Opinion ID: 507220
Heading Depth: 3
Heading Rank: 1

Heading: ERISA allocation provisions

Text: 20 When a single-employer defined benefit plan is voluntarily terminated by the employer, plan assets must be distributed to plan participants in accordance with the sixtier allocation scheme set forth in ERISA Sec. 4044, codified as 29 U.S.C. Sec. 1344. The six priority categories range from Category 1, which has the narrowest scope and highest priority, to Category 6, which has the broadest scope and lowest priority. The scope of each category is as follows: 21 Category 1: The portion of an employee's accrued benefits derived from voluntary employee contributions. 22 Category 2: The portion of an employee's accrued benefits derived from mandatory employee contributions. 23 Category 3: Annuity benefits that were or could have been in payout status three years before the plan terminated. (i.e. benefits that retired workers were receiving or could have received had they chosen to retire within the three years immediately prior to the termination date). 24 Category 4: All other benefits guaranteed by the PBGC. 25 Category 5: [A]11 other nonforfeitable benefits under the plan. 26 Category 6: [A]11 other benefits under the plan. 27 29 U.S.C. Sec. 1344(a). The employer/plan sponsor must satisfy all claims within a particular category before it distributes any assets to the next lower priority category. 29 C.F.R. Sec. 2618.10(d). If the assets are insufficient to satisfy all the claims within a particular category, the assets are distributed among the participants according to the ratio that the value of each participant's benefit or benefits in that priority category bears to the total value of all benefits in that priority category. 29 C.F.R. Sec. 2618.10(e). Any assets remaining after satisfaction of all liabilities in Categories 1-6 can revert to the employer if the plan specifically allows such a reversion and the distribution is not otherwise unlawful. 29 U.S.C. Sec. 1344(d)(1). 28 Only Categories 4, 5, and 6 are relevant to this litigation. 11 Category 4 encompasses benefits guaranteed by the PBGC. The PBGC guarantees all benefits that are nonforfeitable (i.e. vested) 12 immediately prior to plan termination and that conform to certain other restrictions which are met in this case. See 29 U.S.C. Sec. 1322 and 29 C.F.R. Sec. 2613. The parties agree that all of Blessitt's benefits calculated under Formula 2 are Category 4 benefits (i.e. guaranteed, vested benefits). The parties also agree that if Blessitt is entitled to any Formula 1 benefits based on future years of service, these benefits must fall within the scope of Categories 5 or 6. 29 The plain language of Categories 5 and 6 clearly specifies that these sections extend only to benefits under the plan. Category 5 covers all other nonforfeitable benefits under the plan. 29 U.S.C. Sec. 1344(a)(5). Category 6 covers all other benefits under the plan. 29 U.S.C. Sec. 1344(a)(6). The benefit provisions of the Dixie Engine plan are detailed and comprehensive; no part of the plan directly or indirectly creates or describes benefits based on anticipated future years of service. The only benefits provided by the Dixie Engine plan are the accrued benefits calculated under the two formulas set out above. The applicability of each formula is clear: Formula 1 calculates [t]he Monthly Accrued Benefit as of any date of determination [plan termination] on or subsequent to a Participant's Normal Retirement Date ; Formula 2 calculates [t]he Monthly Accrued Benefit as of any determination date prior to a Participant's Normal Retirement Date. Article V Paragraph 1 (emphasis supplied). 13 Attainment of normal retirement age (65) is the plan's unambiguous prerequisite for qualifying for Formula 1 benefits. For employees such as Blessitt who had not reached normal retirement age when the plan terminated, the only benefits available or promised under the plan are the Formula 2 benefits. Consequently, to award Blessitt benefits based on his anticipated future years of service would exceed the unambiguous terms of the plan and therefore would contradict the plain language of the Section 1344 allocation provisions of ERISA. 30