1Title 11 of the Bankruptcy Code, 11 U.S.C. §§ 101-1501. 

 

2Title IV of the Employee Retirement Income Security Act

("ERISA"), 29 U.S.C. §§ 1301-1461. 

1

United States Court of Appeals,

Fifth Circuit.

No. 93-1681.

In the Matter of ESCO MANUFACTURING, CO., Debtor.

PENSION BENEFIT GUARANTEE CORP., Appellee,

v.

Gregg PRITCHARD, Trustee in Bankruptcy For Esco Manufacturing,

Co., Appellant.

Sept. 29, 1994.

Appeal from the United States District Court for the Northern

District of Texas.

Before GOLDBERG, HIGGINBOTHAM and EMILIO M. GARZA, Circuit Judges.

GOLDBERG, Circuit Judge:

This case brings to the fore the interrelationship between the

bankruptcy laws protecting debtors1 and the pension laws protecting

pension plan participants.2 Our analysis of the independent

existence and cross fertilization of these two major Congressional

enactments leads us to prohibit any attempt to utilize the

bankruptcy laws to escape ERISA's protection of pension plan

participants. We hold that a Chapter 7 bankruptcy Trustee remains

subject to the debtor's statutory obligation to terminate its

pension plan in accordance with the specific procedures established

by ERISA. In so complying, we find that the Trustee does not

exceed the limits of proper trustee activity set out by the
 

3A proof of claim has been filed by the Pension Benefit

Guarantee Corporation against the bankruptcy estate calculating

the deficiency at $576,400. 

2

Bankruptcy Code.

I.

Esco Corporation ("Esco" or the "Debtor") filed for Chapter 11

bankruptcy protection in April of 1990. In January of 1991, Esco's

mortgage foreclosed on the Esco factory and the company ceased all

operations. In June of the same year, the case was converted into

a Chapter 7 liquidation and the bankruptcy court appointed Gregg

Pritchard as Trustee of the Esco estate.

Previously, in January of 1976, Esco had established a pension

plan for its employees. In 1990, when the corporation filed for

bankruptcy, this plan reported assets of $527,557 but also reported

liabilities of approximately $748,468 in the form of vested

benefits owing to employees.3 At no time during the bankruptcy

proceedings did the Debtor or the Trustee notify the Pension

Benefit Guarantee Corporation ("PBGC"), the government corporation

charged with protecting pension benefits, of Esco's bankruptcy as

is required by ERISA, 29 U.S.C. § 1343(b)(9). The PBGC was

eventually notified of the bankruptcy, however, when Calloway

Pension Services, a professional actuary serving as a consultant to

the plan, sought help when the pension benefits were not paid by

Esco.

In October of 1991, the Chapter 7 trustee, Pritchard, filed a

Notice of Intention to Abandon the pension plan arguing that the

plan was of little value to the estate and that the plan should be
 

4The Trustee also noticed his intention to abandon the

employee profit sharing plan. The decision of the district court

granting the Trustee's motion to do so is not an issue in this

appeal. 

 

5Title IV imposes various obligations on the employer and

plan administrator which must be fulfilled in order to complete a

successful termination of an ERISA-covered pension plan. They

include a duty to terminate the plan in accordance with this

section, to notify the PBGC after the filing of bankruptcy, to

notify all affected parties of the impending termination, and to

comply with various reporting requirements as to the net assets

and liabilities of the plan. 29 U.S.C. § 1341. 

3

abandoned as burdensome under the authority of 11 U.S.C. § 554(a).4

The PBGC filed an objection, asserting that the Trustee was

prohibited from abandoning the estate's statutory obligations to

the pension plan under Title IV of ERISA.5 The conflict that here

arose between the parties illuminates the confrontation between the

pension and bankruptcy statutes central to the resolution of this

controversy.

The bankruptcy court granted the Trustee's motion in February

of 1992, holding that the plan was not property of the estate and

that even if it was later deemed to be so, any obligations held by

the Trustee could be abandoned. The PBGC appealed this decision to

the district court. By order entered May 27, 1993, the district

court, although agreeing that the pension plan was not part of the

debtor's estate, concluded that the Title IV obligations of the

plan could not be abandoned. The court then held that the ERISA

termination obligations are "claims" against the estate that the

Trustee is obligated to resolve. 11 U.S.C. §§ 101(5), 704(1). The

district court, therefore, required the Trustee to terminate the

plan so that the PBGC could fulfill its Title IV insurance
 

6The PBGC insures the pension benefits of 40 million

American employees in 85,000 private pension plans. Daniel

Keating, Chapter 11's New Ten-Ton Monster: The PBGC and

Bankruptcy, 77 Minn.L.Rev. 803, 806-807 (1993). 

 

7The PBGC covers only those benefits that have vested. 29

U.S.C. § 1322. 

