Opinion ID: 2229450
Heading Depth: 1
Heading Rank: 1

Heading: Date on Which Minnesota Legislature Intended Minnesota Private Pension Benefits Protection Act to Terminate.

Text: The first of the three questions certified to this court is the following: (1) Upon what date did the Minnesota Private Pension Benefits Protection Act, Minn.Stat. § 181B.01 et seq. (1974) (hereinafter the `Minnesota Pension Act') become null and void pursuant to Minn. Stat. § 181B.17? The law which we are asked to interpret is the final section of the Act, Minn.St. 181B.17, which states: Sections 181B.01 to 181B.17 shall take effect the day following final passage. Provided that sections 181B.01 to 181B.17 shall become null and void upon the institution of a mandatory plan of termination insurance guaranteeing the payment of a substantial portion of an employee's vested pension benefits pursuant to any law of the United States. This is the first time this court has construed the Act. [13] A brief mention of problems which gave impetus to the recent remedial legislation in the area of private pension plans might serve as a helpful preface to a discussion of the Act and ERISA. One commentator aptly summarized the problems of the private pension system in these terms: (1). The problems of coverage. Only about one-half of the labor force is employed by employers who have established pension or profit-sharing plans and approximately three-fourths of those who do work for such employers are actually participants in the plans operated by those employers. (2). The lack of adequate vesting provisions in existing plans. In many of the existing plans vesting was so long delayed that there was little chance that an employee would actually receive a pension unless he remained with the employer until he reached normal retirement age. (3). The lack of adequate funding. Many employers failed to make contributions that were large enough to fund adequately their plans, and in the event of early termination even those employees with vested rights received only a small fraction of the amount that they might reasonably have anticipated. (4). Failure of the employer or the pension trustee to furnish the employee with adequate information as to his rights under the plan and as to the financial stability of the trust established under the plan. (5). The failure of the federal government to protect fully the rights of employees by adequate regulations. Regulation was entrusted entirely to the Internal Revenue Service which was rightly concerned with the tax aspects of the plan and not with rigid enforcement of the rights of employee participants. Snyder, Employee Retirement Income Security Act of 1974, 11 Wake Forest L.Rev. 219, 226. [14] Consideration of early House and Senate versions of what became ERISA preceded the passage of the Minnesota Act. The first of the five bills which contributed to ERISA was S. 4, reported by the Senate Labor and Public Welfare Committee on April 18, 1973. See, generally, 1974 U.S. Code Cong. & Ad.News, p. 4838. Under this proposal the vesting and funding provisions would have become effective 3 years after enactment and the termination insurance provisions 1 year after enactment. Id. 4883. The House version, labeled H.R. 2, was a compromise bill combining H.R. 2 and H.R. 12855. It was passed on by the House February 28, 1974. Under H.R. 2, as reported by the House Education and Labor Committee, both the vesting and funding requirements would have become effective 2 years after enactment. Id. p. 4662. Termination insurance would have applied to insure unfunded vested liabilities incurred prior to enactment of the proposal, as well as after its enactment. Id. pp. 4662, 4663. The Senate passed H.R. 2 on March 4, 1974, with amendments that generally substituted language from the earlier Senate bill. The House did not agree to the amendments and a conference committee was appointed. Thus, when the Minnesota Private Pension Benefits Protection Act was enacted on April 9, 1974, the final provisions of the Federal act (and even its passage) were uncertain. The conference committee had yet to report and final provisions and effective dates were unknown. When it passed the Act, the Minnesota legislature certainly was aware of the Congressional activity (or lack of it). Viewed in light of the uncertainty of the date of passage of the Federal legislation and the similar uncertainty of the final Federal provisions, it is most reasonable to believe the Minnesota legislature passed the Act in response to the delay in Congressional action. More important, it is also most reasonable to believe the legislature intended the Act to provide immediate, full, and lasting protection for workers  protection which would last until the Federal act displaced it. To provide the fullest protection the legislature must have intended the state legislation to remain in effect as long as possible. If not preempted, this would mean a state act which would dovetail as closely as practical with the Federal act. The problem which it was responding to was not of the type which could be attacked piecemeal, and the need for reform was pressing. It cannot be assumed that gaps in overall protection were intended. ERISA was signed into law by President Ford on September 2, 1974. The conference report had been passed by the House August 20, 1974, and the Senate August 22, 1974. 