Opinion ID: 679507
Heading Depth: 3
Heading Rank: 1

Heading: Language of the A & B Plan

Text: 25 Plaintiffs base their argument on the language of section 10A-2 of the Plan, which governs the distribution of assets on termination of the Plan, viz: 26 Distribution of assets. Upon termination of the Plan the rights of members to the benefits accrued under the Plan to the date of such termination, to the extent then funded, shall be nonforfeitable. All of the assets held in trust, after provision for any properly chargeable expenses, shall be used solely for the members, pensioners, spouses, beneficiaries and joint pensioners until all liabilities under the Plan shall have been satisfied in full. The Benefits Committee shall determine on the basis of an actuarial valuation the share of the funds of the Plan allocable to each member, pensioner, spouse, and joint pensioner in the following order: 27 [there follows a six-tiered schedule of distribution directives] 28 .... 29 In the event of a partial termination of the Plan the provisions of this Section 10A-2 shall be applicable to the members affected by such partial termination. 16 30 In no event shall any part of the Plan assets held in trust or any income on it, prior to the satisfaction of all liabilities under the Plan, revert to the Company or be used other than for the members, pensioners, spouses, beneficiaries and joint pensioners. (emphasis added) 31 The six-tiered schedule of distribution set forth in section 10A-2 as above indicated does not contain any direction for distribution or allocation of surplus assets. Its allocations are only up to the amount of accrued benefits. 32 Section One of the 1944 Agreement of Trust of the A & B Plan echoes the language of section 10A.2:The Corporation hereby establishes with the Trustee a trust, effective as of January 1, 1944, which shall comprise such payments as shall from time to time be made to the Trustee by or on behalf of the Corporation for the purposes of the Plan.... Any and all contributions made by the Corporation shall be irrevocable and no part of the corpus of the Fund nor any income therefrom shall at any time prior to the satisfaction of all liabilities under the Plan revert to the Corporation or be used for or diverted to purposes other than for the exclusive benefit of participants, retired participants or their beneficiaries under the Plan. (emphasis added) 33 In particular, plaintiffs rely on the language providing that Gulf's contributions to the Plan were to be irrevocable and that the funds were to be used solely for or for the exclusive benefit of the plan participants. Defendants contend that these phrases, and the rights created thereby, are qualified by the phrases until all liabilities under the Plan shall have been satisfied in full and prior to the satisfaction of all liabilities under the Plan. This language, defendants argue, implies that reversion to the employer is contemplated once all liabilities are satisfied. 17
34 Although section 10A.2 does declare that Plan assets are not to revert to the employer, that language is qualified by the phrase prior to the satisfaction of all liabilities under the Plan. Plaintiffs maintain that this phrase creates, at best, an implied reversion; they contend that ERISA section 4044(d)(1) requires an explicit reversion provision, citing Albedyll. However, as noted, section 4044(d)(1) does not apply to partial terminations, and Albedyll was a final, not a partial, termination case. Further, the Albedyll plan contained a section which the court interpreted to provide for pro rata distribution of plan assets to the participants upon termination. In addition, an early outline of the plan clearly indicated that the company could recover none of the contributed assets. 35 Other cases, dealing with plans having language more similar to that now before us, but without an express employer reversion provision, have allowed an employer to recapture surplus assets upon termination of the plan. See Outzen v. Fed. Deposit Ins. Corp. ex rel. State Examiner of Banks, 948 F.2d 1184, 1186-87 (10th Cir.1991) (where plan provided funds could not be used other than for the exclusive benefit of participant prior to the satisfaction of all liabilities, court held later amendment adding express reversion provision was valid). 36 Plaintiffs mount a second attack on the prior to phrase of section 10A.2, claiming that it is mere boilerplate language required by tax law. The phrase in question was part of section 165(2) of the Revenue Act of 1938, and became section 165(2) of the Internal Revenue Code of 1939. 53 Stat. Sec. 165(2) (1939). It has been carried over into the present Internal Revenue Code. 18 Plaintiffs contend that Gulf's use of the language in the A & B Plan was mere repetition of the 1938 statute. 37 In response, Chevron argues that the legislative history of section 165 supports reading the A & B Plan to allow employer reversion. The prior to phrase was added to the Revenue Act of 1938 to allow employers to recapture surplus assets without losing their exempt status under the tax laws. 19 S. REP. No. 1567, 75th Cong., 3d Sess. 24 (1938), reproduced in 1939-1 C.B. 779, 796. Thus, the prior to language of section 165 of the 1938 Revenue Act did not require a rote phrase, without meaning or implication. Instead, it offered employers the ability, if desired, to establish a qualified pension plan in which the employer, upon final termination, received the surplus assets. 38 Based on the foregoing, we hold that in the context of section 10A-2 of the Plan, with its distribution allocation provisions not reaching surplus assets, the phrases until all liabilities under the Plan shall have been satisfied in full and prior to the satisfaction of all liabilities under the Plan at least implied the right to reversion in Gulf. We consider now whether any other language in the Plan limited or prohibited that right.