 

8The PBGC's insurance fund is also financed through

recoveries garnered from employers who terminate underfunded

plans. 29 U.S.C. § 1345. 

4

obligations to the plan participants and beneficiaries. Pritchard

appeals that decision.

II.

First, we provide a little background. Title IV of ERISA

protects the pension benefits of workers enrolled in ERISA-covered

plans through the administration of the PBGC, a government

corporation modeled after the Federal Deposit Insurance

Corporation.6 See Pension Benefit Guaranty Corp. v. LTV Corp., 496

U.S. 633, 636-38, 110 S.Ct. 2668, 2671, 110 L.Ed.2d 579 (1990).

When a plan covered by Title IV terminates and has insufficient

assets to pay promised pension obligations, the PBGC steps in as

trustee of the plan and guarantees payment of certain benefits to

the plan participants.7 Id. The PBGC uses the existing plan

assets to cover as much as it can of the benefit obligations

asserted against the plan and then adds its own funds to insure

payment of the remaining vested benefits. Id.; 29 U.S.C. §§ 1322,

1344. The PBGC finances this insurance program for underfunded

plans by requiring employers that maintain ongoing pension plans to

pay annual premiums. 29 U.S.C. §§ 1306-07.8

Plans may either be terminated voluntarily by an employer or
5

involuntarily by the PBGC. LTV, 496 U.S. at 638-40, 110 S.Ct. at

2672; 29 U.S.C. §§ 1341-42. The employer may voluntarily

terminate a plan in two ways. If the employer has sufficient

assets to pay all of the plan's benefit commitments, that employer

may terminate the plan without implicating PBGC insurance

responsibilities. This is called a "standard" termination. Id.

If the plan's assets are not sufficient to pay all of the benefits

owed and thus the termination will implicate the PBGC's insurance

function, the employer must demonstrate that it is in financial

"distress" as defined in 29 U.S.C. § 1341(c) before it may

terminate the plan. Resort to Chapter 7 liquidation proceedings is

one way that the employer can demonstrate financial "distress". 29

U.S.C. § 1341(c)(2)(B)(i). Involuntary terminations are initiated

by the PBGC who may petition a district court for the appropriate

declarations. 29 U.S.C. § 1342.

The vital question in the case before us today is whether the

Trustee has an obligation to execute the relatively simple task of

terminating Esco's pension plan and thereby activating the PBGC's

many responsibilities. The synergistic relationship between the

bankruptcy estate and the PBGC in protecting the beneficiaries of

the pension plan is existential and someone must have the right and

the power to energize it. In this way, Title IV of ERISA can

perform its central role in protecting the financial health of many

of our nation's employees as they enter retirement.

III.

In this case we must address whether a bankruptcy trustee can
 

9See supra, note 5 for an explanation of these obligations. 

6

be compelled to take control of and terminate a debtor's pension

plan in order to allow the PBGC to assume the various

administrative and financial obligations necessary to protecting

the plan beneficiaries. This controversy requires us to probe the

relationship between the Bankruptcy Code and ERISA. Esco, the

original sponsor of the plan, is in Chapter 7 bankruptcy. The

attempt by the Trustee to abandon the plan forces us to decide

whether the responsibility of terminating the plan may be placed

upon the bankruptcy trustee when the plan assets, by all

admissions, are separate and apart from the bankruptcy estate. We

find that the Chapter 7 liquidation of an employer does not

dissipate the estate's responsibility to its former employees and

that the trustee remains responsible for carrying out the

termination obligations.9

Pritchard argues that as bankruptcy trustee, he has narrowly

circumscribed duties that do not encompass the administrative

responsibilities that the PBGC wishes to impose. Further,

Pritchard asserts that, as Chapter 7 trustee, he owes his

allegiance to the bankruptcy estate alone and cannot be made

responsible to third parties such as former employees who will be

receiving pension benefits under the bankrupt company's pension

plan. Any obligation to terminate the pension plan would, he

argues, either exceed his job description as trustee or infringe on

his primary obligation to the bankruptcy estate and its creditors.

The PBGC counters that the filing of a bankruptcy petition
 

1029 U.S.C. § 1341(a)(1) provides:

(1) Exclusive means of plan termination

Except in the case of a termination for which

proceedings are otherwise instituted by the corporation

as provided in section 1342 of this title, a

single-employer plan may be terminated only in a

standard termination under subsection (b) of this

7

does not suspend the obligations imposed by ERISA, including the

responsibility to terminate a pension plan prior to the PBGC's

intervention. We find this to be the far more weighty concern, and

the one most easily supported by the case law. ERISA speaks to the

specific subject of pension plans and tells trustees and employers

that termination of a plan at the onset of bankruptcy is essential

to the PBGC's accomplishment of its obligations.

