Source: http://supreme.nolo.com/us/446/359/case.html
Timestamp: 2019-04-26 13:54:14
Document Index: 4883530

Matched Legal Cases: ['§ 1001', '§ 4022', '§ 1322', '§ 3', '§203', '§ 2', '§ 1001', '§ 4062', '§ 1362', '§ 4062', '§ 4082', '§ 1381', '§ 4082', '§ 1381', '§ 4022', '§ 4062', '§ 4004', '§ 1304', '§ 211', '§ 1061', '§ 3', '§ 1002', '§ 4022', '§ 1301', '§ 203', '§ 2605']

NACHMAN CORP. V. PBGC, 446 U. S. 359 - Volume 446 - 1980 - Full Text - US Supreme Court Center - USSC Cases - Nolo
US Supreme Court Center > Volume 446 > NACHMAN CORP. V. PBGC, 446 U. S. 359 (1980) > Full Text
On September 2, 1974, following almost a decade of studying the Nation's private pension plans, Congress enacted the Employee Retirement Income Security Act of 1974 (ERISA), 88 Stat. 829, 29 U.S.C. § 1001 et seq. As a predicate for this comprehensive and reticulated statute, [Footnote 1] Congress made detailed
Stated in statutory terms, the question is whether a plan provision that limits otherwise defined, vested benefits to the amounts that can be provided by the assets of the fund prevents such benefits from being characterized as "nonforfeitable" within the meaning of § 4022(a) of ERISA, 29 U.S.C. § 1322(a). [Footnote 2] If the benefits are "nonforfeitable," they are insured by the Pension Benefit Guaranty Corporation (PBGC) under Title IV. [Footnote 3] And if insurance is payable to the
The relevant facts are undisputed. In 1960, pursuant to a collective bargaining agreement, petitioner established a pension plan covering employees represented by the respondent union at its Chicago plant. The plan, as amended from time to time, provided for the payment of monthly benefits computed on the basis of age and years of service at the time of retirement. [Footnote 5] Benefits became "vested" -- that is to say, the
Petitioner retained the right to terminate the plan when the collective bargaining agreement expired merely by giving 90 days' notice of intent to do so. The agreement specified that, upon termination, the available funds, after payment of expenses, would be distributed to beneficiaries, classified by age and seniority, but only to the extent that assets were
In 1976, petitioner filed an action against the PBGC, seeking a declaration that it has no liability under ERISA for any failure of the plan to pay all of the vested benefits in full
The Court of Appeals for the Seventh Circuit reversed. 592 F.2d 947 (1979). Relying on the definition of "nonforfeitable" in Title I of ERISA, [Footnote 10] the court concluded that the limitation of liability clause merely affected the extent to which the benefits could be collected, without qualifying the employees' rights against the plan. This conclusion was buttressed
Having construed the statute as it did, the Court of Appeals was required to confront petitioner's constitutional argument that the imposition of a retroactive liability for the payment of unfunded, vested benefits that was not assumed under the collective bargaining agreement, violates the Due Process Clause of the Fifth Amendment. The Court of Appeals agreed that ERISA was not wholly prospective, in that it applies to pension plans in existence before the effective date of the Act. It concluded, however, that Congress had adequately tempered the Act's burdens on employers, and that those burdens were sufficiently justified by the public purposes supporting the legislation. [Footnote 12]
Petitioner urges us to adopt a construction of the statute that would avoid the necessity of confronting constitutional questions, [Footnote 13] and correctly points out hat new rules applying
We must reject petitioner's argument. We first note that the plan provision on which petitioner relies, supra at 446 U. S. 365, read as a whole, merely disclaims direct employer liability and imposes no condition on the benefits. See n 8, supra, and n 17, infra. Thus, petitioner's argument is not supported by a purely literal reading of the definition on which it relies and is inconsistent with the clear language, structure and purpose of Title IV. Since we construe petitioner's plan as containing only an employer liability disclaimer clause, we cannot accept its statutory argument without virtually eviscerating Title IV as applied to plans terminating prior to January 1, 1976. Such a result not only would be contrary to the four-stage phase-in of the program of insurance and employer
The key statutory term, "nonforfeitable benefits," is nowhere defined in Title IV. Petitioner relies on the definition of "nonforfeitable" in Title I, § 3(19), see n 10, supra. But definitions in that section are not necessarily applicable to Title IV, because they are limited by the introductory phrase, "For purposes of this title." [Footnote 14] Nothing in the statute or its legislative history tells us why the Title I definition of "nonforfeitable"
Second, the statutory definition refers to enforceability against "the plan." The only practical significance of the contractual provision limiting liability is to provide protection
Third, the term "forfeiture" normally connotes a total loss in consequence of some event, rather than a limit on the value of a person's rights. Each of the examples of a plan provision that is expressly described as not causing a forfeiture listed in §203()(3), see n 10, supra, describes an event --such as
death or temporary reemployment -- that might otherwise be construed as causing a forfeiture of the entire benefit. It is therefore surely consistent with the statutory definition of "nonforfeitable" to view it as describing the quality of the participant's right to a pension, rather than a limit on the amount he may collect. This reading of the Title I definition accords with the interpretation of the term "nonforfeitable" in Title IV adopted by the agency responsible for administering the Title IV insurance program. The PBGC has promulgated regulations containing a completely unambiguous definition of the term, [Footnote 18] and has been paying benefits to over 12,000 participants in terminated plans on the basis of this understanding of its statutory responsibilities. [Footnote 19] We surely may not reject this
ERISA § 2(a), 88 Stat. 832, 29 U.S.C. § 1001(a). Congress wanted to correct this condition by making sure that, if a worker has been promised a defined pension benefit upon retirement -- and if he has fulfilled whatever conditions are required to obtain a vested benefit -- he actually will receive it. The termination insurance program is a major part of Congress' response to the problem. Congress provided for a minimum funding schedule and prescribed standards of conduct for plan administrators to make as certain as possible that pension fund assets would be adequate. But if a plan nonetheless terminates without sufficient assets to pay all vested benefits, the PBGC is required to pay them -- within certain dollar limitations not applicable here [Footnote 23] -- from funds established by that corporation.
