Opinion ID: 2391146
Heading Depth: 1
Heading Rank: 10

Heading: Service Pension Accruals.

Text: The Company contends that although the Board properly allowed its full claim ($4,298,000) for other payments to its pension trust fund as operating expenses, it erred in disallowing 50% of a so-called freezing charge, a payment into the pension fund to decrease unfunded actuarial reserve. The amount so claimed was $328,000. The Board allowed $164,000. The Company contends that these payments are essential to actuarial soundness of its pension fund, and there was evidence introduced which supports this contention. The Board held that although the amount of the payment was proved and the Company had to pay the freezing charge, it was unreasonable to assess the full charge against the consumers. The Board came to its conclusion upon the finding that the actuarial reserve requirement of the pension plan had doubled since 1928 when the Company completed its transition of pension payments to a funded pension trust. The testimony in the record of the proceedings in this matter shows that the Company was not formed until 1927, but its predecessor companies and other Bell companies elsewhere first adopted pension plans in 1913 which, with subsequent amendments, continued in operation thereafter and as to the Company are incorporated in its present pension plan. This plan is the same as that in effect in other Bell system companies elsewhere. The plan involves a pension trust fund to which the Company makes periodic payments to keep the fund adequate for pensions. The trustee pays pensions out of the fund; the balance of the fund is invested and the earnings augment the fund. If the pension plan were terminated the funds therein would be used only for the payment of pensions on a priority basis. At the end of 1949 the amount in the fund was $36,286,994.51. It was testified that the fund is sufficient to pay current pensions and pensions of employees presently entitled to retire. From 1913 to 1926, inclusive, pensions were handled on a pay-as-you-go basis but data for actuarial studies was collected. In 1927 the Company and other Bell companies adopted an actuarial accrual program for pensions. At that time pension reserves were more than adequate to pay then current pensions. There is testimony in the record to the effect that a full accrual plan would have made a sharp increase over the cost of the pay-as-you-go plan. The particulars of the three-step limited accrual plan adopted were recited by Company witnesses in considerable detail. The second step was invoked in 1928 and the third step (now in operation) was placed in effect in 1941. It was testified that in 1941 the pension fund was more than sufficient to provide for pensions granted before 1941 and for those payable to employees who were then entitled to retire on a pension at their own request. The plan before 1941 made no provision for the so-called unfunded actuarial reserve requirement which is computed to secure the cost of pensions to be granted in the future. In 1928 the unfunded portion of this computed actuarial reserve requirement was $7,732,322, and on December 31, 1940 it had risen to $16,223,063. The testimony showed its current status at the time of the hearing before the Board to be $14,230,000. There was further testimony to the effect that the Company's method of reduction of this unfunded reserve requirement by payment of the freezing charge was reasonable and essential. The Board points to no evidence in the record to support its conclusion that the Company failed to take necessary steps between 1928 and 1941 to arrest the growth of the actuarial unfunded reserve requirement. On the other hand, the Company relies on opinion evidence for proof that the amount of the freezing charge currently made to increase the funded portion of the actuarial reserve is essential. The question seems to resolve itself to whether the Board, on the evidence, properly exercised its discretion in determining the reasonableness of this Company account. There must be a distinction between what was said and what was done. The Company may not prevail on appeal unless there has been error in the result as well as the reasoning, and it must bear the burden of proving the same. Dayton P. & L. Co., v. Public Utilities Commission, supra, 292 U.S. 290, 54 S.Ct. 647 (78 L.Ed., at page 1274). The result here essentially is that the Company failed to carry the burden of proving the reasonableness of this item. That the Board so found is unmistakable. We are not of the opinion that the record requires a contrary finding. It must not be understood from our conclusion, however, that we agree with the Board's reasoning. Both the reasons asserted by it were held insufficient to justify a complete disallowance of a similar freezing charge in Petitions of New England Tel. & Tel. Co., 116 Vt. 480, 80 A. 2 d 671, 677-683 ( Sup. Ct. 1951). The logic of the Vermont Supreme Court's opinion appeals to us as a proper appraisal of the allowance of this type of charge as an operating expense in a rate case. Comparable factors must necessarily have impressed the Board in the present matter, for it allowed 50% of the claimed item as an operating expense. Cf. City of Pittsburgh v. Pennsylvania Public Util. Comm., 370 Pa. 305, 88 A. 2 d 59, 65-68 ( Sup. Ct. 1952). The Board argues on this appeal that its decision and order should be sustained because in other cases (in other jurisdictions) mention was made of the very well known fact that the A.T. & T. Comptroller, as well as its consulting actuary, both recommended the commencement of action that would tend to freeze the unfunded actuarial liability as far back as 1927 and 1928. This argument is ungrounded in law, exceeding the logical bounds of judicial notice. Evidence of this fact in the record of this case is not adverted to and appears to be nonexistent. It can have no bearing on our determination. Compare the City of Pittsburgh case, supra (88 A. 2 d, at pages 65-66).