The PBGC is not a "brooding omnipresence in the sky." It

exists as a real, operating agency with responsibility over the

pension benefits of millions of workers. The PBGC, to perform its

essential functions, must be advised by the entity in the primary

position to do so, that the pension plan will require the

invocation of the PBGC's insurance responsibilities. We therefore

conclude that the bankruptcy trustee remains responsible for

complying with the ERISA obligations which were previously part of

the debtor's ongoing corporate concern.

A pension plan must be terminated prior to the assumption of

insurance responsibilities by the PBGC. Congress has expressly

provided that the procedures set out in ERISA are the sole and

exclusive means for terminating a pension plan. 29 U.S.C. §

1341(a)(1)10; see also H.R.Rep. No. 300, 99th Cong., 1st Sess. 289
section or a distress termination under subsection (c)

of this section. 

 

11The Single-Employer Pension Plan Amendment Act of 1986,

P.L. 99-272, 100 Stat. 237 (1986) ("SEPPAA"). 

8

(1985), reprinted in 1986 U.S.C.C.A.N. 756, 940 ("[T]he Committee

intends that ERISA provide the sole and exclusive means under which

a qualified pension plan may be terminated."). We therefore cannot

allow the bankruptcy abandonment procedures to be used to concoct

an alternative method of terminating pension plans. The

responsibility for terminating the pension plan does not evaporate

after the bankruptcy of the employer and the placement of the

estate in Chapter 7 liquidation proceedings. A company cannot

simply file for bankruptcy and abandon a pension plan—nor the

pension rights of its former employees—without meeting ERISA

obligations for administering and terminating the plan. See e.g.,

supra, LTV v. PBGC, 496 U.S. at 655-57, 110 S.Ct. at 2681

(upholding PGBC's ban on "follow-on" plans in which corporations

abandon their pension plan obligations in order to collect PBGC

insurance and then commence a new pension plan arrangement

identical to the first but without the unpaid liabilities).

In 1986, Congress added the "exclusive means of termination"

provision to Title IV and reaffirmed its intention that the ERISA

provisions pertaining to plan termination should apply to a

debtor's bankruptcy estate.11 In passing this legislation, Congress

sought to ensure that the commencement of Chapter 7 proceedings
 

12This exclusive means provision was enacted in response to

an earlier bankruptcy court decision that allowed the bankruptcy

estate to reject a pension plan as an executory contract. In re

Bastian Co., 45 B.R. 717 (Bankr.W.D.N.Y.1985). The legislative

history of SEPPAA explain that "a recent case before the U.S.

Bankruptcy Court for the Western District of New York, In re

Bastion Company, Inc. (No. 83-21071, Jan. 16, 1985), which held

that ERISA does not impair other Federal law, and therefore, a

pension plan can be rejected as an executory contract, was

incorrectly decided." H.R.Rep. No. 300, 99th Cong., 1st Sess.

289 (1985), reprinted in 1986 U.S.C.C.A.N. 756, 940. 

 

13Indeed, 29 U.S.C. § 1343(b)(9) of ERISA obligates the

employer to notify the PBGC when any "event occurs which the

corporation determines may be indicative of a need to terminate

the plan." In addition, 29 U.S.C. § 1342(e) recognizes the

capacity of the PBGC to maintain proceedings intended to

involuntarily terminate a plan notwithstanding the pendency "in

the same or any other court of any bankruptcy." The conclusion

is obvious that Congress has, through these provisions, asserted

the continuing existence of a bankruptcy estate's ERISA

obligations once a corporation has filed for bankruptcy. 

9

would not wipe out the debtor's pension obligations.12 We cannot

give credence to Pritchard's assertion, therefore, that the plan

sponsor's bankruptcy estate has no further obligation with respect

to the pension plan.13 In enacting SEPPAA, Congress made clear its

intention that a pension plan may not be deserted by an employer

except through certain defined procedures, even if that employer

has filed for the protection of federal bankruptcy law.

Pritchard responds that had Congress intended a bankruptcy

trustee to perform the sort of obligations that the PBGC wishes to

impose in the instant case, it would have included the

administrative duty of terminating a debtor's pension plan among

the responsibilities which are specifically set out in the

Bankruptcy Code, 11 U.S.C. § 704. Section 704 of the Bankruptcy

Code establishes the various statutory duties of a bankruptcy
 

14The estate is comprised of "all legal or equitable

interests of the debtor in property as of the commencement of the

case." 11 U.S.C. § 541(a)(1). 

10

trustee and Pritchard points out that taking control of and

terminating a debtor's pension plan is not among the enumerated

obligations. 11 U.S.C. § 704. Additionally, because the pension

plan assets are not property of the debtor's estate, 11 U.S.C. §

541,14 as Trustee of that estate, Pritchard asserts that he can have

no authority over the plan. A bankruptcy trustee is empowered, in

Pritchard's view, only to collect and liquidate the assets of the

estate as quickly as is possible. See e.g., In re Riverside-Linden

Investment Co., 925 F.2d 320, 322 (9th Cir.1991).

