Opinion ID: 679507
Heading Depth: 4
Heading Rank: 3

Heading: Exclusive benefit clause

Text: 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