Opinion ID: 433021
Heading Depth: 3
Heading Rank: 2

Heading: The Nachman Test

Text: 22 The Star alternatively argues that we should find the MPPAA withdrawal liability provisions unconstitutional under a four factor test developed by the Seventh Circuit in Nachman Corp. v. Pension Benefit Guaranty Corp., 592 F.2d 947 (7th Cir.1979), cert. denied on constitutional grounds, 442 U.S. 940, 99 S.Ct. 2881, 61 L.Ed.2d 310 (1979), aff'd on statutory grounds, 446 U.S. 359, 100 S.Ct. 1723, 64 L.Ed.2d 354 (1980). In Nachman, the Seventh Circuit rejected a substantive due process challenge to the ERISA termination liability rules for single -employer plans. Under those rules, an employer who terminates an underfunded pension plan is required to reimburse the PBGC for amounts paid to its employees from the PBGC pension insurance program, up to a maximum of 30% of the employer's net worth. The rules effectively superseded the terms in Nachman's collective bargaining agreement providing that, in the event of termination, the plan would pay benefits only to the extent of its assets without liability on the part of Nachman for vested but unfunded benefits. 23 In analyzing the ERISA termination liability rules, the court in Nachman did not actually decide what standard of review applies. See 592 F.2d at 959. Rather, the court held that even if the heightened scrutiny employed under the Contract Clause applies, the ERISA termination liability rules are constitutional. See id. The court then attempted to synthesize Supreme Court decisions involving substantive due process and the Contract Clause, and isolated four factors to be considered in evaluating the rationality of legislation that retroactively imposes economic burdens: (1) the reliance interests of the parties affected; (2) whether the impairment of the private interest is effected in an area previously subjected to regulatory control; (3) the equities of imposing the legislative burdens; and (4) the inclusion of statutory provisions designed to limit and moderate the impact of the burdens. 4 Id. at 960. The Nachman court noted that [i]t must be emphasized that although these factors might improperly be used to express merely judicial approval or disapproval of the balance struck by Congress, they must only be used to determine whether the legislation represents a rational means to a legitimate end. Id. (footnote omitted). 24 We reject the Nachman test for two reasons. First, we find the test to be inconsistent with the long-settled standard of review of congressional legislation addressing economic and social problems. Under that standard, courts are not free to engage in searching scrutiny of Congress' balancing of the reliance interests of the parties affected and the equities of imposing the legislative burdens. Even a statute that may exact a needless, wasteful requirement in many cases 5 --in other words, one devoid of statutory provisions designed to limit and moderate the impact of the burdens 6 --is not for that reason unconstitutional under the Due Process Clause. Rather, it is for the legislature, not the courts, to balance the advantages and disadvantages of the new requirement.... It is enough that there is an evil at hand for correction, and that it might be thought that the particular legislative measure was a rational way to correct it. 7 The Nachman court offers no justification for imposing an abnormally high level of scrutiny on congressional legislation merely because it affects contract-based expectations. Legislation adjusting the benefits and burdens of economic life frequently will upset settled expectations; nonetheless, such expectations, whether created by pre-existing law or by contract, are subject to the exercise of congressional power. 25 Second, we reject the Nachman test because it provides no standards other than mere[ ] judicial approval or disapproval of the balance struck by Congress 8 to guide courts in their review. Although Nachman admittedly includes a brief warning note about the potential hazards of its four factor test, we find these words of caution to be illusory. The four factors are sweeping, relatively unweighted, highly malleable and, thus, easily manipulatable. Therefore, under the test, judges are vested with virtually unrestricted discretion to strike down economic and social legislation that fails to conform to their own views. For example, the first Nachman factor invites judges to substitute their views for Congress' concerning the weights that should attach to employees' reliance on receiving vested pension benefits and to employers' reliance on contractual limitations on their pension liability. Not surprisingly, the judicial opinions seeking to apply this factor have reached hopelessly inconsistent results, obviously born of unrestrained exercises of discretion. 9 Such discretion is incompatible with our constitutional system: 26 Under the system of government created by our Constitution, it is up to legislatures, not courts, to decide on the wisdom and utility of legislation. There was a time when the Due Process Clause was used by this Court to strike down laws which were thought unreasonable, that is, unwise or incompatible with some particular economic or social philosophy.... We have returned to the original constitutional proposition that courts do not substitute their social and economic beliefs for the judgment of legislative bodies, who are elected to pass laws. 27 Ferguson v. Skrupa, 372 U.S. 726, 729-30, 83 S.Ct. 1028, 1030-1031, 10 L.Ed.2d 93 (1963).