39 Plaintiffs assert that the prior to language discussed above is inconsistent with the provision that Gulf's contributions to the A & B Plan be irrevocable. The Plan has contained the irrevocable language since its inception in 1944. 20 Chevron claims that the drafters of the Plan were merely parroting references in the tax law as it existed in 1944 when the Plan was created. While the 1939 Internal Revenue Code did not specifically use the term irrevocable, it decreed that a trust forming part of a pension plan would not be taxable under the Code 40 if under the trust instrument it is impossible, at any time prior to the satisfaction of all liabilities with respect to employees under the trust, for any part of the corpus or income to be ... used for, or diverted to, purposes other than for the exclusive benefit of his employees. Internal Revenue Code, 53 Stat. Sec. 165(2) (1939). 41 The essence of this Code provision is that an employer may not revoke, or use for his own purposes, any part of corpus or income of the pension trust. Our reading of this provision, to require an employer's contributions to be irrevocable, is supported by the immediately succeeding section of the 1939 Code, which governs Revocable Trusts. 21 Thus, Gulf's use of the term irrevocable in the A & B Plan is not extraordinary, as plaintiffs contend, but merely a rephrasing of the then-current tax code provision governing pension trusts. 42 Furthermore, we agree with Chevron that revocation and reversion are not synonymous terms. 43 A power to revest or revoke may in economic fact be the equivalent of a reversion. But at least in the law of estates they are by no means synonymous. For, generally speaking, the power to revest or to revoke an existing estate is discretionary with the donor; a reversion is the residue left in the grantor on determination of a particular estate. Helvering v. Wood, 309 U.S. 344, 347, 60 S.Ct. 551, 553, 84 L.Ed. 796 (1940). 44 The full termination of the A & B Plan and the fulfillment of its purpose by payment of accrued benefits to participants do not constitute a revocation of the Plan or of any of Gulf's contributions to the Plan. When all liabilities are satisfied, the Plan may terminate, and surplus assets revert to Chevron, without causing a revocation of the Plan. 45 Because defendants, through the merger, have not caused a revocation of the A & B Plan, the irrevocable provision does not determine whether the Plan allowed employer reversion of surplus assets.
46 Plaintiffs claim that the A & B Plan could not provide for employer reversion of surplus assets because Gulf's contributions to the plan were to be used for the exclusive benefit of the plan participants and their beneficiaries. Their argument fails to recognize, however, that the exclusive benefit requirements of tax law and ERISA are counterbalanced by provisions allowing employer recapture of surplus assets. 47 Both tax law and ERISA require the funds of a pension plan be used for the exclusive benefit of the plan participants. 26 U.S.C. Sec. 401(a)(2); 29 U.S.C. Sec. 1103(c)(1) (for the exclusive purposes of providing benefits ... and defraying ... expenses). Plaintiffs ignore the fact that both ERISA and the Internal Revenue Code also contemplate employer reversion. The ERISA exclusive benefit provision is expressly made subject to the exception that when the plan finally terminates, surplus assets may revert to the employer if three conditions are then met, including that the plan provide for such a distribution. 29 U.S.C. Sec. 1344(d)(1). The exclusive benefit provision of Section 165 of the 1939 Revenue Code, quoted above, the law in effect in 1944 when the A & B Plan was established, provided that a plan would be tax exempt if under the trust instrument it is impossible, at any time prior to the satisfaction of all liabilities with respect to employees and their beneficiaries under the trust, for any part of the corpus or income to be used for purposes other than for the exclusive benefit of the participants or their beneficiaries. 22 Internal Revenue Code, 53 Stat. Sec. 165(2) (1939). The Treasury Regulations originally promulgated for section 165(a), which continue in effect without presently relevant substantive change, make clear that, notwithstanding the exclusive benefit phrase, the prior to language of that section permits the employer to recover surplus assets upon termination of the plan if those assets stem from actuarial error. See notes 19 & 22, supra. 48 Because both the Tax Code and ERISA require exclusive benefit language and contemplate that an employer may recover surplus assets after all plan liabilities are satisfied, the mere existence of the exclusive benefit provision in the A & B Plan cannot prohibit reversion to an employer. 49 Courts construing pension plans containing this exclusive benefit language follow the rule that the phrase does not prohibit reversion of surplus assets to the employer upon termination of the plan. See, e.g., Chait v. Bernstein, 835 F.2d 1017, 1023 (3rd Cir.1987) (Thus, the text of ERISA itself demonstrates that the 'exclusive benefit' language of ERISA Sec. 403 is not at odds with reversion of the surplus of a single employer plan under Sec. 4044(d)(1)(C)); Washington-Baltimore Newspaper Guild Local 35 v. Washington Star Co., 555 F.Supp. 257, 261 (D.D.C.1983) (section 4044(d)(1) of [ERISA] provides that an employer may retain a plan's surplus without running afoul of the exclusive benefit rule), aff'd mem., 729 F.2d 863 (D.C.Cir.1984); In re C.D. Moyer Co. Trust Fund, 441 F.Supp. 1128, 1132 (E.D.Pa.1977), aff'd without published opinion, 582 F.2d 1273 (3d Cir.1978). 50 The use of the exclusive benefit language in the A & B Plan does not preclude reversion of surplus assets to Gulf. 51