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Timestamp: 2017-01-16 17:30:29
Document Index: 721212555

Matched Legal Cases: ['§ 404', '§ 1104', '§ 406', '§ 1106', '§ 404', '§ 406', '§ 1104', '§ 1106', '§ 404', '§ 406', '§ 404', '§ 406', '§ 1104', '§ 408', '§ 1108', '§ 4041', '§ 1341', '§ 4041', '§ 4041', '§ 1341', '§ 4041', '§ 1341', '§ 4044', '§ 1344', '§ 4044', '§ 1106', '§ 1344', '§ 1106', '§ 1108', '§ 1106', '§ 1002', '§ 1108', '§ 2616', '§ 2616', '§ 404', '§ 1104', '§ 1104', '§ 2613', '§ 2616', '§ 1104', '§ 173', '§ 173', '§ 1342', '§ 404', '§ 1103', '§ 16', '§ 173', '§ 14', '§ 404', '§ 1104', '§ 16', '§ 1104', '§ 1341', '§ 1344', '§ 2617', '§ 1', '§ 1104', '§ 16']

| Payonk v. HMW Industries Inc.
Payonk v. HMW Industries Inc.
PAYONK, PAUL L., AND HAMILTON, JOHN J., INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, APPELLANTSv.HMW INDUSTRIES, INC., HAMILTON TECHNOLOGY, INC., CLABIR CORP., BERNHARDT, KENNETH R., STRANTZ, GLORIA G., AND CLARKE, HENRY D., JR., PAUL L. PAYONK AND JOHN JAMES HAMILTON, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, APPELLANTS
On Appeal from the United States District Court for the Eastern District of Pennsylvania, D.C. No. 86-2545
This appeal, which arises from two corporate reorganizations and the consequent termination of a pension plan, requires us to answer the question: do pension plan fiduciaries have a duty under § 404 (29 U.S.C. § 1104) and § 406 (29 U.S.C. § 1106) of the Employee's Retirement Income Security Act (ERISA) to notify the former members of a plan who now claim an interest in a plan surplus, of a termination of the plan prior to the ten day requirement of the Pension Benefit Guaranty Corporation (PBGC)*fn1 regulations found at 29 C.F.R. 2616 et seq.? We conclude that in the circumstances presented here, no notification was required beyond the 10-day notice mandated by the regulation.*fn2
The district court granted defendants' motion for summary judgment and denied the plaintiffs' motion for partial summary judgment, holding that the duties embodied in § 404 and § 406 did not apply to HMW's business decision to terminate the pension plan. We affirm.
The plaintiffs, represented by John J. Hamilton and Paul L. Payonk ("Payonk"), consist of a class of employees or former employees of Hamilton Precision Metals ("Metals") and of Wallace Silversmiths, Inc. ("Wallace") who withdrew from a defined benefit pension plan shortly before its termination and, therefore, did not share in the distribution of the surplus of the Plan. The defendants, HMW Industries, Inc., Hamilton Technology, Inc., Clabir Corp., Bernhardt, Kenneth R., Strantz, Gloria G., and Clarke, Henry D., Jr., are alleged to have breached their fiduciary duty by failing to inform Payonk of the impending plan termination and by self-dealing.*fn3 The relevant facts, none of which are in dispute, have been detailed by the district court in its Memorandum and Order of June 27, 1988. We reproduce the pertinent portions of that recital supplemented by additional facts disclosed in the record.
Named plaintiffs filed suit in May 1986 alleging that HMW had breached its fiduciary duties of care and loyalty, inter alia, by failing to investigate Payonk's right to share in the surplus and by failing to inform Payonk of the impending termination in violation of ERISA section 404, 29 U.S.C. § 1104. Payonk further alleged that HMW breached the prohibition against self-dealing contained in ERISA section 406, 29 U.S.C. § 1106, by failing to notify class members of "important and material facts about their interest in the HNW plan, thereby increasing the reversion of surplus assets to themselves or the corporate interests they represent."
HMW moved for summary judgment and Payonk moved for partial summary judgment. The district court granted HMW's motion on the grounds that the plan terminated by HMW was not subject to the fiduciary standards prescribed in § 404 and § 406; that the termination of HMW's plan was made by HMW in its business capacity; that HMW had no duty to notify Payonk of the HMW plan termination until the termination date was fixed; that HMW as employer had no duty to disclose formulative or preliminary information leading up to the termination of the plan; that PBGC regulations prescribed the time and manner of notice of termination; that HMW had complied with those PBGC regulations and that therefore HMW had breached no duty to the former plan members. Payonk appealed.