1974 U.S.Code Cong. & Ad.News, p. 4639. ERISA sets forth detailed standards in the important areas of private pension funding, vesting, and termination insurance, among others. [15] With respect to funding, ERISA requires that past service costs be amortized to relieve the hardship created when underfunded plans terminate. Plans must eliminate unfunded past liabilities and attain fully funded status within a prescribed number of years. 29 U.S.C.A. § 1082. For plans in existence on January 1, 1974 (such as Allied's), the funding requirements apply to plan years beginning after December 31, 1975. 29 U.S.C.A. § 1086(b). With regard to vesting, ERISA specifies minimum vesting and strict participation standards. See, 29 U.S.C.A. §§ 1051 to 1061. Under ERISA an employee generally cannot be compelled to wait more than 1 year before participating in his employer's plan. However, employees could be compelled to wait until they reach the age of 25 to participate. 29 U.S.C.A. § 1052(a)(1)(A). Three alternative vesting formulae are provided. First, an employer can use a graded schedule under which an employee must become 25 percent vested after 5 years; the employee also must receive an additional 5 percent interest for each of the next 5 years, and 10 percent for each of the final 5 years. 29 U.S.C.A. § 1053(a)(2)(B). Second, the employer can provide a schedule by which an employee is 100 percent vested after 10 years of service. 29 U.S.C.A. § 1053(a)(2)(A). Finally, a rule of 45 formula provides that a worker with at least 5 years of service becomes 50 percent vested when the sum of his age and years of service equals 45; for each of the next 5 years the worker's account must be vested in an additional 10 percent. 29 U.S.C.A. § 1053(a)(2)(C). Benefits derived from a worker's own contributions to the pension fund are at all times 100 percent vested and nonforfeitable. 29 U.S.C.A. § 1053(a)(1). These provisions became effective for Allied no sooner than January 1, 1976. 29 U.S.C.A. § 1061(b)(2). Finally, with respect to termination insurance, ERISA established the Pension Benefit Guaranty Corporation (PBGC) within the Department of Labor to protect participants from losses caused by plan terminations. See, 29 U.S.C.A. §§ 1301 to 1323. Plans are required to subscribe to the PBGC by paying per capita premiums, which may decrease in later years as unfunded liabilities diminish, 29 U.S.C.A. § 1306(a). A solvent employer whose plan terminates may be liable to the PBGC for benefit payments which it has made, 29 U.S.C.A. §§ 1362(b), 1368. The premium payment provisions for both benefit and contingent liability coverage became effective September 2, 1974, 29 U.S.C.A. § 1381(a), while benefit payments for previously vested benefits for single-employer plans which terminated after June 30, 1974 and before September 2, 1974 were covered provided the plan terminated for a reasonable business purpose and the employer filed a timely notice with the Secretary of Labor, 29 U.S.C.A. § 1381(b). As applied to the Allied Plan, ERISA would not have guarante[ed] the payment of a substantial portion of [an Allied] employee's vested pension benefits until at least January 1, 1976, the earliest date on which all these titles of ERISA could apply to Allied. It seems clear to us that the Minnesota Legislature intended to protect persons employed in Minnesota by vesting rights which they would otherwise be denied under existing law. The Act was intended to be effective until Federal laws would substantially protect the same rights. Thus, because under the Federal law (ERISA), the mandatory vesting and funding requirements did not apply until plan years beginning after December 31, 1975, our legislature intended Minn.St. 181B.01 to 181B.17 to be effective until those dates and we so hold. We pass only on the intent of our own state's legislature at the time of the passage of the Act. In any event, the Minnesota statute was effective on July 31, 1974, when Allied terminated 11 employees in connection with ceasing to operate a place of employment in Minnesota. On that date, Allied's employees received mandatory vesting of their pension rights under Minnesota law, because they did not have vesting under the Allied pension plan itself. There would be little point in passage of the Act if it did not accomplish what the legislature so obviously intended  protection to pension rights of Minnesota employees. Thus, as to the first certified question we hold the Minnesota Act did not become null and void under the terms of Minn.St. 181B.17 until the funding, vesting, and termination insurance provisions of ERISA applied.