Throughout the entire legislative history, from the initial proposals to the Conference Report, the legislators consistently described the class of pension benefits to be insured as "vested benefits." [Footnote 24] Petitioner recognizes, as it must, that the terms "vested" and "nonforfeitable" were used synonymously. [Footnote 25]
Since Title IV neither uses nor defines the term "vested," [Footnote 26] it is reasonable to infer that the term "nonforfeitable" was intended to describe benefits that were generally considered
There is no evidence that Congress intended to exclude otherwise vested benefits from the insurance program solely because the employer had disclaimed liability for any deficiency in the pension fund. Indeed, there is strong evidence to the contrary. Congress understood that pension plans ordinarily contained disclaimer provisions of the sort petitioner relies on here. [Footnote 28] Given that understanding, the Title
But § 4062(b)(2), 29 U.S.C. § 1362(b)(2), see n 4, supra, -- the reimbursement provision -- demonstrates that insolvency was certainly not the only focus of Congress' concern. The very fact that § 4062(b)(2) requires employers to reimburse the PBGC for the payment of insured benefits makes it clear that Congress not only was worried about plan terminations resulting from business failures, but also was concerned about the termination of underfunded plans by solvent employers. [Footnote 30] Of even greater significance is the provision
limiting the amount of employer liability for reimbursement to 30% of the employer's net worth. The 30% limit plainly contemplates the situation in which the employer has disclaimed direct liability; for if the employer were directly liable to the employees for the full amount of any funding deficiency, the 30% limitation would serve no useful purpose. [Footnote 31] That this 30% limit would be meaningless unless the employer has disclaimed direct liability surely demonstrates that Congress did not intend such a disclaimer to
Petitioner's reading of the statute would limit any meaningful application of the insurance program prior to January 1, 1976, to only those cases involving insolvent employers that had not disclaimed direct liability. Since the legislative history clearly shows that Congress intended to cover terminations by solvent employers, and further shows that disclaimer clauses were widely used, petitioner is ultimately contending that Congress did not intend to create any significant employer reimbursement liability prior to January 1, 1976. This argument, however, is foreclosed by a consideration of the statutory provisions for successive increases in the burdens associated with plan terminations. Congress clearly did not offer employers an opportunity to make cost-free terminations at any time prior to January 1, 1976. Quite the contrary, one
Title IV became effective as soon as ERISA was enacted on September 2, 1974, § 4082(a), 29 U.S.C. § 1381(a), and indeed was expressly made partially retroactive in order to provide insurance coverage to participants whose plans terminated after June 30, 1974, § 4082(b), 29 U.S.C. § 1381(b). The measure of coverage, at the outset, was the difference between the employee's vested benefits under the terms of the plan (subject to the dollar limitations in § 4022(b)(3), see n 23, supra) and the amount that could be paid from the terminated plan's assets. However, the employer liability provision, § 4062, was not made effective at all during this initial period -- June 30 to September 2, 1974. The PBGC was thus given no right to recover any part of the insured deficiencies from employers that terminated their plans before the Act became effective. [Footnote 33]
The second period lasted for 270 days after the enactment of ERISA, or until the end of May, 1975. Again, the PBGC provided insurance coverage for most underfunded nonforfeitable benefits under the terms of a pension plan terminated during this period. But two important additional provisions became effective: 4062(b), the section creating employer liability to the PBGC, and § 4004(f)(4), 88 Stat. 1009, 29 U.S.C. § 1304(f)(4). [Footnote 34] The latter authorized the PBGC to waive entirely or to reduce its right to recover insurance payments from any employer who could establish unreasonable hardship in situations in which the employer was not able, as a practical matter, to continue its plan in effect. Section 4004(f)(4) unequivocally demonstrates that Congress had deliberately imposed a new liability upon an employer that terminated its plan during the first nine months of the operation of the Act. If the employer had a preexisting contractual liability, there would have been no effective way for the PBGC to mitigate it in hardship cases, since the PBGC could not stop the employees from suing the employer directly. Moreover, there would have been no need for insurance except in cases of insolvency, and, in such cases, there would have been no practical reason for mitigation, because recovery from the employer would have been impossible in any event. On the other hand, in the typical case in which the employer had protected itself from any contractual liability, the only possible source of employer liability was
But Congress plainly did not intend to prevent employers from limiting their potential direct liability to their employees.