Pritchard finds further fault with the district court's order

directing him to terminate the pension plan in that it requires him

to take actions on behalf of third parties. Property of the estate

does not include "any power that the debtor may exercise solely for

the benefit of an entity other than the debtor," 11 U.S.C. §

541(b)(1), and therefore, Pritchard argues that he would violate

his fiduciary duties as Trustee if he acted to terminate the plan

because the plan is of no value to the estate and termination would

solely benefit the plan participants.

Pritchard's arguments, when held up to scrutiny, fail to

convince us that the district court acted improperly in compelling

the Trustee to take control of and terminate the Esco pension plan.

We find that the duties imposed by the Bankruptcy Code include the

obligation to perform any termination obligations imposed by ERISA

and that by doing so the trustee is indeed acting in the service of
 

15Pritchard argues that the bankruptcy court failed to make

a factual finding that no plan administrator exists. The

existence, vel non, of a committee appointed to administer the

plan does not, however, impact Esco's responsibility as the plan

sponsor for terminating the plan under Article XII since that

section specifically vests this power with Esco itself. 

11

the best interests of the estate. Similarly, such action does not

violate the trustee's fiduciary obligation to act only in the

interest of consolidating the debtor's assets and liabilities and

closing the estate. To the contrary, terminating the pension plan

directly promotes these aims.

Article XII of the Esco pension plan provides that the

sponsor, Esco, has expressly reserved for itself the right to

terminate the plan. Because Esco is the entity empowered to

terminate the plan, it was required to do so when the company

entered bankruptcy and became unable to continue funding the plan.

However, Esco, has now been taken over by the Chapter 7 Trustee.

Section 402(a) of ERISA, 29 U.S.C. § 1102(a)(1), requires that

a pension plan specify one or more named fiduciaries who have

authority to manage the operation and administration of the plan.

If, however, an ERISA administrator is not named under the plan, 29

U.S.C. §§ 1002(16)(A) and 1301(a)(1) provide that the plan sponsor

is the administrator by operation of law. Therefore, the fact that

the committee designated to administer the Esco plan is not

currently functioning or may never have been put in place, as

alleged by the PBGC, does not impact the ability of the Trustee to

terminate the plan.15

Pritchard, as Esco's bankruptcy Trustee, assumes the position
12

of the debtor as to that debtor's many obligations. 11 U.S.C. §

541. Previous courts have held that statutory obligations that

bind the debtor will subsequently bind the bankruptcy trustee.

Hays and Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 885

F.2d 1149, 1154-62 (3rd Cir.1989). The Hays court determined that

the bankruptcy trustee must comply with the statutorily imposed

obligation to arbitrate under the Federal Arbitration Act, 9 U.S.C.

§§ 1-14, because the trustee "stands in the shoes of the debtor for

purposes of the arbitration clause and that the trustee-plaintiff

is bound by the clause to the same extent as would be the debtor."

Id. We believe that obligations originating out of ERISA are

similarly binding on the bankruptcy Trustee in this case.

Pritchard claims that he cannot be bound by Esco's ERISA

responsibilities because it would contravene his fiduciary duties

to the estate and that the Bankruptcy Code excludes from the

bankruptcy estate powers "that the debtor may exercise solely for

the benefit of an entity other than the debtor." 11 U.S.C. §

541(b)(1). He claims that executing the termination of the pension

plan benefits the pension plan participants alone. This argument

ignores, however, the important ways in which the power to

terminate a pension plan benefits the bankruptcy estate.

The debtor is entitled to any surplus funds where, upon the

termination of the plan, a plan's assets exceed the liabilities

owed to plan participants. 29 U.S.C. § 1344. In the instant case,

although no surplus assets exist to revert to the Esco estate, the

exercise of the authority to terminate the plan will nevertheless
 

16We also note that even though the employer (or bankruptcy

trustee) makes the decision to terminate the pension plan

considering factors beyond the best interests of the plan and its

participants does not mean that the decision violates the

employer's (or trustee's) fiduciary's responsibility to those

participants. The decision to terminate is an executive decision

in which the decisionmaker is not functioning as a fiduciary. 

Drennan v. General Motors Corp., 977 F.2d 246, 251 (6th

Cir.1992), cert. denied, --- U.S. ----, 113 S.Ct. 2416, 124

L.Ed.2d 639 (1993); Payonk v. HMW Industries, Inc., 883 F.2d

221, 229 (3rd Cir.1989); Amalgamated Clothing & Textile Workers

Union v. Murdock, 861 F.2d 1406, 1419 (9th Cir.1988). 

13

benefit that estate. Indeed, the power to terminate the Esco

pension plan benefits the bankruptcy estate in various ways.

