whether an annuity contract that provides for a cutback based on the 

guarantee limits in subpati B part 4022 of this chapter could have been 

purchased from an insurance company. 

••••l's denial of-slump-sum payment request was in accordance with the 

standard quoted above. Con~s asse1iion in his January 28, 2010 appeal,68 the 

first of the four enumerated circumstances, i.e., "any change in funding or operation procedures," 

specifically applies to his situation. As discussed above: (1) the Plan's assets were insufficient to 

meet the Plan's future benefit liabilities; (2) would need to make estimated 

contributions of $43,422,488 to the Plan during the years 2003 through 2007 to meet the IRC's 

minimum funding standards; and (3) -lacked the financial resources to make such 

funding contributions. 69 

Fmihermore, the first of the four enumerated circumstances fully supports, by itself, the 

former Plan Administrator's decision not to pay him a lump sum. As discussed previously, a 

lump-sum payment to -would have diluted the Plan's assets and, thereby, reduced the 

funds available to pay the benefits of other Plan participants. Consequently, if the former Plan 

Administrator had honored-'s lump-sum payment request, the Plan's "funding" would 

have been impacted in a way that would have been detrimental to the intended purpose of PBGC 

regulation§ 4044.4, i.e., the protection of the ERISA § 4044 asset allocation structure. 

-·s January 28, 2010 appeal asserts that PBGC regulation§ 4044.4 is inapplicable 

to him because "past practice required that Fisher be paid a lump sum" and "a lump sum 

68 Enclosure 19, at 5; see also Enclosure 15, at 2-3. 

69 Because the Plan's minimum funding account contained "credit balances" that had been carried-over from prior 

Plan Years into the 2003 Plan Year, was not required to make any minimum funding contributions for 

the Plan during 2003. Minimum funding contributions to the Plan in excess of $10 million, however, would have 

been required during 2004 ifthe Plan had remained ongoing. As explained in PBGC's Memorandum dated Februaty 

7, 2005, re arding s distress termination application (Enclosure 27), future cash flow projections for 

s business operations demonstrated that the Company would not have sufficient corporate funds to make 

mm1mum funding contributions ifthe Plan had remained ongoing. 

21 
distribution was consistent with plan practices."70 His appeal appears to be referring to the second 

and third of the four enumerated circumstances in PBGC regulation§ 4044.4. 71 The regulation 

states that "PBGC will consider all of the facts and circumstances, including" the four that are 

listed in the regulation. Accordingly, it is unnecessary for all four of the listed circumstances to 

be satisfied in order for a violation of PBGC regulation§ 4044.4 to occur. 

In any event, the former Plan Administrator's decision not to follow the Plan's usual practices 

in considering-'s lump-sum request was justified. Most of s Plan benefit 

amount is not guaranteed by PBGC upon the Plan's termination, primarily because ERISA's 

phase-in limitation applies to the substantial benefit increase he received under the Plan's Second 

Amendment. The phase-in limitation does not similarly affect the PBGC-guaranteed benefits that 

would be payable to other Plan paiiicipants upon Plan termination because the Second Amendment 

applied only to- Consequently,-was in a different situation from other Plan 

participants who requested lump-sum payments. 72 

We reject-'s argument that he is entitled to a lump-sum distribution because ce1iain 

other employees received such distributions before and after his application was denied. First, we 

note that the minutes for the Company Board meeting on September 29, 2003, show that the 

lump-sum payment request of another Plan participant was denied at the same time as -s. 

While the records that PBGC received from show that several Plan paiiicipants 

received lump-sum distributions close to the date of the Plan's issuance of NOITs, this does not 

mean that the former Plan Administrator's lump-sum payments to other Plan paiiicipants 

necessarily violated PBGC regulation § 4044.4. 73 The relevant consideration for deciding-

- s appeal is whether the former Plan Administrator had correctly applied PBGC regulation 

§ 4044.4 in denying his lump-sum payment request. In 's case, we conclude that the 

former Plan Administrator had correctly applied PBGC regulation§ 4044.4. 