Our review of an appeal from the grant of a motion for summary judgment is plenary. Where factual controversies exist, disputes over material facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment. Anderson v. Liberty Lobby Inc., 477 U.S. 242, 248, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). However, where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, or where the facts are not disputed, there is no genuine issue for trial. Matsushita Electrical Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986).
We first turn our attention to the question whether, under the circumstances of this case, HMW's decision to terminate its plan was strictly a corporate management business decision, which by its nature imposed no fiduciary duties on HMW, see Trenton v. Scott Paper Co, 832 F.2d 806 (3d Cir. 1987) cert. denied, 485 U.S. 1022, 108 S. Ct. 1576, 99 L. Ed. 2d 891 (1988); or whether the decision to terminate was an action subject to fiduciary duties governed by § 404 and § 406.*fn4
The determination as to whether the decision taken was a business corporate management decision or whether it was an action falling within the fiduciary functions delineated by ERISA is a threshold determination in our analysis. As we understand the jurisprudence in this area, where an administrator of a plan decides matters required in plan administration or involving obligations imposed upon the administrator by the plan, the fiduciary duties imposed by ERISA attach. See Rosen v. Hotel Restaurant Emp. Bartenders Union, 637 F.2d 592 (3d Cir.) cert. denied, 454 U.S. 898, 102 S. Ct. 398, 70 L. Ed. 2d 213 (1981). Where, however, employers conduct businesses and make business decisions not regulated by ERISA, no fiduciary duties apply. And, when employers wear "two hats" as employers and as administrators ". . . they assume fiduciary status 'only when and to the extent' that they function in their capacity as plan administrators, not when they conduct business that is not regulated by ERISA." Amato v. Western Union Intern. Inc., 773 F.2d 1402, 1416-17 (2d Cir. 1985) cert. dismissed, 474 U.S. 1113, 106 S. Ct. 1167, 89 L. Ed. 2d 288 (1986).
Payonk's arguments may be summarized as follows: first, Payonk does not contend that the decision by HMW to terminate its plan was a fiduciary decision. (Appellant Br. at 22.) Thus, Payonk concedes that when the district court concluded that HMW's decision to terminate its plan was exempt from ERISA's fiduciary obligations under the cases on which the district court relied, the district court was correct in relying on those authorities.*fn5 (Appellant Br. at 23.) Payonk, however, contends that even though the termination of HMW's plan was not a fiduciary decision, there was an obligation upon HMW to protect the existing interests and entitlement of the beneficiaries, i.e., the plaintiff class members in the termination process. Referring to the Sixth Circuit opinion in Berlin v. Michigan Bell Telephone Co., 858 F.2d 1154 (6th Cir. 1988) which reversed Ogden v. Michigan Bell Telephone Co., 657 F. Supp. 328 (E.D.Mich. 1987), (the district court case upon which the district court in the instant action relied), Payonk argues that HMW had an affirmative duty to disclose termination information which it possessed. Payonk claims that rather than disclosing such information, HMW withheld that information in breach of its duty.
In this respect, Payonk's argument resembles the argument made by plaintiffs in Berlin, supra, where the Berlin plaintiffs also conceded that Michigan Bell's decision to offer a new plan (MIPP) from which plaintiffs were excluded, was a non-fiduciary decision. The Berlin plaintiffs argued that a distinction had to be drawn between the actual corporate decision to offer new benefits and communications made by fiduciaries to potential plan participants about such a new offering. Berlin, 858 F.2d at 1161. The district court in Berlin, had rejected any such distinction, finding that "[it] would be illogical to hold that even though the ultimate decision to offer MIPP was a business decision, that representations about the eventuality were made in a fiduciary capacity." Id. Because of its holding that the decision to offer MIPP benefits was a business decision and that therefore any communications relating to that decision were not fiduciary in nature, the district court in Berlin did not reach the question of whether misrepresentations which misled the Berlin plaintiffs, actually occurred with respect to the new MIPP plan.