Underfunded pension plans such as the one at issue here must be

terminated in order to cut off further escalation of liabilities in

the form of benefit accruals and vesting. In this way, the Trustee

can fix the liability of the debtor's estate under Title IV of

ERISA requiring employers to compensate the PBGC for any

underfunding by ceasing the continued amassing of benefits by

participants. 29 U.S.C. § 1362(b)(1)(A). Moreover, the plan

sponsor's annual contributions to the plan continue to accrue under

29 U.S.C. § 1082 until the plan is terminated pursuant to Title IV.

The bankruptcy estate, therefore, greatly benefits by the trustee's

power to terminate the debtor's pension plan, even where the plan

does not have a revertible surplus.16

The Bankruptcy Code and recent case law have imposed various

duties on bankruptcy trustees. These duties provide support for

the trustee's execution of the required termination tasks. A

trustee has a duty to preserve the estate's assets in order to

maintain the most advantageous liquidation of the estate for the
14

interest of its creditors. See In re Rigden, 795 F.2d 727, 730

(9th Cir.1986) (bankruptcy trustee has "a fiduciary obligation to

conserve the assets of the estate and to maximize distribution to

creditors"); In re Melenyzer, 140 B.R. 143, 154

(Bankr.W.D.Tex.1992) (same). The trustee must also "close such

estate as expeditiously as is compatible with the best interests of

parties in interest." 11 U.S.C. § 704; see also Yadkin Valley

Bank & Trust Co. v. McGee (In re Hutchinson), 5 F.3d 750, 753 (4th

Cir.1993) ("the duty to close the estate expeditiously is the

trustee's "main duty' and "overriding responsibility.' ")

(citations removed).

As set out above, the estate continues to accrue liabilities

until the plan is terminated. The Esco Trustee is therefore acting

within the authority provided by his duty to preserve the assets of

the estate by terminating the pension plan and halting the

continued accrual of benefits. Furthermore, terminating the

pension plan obligations of the debtor fulfills the Trustee's duty

to expeditiously close the estate. In sum, the duties set out

under 11 U.S.C. § 704 provide ample support for the imposition on

the Trustee of an obligation to terminate the pension plan.

In carrying out the duties of collecting and liquidating the

assets of the estate and closing that estate as expeditiously as is

appropriate, courts have required bankruptcy trustees to perform a

variety of administrative and statutory tasks. Of note is

Midlantic National Bank v. New Jersey Dep't of Envtl. Protection,

474 U.S. 494, 106 S.Ct. 755, 88 L.Ed.2d 859 (1986), in which a
 

17A Chapter 7 trustee has also been held liable for his

failure to have snow cleared from the roof of bankrupt estate's

property. In re Reich, 54 B.R. 995, 1003 (Bankr.E.D.Mich.1985). 

We assume the PBGC's claims outweigh the importance of a few

snowflakes. 

15

Chapter 7 trustee was compelled to conform with various health and

safety regulations in administering estate property. The Court

held that the trustee must comply with environmental regulations in

exercising its power to abandon property with serious environmental

problems. Id. at 506, 106 S.Ct. at 762; see also In re

Commonwealth Oil Refining Co., Inc., 805 F.2d 1175, 1185 (5th

Cir.1986), cert. denied, 483 U.S. 1005, 107 S.Ct. 3228, 97 L.Ed.2d

734 (1987). Similarly, a Chapter 7 trustee is obligated to file

tax returns in the course of administering the bankruptcy estate.

Holywell Corp. v. Smith (In re Holywell Corp.), --- U.S. ----, ----

, 112 S.Ct. 1021, 1027, 117 L.Ed.2d 196 (1992); Tambay Trustee v.

Pizza Pronto, (In re Pizza Pronto), 970 F.2d 783, 784 (11th

Cir.1992); United States v. State Farm Fire & Casualty Co. (In re

Joplin), 882 F.2d 1507, 1511 (10th Cir.1989). The bankruptcy

trustee is also required to abide by any statutorily imposed

obligations to arbitrate disputes. Hays and Co. v. Merrill Lynch,

885 F.2d at 1153-54.17 In light of the various administrative and

statutory obligations imposed upon the bankruptcy trustee in

performing his liquidation responsibilities, we find no obstacle in

compelling Pritchard to comply with ERISA.

Pritchard's refusal to terminate the pension plan leaves a

gaping hole in the statutory protections offered pension plan

participants and beneficiaries. Someone must shoulder the
16

responsibility for terminating the pension plan of an employer that

has entered Chapter 7 liquidation proceedings. The bankruptcy

trustee cannot be allowed to shirk his duties in this regard for if

he is permitted to do so, the consequences for the plan

participants could be severe. For example, in the instant case no

one even bothered to notify the PBGC of the fact that the employer

had stopped funding the pension plan and the participants could

easily have been left entirely without insurance coverage.

