Opinion ID: 551498
Heading Depth: 1
Heading Rank: 1

Heading: pension fund issue

Text: 3 Koch purchased Sun's refinery pursuant to an Acquisition Agreement dated November 10, 1981. As a consequence of the purchase, more than 500 Sun employees at the refinery became employees of Koch. In order to protect the pension benefits of these employees, the parties agreed to establish a special pension plan for them, called the Suntide Plan. Sun adopted the plan immediately prior to the transfer of the refinery, and pursuant to the Acquisition Agreement, Koch assumed the plan as of the defined closing date, November 13, 1981. The parties agreed that Sun would fund the plan--that is, transfer to it assets equal to the present value of the benefits expected to be paid to the employees as they became eligible. As a benefit to the covered employees, Sun would also transfer an amount (in present value terms) sufficient to fund increases in retirement benefits based on assumed annual cost of living increases for the employees of 6 3/4%. 4 The calculations of these two present values were to be performed by Sun employing specified actuarial assumptions and later checked by Koch. Because of the complexity of the calculations, the parties knew that Sun would not immediately transfer the funds, and they specified no date by which Sun was required to do so. Sun made the first transfer on March 18, 1982, in the amount of $3,881,707, and the second on April 14, 1982, in the amount of $5,464,523, for a total of $9,346,230. Koch accepted both payments, its actuary having confirmed Sun's calculations. Later in April of 1982, Koch wrote Sun, claiming a deficiency in the payments by virtue of Sun's failure to pay interest on the funds from the closing date until the dates of transfer. Sun denied any obligation to make additional payments. In this litigation, Koch makes a claim for $360,499 from Sun, relying on paragraph 13.6 of the Acquisition Agreement and on federal pension law. We dispose of the latter issue first.
5 Koch claims that Sun's refusal to pay interest violated section 208 of the Employee Retirement Income Security Act, 29 U.S.C. Sec. 1058. Although Koch has not sought relief directly under ERISA, it asserts that ERISA is de jure part of the Acquisition Agreement, citing Nedrow v. MacFarlane & Hays Co. Employees' Profit Sharing Plan & Trust, 476 F.Supp. 934, 937 (E.D.Mich.1979). Assuming without deciding that ERISA is part of the Acquisition Agreement, we hold that Koch has not shown any violation of ERISA by Sun. Section 208 provides in relevant part: 6 A pension plan may not merge or consolidate with, or transfer its assets or liabilities to, any other plan ..., unless each participant in the plan would (if the plan then terminated) receive a benefit immediately after the merger, consolidation, or transfer which is equal to or greater than the benefit he would have been entitled to receive before the merger, consolidation, or transfer (if the plan had then terminated). 7 29 U.S.C. Sec. 1058; see also 26 U.S.C. Sec. 414(l ) (imposing same requirement for pension plan to qualify as tax-deferred retirement plan). Because Sun did not include an additional sum for the time value of the funds transferred, argues Koch, the amount transferred was less than the employees' accrued benefits as of November 13, 1981, when the employees became covered under the Suntide Plan. 8 This argument confuses the two separate duties that section 208 imposes on employers who merge, consolidate, or transfer pension plans. First, employers may not by these actions decrease the liabilities of the plan--the benefits promised to employees upon retirement, disability, or termination. 1 That is, the promised benefits to employees must be at least as good or better under the new pension plan as under the old one. There is no dispute in this case that the affected employees will receive benefits under the Suntide Plan the same as or greater than under their former pension plan at Sun. As noted in the margin, the level of benefits does not depend on the amount of funds transferred by Sun to Koch, because the Acquisition Agreement requires that Koch satisfy any shortfalls. Thus, no matter what we decide about the amount that Sun should have transferred to Koch pursuant to their contract, Sun did not violate this portion of section 208. 9 Second, in transferring the liabilities of pension plans, section 208 requires that employers also transfer sufficient plan assets to pay previously promised benefits to employees as they come due. Because these benefits will be paid in unknown amounts in future years, assets are deemed sufficient if they are not less than the present value of the promised benefits of the former plan. 26 C.F.R. Sec. 1.414(l )-1(n)(1)(ii). The only testimony adduced at trial about such present value as applied to this case was that of Mr. Stanley Freilich, Sun's actuary. Mr. Freilich testified on direct examination that the transfer of only $4.8 million--compared to the $5,464,523 actually transferred under this provision--would have satisfied the complicated requirements of ERISA and IRS regulations. Furthermore, according to Freilich, the $5,464,523 was legally sufficient even if those regulations had required interest. Koch has offered neither evidence nor briefing to dispute this testimony. 