Opinion ID: 421651
Heading Depth: 1
Heading Rank: 5

Heading: Interest Accrued During the Period the Liability Remains Unpaid

Text: 30 The district court affirmed the bankruptcy judge's conclusion that interest should not accrue on that portion of the Ouimet Group's termination liability allocated to the bankrupts. It follows from our holding here that interest should accrue on the entire amount of the liability because no amount is to be allocated to the bankrupts. 31 The Ouimet Group raises several points with respect to the amount of interest which should attach to its liability. First it argues that the statute does not provide for the imposition of interest, and that if interest is imposed it should not accrue until after this court issues its opinion and the amount of liability is conclusively determined. We think the statute clearly provides that PBGC may impose interest for an employer's delay in satisfying its claim. See 29 U.S.C. § 1368(a) (1976) (providing for a lien in the amount of an employer's liability (including interest ) (emphasis added)); see also Ludlow Industries v. Pension Benefit Guaranty Corp., 524 F.Supp. 155, 158 (N.D.Ill.1981). This interest logically would begin to accrue on the plan termination date, the date on which the employer's liability arises. Cf. 29 U.S.C. § 1368(b) (1976) (providing that the lien imposed when an employer neglects or refuses to pay arises on the plan termination date); 29 U.S.C. § 1362(b) (1976) (providing for computation of termination liability as of the termination date). Accruing interest as of the termination date is consistent with the idea that imposing interest will encourage prompt settlement of PBGC's claims as well as compensate it for the time value of money foregone during any period of delay in payment. We note that PBGC's regulations also encourage PBGC itself to facilitate a rapid determination and settlement of liability by imposing the same interest on PBGC for any overpayments made to it by the employer. 29 C.F.R. § 2622.7(b) (1982). The Ouimet Group has little room to complain because it has already been granted a one year delay beyond the termination date for the commencement of interest. 32 The Ouimet Group next cites Ludlow Industries, 524 F.Supp. 155, for the proposition that if interest accrues for its delay in payment, then for purposes of consistency the interest rate should be correlated with the factor used to discount the pension plan's vested nonforfeitable benefits to present value in computing the termination liability. Thus, the Group maintains that if we approve PBGC's imposition of interest for payment delays at short-term rates the termination liability should be recomputed using these same rates in discounting benefits. PBGC's regulations have adopted the variable short-term rates provided in I.R.C. § 6621(a) for accruing interest on payment delays. 29 C.F.R. § 2622.7(c) (1982). Short-term rates are appropriate here on the theory that any delay in payment will not extend indefinitely. In effect, PBGC or the employer is being compensated for the short-term use of its money. On the other hand, long-term rates--which were used in determining the liability due at the termination of Avon's plan--are appropriate in making the termination liability calculation because this involves discounting pension benefits that are scheduled to be received by employees over many years. There is no reason for the rates in these two calculations to be the same and we reject the Group's argument that if we uphold, as we have, short-term interest rates for payment delay the termination liability amount must be redetermined to reflect discounting at the short-term rates. We find that PBGC's regulation imposing interest at the I.R.C. § 6621(a) rates from the termination date implements the statute in a reasonable manner and is entitled to deference, see Vogel Fertilizer, 455 U.S. at 24, 102 S.Ct. at 827, and that these rates need not be incorporated into the liability determination. 33 Finally, we have considered and find no merit in the Ouimet Group's other arguments with respect to interest, including the contention that the interest imposed pursuant to 29 C.F.R. § 2622.7(c) (1982) is a component of an employer's termination liability and the total amount of liability and interest must be limited to thirty percent of net worth. Section 1362, which includes the thirty percent ceiling, clearly pertains solely to an employer's liability for the current value of the plan's unfunded vested benefits. See 29 U.S.C. § 1362 (1976 & Supp. V 1981). This amount, which is determined as of the termination date, is limited to thirty percent of net worth. Section 1368, which indicates that PBGC may impose an interest charge, addresses entirely different issues relating to satisfaction of PBGC's claim that arise after the termination date. This straightforward reading of the statutory language does not eviscerate the net worth limitation when, as in this case, it exposes employers to potential interest charges which increase the total amount due to substantially higher than thirty percent of net worth because an employer may avoid such charges by paying its termination liability promptly. 34 In conclusion, we approve the bankruptcy judge's allocation of termination liability among the solvent members of the Ouimet Group according to ratios using thirty percent of their net worth amounts. This case must be remanded, however, to allocate to these solvent companies the liability originally allocated to the bankrupts. Interest on the reallocated liabilities should be computed in a manner consistent with this opinion. 35 Remanded.