Finally, -asserts that his facts and circumstances are distinguishable from those in 

the Braniff bankrnptcy, where the Bankruptcy Comi denied paiiicipant requests for lump-sum 

70 Enclosure 19, at 5. 

71 In referring to the last of these four criteria,-s January 28, 2010 appeal states that "no annuity contract 

was implicated because payment would have been in the form ofa lump sum." Enclosure 19, at 5. While we agree 

with that the fourth criterion in § 4044.4 is not implicated, we do not draw any inference from this 

conclusion in determining whether PBGC regulation § 4044.4 applies to him because the fomth criterion is directed 

solely at a type of pension plan transaction (i.e., an insurance annuity purchase) that is not at issue in this appeal. 

72 PBGC's actuarial valuation of the Plan identifies only two individuals (not including~ whose 

PBGC-payable benefits are affected by the phase-in limitation. See Case Memo at 11 (Enclos~phase-in 

limitation applies to these two patticipants because the compensation limit under IRC § 40l(a)(17), which was 

incorporated into the Plan's provisions, had increased in 2002 and had caused relatively modest increases to their Plan 

benefits. The benefit increase based on IRC § 401(a)(l 7) is subject to phase-in because the increase went into effect 

fewer than three years before the Plan's DOPT. 

73 We observe that a lump-sum distribution to a participant prior to a pension plan's issuance ofNOITs frequently 

provides the participant with a benefit that has the same value as the annuity benefit that PBGC would pay. The most 

typical instance where this occurs is when the patticipant's entire plan benefit is guaranteed by PBGC. A lump-sum 

distribution that does not provide benefits in excess of PBGC's guarantee would be in compliance with 

PBGC regulation§ 4044.4 ifthe "facts and circumstances" standard set forth in that regulation is satisfied. 

22 
payments on the basis that the payments would have been in anticipation of plan termination and 

would have violated PBGC regulation§ 4044.4. 74 We recognize that-s situation does 

not involve a "run on the bank" that appears to have occun-ed in the Braniff case. However, as the 

Bankruptcy Court stated in Braniff, a central purpose of PBGC regulation§ 4044.4 is "to maintain 

the respective positions of the participants in a plan's assets."75 The denial o~s lumpsum payment request based on PBGC regulation§ 4044.4 thus is consistent with the regulation's 

purpose of maintaining ERISA's statutory structure for the allocation of a terminating plan's 

assets. 

C. Tlte former Plan Administrator's decision on-slump-sum payment request 

was not unreasonably delayed or improper 

-'s November 3, 2003 appeal to the former Plan Administrator, which is referenced 

in his January 28, 2010 letter to the Appeals Board, states that the Board of Directors and 

Committee had "knowingly delayed" his lump-sum payment request by not making a decision 

until September 29, 2003, which was approximately six weeks after the date of his benefit 

application. 76 --urther contends that "in the ordinary course, the requested benefit would 

have been paid well before then."77 

We conclude that in its capacity as the Plan's administrator, did not 

unreasonably delay a decision on-slump-sum payment request. -' s decision 

was in compliance with section 11. 7 of the Plan Document (Enclosure 5), which is explained in 

the Plan's Summary Plan Description as follows: 

If your request [for Plan benefits] is fully or paiiially denied, you will receive 

written notice giving reasons for the denial within 90 days (or 180 days if special 

circumstances exist). If you receive no response within these time limits, you 

should consider the claim denied. 78 

74 -views Braniff as distinguishable because, in that case, the employer's CEO had publicly announced that 

the company was "dead" months before it filed formal plan termination notices and because "contrary to past practice, 

more than 150 pmticipants filed for lump-sum benefit distributions following the bankruptcy filing." See Enclosure 

14 at 2-3. 

75 Braniff, 27 B.R. at 2270. 

76 Enclosurel4, at 1-2. 

77 Id See also Enclosure 19, at 5. 

••••s appeal also states that the Committee "processed other Plan pmticipants' applications for benefits, 

including lump sum benefits, and caused the Plan to pay such benefits, both before and after the Board's decision to 

terminate the Plan." Enclosure 19, at 3. 

78 See March 2003 Summary Plan Description, at 21 (Enclosure 30). This Summary Plan Description provision 

complied with applicable Department of Labor regulations (published at 29 C.F.R. § 2560.503-l(b )(2) and (f)(l)), 

which require BRISA-covered pension plans to provide participants with written notice in the summary plan 

description that the plan generally had up to 90 days to deny a claim for pension benefits, or up to 180 days to deny a 

claim if special circumstances exist. 