The court of appeals, in reversing the district court's summary judgment in favor of Michigan Bell, focused its attention on the issue of affirmative misrepresentations and held that the plan fiduciary had a fiduciary duty not to make negligent or intentional misrepresentations to plan participants concerning the MIPP offering. This holding was reached in the context of facts that charged Michigan Bell with having excluded plan participants from the new plan by reason of affirmative misrepresentations made by Michigan Bell's district Manager.*fn6
Thus, the thrust of the Berlin opinion centered on the misrepresentations alleged by the Berlin plaintiffs. It is for that reason the Berlin court held that liability will lie only if material misrepresentations in violation of 29 U.S.C. § 1104 are proven by the plaintiffs. Id. at 1164. That holding distinguishes Berlin from the facts before us. For in the instant case, the record reveals no claims or assertions that HMW had misrepresented its termination decision. Rather, Payonk's claim is that notification should have been given at a time when HMW merely contemplated the termination of the plan but had not yet decided to do so. In the absence of any claim that Payonk was mislead by affirmative misrepresentations made by HMW, Payonk cannot rely on Berlin as authority for imposing fiduciary duties on HMW.
As noted, Payonk argues that HMW breached its fiduciary duty by failing to notify the Metals and the Wallace employees of HMW's proposed plan termination. In support of this argument Payonk refers us to Delgrosso v. Spang and Co., 769 F.2d 928 (3d Cir. 1985), cert. denied 476 U.S. 1140, 106 S. Ct. 2246, 90 L. Ed. 2d 692 (1986), arguing that this court has held that "a business decision to terminate a pension plan does not render fiduciary obligations inapplicable to recapture of a surplus in which employees have a legitimate interest." (Appellant Br. at 21.) Payonk also seeks to support his position by referring to Rosen v. Hotel & Restaurant Emp. Bartenders Union, 637 F.2d 592 (3d. Cir.), cert. denied 454 U.S. 898, 70 L. Ed. 2d 213, 102 S. Ct. 398 (1981).
Here, on the other hand, no violation of the pension agreement occurred and the decision to terminate the HMW plan could only have been made and effectuated by HMW in its role as employer. No other party, including in particular HMW as administrator, had the authority to make that decision. Until the termination decision became final on March 7, 1984 (to be effective March 31, 1984) disclosure was not required because (1) prior to March 7, 1984, the discussions concerning termination were preliminary, indefinite and subject to change; (2) as a corporate management decision, the decision to terminate did not impose fiduciary obligations on HMW in its role as employer; (3) no Berlin type misrepresentations took place which might implicate general fiduciary disclosure, see Berlin, supra; and (4) ERISA requirements of disclosure did not provide for notice until 10 days prior to March 31, 1984. Notice in fact was given in accordance with 29 C.F.R. 2616,*fn7 on March 12, 1984, five days after the March 7, 1984 decision to terminate and well before the ten day deadline prescribed by regulation.
Reliance on Rosen v. Hotel & Restaurant Emp. Bartenders Union, 637 F.2d 592, 599-600 (3d Cir.) cert. denied, 454 U.S. 898, 70 L. Ed. 2d 213, 102 S. Ct. 398 (1981) is similarly misplaced. Rosen involved a situation where an employer failed to make contributions to the pension fund administered by the union. This failure resulted in denying Rosen, the employee, of his benefits since the trustee-union failed to inform Rosen of his employer's delinquency and Rosen's pension was dependent on his employer's continuing contributions. We held that under such circumstances a trustee administering the fund, i.e. the plan administrator, had the fiduciary duty to inform an employee of his employer's failure to make required contributions to the fund.
Other courts of appeals have even held that an administrator who has complied with the statutory standard for disclosure cannot be said to have breached a fiduciary duty of failing to provide information concerning preliminary or formulative discussions involving proposed changes. Stanton v. Gulf Oil Corp., 792 F.2d 432 (4th Cir. 1986) (it is not a violation of ERISA to fail to furnish information regarding amendment to a plan before those amendments are put into effect.); Porto v. Armco, 825 F.2d 1274 (8th Cir. 1987), cert. denied 485 U.S. 937, 108 S. Ct. 1114, 99 L. Ed. 2d 274 (1988) (an administrator who complies with ERISA standards for disclosure cannot be said to have breached his duty by not providing earlier disclosure). In this circuit, a district court has also addressed this issue. See, Trexel v. E.I. Dupont De Nemours & Co., No. 85-759 (D.Del. September 9, 1987), aff'd mem., 845 F.2d 1016 (3d Cir. 1988)
Strantz averred that ". . . there was no consensus reached that the proposed termination would proceed, because of various problems discussed regarding the proposal. . . . The meeting adjourned without a decision on whether to implement the proposed termination." (App. 142-43) (emphasis added). Van Hoesen stated
"At the meeting, Kenneth Bernhardt, President of HamTech, expressed considerable misgivings regarding termination of the HMW Plan. . . . The meeting adjourned without decision on whether the Plan would be terminated. Indeed, Mr. Bernhardt's strong urging to retain the early retirement package was a significant obstacle to reaching a final decision on termination. Since termination of the Plan was one step toward the desired goal of implementing a new benefits program at HamTech, a decision to terminate could not be reached until we determined what its replacement would be. While part of our concern was employee relations (as we did not want to announce a Plan termination to HamTech employees until we were also ready to announce the replacement retirement program), our concern was more fundamental: we viewed the potential termination of the HMW Plan and the institution of a new replacement plan as integral parts of a single process. (App. 107-08]!
