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

Heading: blessitt's contentions

Text: 62 Blessitt contends that because I.R.C. Sec. 411(d)(3) requires that all accrued benefits become nonforfeitable upon plan termination, Category 5 (all other nonforfeitable benefits under the plan) necessarily includes all accrued benefits other than those guaranteed by the PBGC. Thus, if all accrued benefits are encompassed by Category 5, Blessitt concludes that Category 6 necessarily must encompass the type of benefits contested here, which clearly are not accrued benefits. Blessitt also contends that the legislative history of Sec. 1344 supports his interpretation. We reject both of these arguments. 63 Blessitt's argument that all accrued benefits are covered under Category 5 directly conflicts with the PBGC regulations to which we must defer. When a plan terminates, all accrued benefits as of the termination date become nonforfeitable to the extent they are funded. 26 U.S.C. Sec. 411(d)(3)(A). For the purpose of allocating plan assets in accordance with Sec. 1344, however, benefits that become nonforfeitable solely because of plan termination are treated as forfeitable benefits. 29 C.F.R. Sec. 2618.2 (For purposes of this part [allocation provisions], ... [b]enefits that become nonforfeitable solely as a result of the termination of a plan will be considered forfeitable.). The effect of this regulation is that all accrued benefits not vested when the plan terminates fall within Category 6. Thus, contrary to Blessitt's position, Category 5 does not encompass all accrued benefits simply because those benefits become nonforfeitable when the plan terminates. Category 5's scope is limited to benefits that were nonforfeitable before the plan terminated but which were not guaranteed by the PBGC. 30 Victor v. Home Savings of America, 645 F.Supp. 1486, 1491 (E.D.Mo.1986) (Category 5 encompasses [b]enefits that are vested (other than by reason of plan termination)). For example, when a plan terminates, an employee might have accrued benefits which previously had vested in accordance with the terms of the plan but which exceeded the amount guaranteed by the PBGC. The amount of the vested benefit in excess of the PBGC limit would be a Category 5 benefit. 64 The Dixie Engine plan used a ten year/100% cliff vesting schedule under which the benefits an employee accrued with each year of service did not vest at all until he completed ten years of service, at which point they fully vested. See Article VII Paragraph 2; 26 U.S.C. Sec. 411(a)(2)(A); 29 U.S.C. Sec. 1053(a)(2)(A) (ERISA provisions sanctioning 10 year cliff vesting). Consequently, the accrued benefits of all Dixie Engine employees who had worked for Dixie Engine for less than ten years when the plan terminated are Category 6 benefits. Because Category 6 encompasses accrued benefits that were not vested immediately prior to termination, inclusion of unaccrued benefits based on anticipated future years of service in Category 6 is not necessary to give meaning to that category, contrary to Blessitt's arguments. 31 65 Blessitt's interpretation of the scope of Categories 5 and 6 does not comport with the terms of the Dixie Engine plan. Paragraph 6 of Article XI (Plan Termination Procedures) of the plan specifies the order in which plan assets are distributed when the plan terminates. Assets first are distributed to benefits already in pay status at the termination date, then to all other benefits guaranteed by the PBGC. This distribution scheme echoes Categories 3 and 4 of the Sec. 1344 allocation procedure. 32 Next, assets are distributed to all other benefits which were nonforfeitable immediately prior to the date of termination.... Finally, assets are distributed to all other benefits under this Plan which are not otherwise provided for under [the other allocation categories]. The priority which the plan affords to benefits vested before the termination date relative to benefits under the plan not otherwise provided for (i.e. accrued, non-vested benefits) is precisely the preference created by Categories 5 and 6. 66 Finally, placing accrued benefits that become nonforfeitable solely because of plan termination in Category 6 comports with common sense notions of equity and fairness. When a plan terminates and has insufficient assets to meet all its accrued benefit liabilities, the benefit claims of workers whose benefits were vested prior to plan termination logically should have priority over the benefit claims of workers whose accrued benefits were not vested. This desirable goal is accomplished by placing the two types of claims in separate categories: pre-termination vested (nonforfeitable) benefits in excess of the PBGC guaranteed amount go into Category 5; pre-termination non-vested (forfeitable) benefits go into Category 6. All Category 5 claims must be satisfied before distributions are made to Category 6 claims, thus granting priority to workers with vested benefits and preventing dilution of these accrued, vested benefits by the competing claims of employees with accrued, unvested benefits. 67 Blessitt's second argument is that the legislative history of the Sec. 1344 allocation provisions supports his contention that Category 6 encompasses benefits based on future years of service. Blessitt argues that because the House version of ERISA used the category other accrued benefits while the final conference version used the category other benefits under the plan, deletion of the term accrued from the final version indicates that Congress intended to include benefits other than accrued benefits. Assuming arguendo that a plausible interpretation of the change between the House bill and the Conference bill is that Congress intended to include benefits in addition to accrued benefits in Category 6 33 (e.g. ancillary benefits provided under the plan), we conclude that it is not plausible that Congress intended to include benefits based on anticipated future years of service. 68 Presumably the Conference bill represents a compromise position between the House and Senate bills. 34 However, neither the House bill nor the Senate bill included benefits based on future years of service in the allocation scheme. To adopt Blessitt's position would mean that the conferees expanded the scope of the priority scheme far beyond that of either of the predecessor bills. 69 Our earlier discussion of the caselaw and regulatory interpretation has documented the fact that at the time Congress enacted ERISA, it was well established that retirement benefits were based on years of actual service. If Congress had intended to include benefits based on future years of service in Category 6, this would have constituted a major departure from pre-existing law and certainly would have merited detailed explanation. However, there is no mention in the legislative history that ERISA expanded the concept of benefits to which an employee was entitled to include benefits he possibly would earn in the future. Furthermore, it is clear from the introductory passages of the legislative history that the primary purpose of the House, Senate, and Conference reports was to fully explain any significant changes ERISA would bring to pension benefit law. All the other major ERISA changes affecting an employee's entitlement to benefits (e.g. vesting, funding standards, PBGC termination insurance) were exhaustively discussed. Thus, it seems extremely doubtful that Congress intended to introduce what amounts to a fundamental rethinking of the entire benefits area without any discussion or explanation. See Drummond Coal Co. v. Watts, 735 F.2d 469, 474 (11th Cir.1984) (elimination of a single word between versions of a bill is an unreliable indicator of Congressional intent, particularly where the deletion is not explained).