23 . 
Moreover, in light of the unique characteristics of-s benefit and his position as the 

President and CEO of-, the Company's Board of Directors reasonably considered his 

lump-sum application at its September 29, 2003 meeting, rather than instructing the Committee to 

process his request on an earlier date. 

-s appeal also asserts that the denial of his lump-sum payment request was improper 

because the Plan's Committee had improperly delegated its authority to determine his benefit to 

the Board of Directors. 79 We disagree. The Plan provides that "the Company shall be the Plan 

Administrator and shall have the final responsibility for administration of the Plan. " 80 The 

Committee, which consists of three or more persons who "may be appointed and serve at the 

pleasure of the Board," is authorized "to assist in the administration of the Plan."81 Based on the 

Plan's provisions, the Company, acting through its Board of Directors in the capacity of Plan 

Administrator, did not improperly usurp the authority of the Committee when it denied Mr. 

Fisher's lump-sum payment request. 

Finally, contends that 'slump-sum denial was improper because it is 

"highly probable that the denial of the lump sum was effected in order to protect the Company's 

financial position in subsequent negotiations with the PBGC so that the Plan would be less 

underfunded than if it had paid the lump sum."82 -s unsubstantiated speculation about 

the motives of the Company fails to establish that the Company's lump-sum denial was improper. 

Rather, the above-discussed circumstances establish that the Company had denied his lump-sum 

payment request based on a correct application of PBGC regulation § 4044.4 to his factual 

circumstances. 

Having considered all of the arguments in his appeal, we deny-s claim that his 

"pre-te1mination application for a lump sum benefit from the Plan was improperly denied and, 

therefore, he [is] still entitled to a lump-sum benefit." 

D. PBGC's prohibition of distributions in anticipation of termination is a valid exercise 

o(its rulemaking authority 

-·s appeal contends that PBGC regulation§ 4044.4 is "ultra vires" to the extent it 

precludes lump-sum distributions that a pension plan would otherwise pay on a date before the 

Plan Administrator's initiation of a distress termination. 83 The appeal asserts: (1) the preclusion 

of lump-sum distributions under ERIS A § 4041 ( c )(3) applies only if distress termination notices 

have been issued; (2) if Congress had wanted to preclude lump-sum payments in other 

79 Enclosure 19, at 2; see also Enclosure 15, at 3-4. 

80 Plan Document § 12.1; see also Plan Document§ 1.34 (which defines the "Plan Administrator" as "the Company 

or such other person or persons as designated by the Board"); and Plan Document§ 1.7 (which defines the "Board" 

as-'s Board of Directors). Because there is no evidence that the Company (who acts through its Board 

of Directors) had designated any individual or entity to be the Plan Administrator, the Company was the Plan 

Administrator at the time had applied for his Plan benefit. 

81 Plan Document§ 12.2. 

82 Enclosure 19, at 3-4. 

83 Enclosure 19, at 5. 

24 
circumstances, it would have done so; and (3) "a regulatory agency cannot, by promulgation of a 

regulation, rewrite a statute. "84 

BRISA provides PBGC with broad authority to adopt rules and regulations. 85 We explain 

below why PBGC regulation § 4044.4 is a valid exercise of PBGC's rulemaking authority, 

notwithstanding the arguments in Mr. Fisher's appeal. 

Shortly after BRISA was enacted, PBGC issued a proposed regulation on "Allocation of 

Assets under section 4044 of BRISA."86 After some refinements during the rulemaking process, 

PBGC issued its final asset allocation regulation on January 28, 1981.87 Section 4044.4 of this 

regulation, which has not been substantially modified since it was issued in 1981, is titled 

"Violations" and contains two subsections. 

Subsection (a) of PBGC regulation § 4044.4, which-does not challenge in his 

appeal, provides that a "plan administrator violates BRISA if plan assets are allocated or distributed 

upon plan termination in a manner other than that prescribed in section 4044 of BRISA and this 

subpart [of PBGC's regulation]." Subsection (b) provides that a "distribution, transfer, or 

allocation of assets to a participant or to an insurance company for the benefit of a paiiicipant, 

made in anticipation of plan termination, is considered to be an allocation of plan assets upon 

termination, and is covered by paragraph (a) of this section." Subsection (b) also sets foiih the 

standard for determining "whether a distribution, transfer, or allocation of assets has been made in 

anticipation of plan termination." 