Moreover, Payonk relies on the letter of December 19, 1983 to demonstrate that a decision had been made.*fn8 But that letter only stated that this letter will "serve as your authorization to begin termination." (App. 115). As the letter reflects, the process was a long and involved one and as the record reveals, contrary to Payonk's assertions, by January 5, 1984 no final decision had been made. Accordingly, the original tentative termination date of February 1, 1984 date was delayed until March 31, 1984. On March 7, 1984, when HMW had finally resolved these differences and agreed to a termination date for the old plan, HMW notified their plan participants within 5 days, well within the statutory 10 day requirement of 29 C.F.R. 2616.3 and 2616.4. Thus, as the uncontested record reveals, no final decision was made until March 7, 1984.
Like the events described in Trexel, the HMW procedures for plan termination were not in effect at the point that the plan beneficiaries, such as Payonk, "opted-out".*fn9 Rather discussions were still ongoing to resolve the open issues. Under the then existing statutory requirements and case law, there was no duty to disclose preliminary termination discussions until a final decision was made. See, Porto, Stanton.
As we have earlier explained, the fiduciary roles of the employer and plan administrator differ, as they are separate entities. Indeed, HMW, as plan administrator, would not normally be aware of the decision making process until after a decision on termination (or on any other plan change brought about by reason of a business decision) had been made by HMW as employer. This may explain why the regulations do not require HMW as administrator to disclose or provide notice of, an intention to terminate until HMW as administrator is in a position to file with the PBGC. Since the statute expressly sanctions an employer wearing "two hats," see ERISA, § 408(c)(3), 29 U.S.C. § 1108(c)(3), we can perceive no reason why HMW's decision to terminate its plan should put Payonk in a better position than Payonk would otherwise have been in had someone other than HMW been the plan administrator.
In 1986 Congress enacted the Single-Employer Pension Plan Amendments Act of 1986, Pub.L. No. 99-272, Title XI, 99th Cong., 2nd Sess., which, among other things, amended ERISA § 4041, 29 U.S.C. § 1341 (1986) by prescribing a new procedure for plan terminations. It is significant that although the requirement of advance notification to plan participants was previously established only by PBGC regulations, Congress amended ERISA § 4041 to require such notification as a matter of statute. Congress also increased the advance notification period from the 10 days prescribed by 29 C.F.R. 2616.3 to the 60 days mandated by the 1986 statute. See ERISA § 4041(a)(2), 29 U.S.C. § 1341(a)(2) (1986) (as amended).*fn10
The amended statute which is still measured from the proposed termination date and not from the date of preliminary discussions, also requires that more detailed notification be given to each participant, specifying the amount of benefits due to the participant as of termination, the form of benefits, and the various factors (including length of service, age, wages, interest rate assumptions, etc.) on which the benefits are calculated. ERISA § 4041(b)(2)(B), 29 U.S.C. § 1341(b)(2)(B) (as amended). But even the new amendments require no notification to plan participants of any management discussions held preliminary to the fixing of a termination date.