10 The two ERISA cases cited by Koch do not support its contentions. Hickerson v. Velsicol Chem. Corp., 778 F.2d 365 (7th Cir.1985), cert. denied, 479 U.S. 815, 107 S.Ct. 70, 93 L.Ed.2d 28 (1986), involved the conversion of a defined-contribution deferred profit-sharing pension plan into a defined-benefit pension plan. Under the former plan, the employer made a specified contribution to the plan, which then invested the funds as trustee; each employee had a vested interest in a pro rata portion of the trust corpus. Id. at 368. The court ruled that in order for the benefits under the new plan to equal these vested interests as required by section 208 of ERISA, the new plan must provide interest on then-existing employee account balances at least equal to the long-term interest rate as of the date of conversion. Id. at 379. In this case, employees never had individual account balances that depended on investment returns; instead, they have from the Suntide Plan (as guaranteed by Koch) promises to pay set levels of benefits. As stated above, these benefit levels were protected by the amount of funds transferred by Sun. 11 Koch's other proffered case, Bigger v. American Commercial Lines, Inc., 677 F.Supp. 626, 632-33 (W.D.Mo.), aff'd, 862 F.2d 1341 (8th Cir.1988), ruled that even if the actual payment (transfer) of funds between pension plans takes place after the merger, consolidation, or transfer described in section 208, it is the former date at which the amount of funds will be judged for sufficiency under section 208. As we described, Sun's actuary testified that the actual transfer of funds from Sun to Koch was legally sufficient at either the date of closing or the date of payment. Thus, Sun's actions in this case complied with the requirements of section 208 as interpreted by Bigger. Because the payment of interest is not dictated by ERISA, we now look to the contract between the parties.
12 Paragraph 13.6 of the Acquisition Agreement required Sun to fund the Suntide Plan as of the Closing Date with an amount of money specified in two formulas based on agreed actuarial assumptions. Koch asserts that this provision required Sun to pay, in addition to this amount, an amount representing the time value of money between the closing date of the agreement and the date that Sun actually transferred the money. The relevant language of Paragraph 13.6 reads: 13 As of the Closing Date, the Suntide Plan will provide benefits, and shall be funded by [Sun] from whatever source it chooses, with an amount equal to: (i) the present value of the Accrued Benefit accrued by the Transferred Employees as of the Closing Date ... plus (ii) the present value of a cost of living adjustment to the Accrued Benefit set forth in (i) above, equal to 6 3/4%, compounded annually from the Closing Date.... 14 According to the agreement, it is to be construed in accordance with the laws of Texas. Under Texas law, if there is no ambiguity, the construction of the written instrument is a question of law for the court. Westwind Exploration, Inc. v. Homestate Savings Ass'n, 696 S.W.2d 378, 381 (Tex.1985) (quoting City of Pinehurst v. Spooner Addition Water Co., 432 S.W.2d 515, 518 (Tex.1968)). At trial, both parties agreed, and the district court held, that paragraph 13.6 was not ambiguous. The parties' positions have not changed on appeal. We also find it appropriate to construe the Acquisition Agreement as a matter of law. 15 In construing the agreement, certain canons of construction are to be borne in mind. The court's role is to effectuate the intent of the parties. In so doing, we assume that the language the parties used explains their intent. Extrinsic evidence of the facts and circumstances surrounding the making of the agreement may be used to interpret the contract in light of the parties' true intentions. Benson v. Jones, 578 S.W.2d 480, 484 (Tex.Civ.App.1979). Language should be given its plain grammatical meaning unless it definitely appears that the intention of the parties would thereby be defeated. Reilly v. Rangers Management, Inc., 727 S.W.2d 527, 529 (Tex.1987). Finally, courts should examine and consider the entire writing in an effort to harmonize and give effect to all the provisions of the contract so that none will be rendered meaningless. Coker v. Coker, 650 S.W.2d 391, 393 (Tex.1983). 16 Admittedly, the placement of commas in that part of Paragraph 13.6 quoted above that precedes the colon is infelicitous. We disagree with Sun's contention that because of these commas, the initial phrase As of the closing date modifies only the immediately following clause the Suntide Plan will provide benefits. Grammatically, it makes more sense that as of the Closing Date also modifies the following clause shall be funded by [Sun] from whatever source it chooses. This disagreement does not, however, fully undermine Sun's interpretation of the contract language. 