As stated in the preamble to PBGC's regulation, the purpose of subsection (b) of PBGC 

regulation § 4044.4 is to "minimize the possibility of abuse" of PBGC's termination insurance 

program through the "distribution of plan assets contrary to section 4044 of the Act, in anticipation 

of plan termination, whether directly to a participant or through the purchase of an insurance 

contract."88 The preamble elaborates that distributions in anticipation of termination could result 

in abuse because they could cause benefit payments "in excess of the guaranteed benefit limits" 

and/or a "misallocation to ce1iain priority categories."89 

84 Id. 

85 ERISA § 4002(b)(3) provides that PBGC may adopt rules and regulations "relating to the conduct of its business 

and the exercise of all other rights and powers granted to it by [Title IV of ERIS A]" and "as may be necessary to carry 

out the purposes of [Title IV]." 

86 40 Fed. Reg. 51,368 (Nov. 4, 1975). This proposed regulation provided, as a "general rule," that upon termination 

of a plan, "the assets of such plan shall be allocated to benefits provided by the plan in the manner prescribed by this 

part." Id. at 51,370-71. It further stated that it would be a "violation" ofERISA to allocate plan assets other than as 

prescribed by section 4044 and that a distribution, transfer, or allocation of assets to a participant "in contemplation 

of termination" would be treated as an allocation upon termination. Id. at 51,371. 

The allocation regulation was adopted as an interim regulation a year later without change to either of the 

above-discussed provisions. 41 Fed. Reg. 48480, 48482 (Nov. 3, 1976). 

87 46 Fed. Reg. 9480 (Jan. 28, 1981 ). 

88 Id. at 9841. 

89 Id. 

The preamble to PBGC's asset allocation regulation also explains that PBGC's final allocation regulation excludes 

25 
The two-part analysis that the Supreme Court established in Chevron US.A., Inc. v. Natural 

Resources Defense Council, Inc., 467 U.S. 837 (1984) applies to an administrative agency's 

interpretation of its governing statute. Under the first prong of the Chevron analysis, if Congress 

has "directly spoken to the precise question at issue," the agency must give effect to "the 

unambiguously expressed intent of Congress."90 But if a statute is "silent or ambiguous" on the 

issue, the second prong of the Chevron analysis requires the court to uphold the agency's 

interpretation if it is "based on a permissible construction of the statute. "9 1 

When ERISA was enacted in 1974, it did not specifically address whether a plan administrator 

could make benefit distributions, such as lump-sum payments or insurance annuity purchases, 

during the time period when a pension plan termination was contemplated but had not yet occmTed. 

Consequently, the first prong of the Chevron analysis does not apply to PBGC's decision, early in 

its history, to prohibit such distributions when abuse of ERISA' s asset allocation structure would 

result. 

The Appeals Board concludes that PBGC regulation § 4044.4 is a permissible exercise of 

PBGC' s rulemaking authority under ERIS A, and, therefore, satisfies the second prong of the 

Chevron analysis. ERISA § 4002(a) states that the purposes of ERISA Title IV, which are to be 

carried out by PBGC, are: 

(1) to encourage the continuation and maintenance of voluntary private pension 

plans for the benefit of their participants, 

(2) to provide for the timely and uninterrupted payment of pension benefits to 

participants and beneficiaries under plans to which this subchapter applies, and 

(3) to maintain premiums established by the corporation under [ERISA § 4006] at 

the lowest level consistent with carrying out its obligations under this subchapter. 

As the aforementioned history of the regulation indicates, the purpose of PBGC 

regulation§ 4044.4 is to ensure that ERISA's intended structure for the allocation of a terminated 

plan's assets to its benefits is not disrupted by transactions (e.g., lump-sum distributions or 

purchase of insurance annuities) that occur within the time period when plan termination is likely. 

PBGC regulation§ 4044.4 thus coincides with the underlying purposes ofERISA Title IV because 

the regulation protects both pension plan participants and PBGC's tennination insurance 

program.92 

from the allocation process benefits payable by an insurer to an individual patticipant under an "irrevocable 

commitment." PBGC decided to exclude irrevocable commitments from the allocation process because they "cannot 

be used to satisfy other plan obligations." Id. The preamble notes that "[o]bjections to the 'irrevocable commitment' 

rule have been raised on the grounds that it could result in an abuse of the termination insurance program." Id. The 

"anticipation of termination" provision in PBGC's final version of PBGC regulation § 4044.4 applies to both 

irrevocable commitments and direct payments to participants. 