Furthermore, in 1987 Congress amended § 4044 of ERISA, 29 U.S.C. § 1344, which treats with the distribution of assets upon termination. The amendment which is part of Title IX of the Omnibus Budget Reconciliation Act of 1987, Pub.L. No. 100-203, Title IX, 100th Cong., 1st Sess., 101 Stat. 1330-359 is known as the Pension Protection Act. Under the amended § 4044, when a termination occurs in a contributory plan having a surplus, the surplus is to be shared not only by current plan participants, but by any former participants who cashed out of the plan within the previous three years.*fn11
Payonk also argues that the distribution of surplus assets from the fund constituted self-dealing under 29 U.S.C. § 1106, see text of statute, supra, note 9, which among other things, proscribes a fiduciary from dealing with the assets of the plan in his own account.*fn12 We have earlier discussed the difference between the fiduciary obligations of an employer and that of a plan administrator, even when they are one and the same party and the principles set forth in that discussion, pertaining to disclosure of information, are equally applicable here. That analysis requires that Payonk's argument be rejected here as well.
Moreover, because HMW had the authority to terminate the plan and to distribute the remaining assets pursuant to 29 U.S.C. § 1344 -- the statute which provides for distribution of a plan's assets on termination -- it could do so without regard to violating the fiduciary standards established in § 1106 inasmuch as 29 U.S.C. § 1108(b)(9)*fn13 expressly exempts the lawful distribution of a terminated plan from the provisions of § 1106.
If HMW had held the information generated by its deliberations over termination in a fiduciary capacity for Plan participants, I would have difficulty upholding the district court's summary judgment in favor of the defendants. The present record would permit an inference that HMW's management had made the decision to terminate by as early as the end of 1983 and that the continuing deliberations concerned only what would be offered to the employees of HamTech in its place. If one draws this inference (or indeed any of a number of other possible inferences involving somewhat less certainty about Plan termination), I am inclined to believe a fiduciary of the Plan possessing that information as such a fiduciary and knowing that Plan participants were being pressed to sell their interest in the Plan (i.e., roll over to the Wallace Plan) would be obligated under the common law of trust to advise Plan participants of the likelihood of a termination.*fn1 I join in affirming the district court, however, because I believe the information HMW and the other defendants are accused of having withheld was held by them in a fiduciary capacity for the corporation and its stockholders and not in a fiduciary capacity for plan participants.
Under ERISA the roles of plan administrator and plan sponsor are distinct. The plan administrator owes a fiduciary duty to plan participants; the plan sponsor, as long as it is not acting as an administrator, generally does not. 29 U.SC. § 1002(21)(A) (1985); 29 U.S.C. § 1108(c)(3) (1985); Amato v. Western Union Int'l. Inc., 773 F.2d 1402, 1416-17 (2d Cir. 1985); Trenton v. Scott Paper Co., 832 F.2d 806, 809 (3d Cir. 1987); United Ind. Flight Officers v. United Air Lines, 756 F.2d 1274, 1279-80 (7th Cir. 1985). The Act permits a sponsor to decide whether to have someone else act as plan administrator or to serve itself in both capacities. Amato, 793 F.2d at 1416-17; Sleichter v. Monsanto Co., 612 F. Supp. 856, 858 (E.D.Mo. 1985). When the roles are separately filled and the sponsor makes corporate business decisions regarding termination, changes in benefits, or other plan amendments, it has no fiduciary duty to disclose its decision and need not do so until disclosure is expressly required by the Act or the regulations. In the context of plan amendments, the courts have been unanimous in adopting precisely this view: Changes in plans need not be disclosed until they become effective. Young v. Standard Oil (Indiana), 849 F.2d 1039, 1045 (7th Cir. 1988); Sleichter v. Monsanto, 612 F. Supp. 856, 858 (E.D.Mo. 1985); Sutton v. Weirton Steel Div. of Nat'l Steel Corp., 567 F. Supp. 1184, 1196 (N.D.W.Va. 1983)*fn2 Since the Plan administrator in a situation of this kind will ordinarily receive no information concerning the sponsor's decision until the sponsor chooses to announce it, the Plan participants will not normally be advised of a change until disclosure is expressly required by the Act or the regulations or until the sponsor voluntarily elects to make an earlier disclosure.
Under the PBGC regulations, a plan administrator is not required to give notice of a decision to exercise a power of termination until the sponsor is prepared to go public with the filing of a Notice of Intent to Terminate with the PBGC. 29 C.F.R. § 2616.3 (c). This may well constitute a recognition by the PBGC that an independent administrator will have no right to that information before that time. In any event, where, as here, employees of a corporation that serves as both plan sponsor and plan administrator possess information regarding a decision to terminate solely because of services they render to the corporation in connection with that decision, I perceive no basis for imposing a duty of disclosure upon them or their employer beyond that specifically imposed by the Act and regulations. Accordingly, I would hold that the only duty to disclose in this case was the duty imposed by 29 C.F.R. § 2616.1 et seq. and that the judgment in the defendant's favor should be affirmed because that duty was fulfilled.