If no one can be given the baton for executing an order of

termination, the PBGC's functions would be downsized and the many

participants who rely on the insurance will be left stranded

without their benefits. We must send the message to both employers

and pension plan participants that bankruptcy will not serve as an

instrument for abandoning a corporation's pension obligations. By

abandoning the debtor's pension plan obligations, the Trustee has

attempted to create a separate avenue for terminating a

corporation's ERISA responsibilities without complying with the

specific requirements of that statute. This contravenes Congress'

clearly expressed intention of preserving an employer's ERISA

termination obligations even after that employer enters bankruptcy.

The bankruptcy trustee empowered to liquidate the estate

cannot claim that the Bankruptcy Code denudes the estate of the

many vestments of personhood which the corporation maintained in

its former solvent status. Of great importance among the statutory

obligations is an employer's (or its estate's) responsibility to

its former employees. By imposing the obligation to terminate a
17

pension plan on the bankruptcy Trustee, we can insure that plan

assets are protected during volatile periods of business failure

and liquidation. We believe that recognizing this obligation will

give full effect to ERISA while leaving intact the integrity of the

Bankruptcy Code.

IV.

We conclude that the district court properly determined that

the bankruptcy trustee cannot avoid its obligations to the debtor's

pension plan by abandoning that plan. The administrative

procedures for proper termination of a pension plan must be

complied with, whether by the plan sponsor, or upon his accession

to control of the corporation, the bankruptcy trustee.

For the foregoing reasons, the order of the district court is

AFFIRMED.

EMILIO M. GARZA, Circuit Judge, dissenting:

Although I agree "that bankruptcy [should] not serve as an

instrument for abandoning a corporation's pension obligations," I

disagree that we should "[impose] the obligation to terminate a

pension plan on the bankruptcy trustee." Neither ERISA nor the

Bankruptcy Code explicitly contemplates the transfer of such ERISA

obligations to the bankruptcy trustee, see 29 U.S.C. § 1341 and 11

U.S.C. § 704, and I question whether this Court has the authority

to judicially legislate such a solution. Notwithstanding that I

agree that the termination requirements under ERISA do not dissolve

upon bankruptcy, neither statutory authority nor case law shifts

that responsibility from the debtor to the bankruptcy trustee.
 

1Although ERISA's references to the employer' s duties are

numerous, nowhere does ERISA refer to the bankruptcy trustee or

any relationship the trustee may have to a debtor's plan. 

Accordingly, I do not find the majority's conclusion as to

Congress' intent "obvious." See slip op. at 6639 & n. 13. 

18

Moreover, the authority cited by the majority to support imposing

this obligation on the bankruptcy trustee does not fit the

circumstances of this case. Finally, ERISA itself offers an

alternative mechanism by which the PBGC itself can terminate a

pension plan. For these reasons, I respectfully dissent.

A bankruptcy trustee can exercise only those powers granted by

the Bankruptcy Code. See In re Benny, 29 B.R. 754, 760

(N.D.Cal.1983) ("The trustee is a creature of statute and has only

those powers conferred thereby."). Under the Code, a Chapter 7

trustee's powers extend only over property of the estate. See In

re Ozark Restaurant Equip. Co., 816 F.2d 1222, 1228-29 (8th Cir.)

("[T]here is nothing in ... the liquidation framework of the Code

authorizing a Chapter 7 trustee to collect money not owing to the

estate."), cert. denied, 484 U.S. 848, 108 S.Ct. 147, 98 L.Ed.2d

102 (1987). Here, the trustee does not assert that the employer

should be able to "desert" its obligations under the plan. Rather,

he argues that this obligation still belongs to the employer, and

the trustee has no power to assume it. I agree. Although ERISA

imposes the obligation to terminate on the employer,1 bankruptcy

law controls whether that obligation becomes part of the estate and

part of the trustee's duties. When a debtor files bankruptcy, an
 

2Section 541 defines the scope and contents of that estate. 

"The commencement of a [bankruptcy] case ... creates an estate. 

Such estate is comprised of all the following property ...: (1)

Except as provided in subsections (b) and (c)(2) of this section,

all legal or equitable interests of the debtor in property...." 

11 U.S.C. § 541 (1988). 

 

3See also In re Nevin, 135 B.R. 652 (Bankr.D.Hawaii 1991)

(limiting trustee's obligation to file tax returns only for the

estate, not for the debtors). For example, the majority confuses

the concept of the bankruptcy estate with that of the debtor by

stating that the estate has "former employees." See slip op. at

6638 ("the estate's responsibility to its former employees"). A

bankruptcy estate has no former employees; only the debtor does. 

 

4"Property of the estate does not include—(1) any power that

the debtor may exercise solely for the benefit of an entity other

than the debtor." 11 U.S.C. § 541(b) (1988). 