9

° Chevron, 467 U.S. at 842. 

91 Id. at 843. 

92 The denial ofa pre-termination lump-sum payment sometimes will result in additional plan assets being available 

at DOPT to fund higher-priority PBGC-guaranteed benefits and sometimes will be available to fund the higher-priority 

26 
In arguing to the contrary, -s appeal places reliance upon the actions of Congress 

that occurred several years after the issuance of PBGC regulation § 4044.4. 93 Specifically, 

the appeal refers to the distress termination provisions that were enacted as part 

of the Single-Employer Pension Plan Amendments Act of 1986 ("SEPPAA").94 In that 

legislation, Congress revised the termination provisions of section 4041 of ERISA 

to provide separate procedures for standard terminations and distress terminations. Under 

ERISA § 4041(c)(3)(D)(ii), which is one of the distress termination provisions, the plan 

administrator must pay benefits attributable to employer contributions "only in the form of an 

annuity" upon the filing of a notice of intent to terminate with PBGC. 95 

SEPPAA's distress termination provisions were enacted to remedy the Congressional finding 

that "the cmTent termination insurance system in some instances encourages employers to 

terminate pension plans, evade their obligations to pay benefits, and shift unfunded pension 

liabilities onto the termination insurance system and the other premium-payers."96 Consequently, 

in enacting the distress termination requirements and procedures, Congress intended that "the 

transfer of unfunded pension liabilities onto the single-employer pension plan termination 

insurance system [would occur] only in cases of severe hardship."97 

Although SEPPAA provided additional protection to PBGC's te1mination insurance program 

by creating the distress termination requirements and procedures, SEPP AA is silent concerning 

whether or not a plan administrator is obligated to make lump-sum distributions in the time period 

before a distress termination is initiated. There further is no evidence that, when SEPP AA was 

enacted, Congress intended to ove11'ide the requirements in PBGC regulation § 4044.4, which had 

become a final regulation five years before SEPPAA's enactment. Indeed, it would be illogical to 

find an implicit Congressional intent to decrease PBGC regulatory authority in legislation that was 

intended to expand, rather than reduce, protections to PBGC.98 Finally, SEPPAA did not make 

nonguaranteed benefits. In Enclosure 31, we provide two examples that show the impacts of lump-sum denials under 

different situations. The first example presents a scenario where a portion of the plan assets that would been expended 

for a participant's lump sum becomes available to fund higher-priority guaranteed benefits of another patticipant. The 

second example presents a scenario where a p01tion of the plan assets that would been expended for a patticipant's 

lump sum becomes available to fund higher-priority nonguaranteed benefits of another participant. In both examples, 

PBGC's termination insurance program is protected, which is consistent with ERISA § 4002(a)(2) and (3). 

93 Enclosure 19, at 5. See also Enclosure 14, at 2. 

94 SEPPAA was enacted on April 7, 1986 as Title XI of the Consolidated Omnibus Budget Reconciliation Act of 

1985. See Pub. L. No. 99-272, § 11009. 

95 ERISA §4041(c)(3)(D)(ii). 

PBGC's implementing regulation similarly provides that once the plan administrator has issued a notice of intent 

to tetminate, a plan administrator may not "[p ]ay benefits attributable to employer contributions, other than death 

benefits, in any form other than as an annuity .... " 29 C.F.R. §4041.42(b). 

96 Pub. L. No. 99-272, § l 1002(a)(4). 

97 Id. at§ 11002(c)(4). 

98 Fmthermore, "repeals by implication are disfavored and 'will not be presumed unless the intention of the 

legislature to repeal [is] clear and manifest.'" Adirondack Medical Center v. Sebelius, 891 F.Supp.2d 36, 46 (D.D.C. 

2012), citing Hawaii v. Office of Hmvaiian Affairs, 556 U.S. 163 (2009). 

27 
any changes to ERISA § 4044, which is the statutory provision upon which PBGC's "anticipation 

of termination" regulation is based. 99 

Accordingly, the context of SEPPAA's distress termination provisions and its legislative 

purpose do not support the view that BRISA§ 4041(c)(3)(D)(ii) is intended to provide 

pmiicipants with an umestricted entitlement to lump-sum distributions before a NOIT is issued. 