In this ERISA case we are faced with the issue of whether, under the unusual circumstances presented, pension plan fiduciaries have a duty under § 404 of the Employee's Retirement Income Security Act, 29 U.S.C.A. § 1104 (West 1985), to notify the plan participants of an impending termination of the plan prior to the ten day requirement of the Pension Benefit Guaranty Corporation regulations found at 29 C.F.R. 2616 et seq. I would hold that the fiduciary's duty to inform the participants of an impending termination is implied in the "prudent man standard of care" of § 1104 where the termination date is reasonably definite and the fiduciary knows that the participant is taking action with respect to his interest unaware of the proposed termination or the effect it would have with respect to his interest. Accordingly, I would reverse the order of the district court granting summary judgment to the defendants and remand to the district court to enter judgment for the plaintiffs on their cross-motion and for a determination of damages.
HMW asks us to reject this argument based on a recent district court opinion in Trexel v. E.I. DuPont De Nemours & Co., No. 85-759 (D.Del. September 4, 1987), aff'd mem., 845 F.2d 1016 (3d Cir. 1988), which held, inter alia, that the employer-administrator has no obligation under ERISA to provide information about a proposed change before it takes effect. In its general holding, Trexel, which involved a suit brought by an employee against his employer for breach of fiduciary duty and misrepresentation concerning the implementation of a retirement incentive program, is in accord with decisions of the Courts of Appeal for the Fourth and Eighth Circuits. For example, in Stanton v. Gulf Oil Corp., 792 F.2d 432 (4th Cir. 1986), the court stated that "it is not a violation of ERISA to fail to furnish information regarding amendments before these amendments are put into effect." 792 F.2d at 435. Similarly, in Porto v. Armco Inc., 825 F.2d 1274 (8th Cir. 1987), cert. denied, 485 U.S. 937, 108 S. Ct. 1114, 99 L. Ed. 2d 274 (1988), the Court of Appeals for the Eighth Circuit held that a plan "administrator who complies with the statutory standard for disclosure cannot be said to have breached the fiduciary duty by not providing earlier disclosure." 825 F.2d at 1276.
§ 2613.3 Requirement of Notice . . .
§ 2616.4 Notice to participants and retirees.
Payonk counters that, since 29 U.S.C.A. § 1104 imposes a duty on fiduciaries to act for the benefit of the pension plan and its participants, HMW violated this duty by failing to notify employees of material and relevant facts concerning their interests in the Plan.*fn1 In so arguing, Payonk relies on Rosen v. Hotel & Restaurant Emp. Bartenders Union, 637 F.2d 592 (3d Cir. 1981), cert. denied, 454 U.S. 898, 70 L. Ed. 2d 213, 102 S. Ct. 398, in which we held that an administrator had breached its duty by failing to notify a plan participant that his employer was no longer making contributions. In so holding we noted that such a duty has its roots in common law. Indeed, the Restatement (Second) Trusts § 173, Comment d (1959), provides:
Rosen, 637 F.2d at 600 n. 11, citing Restatement of Trusts (Second) § 173, Comment d.
I agree with Payonk that, under the specific circumstances presented, the duty involved is more clearly representative of a fiduciary's duty in the administration of a trust and is distinguishable from those cases where the courts determined that the decision to terminate a plan was purely a business decision. See Chait v. Bernstein, 645 F. Supp. 1092 (D.N.J. 1986), aff'd, 835 F.2d 1017 (3d Cir. 1987) (an administrator's termination decision is not governed by ERISA's fiduciary duties).
In fact, the decision to terminate is usually the result of circumstances impacting on the plan sponsor -- such as insolvency or the loss of the tax deduction when the plan is over funded. See 29 U.S.C.A. § 1342 [termination by PBGC] and 26 U.S.C.A. § 404 [deductions for contributions by employer to employee plan]. In other words, while the decision to terminate is a business decision, the treatment of the interests of the individual beneficiaries and participants falls within the fiduciary responsibilities of the plan administrator. Cf. Rosen, 637 F.2d at 599-600; and Central States Pension Fund v. Central Transport, Inc., 472 U.S. 559, 86 L. Ed. 2d 447, 105 S. Ct. 2833 (1985) (trustee's duty to provide for the benefit of all plan participants justifies trustee's demand of an audit of employer records).
