Opinion ID: 494615
Heading Depth: 1
Heading Rank: 2

Heading: the partial termination suit

Text: 35 The Internal Revenue Code provides that to qualify for favorable tax treatment, a pension fund or trust must specify that upon its termination or partial termination ... the rights of all affected employees to benefits accrued to the date of such termination, partial termination, or discontinuance, to the extent funded as of such date, or the amounts credited to the employees' accounts, are nonforfeitable. 26 U.S.C. Sec. 411(d)(3). 36 Whether a partial termination of a qualified pension trust has occurred must be decided in view of all relevant facts and circumstances. Weil v. Retirement Plan Admin. Committee, 750 F.2d 10 (2d Cir.1984). This area is one of the unsettled facets in the law; however, in this case, the occurrence of a partial termination is not at issue. Defendants have not cross-appealed from that aspect of the district court's conclusion. The parties agree that the question here is whether the partial termination had any relevant consequences. Cf. Bruch v. Firestone Tire & Rubber Co., 828 F.2d (3d Cir. 1987) (Count alleging partial termination withdrawn from suit). 37 The plaintiffs' position is that in the event of a partial termination, the trustees need not actually terminate the fund, nor must they purchase annuities or establish a dedicated bond portfolio. These devices, however, can serve as a measure of the extent to which non-vested benefits may be funded. Plaintiffs argue that the trustees have acted improperly by failing to employ these methods to value the fund's assets. 38 The district court concluded plaintiffs had failed to show that the trustees had used an inappropriate valuation method. They followed the terms of the trust agreement, which provided in Sec. 8.2, [i]n the event of, and to the extent of, the termination of this Plan for any cause, the Trust Fund, to the extent of such termination, shall be used for the benefit of participants. The section required the use of the actuarial assumptions underlying this Plan, and the evidence showed that those assumptions included a seven percent anticipated earnings rate. The court rejected the plaintiffs' contention that the trust language applied only to an actual, and not a partial termination. The plain meaning of the words supports the district court's conclusion that the clause to the extent of was intended to include partial terminations. 39 The parties do not dispute that the seven percent rate is a conservative one, but the trustees' fiduciary obligations mandate the use of a method that safeguards the fund for the benefit of the vested beneficiaries and does not unfairly discriminate against the nonvested participants. 4 Although plaintiffs suggest other methods of valuation, they have not shown that the formulation required by the trust agreement is unrealistic or unfair to nonvested participants. 40 Plaintiffs suggest that termination concepts incorporated in regulations for single-employer pension funds might serve as guidelines for the valuation of the plan here. They contend that an appropriate valuation would use the market rate for the purchase of annuities, a method included in regulations formulated by the Pension Benefit Guarantee Corporation. 29 C.F.R. Sec. 2619.23. That rate, higher than seven percent at the relevant time, might have produced a different picture of the plan's solvency. 41 Other regulations governing single-employer plans, however, provide that in valuing benefits not paid as annuities, the plan must employ reasonable actuarial assumptions. 29 C.F.R. Sec. 2619.26(c)(2). Among the interest assumptions that will normally be considered reasonable is the rate [set] by the plan for determining lump sum amounts prior to the date of termination. That is precisely what the trustees did here. We acknowledge, and plaintiffs concede, that these regulations specifically do not apply to multiemployer pension plans. 29 C.F.R. Sec. 2619.1. But even using them as guidelines fails to support the plaintiffs' position. 42 An additional reason for not applying the single-employer termination procedures in this case lies in a fundamental difference between the two situations. When a plan actually terminates, it has no further need to reinvest its assets. In contrast, a multiemployer fund that experiences the withdrawal of one employer must look ahead and weigh the possibility that the rate of return may be lower at some point in the future. The use of the current market rate as the interest assumption would not recognize this continuing risk. Although the reinvestment risk might have been reduced by the immediate purchase of annuities or a dedicated bond portfolio, plaintiffs concede that nothing compels the trustees to exercise their discretion in that manner. 43 The trustees occupy a delicate position in carrying out their obligation to perform a fair evaluation of the fund. The method they chose has the virtue of having been set in advance, when a partial termination was not contemplated. Furthermore, trustees for both employer and employees had agreed on the provision which was made known to the participants before, not after the termination. Moreover, we acknowledge that the trustees should take a long term-view of the market and not be unduly influenced by fleeting aberrations. 44 Having determined that the valuation method followed by the trustees can withstand the plaintiffs' attack, we conclude the fund has established that its liabilities exceeded its assets. 5 Because no assets were available to fund the nonvested employees' benefits, the failure to declare a partial termination had no consequences with respect to the plaintiffs' rights under ERISA. The district court, accordingly, did not err in entering summary judgment for defendants on the termination claim. 45 The judgments of the district court will be affirmed.