Opinion ID: 441965
Heading Depth: 2
Heading Rank: 2

Heading: The Lidz Plan

Text: 16 On May 31, 1978, Lidz Brothers, Inc., a small but established importer and exporter of buttons, buckles and novelties in Manhattan's garment district, sold its assets and ceased operations. As of that date, ultimately designated by the PBGC as the official pension plan termination date, 20 Herta Rettig had worked for Lidz Brothers for over thirty-seven years; she would have been eligible for early retirement on her fifty-fifth birthday on June 18, 1978. Saverio Ramputi had been employed for over thirty-five years but was not eligible to retire for several more years. 17 On the date of termination, both Mrs. Rettig and Mr. Ramputi had vested rights to pension benefits under the terms of the Lidz Brothers' pension plan, which provided for vesting after ten years of service. Prior to 1977, the plan, which was unfortunately typical of many pre-ERISA plans, had provided for vesting only upon actual retirement; under the unamended plan, neither Mrs. Rettig nor Mr. Ramputi would have had any vested benefits despite their long years of service. The Lidz plan thus did not meet any of the three alternative minimum standards set out in Title I of ERISA. After ERISA was enacted, the administrators of the plan chose the first alternative: one hundred percent vesting after ten years of service. Although the minimum vesting standards became effective for the plan on June 1, 1976, the plan was formally amended only on July 8, 1977, and made effective retroactively to June 1, 1976. As of that date, Mrs. Rettig, Mr. Ramputi and their coworkers with more than ten years of service acquired vested rights to all pension benefits they had accrued. 18 The Lidz plan terminated on May 31, 1978, less than a year after the adoption of the new vesting provisions, with insufficient assets to cover the vested benefits accrued by plan participants. The participants in the Lidz plan therefore looked to the PBGC to guarantee the payment of benefits to which they were entitled under the plan termination insurance provisions of Title IV. After unfortunate and protracted delay, the plaintiffs were informed in February, 1982, that the PBGC would not guarantee any benefits for those employes whose benefits were vested but who had not yet retired as of the plan termination date. The PBGC determined that those employees had become vested only as a result of the July, 1977, plan amendment providing for pre-retirement vesting. Since that amendment was adopted less than one year before plan termination, the PBGC determined that it must be wholly disregarded in calculating guaranteed benefits under the phase-in provisions of ERISA, 29 U.S.C. Sec. 1322(b), and the PBGC's rule implementing those provisions, 29 C.F.R. Secs. 2621, and that plaintiffs were therefore not entitled to any guaranteed benefits. 19 Upon learning of this decision, the plaintiffs promptly filed suit against the PBGC in district court to obtain the guaranteed benefits to which they claimed entitlement under ERISA. They argued (1) that the PBGC acted in excess of its statutory authority, in violation of the Administrative Procedure Act (APA), 5 U.S.C. Sec. 706(2)(C), in promulgating the phase-in rule, which they contended was contrary to the language and legislative purpose of ERISA; (2) that the rule was arbitrary, capricious and not in accordance with law under the APA, 5 U.S.C. Sec. 706(2)(A); and (3) that the PBGC, by failing to signal its intention to apply its proposed rule so as to phase in ERISA-mandated vesting improvements, did not give adequate public notice of the rule's meaning, as required under the APA, 5 U.S.C. Sec. 706(2)(B). 20 The district court held that the PBGC had the general authority to pass regulations interpreting the scope of the phase-in provision. 21 It held further that the PBGC regulation conflicted with neither the language nor the purpose of the phase-in provision, which the court determined was a mechanical abuse-neutral mechanism aimed at the prevention of employer abuse of the insurance program. 22 Finally, the court found the notice of proposed rulemaking sufficiently informative to meet the standards of the APA. 23 The district court thus granted partial summary judgment for the PBGC. This appeal followed. 24