In general, trustees' responsibilities and powers under ERISA reflect Congress' policy of "assuring the equitable character" of the plans. Thus, rather than explicitly enumerating all of the powers and duties of trustees and other fiduciaries, Congress invoked the common law of trusts to define the general scope of their authority and responsibility. See, e.g., 29 U.S.C. § 1103(a) ("assets of an employee benefit plan shall be held in trust"); S.Rep. No. 93-127, p.29 (1973) ("The fiduciary responsibility section, in essence, codifies and makes applicable to these fiduciaries certain principles developed in the evolution of the law of trusts"), H.R.Rep. No. 93-533, p. 11 (1973) (identical language); . . . [Emphasis in original.]
Central States, 472 U.S. at 570 and n. 10.*fn2
Furthermore, § 16.2 described the plan administrator's duties and responsibilities as follows:
One of the elections available to participants of the Plan was the choice of whether to remain in the Plan after the subsidiaries were divested or to withdraw from the Plan. In order to make a reasoned and informed choice, the participants must be aware of all material facts which would tend to influence that choice. See Restatement (Second) Trusts § 173, comment d (trustee is under a duty to communicate to beneficiary material facts affecting the interests of the beneficiary.)
As to what is a "material fact" necessary for the participants to make an informed choice, I find an analogy to the definition of materiality in securities cases to be helpful. Rule 14a-9, promulgated under § 14(a) of the Security Exchange Act of 1934, provides that no proxy solicitation will be made which "is false or misleading with respect to any material fact necessary in order to make the statements therein not false or misleading." In TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 48 L. Ed. 2d 757, 96 S. Ct. 2126 (1976) the Supreme Court recognized that the question of materiality is an objective one since such a standard is necessary "to ensure disclosures by corporate management in order to enable the shareholders to make an informed choice." 426 U.S. at 448 (Emphasis added). The Court held: "An omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote." 426 U.S. at 449.
Generally, the question of materiality is a mixed question of law and fact involving the application of a legal standard to a particular set of facts. "Only if the established omissions are 'so obviously important to an investor, that reasonable minds cannot differ on the question of materiality' is the ultimate issue of materiality appropriately resolved 'as a matter of law' by summary judgment." TSC Industries, 426 U.S. at 450 (quoting Johns Hopkins University v. Hutton, 422 F.2d 1124, 1129 (4th Cir. 1970)). It seems apparent that one material fact of which participants contemplating withdrawal from a pension plan should be aware is that termination of the plan is imminent and that they could participate in the distribution of its surplus upon termination. Indeed, in their complaint, the plaintiffs alleged that over $500,000 would have been distributed to the plaintiff class had they remained in the plan. I therefore conclude that HMW had a duty under both § 404 of ERISA (29 U.S.C.A. § 1104) and § 16.2 of the HMW Plan to inform the participants, facing a decision of whether to withdraw from the Plan, of the impending termination.
The statutory fiduciary obligations imposed by ERISA have three basic components. Berlin v. Michigan Bell Telephone Co., 858 F.2d 1154, 1162 (6th Cir. 1988) (citing Donovan v. Bierwirth, 680 F.2d 263, 271 (2d Cir.), cert. denied, 459 U.S. 1069, 74 L. Ed. 2d 631, 103 S. Ct. 488 (1982)). The first is a duty of loyalty requiring each fiduciary to "act solely in the interests of the plan's participants and beneficiaries." Berlin, 858 F.2d at 1162, citing H.R. Conf.Rep. No. 1280, 93d Cong., 2d Sess., reprinted in 1974 U.S.Code Cong. & Admin.News 4639, 5083.
The second component is known as the prudent man standard of care which requires the fiduciary to act "with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims." 29 U.S.C.A. § 1104(a)(1)(B). Thus, the prudent man standard, "combined with the duty of loyalty"
'imposes an unwavering duty on an ERISA trustee to make decisions with single-minded devotion to a plan's participants and beneficiaries and, in so doing, to act as a prudent person would act in a similar situation. These familiar principles evolved from the common law of trusts that Congress codified and made applicable to ERISA trustees.' Morse v. Stanley, 732 F.2d 1139, 1145 (2d Cir. 1984).