19

estate is created.2 The bankruptcy estate is distinct from the

debtor. See In re Doemling, 127 B.R. 954, 955 (W.D.Pa.1991) ("The

most glaring problem in the ... analysis is its failure to

recognize the distinction between the debtors and the estate....

The debtors and the estate are not interchangeable.").3

Consequently, the Code does not impose all the debtor's obligations

on the trustee. Indeed, it clearly excludes certain obligations

from the estate and hence from the trustee's powers.4 Unless the

obligation to terminate a pension plan is covered by section 541,

it is not part of the estate.

The majority gives examples of instances in which a bankruptcy

trustee has administered a debtor's pension plan, but all of these

cases are under chapter 11, under which the trustee has the power

to operate the debtor's business, a power and duty not within the

scope of a chapter 7 trustee, unless specifically authorized. The

duties of a chapter 7 and chapter 11 trustee differ. 11 U.S.C. §§
 

5ERISA itself recognizes differences between chapter 7 and

chapter 11 regarding necessary distress criteria. Section

1341(c)(2)(B)(ii) contemplates and requires further involvement

of the debtor and bankruptcy court in the termination proceeding

after the bankruptcy filing. Section 1341(c)(2)(B)(i) only

requires filing of or conversion to chapter 7. See 29 U.S. §

1341(c)(2)(B) (1988 & Supp. V 1993); 29 C.F.R. § 2616.3 (1993). 

 

6The majority attempts to find authority in § 704 for

imposing on the bankruptcy trustee the duty to terminate the

plan. See slip op. at 6641-42 ("[T]he duties set out under 11

U.S.C. § 704 provide ample support...."). If a duty does not

pertain to property of the estate, however, it cannot fit within

§ 704. Consequently, the majority's dependence on § 704 fails. 

 

7The majority does not specifically hold that the obligation

to terminate is property of the estate. Nonetheless, it states

that the bankruptcy trustee is attempting to "abandon" its

obligations. See slip op. at 6638-39 ("cannot allow the

20

704, 1106 (1988).5 The goal of chapter 7 is liquidation, and that

of chapter 11 is reorganization and continuation of the debtor's

business. Chapter 11 duties are not applicable to a chapter 7

trustee; consequently, the majority's cases are inapplicable to

this situation. Pritchard has not been authorized to operate Esco;

accordingly, his duties are limited to those enumerated under

section 704 regarding property of the chapter 7 estate.6

The ERISA Plan is not property of the estate. See Patterson

v. Shumate, --- U.S. ----, ----, 112 S.Ct. 2242, 2250, 119 L.Ed.2d

519 (1992) (excluding from the bankruptcy estate a debtor's

interest in an ERISA plan). Moreover, the district court held that

the Plan itself, not merely its assets, was not property of the

estate. This arguably includes the right to terminate the Plan.

Assuming that the district court's order only covered the Plan

assets, this still leaves the question of whether the power to

terminate, standing alone, is property of the estate.7 The parties
bankruptcy abandonment procedures to be used"), 6642 ("abandoning

the debtor's pension plan obligations"), 6643 ("abandoning that

plan"). Unless an item is property of the estate, however, there

is nothing for the trustee to abandon. See 11 U.S.C. § 554

(1988) ("A trustee may abandon property of the estate."). 

 

8See Midlantic Nat'l Bank v. New Jersey Dep't of Envt'l

Protection, 474 U.S. 494, 106 S.Ct. 755, 88 L.Ed.2d 859 (1986)

(environmental obligations for contaminated property of the

estate); In re Commonwealth Oil Refining Co., 805 F.2d 1175 (5th

Cir.1986) (same), cert. denied, 483 U.S. 1005, 107 S.Ct. 3228, 97

L.Ed.2d 734 (1987); In re Holywell Corp., --- U.S. ----, 112

S.Ct. 1021, 117 L.Ed.2d 196 (196) (1992) (tax returns for

property of the estate); Tambay Trustee v. Pizza Pronto (In re

Pizza Pronto), 970 F.2d 783 (11th Cir.1992) (same); United

States v. State Farm Fire & Cas. Co. (In re Joplin), 882 F.2d

1507 (10th Cir.1989) (same); In re Reich, 54 B.R. 995

(Bankr.E.D.Mich.1985) (the snowflakes collapsed the roof of the

estate's property, not the building next door). 

21

have not cited, nor have I found, any case law characterizing a

bare obligation as property. The administrative obligations cited

by the majority all refer to obligations attached to property of

the estate.8 Neither have the parties cited, nor have I found, any

case law imposing an administrative obligation for non-estate

property on a bankruptcy trustee. The Hays case cited by the

majority imposed the obligation to arbitrate on the trustee only

for claims "derived from the rights of the debtor under section

541." See Hays & Co. v. Merrill Lynch, Pierce, Fenner & Smith,

Inc., 885 F.2d 1149, 1154 (3d Cir.1989). Because the plan is not

property of the estate, an obligation such as termination is not

derived under section 541. Indeed, Hays refused to impose the

obligation to arbitrate on claims that were "not derivative of the

bankrupt." 885 F.2d at 1155.