Rather, the more reasonable interpretation is that the SEPP AA provisions were intended to provide 

protection to PBGC and to pension plan pmiicipants after the plan administrator initiates a distress 

termination filing, without diminishing PBGC's authority to regulate distributions that would be 

in anticipation of termination. 

Finally, PBGC regulation § 4044.4 is consistent with ERISA's statutory structure because it 

prevents the payment of benefit amounts that PBGC ordinarily would be authorized to recover 

under ERISA § 4045 after a distress termination occurs. As previously explained, the "recapture 

provision" in ERISA § 4045 allows PBGC to recover a pmiion of any lump sums paid during 

the three years before termination (generally, the amount above PBGC's guarantee). It would 

be anomalous to require plan administrators to honor the lump-sum applications of participants 

in situations where lump-sum amounts that are paid in anticipation of termination could later be 

recovered by PBGC under ERISA § 4045. 

E. -was not owed a lump-sum payment when the Plan terminated 

ERISA § 4044(a) provides that, in the case of plan termination, "the assets of the plan 

(available to provide benefits)" are allocated among the participants and beneficiaries of the plan 

in accordance with the six priority categories specified in the statute. PBGC's implementing 

regulation (PBGC regulation§ 4044.3) provides that plan assets that are available to pay benefits 

as of the allocation date include all plan assets "remaining after the subtraction of all liabilities, 

other than liabilities for future benefit payments." The liabilities of the plan that are subtracted 

from plan assets "include expenses, fees, and other adminisfrative costs, and benefit payments due 

before the allocation date." 100 

Based on these provisions, PBGC will generally pay benefits that were due and payable before 

the plan's termination date if the plan's assets are sufficient to pay them. However, except for 

de minimis amounts, PBGC ordinarily will not pay such pre-termination benefit liabilities as lump 

sums but instead will pay them in the alternative annuity form, as provided under PBGC 

regulation § 4022. 7. 

Even though-had applied for a lump-sum payment before the Plan's DOPT, a lump 

sum was not due and payable to him when the Plan terminated. The former Plan Administrator 

co11'ectly denied his lump-sum payment request based on PBGC regulation § 4044.4, for the 

99 SEPP AA further does not address lump-sum distributions in pension plans that are terminated by PBGC under 

ERlSA § 4042 without a (prior) distress termination filing by the plan administrator. PBGC regulation § 4044.4 

applies to distributions in anticipation of termination in such PBGC-terminated plans, as well as to plans that are 

terminated under the distress termination procedures in ERJSA § 4041 ( c ). 

100 Id. In the case of a distress termination, the allocation date is on the plan's DOPT. 

28 
reasons explained above. Consequently, the only benefit liability as of the Plan's DOPT for. 

-'who did not elect to start his pension payments before the Plan's DOPT, was the Plan's 

liability to him for future benefit payments. PBGC cannot pay-'s Plan benefit in full 

due to BRISA's guarantee limits and because the Plan lacked sufficient assets to fund the 

nonguaranteed portion of his benefit. Consequently, s pre-DOPT application for a 

lump sum does not require PBGC to pay him a more valuable benefit. 

-

uing to the contrary, the appeal states that the former Plan Administrator's failure to pay 

a lump sum violated BRISA § 404(a)(l)(D), which requires fiduciaries to act in 

a e with the terms of the plan. 101 We disagree. BRISA§ 404(a)(l)(D) provides: 

[A] fiduciary shall discharge his duties with respect to a plan solely in the interest 

of the participants and beneficiaries and - ... 

(D) in accordance with the documents and instruments governing the plan 

insofar as such documents and instruments are consistent with the 

provisions of [Title I and Title IV of BRISA]. 

Consequently, a fiduciary's duty under BRISA § 404(a)(l)(D) to follow plan documents is 

qualified by the condition "insofar as such documents and instruments are consistent with the 

provisions of ... [Title IV of BRISA]." 