17 The isolated portion of the sentence relevant to our analysis reads as follows: 18 As of the Closing Date, the Suntide Plan will provide benefits, and shall be funded by [Sun] from whatever source it chooses, with an amount equal to [the following elaborate formula]. 19 Koch's entire argument hinges on the paraphrased wording, As of the Closing Date, the Suntide Plan ... shall be funded by [Sun].... Koch contends that this language required Sun to fund the Suntide Plan in such amount as if it were funded on the Closing Date, 2 thus including interest for the time-value of the fund between the actual Closing Date and the date of transfer of the money several months later. Although this construction would be plausible in isolation, it does not fit the entirety of the sentence or the parties' intention when they signed the agreement. 20 Two facts compel a different reading of Paragraph 13.6. First, the parties knew at the time they signed the agreement that Sun could not literally fund the Suntide Plan for some weeks after the Closing Date because the data were not available to calculate the proper sums. Second, despite that knowledge, the parties drafted a funding provision, embodied in the rest of paragraph 13.6, that specifies in detail Sun's monetary obligation in present-value terms without providing for a time-differential between the Closing Date and the date of actual funding. Given the multi-million dollar amounts in issue, it is highly unlikely that Sun and Koch would have intentionally expressed in very complex and specific terms how much Sun must contribute in present value terms to fund future benefits, while intentionally leaving completely unexpressed a potential six-figure liability for interest. Koch's advocacy of a ten percent (10%) interest rate, wholly unsupported by the contract language, reflects the frailty of its argument. Finally, Koch's argument that the initial clause of paragraph 13.6 required the factoring of interest until the actual date of Sun's transfer of funds overlaps, at least in part, with the parties' calculation of present values based on the Closing Date. As the district court said, Koch could have achieved its desired result by explicitly basing the present-value calculations as of the transfer date. That it did not do so suggests that the parties had no such agreement. 21 The more plausible reading of Paragraph 13.6 is that urged by Sun. Under that construction, the Suntide Plan became responsible for providing benefits As of the Closing Date, and Sun's funding obligation As of the Closing Date included the present value of future benfits to the claimants plus a 6 3/4% annual cost of living adjustment to those benefits. The parties did not insist upon actual funding As of the Closing Date, nor could they specify a precise transfer date for the funds. 3 Without doing violence to grammar and word usage, and taking the surrounding circumstances into account, Sun's funding As of the Closing Date meant only to state the intent that Sun's contribution to the Suntide Plan would be relied on from and after that date to pay benefits. Thus, if a former Sun employee reached retirement between the Closing Date and the date of transfer of Sun's funds, Koch could presumably begin to pay him without having contributed to the plan's funding; that is, Koch could later recapture that amount from the Sun contribution. 22 Remembering the last above-cited canon of construction, we reject Koch's argument that the foregoing interpretation of paragraph 13.6 conflicts with the language of paragraph 13.8, which provides: Sellers shall transfer the account balances maintained on behalf of the Transferred Employees in Sellers' Savings Plan as of the Closing Date to Buyer's Savings Plan. Koch asserts that Sun interpreted this language in the same way that Koch has asked us to interpret the language of paragraph 13.6. That is, Sun took into consideration earnings on funds in its savings plan from the Closing Date until the transfer date. The two paragraphs do not, however, have parallel grammar. Paragraph 13.8 requires transfer of account balances maintained ... as of the Closing Date. But more important, the account balances were owned neither by Sun nor by Koch, but by the account holders; the accounts held either shares of stock, the value of which is self-adjusting, or dollars earning interest at a specified rate no matter who maintained the accounts. The account holders had a right to continue receiving whatever return they had chosen regardless of when the savings plan funds were transferred. 23 Because Koch has not proven its claims against Sun for breach of the Acquisition Agreement or breach of ERISA obligations, we affirm the district court's judgment on the pension fund issue.