The majority also holds that the power to terminate would not

be excluded by section 541(b)(1) as an interest exercised "solely
 

9Moreover, imposing the obligation to administer the plan

during the termination process on the chapter 7 trustee does

require the trustee to act only for the benefit of the plan. See

N.L.R.B. v. Amax Coal Co., 453 U.S. 322, 329, 101 S.Ct. 2789,

2794, 69 L.Ed.2d 672 (1981) ("[A] trustee bears an unwavering

duty of complete loyalty to the beneficiary of the trust, to the

exclusion of all other parties"), 2796 n. 17 ("[T]he trustees

22

for the benefit of an entity other than the debtor," because it

would benefit the estate. See slip op. at 6639-41. Again, I

disagree. Assets which have no value to the estate are not

property of the estate and the trustee has no power or duty to

manage them. See In re Peckinpaugh, 50 B.R. 865, 869

(Bankr.N.D.Ohio 1985) (holding that it is against the intent of the

Bankruptcy Code to shift the trustee from a custodial role to that

of an investment manager and that "at no time does [the trustee]

have a duty to manage assets, which have no value to the estate

..."); see also In re Kreiss, 72 B.R. 933, 939

(Bankr.E.D.N.Y.1987) (excluding from the bankruptcy estate an

interest that had no value). The power to terminate the plan does

not benefit the estate. The plan is underfunded, and Esco will not

be able to pay off the plan, even at current value. Exercising a

power to terminate will not add any value to the estate; it will

merely cut off the escalation of the amounts the PBGC must supply

to pay off the plan. It is the PBGC, not the estate, to whom the

right to terminate the plan has value. See Pension Benefit

Guarantee Corporation v. FEL Corp., 798 F.Supp. 239, 242

(D.N.J.1992) (stating that PBGC claims for termination liability

are unsecured claims, unlikely to be paid by an insolvent debtor in

bankruptcy, thereby increasing PBGC's risk).9
must act solely in the interest of the trust beneficiaries"). 

Additionally, although the majority correctly states that the

"decision to terminate" is not subject to fiduciary restrictions,

see slip op. at 6641 n. 16, the plan administrator does have

fiduciary responsibilities during the process of termination. 

See 29 U.S.C. § 1342(d)(3) (1988 & Supp. V 1993) (stating that an

ERISA plan trustee shall be a fiduciary during the process of

terminating a pension plan). 

 

10ERISA grants authority to the PBGC to terminate the Plan. 

First, it authorizes PBGC to institute termination proceedings. 

See 29 U.S.C. § 1342(a) (1988 & Supp. V 1993). Second, it

authorizes PBGC to apply to the United States District Court for

the appointment of a trustee to administer the plan, or PBGC may

request appointment itself as trustee. See 29 U.S.C. § 1342(b)

(1988 & Supp. V 1993). Third, it authorizes PBGC to ask the

district court to decree that the plan trustee shall terminate

the plan. See 29 U.S.C. § 1342(c) (1988 & Supp. V 1993); see

also Pension Benefit Guarantee Corporation v. FEL Corp., 798

F.Supp. at 242 (explaining PBGC's authority to terminate a plan

under § 1342). The majority assumes that terminating the Plan is

a "relatively simple task." See slip op. at 6638 ("the

relatively simple task of terminating Esco's pension plan"). If

so, I question why the PBGC has refused to pursue this obvious

solution and its own self-interest. 

23

The majority states that "someone must shoulder the

responsibility for terminating the pension plan of an employer that

has entered Chapter 7 liquidation proceedings." I agree, but I do

not see any basis for the bankruptcy trustee to be that "someone."

Moreover, ERISA provides in § 1342 for the PBGC to fulfill that

role.10

Judicial transference of the employer's obligation to

terminate the plan in order to ensure "that plan assets are

protected" is a laudable goal, but ERISA already protects the plan

assets through the PBGC. Imposing this obligation on the

bankruptcy trustee contravenes the limited authority allowed under

the Bankruptcy Code and forces the trustee into a conflict of
 

11See In re Deena Woolen Mills, 114 F.Supp. 260, 267

(D.Me.1953) ("[A] trustee should be wholly free from all

entangling alliances or associations that might in any way

control his complete independence and responsibility."); In re

10th Avenue Distributors, Inc., 97 B.R. 163, 166

(Bankr.S.D.N.Y.1989) (limiting trustee's standing to recovery of

property to benefit entire estate and "not particular to one

creditor"). 

24

interest that frustrates obligations to the bankruptcy estate.11

Because ERISA already provides an alternative solution that avoids

this conflict, I respectfully dissent.