In sum, petitioner reads the statute as authorizing cost-free terminations prior to January 1, 1976, and full liability for all promised benefits thereafter with neither dollar nor
ERISA § 211(b)(2), 29 U.S.C. § 1061(b)(2). The provision for vesting of normal and early retirement rights after 10 years of service would have complied with the new standards unless, as petitioner argues, the clause disclaiming direct liability of the employer for benefits not sufficiently covered by the pension fund prevented the benefits from being "nonforfeitable" within the meaning of ERISA § 3(19), 29 U.S.C. § 1002(19). See discussion in n 10, and 446 U. S. infra, at 446 U. S. 384-385.
592 F.2d at 962-963 (footnotes omitted).
"MR. JUSTICE STEWART's dissent acknowledges this language from the Conference Report, post at 446 U. S. 393, but draws an unsupportable inference from it. He emphasizes that it is only "vested retirement benefits guaranteed by the plan'" that are insured. The emphasized language was used by the Conference Committee, however, not to describe the nature of vested benefits that were to be insured under Title IV, but to distinguish the rejected narrower House provision, under which only those benefits that Title I of ERISA required to be vested would be insured. H.R.Conf.Rep. No. 93-1280, supra, at 368, 3 Leg.Hist. 4635. See also 592 F.2d at 954, n. 9. Thus, the quoted language, which tracks the language of § 4022 verbatim -- except that "vested" is used in place of "nonforfeitable" -- merely underscores the intent to insure all vested benefits."
592 F.2d at 955, n. 10.
592 F.2d at 953-954.
See n 28, supra. The Internal Revenue Service has included an employer liability disclaimer clause in a model pension plan issued for guidance in drafting post-1976 plans. See CCH 1977 Pension Plan Guide � 30,782.96.
Title IV of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1301 et seq., establishes a system of insurance to cover the termination of private pension plans. Under that Title, the Pension Benefit Guaranty Corporation (PBGC) must "guarantee the payment of all nonforfeitable benefits . . . under the terms of a [covered] plan which terminates." [Footnote 2/1] In turn, the PBGC may sue the company that maintained the plan for such part of the "guaranteed" payment as exceeded on the date of termination the value of the plan's assets. [Footnote 2/2]
(Emphasis added.) [Footnote 2/7]
These two provisions, neither of which was void on the date of termination, [Footnote 2/8] rendered "conditional" every defined benefit set out in the plan. On termination, a participant's right to any benefit defined in dollar terms was expressly hinged on the plan's ability to pay that amount. Like any condition a plan might specifically place on a participant's entitlement to
But this sentence had an entirely different effect from that of the two provisions discussed above. Since it only purported to limit the employer's liability to the plan, and not the plan's obligation to the plan's participants, the sentence in question neither
Three aspects of ERISA's legislative history strongly support this interpretation of the statutory scheme. First, Congress discarded, on its way to passing the Act, a number of alternative definitions of the benefits to be insured, several of which, if enacted, would have read very much like the definition the PBGC has adopted, and which the Court now holds embodies Congress' true intent. [Footnote 2/13] Few principles of statutory
S.Rep. No. 93-127,
But many of the statements in the legislative history relied upon by the Court were made in connection with proposed bills that were not enacted and whose express terms would have insured benefits "vested" in the traditional sense of the word. See n. 13, supra. These statements have no bearing on the present case, which concerns the construction of entirely different statutory language. Many of the other statements in the legislative history noted by the Court were made with respect to the bill that originally passed the House of Representatives, quite a different document from the bill that later emerged from the Conference Committee and was enacted into law as ERISA. The House bill provided that the insurance provision would cover only retirement benefits that were "nonforfeitable" by reason of the bill's minimum vesting standards. H.R. 2 as passed by the House, 93d Cong., 2d Sess., §§ 203, 409(b)(1) (1974), 3 Leg.Hist. 3973-3979 4024. See 2 id. at 3293, 3347-3348 (explanation by Chairman of House Committee on Education and Labor). Under the legislation so proposed, there never would have been a time when the insurance scheme was in effect and a substantial portion of every plan's "vested" benefits were not also "nonforfeitable."
It was the Conference Committee that created the time gap
Finally, contrary to the Court's assertion, the construction that I would give to the Act would not render meaningless the decision of Congress to make Title IV fully applicable as of September 2, 1974. That Title insured the following types of benefits provided by plans terminated between September 2, 1974, and December 31, 1975: (1) All benefits made expressly
It is perfectly clear, at least to me, that the plain language of the plan conditioned the employees' benefits in the event of termination upon the adequacy of the assets then remaining
To the extent that the PBGC's own self-serving definition in 29 CFR § 2605.6(a) (1979) points in a different direction, it conflicts with the statute, and can be accorded no weight. See n. 5, supra.