Source: https://en.wikisource.org/wiki/Mead_Corporation_v._Tilley/Opinion_of_the_Court
Timestamp: 2015-07-07 20:14:11
Document Index: 635666771

Matched Legal Cases: ['§ 4044', '§ 1344', '§ 1001', '§ 1302', '§ 1322', '§ 1002', '§ 411', '§ 4044', '§ 1344', '§ 1344', '§ 1344', '§ 1344', '§ 1361', '§ 1362', '§ 1344', '§ 401', '§ 13', '§ 1', '§ 2', '§ 2', '§ 2', '§ 4', '§ 1103', '§ 1344', '§ 4']

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Mead Corporation v. Tilley/Opinion of the Court
< Mead Corporation v. Tilley
←Mead Corporation v. Tilley
649201Mead Corporation v. Tilley — Opinion of the CourtThurgood Marshall
Today we decide whether, upon termination of a defined benefit plan, § 4044(a) of the Employee Retirement Income Security Act of 1974 (ERISA), 88 Stat. 1025, as amended, 29 U.S.C. § 1344(a) (1982 ed. and Supp.), requires a plan administrator to pay plan participants unreduced early retirement benefits provided under the plan before residual assets may revert to an employer.
Congress enacted ERISA in 1974 in part to prevent plan terminations from depriving employees and their beneficiaries of anticipated benefits. 29 U.S.C. § 1001(a). Titles I and II provide requirements for plan participation, benefit accrual and vesting, and plan funding. Title III contains general administrative provisions. Title IV covers the termination of private pension plans, establishes a system of insurance for benefits provided by such plans, and creates a "body corporate" within the Department of Labor, the Pension Benefit Guaranty Corporation (PBGC), to administer that system. § 1302. The PBGC guarantees certain nonforfeitable benefits provided by qualified defined benefit pension plans. § 1322. [1]
A defined benefit plan is one which sets forth a fixed level of benefits. See § 1002(35). Contributions to a defined benefit plan are calculated on the basis of a number of actuarial assumptions about such things as employee turnover, mortality rates, compensation increases, and the rate of return on invested plan assets. See Stein, Raiders of the Corporate Pension Plan: The Reversion of Excess Plan Assets to the Employer, 5 Am.J.Tax Policy 117, 121-122, and n. 19 (1986).
When an employer voluntarily terminates a single-employer defined benefit plan, all accrued benefits automatically vest, notwithstanding the plan's particular vesting provisions. 26 U.S.C. § 411(d)(3). Title IV of ERISA requires that plan assets be distributed to participants in accordance with the six-tier allocation scheme set forth in § 4044(a), 29 U.S.C. § 1344(a). Section 4044(a) provides that plan administrators first distribute nonforfeitable benefits guaranteed by the PBGC, 29 U.S.C. §§ 1344(a)(1)-(4) (1982 ed. and Supp. V); [2] then "all other nonforfeitable benefits under the plan," § 1344(a (5); and finally "all other benefits under the plan," § 1344(a)(6). [3] If the plan assets are not sufficient to cover the benefits in categories 1-4, the PBGC will make up the difference. § 1361. The employer must then reimburse the PBGC for the unfunded benefit liabilities. § 1362. If funds remain after "all liabilities of the plan to participants and their beneficiaries have been satisfied," they may be recouped by the employer. § 1344(d)(1)(A). Similarly, the Internal Revenue Code (Code) conditions favorable tax treatment of the plan on satisfaction of "all liabilities with respect to employees and their beneficiaries under the [plan]" before plan assets may be diverted to others. 26 U.S.C. § 401(a)(2).
Respondents B.E. Tilley, William L. Crotts, Chrisley H. Reed, J.C. Weddle, and William D. Goode were employees of the Lynchburg Foundry Company (Foundry), formerly a wholly owned subsidiary of petitioner Mead Corporation (Mead). [4] The five were covered by the Mead Industrial Products Salaried Retirement Plan (Plan). The Plan was funded entirely by Mead's contributions.
As a single-employer defined benefit plan, the Plan set forth a fixed level of benefits for employees. Plan participants who completed 10 years of service attained a vested right to accrued benefits, that is, those benefits earned under the Plan. App. 30 (Plan, Art. I, § 13). These benefits included normal retirement benefits, payable at age 65 and calculated with reference to a participant's earnings and years of service. Id., at 37-41 (Plan, Arts. IV, § 1(b), V). At age 55, participants were eligible for early retirement benefits, calculated in the same manner as normal retirement benefits, but reduced by five percent for each year by which a participant's retirement preceded the normal retirement age. Id., at 37, 38-39 (Plan, Arts. IV, § 2, V, § 2(a)). A subsidized or unreduced early retirement benefit, i.e., a benefit equal to that payable at age 65, was available to participants who had 30 or more years of service and elected to retire after age 62. Id., at 39 (Plan, Art. V, § 2(b)). The Plan did not provide for any benefits payable solely upon plan termination.
In 1983, Mead sold Foundry and terminated the P an. [5] Mead paid unreduced early retirement benefits only to those employees who had met both the age and years of service requirements. At the time Mead terminated the Plan, four respondents had over 30 years of credited service and a fifth had 28. None had reached age 62. Thus, each respondent received payment equal to the present value, determined as of the date of distribution, of the normal retirement benefit to which he would have been entitled had he retired at age 65. [6] Had Mead paid the present value of the unreduced early retirement benefits, each respondent would have received on average $9,000 more. App. to Brief for Respondents 1. After Mead finished distributing plan assets to plan participants, nearly $11 million remained in the Plan's fund. Mead recouped this money pursuant to Article XIII, § 4(f), of the Plan. App. 63. [7]
In 1984, respondents filed suit in the Circuit Court of the city of Radford, Virginia, alleging, inter alia, that the failure to pay the present value of the unreduced early retirement benefits violated ERISA, 29 U.S.C. §§ 1103(c), 1104(a)(1)(A), 1106(b), and 1344. Mead removed the case to the United States District Court for the Western District of Virginia. The District Court granted summary judgment in favor of Mead, concluding that "[t]he Plan's language, the legislative history, and the case law in the fourth circuit . . . clearly demonstrate that early retirement benefits are not 'accrued benefits' under ERISA." Civ. Action No. 84-0751 (WD Va., Apr. 18, 1986). It therefore held that respondents were not entitled to additional sums under the Plan and that the assets remaining in the fund could revert to Mead pursuant to 29 U.S.C. § 1344(d)(1) and Article XIII, § 4(f), of the Plan.
The Court of Appeals for the Fourth Circuit reversed. 815 F.2d 989 (1987). Adopting the reasoning of the Court of Appeals for the Second Circuit in Amato v. Western Union Int'l, Inc., 773 F.2d 1402 (1985), cert. dism'd,