Opinion ID: 445295
Heading Depth: 3
Heading Rank: 1

Heading: Due Process and Impairment of Contract

Text: 13 Thompson contends that the MPPAA violates due process by imposing on Thompson financial liabilities for withdrawal from the Plan that it neither contemplated nor agreed to in its collective bargaining agreement with the Teamsters. Central to Thompson's argument is its belief that the due process clause of the fifth amendment restricts Congress from impairing contractual obligations to the same extent that the contract clause restricts state governments. U.S. Const. art. I, Sec. 10, cl. 1. The Supreme Court in R.A. Gray, however, expressly rejected this argument. R.A. Gray, 104 S.Ct. at 2720. The Court reaffirmed that, for purposes of due process analysis, economic legislation comes to the court with a presumption of constitutionality, and the burden is on one complaining of a due process violation to establish that the legislature has acted in an arbitrary and irrational way. 5 [citations omitted] Id. at 2717-18, quoting Usery v. Turner Elkhorn Mining Co., 428 U.S. 1, 15, 96 S.Ct. 2882, 2892, 49 L.Ed.2d 752 (1976). Economic legislation does not automatically violate due process simply because it upsets settled monetary expectations. Usery v. Turner Elkhorn Mining Co., 428 U.S. at 15-16, 96 S.Ct. at 2892-2893 (1976). To assess the rationality of the MPPAA, we first must examine the problems that Congress perceived with ERISA in its original form. 14 By the 1970's many of the industries in which multi-employer plans were most common were in economic decline, and the changing demographics of the work force resulted in a larger proportion of retired to active employees, threatening the plans' contribution bases. See Report of the Committee on Education and Labor, H.R.Rep. No. 96-869, Part I, 96th Cong., 2d Sess. 54, reprinted in 1980 U.S.Code Cong. & Ad.News 2918, 2922 (hereinafter House Report Part I). 15 ERISA, however, severely restricted funding alternatives for financially distressed plans, leaving the plans with little choice but to demand increased contributions. Id. See also Report of the Committee on Ways and Means, H.R.Rep. No. 96-869, Part II, 96th Cong., 2d Sess. 10, reprinted in 1980 U.S.Code Cong. & Ad.News 2918, 3001 (hereinafter House Report Part II). Unfortunately, ERISA also limited employers' termination liability to a maximum of thirty percent of the employer's net worth. 29 U.S.C. Secs. 1362(b)(2); 1364(b). As a result, employers faced with escalating contributions sometimes found termination liability less expensive than continuing the plan. House Report Part I at 54, 61, 1980 U.S.Code Cong. & Ad.News at 2922, 2929. 16 Further, coverage of the plans under ERISA initially was at the discretion of the PBGC, 29 U.S.C. Sec. 1381(c)(2) (1976), and if the plan did not terminate within five years after the employer withdrew, the employer escaped all liability for the plan's shortfall, 29 U.S.C. Sec. 1364 (1976). Consequently, employers contemplating withdrawal from financially shaky plans were encouraged to act as early as possible, and gamble either that the PBGC would elect not to cover the plan, or that the plan would survive for five more years. See Standard Dye, 725 F.2d at 849; House Report Part I at 60, 1980 U.S.Code Cong. & Ad.News at 2928. Employers remaining in the plan, on the other hand, had an incentive to terminate it immediately to avoid inheriting the withdrawing employer's share of the liability. 17 Because of these effects, the House Committee on Education and Labor found that ERISA in its original form threaten[ed] the survival of multiemployer plans by exacerbating the problems of financially weak plans and encouraging employer withdrawals from and termination of plans in financial distress. House Report Part I at 55, 1980 U.S.Code Cong. & Ad.News at 2923. See also Report of the Committee on Ways and Means, House Report Part II at 10, 1980 U.S.Code Cong. & Ad.News at 3001. To address these problems, the MPPAA imposed upon withdrawing employers an obligation to fund their proportionate share of the plan's unfunded benefit obligations. 29 U.S.C. Sec. 1381. See House Report Part I at 67, 1980 U.S.Code Cong. & Ad.News at 2935; House Report Part II at 15, 1980 U.S.Code Cong. & Ad.News at 3004. 18 We do not consider the MPPAA's statutory withdrawal liability an irrational solution to the funding crisis faced by the multiemployer pension plans. A fund's actuarial soundness at any specific time depends on a complex interaction of many factors including anticipated life spans of beneficiaries, estimated appreciation or depreciation of fund assets, and the likelihood that the contribution base will remain stable. The conservatism with which estimates of these factors are made may affect the outcome, and the numbers that are attached to these concepts are at best still picture[s] of a moving target. Peick, 724 F.2d at 1267. Even though the process is dynamic, Congress' decision that the calculations be made upon the employer's withdrawal is reasonable. By forcing the economic burden upon the employer at the time of withdrawal, the Act insures that the employer will give appropriate consideration to the fund's soundness as part of the withdrawal decision. Id. See also The Washington Star, 729 F.2d at 1510. 19 Further, employers contemplating withdrawal have little incentive under the MPPAA to gamble that they will escape liability, and employers remaining in the fund no longer need to terminate the plan precipitously to avoid assuming liability for the fund's entire shortfall. Although the MPPAA may not be a perfect solution, in that it assesses liability for withdrawals where pension funds are not in danger of immediate insolvency, Congress has great flexibility to devise solutions to economic problems, see Turner Elkhorn Mining, 428 U.S. at 19, 96 S.Ct. at 2894; The Washington Star, 729 F.2d at 1510, and the wisdom or utility of legislation is for legislatures, not courts, to decide. Ferguson v. Skrupa, 372 U.S. 726, 730-31, 83 S.Ct. 1028, 1031-32, 10 L.Ed.2d 93 (1963). As we have noted, determination of whether a plan is financially sound is a difficult calculation at best, and Congress had no obligation to deny relief to the funds until they unambiguously approached insolvency. 20 Thompson nevertheless argues that it is unfair to deprive it retrospectively of the benefit of its settled bargain with the Teamsters. R.A. Gray, however, makes clear that even retroactive aspects of economic legislation satisfy due process if justified by a rational legislative purpose. R.A. Gray, 104 S.Ct. at 2718. We believe it was neither irrational nor inequitable for Congress to require Thompson to fund the pensions it offered its employees. Thompson obtained economic benefits from participation in the Plan. The pension may have attracted some experienced employees with previous contributions to the Plan to work for Thompson, rather than for other nonparticipating employers, and encouraged yet other employees to remain working until their pension rights vested. Thompson profited from immediate access to a larger, skilled labor market and reduced labor turnover costs. In return, the employees expected to receive a pension. At the time of its withdrawal, Thompson had fully received its benefits from offering the pension, but its employees had not received full payment for their services. See Standard Dye, 725 F.2d at 857; Nachman Corp., 592 F.2d at 962. 21 We find, as have other circuits that have addressed the issue, that Congress did not violate due process by imposing funding liabilities on employers who, after enactment of the MPPAA, withdrew from plans inadequately funded to meet their pension benefit obligations. See Keith Fulton, 741 F.2d 456-58 (withdrawal liability neither arbitrary nor irrational); The Washington Star, 729 F.2d at 1510 (not irrational for Congress to impose liability on employers who profited from employees' services in exchange for offer of pension plan); Standard Dye, 725 F.2d at 852-53 (same); Peick, 724 F.2d at 1273 (not inequitable to impose liability on employers when pension plans are underfunded). Accord Republic Industries, 718 F.2d at 639 (not inequitable to impose liability on employers who benefited from employees' services).