Applying these components of the fiduciary's obligations to the case before us, I conclude that the duty to act for the exclusive benefit of the beneficiaries required HMW to inform plan participants of the impending termination after the January 5, 1984 meeting. I base this determination on several reasons. First, a reading of the depositions of Richard Van Hoesen (Clabir's Director of Administration) and Gloria Strantz (then Manager of Benefits for HMW Industries) indicates that this was the first meeting involving representatives of Clabir, HMW Industries, Inc., HamTech and Connecticut General Life (the plan investor) which fully discussed the major ramifications of the proposed termination among all those who had responsibility for effectuating the termination. Prior to this date, much of the correspondence involving the termination occurred between Clabir's Van Hoesen, his superiors, and HamTech's Owen and Strantz.*fn3 The January 5 meeting was the culmination of correspondence and communication between Clabir, the actuaries, and the investors of the fund.
HMW was concerned about PBGC and IRS approval of the plan termination, however, for an overfunded plan, getting approval is not an onerous task.*fn4 Under 29 U.S.C.A. § 1341(b) the PBGC is statutorily directed to notify the plan administrator of the plan's sufficiency as soon as practicable.*fn5 Sufficiency of the plan is determined by whether the assets of the plan adequately "discharge when due all obligations of the plan with respect to benefits in priority categories I through 4" of Section 4044(a), 29 U.S.C.A. § 1344(a). 29 CFR § 2617.2 (1987). In an overfunded plan, assets are more than adequate to meet the plan's obligations. Similarly, the IRS' main concern is whether the plan provides that "the rights of each employee to benefits accrued to the date of such termination or discontinuance, to the extent then funded, or the rights of each employee to the amounts credited to his account at such time, are nonforfeitable." 26 CFR § 1.401-6 (1988).
The January 5 meeting was held to consider seriously the timetables involved and to decide on termination of the Plan. I have used the phrase "to consider seriously" to mirror the language of a recent decision of the Court of Appeals for the Sixth Circuit. In Berlin v. Michigan Bell Telephone Co., 858 F.2d 1154 (6th Cir. 1988), the plaintiffs were employees who had retired before a second offering of retirement benefits after communications with management informed them there would not be a second retirement benefit offering. The plaintiffs claimed they were wrongfully denied benefits in violation of ERISA. 858 F.2d at 1157-60. The district court held that the defendants had no duty to disclose under ERISA because making the second offering was a business decision. Ogden v. Michigan Bell Telephone Co., 657 F. Supp. 328 (E.D.Mich. 1987). Reversing the district court, the Court of Appeals for the Sixth Circuit stated that "if the plan administrator and/or plan fiduciary does communicate with potential plan participants after serious consideration has been given concerning a future implementation or offering under the plan, then any material misrepresentations may constitute a breach of their fiduciary duties." 858 F.2d at 1164 (emphasis in original). Although factually distinguishable from the instant case since Payonk essentially raises a claim of omission rather than a claim of misrepresentation, I feel the underlying rationale imposing a duty to communicate to be in keeping with the prudent man standard encompassed in 29 U.S.C.A. § 1104.
Finally, the presence at the meeting of Gloria Strantz, the Benefits Manager at HMW Industries and the plan administrator of the HMW Plan, assured that the person who had the most direct line of communication with participants of the HWM Plan was fully aware of the status of the termination. On October 25, 1983, Ms. Strantz had sent notice to the employees of the divested subsidiaries that they would no longer accrue benefits under the HMW Plan. The notice informed each individual of the amount of his or her benefit and informed the employee of the right to withdraw from the plan, but did not inform the employees that they could share in any surplus should they remain participants of the plan at the time of termination. Although Ms. Strantz did not communicate again with the divested employees as a group until the March 12, 1984 notice of termination, she did communicate with individuals concerning the pension plan. (App. at 301). In addition, Ms. Strantz was certain of the impending termination during any communication made after January 5, 1984, and she had been informed by the Vice-President of Finance at Katy Industries, Inc., Arthur Bowker, that a 401(k) plan was being prepared for Metals and Wallace employees.
Knowledge of the impending termination is a material fact of which a reasonable plan participant would need to be aware in order to make an "informed choice." Cf. TSC Industries, 426 U.S. at 449. Consequently, Ms. Strantz' failure to notify of the impending termination those individuals requesting information would constitute a breach of fiduciary duty, and a violation of § 16.2 of the HMW Plan requiring the fiduciary "to advise or assist Participants regarding any rights, benefits or elections available under the Plan."