Similarly, BRISA§ 4023, which is in Title IV of BRISA, provides: 

Notwithstanding any other provision of this Act, a fiduciary of a plan to which 

section 1321 of this title applies is not in violation of the fiduciary's duties as a 

result of any act or of any withholding of action required by this title. 102 

In -s case, payment of a lump sum would have violated PBGC regulation § 4044.4, 

which implements BRISA § 4044. Therefore, having considered the BRISA provisions that apply 

to the former Plan Administrator's responsibilities, we conclude that the former Plan Administrator 

did not breach its required fiduciary duties under BRISA when it denied - s lump-sum 

payment request. 

F. PBGC regulations and PBGC Policy 5.4-9 require tha 

an annuity 

's benefit be paid as 

As previously explained, PBGC regulation§ 4022.7 provides that PBGC will pay a lump sum 

after plan termination only in limited circumstances, none of which applies to -· 

Furthermore, PBGC's determination that it will not pay-a lump sum is consistent 

with PBGC Policy 5.4-9. Subsection C.5 of that Policy provides that PBGC "generally will not 

101 Enclosure 19, at 2-4. 

102 In this provision, "this Act" refers to ERISA, "section 1321 of this title" refers to pension plans covered by PBGC 

under ERISA § 4021, and "this title" refers to Title IV ofERISA (which established PBGC's insurance programs). 

29 
honor a plan application for a lump-sum payment (whether de minimis or not) that was not paid 

by the plan administrator regardless of when the application was filed with the plan administrator 

or when the payment was originally due." 

PBGC Policy 5.4-9 reflects PBGC's interpretation of ERISA and applicable PBGC 

regulations. The Policy takes into account not only ERISA's distress termination provisions, but 

also other provisions under ERISA and PBGC regulations, which include: (1) ERISA's structure 

for allocating a terminated plan's assets to benefits under ERISA § 4044; (2) PBGC's authority 

under ERISA § 4045 to recover a portion of a lump sum paid within three years of plan 

te1mination; (3) the limitation upon lump-sum distributions in anticipation of termination under 

PBGC regulation§ 4044.4; and (4) PBGC regulation§ 4022.7, which provides that PBGC will 

not guarantee or pay lump sums after plan termination, but, instead, will guarantee the annuity 

equivalent. 103 We conclude that PBGC Policy 5.4-9 further supports the denial of-s 

lump-sum payment request. 

The benefit that PBGC is required to pay - as a monthly annuity is subject to 

ERISA's guarantee limits and ERISA's requirements for allocating the terminated plan's assets to 

its benefit liabilities. PBGC is paying ~is monthly benefit in the form he elected in 

accordance with the Plan's provisions and the requirements in ERISA and PBGC regulations. 

Accordingly, having reviewe s appeal in accordance with the District Court's remand 

order, we conclude that: (1 'slump-sum payment request must be denied; and (2) as 

stated in the Appeals Board's November 14, 2012 decision,- is entitled to a monthly 

benefit of $866.54 in the form of a Joint and 50% Survivor Annuity. 

Decision 

Having reviewed-s appeal in accordance with the remand order of the United States 

District Court for the ~Columbia, the Appeals Board has decided that-is not 

entitled to a lump-sum payment of his Plan benefit. This decision modifies the Appeals Board's 

September 29, 2011 decision by providing a revised and more complete explanation of the reasons 

we are denying-s lump-sum payment claim. 

The Appeals Board is not making any changes to its November 14, 2012 decision regarding 

the amount o~s PBGC-payable benefit. As stated in that decision,-is entitled 

to a monthly benefit of $866.54 in the form of a Joint and 50% Survivor Annuity based on his 

benefit start date of May 1, 2007, and he cun-ently is receiving that monthly amount. 

103 The Appeals Board's September 29, 2011 decision, in explaining underlying legal basis for the 1st edition of PBGC 

Policy 5.4-9, referred only to the distress termination provisions in ERISA § 4041 and in PBGC regulation § 4041.42. 

In retrospect, our prior decision should have referred to and explained other relevant provisions in ERISA and PBGC 

regulations, which provide legal support not only for the 1st edition of Policy 5 .4-9 but also for its three later editions. 

30 
This decision is PBGC's final agenc~ the Appeal, and-may seek review 

of this decision by the District Court. If _needs other information regarding his PBGC 

benefits, he may contact PBGC's Authorized Plan Representative at 1-800-400-7242. 

Sincerely, 

Charles Vernon 

Appeals Board Chair 

Enclosures (31): 

31