Opinion ID: 516903
Heading Depth: 1
Heading Rank: 2

Heading: valuation of profit-sharing plan shares: the plan's mandate

Text: 25 All employees with one or more years of service participated in the Profit-Sharing Plan and thereby enjoyed a derivative interest in the Plan's U.S. News stock. Their interests vested fully after ten years' employment. 663 F.Supp. at 1501. Although each Member had an individual account representing his or her share of the Fund, the Plan Document clearly defined each participant's interest as the value of his undivided share of the Fund. III J.A. 926 (emphasis added). 26 The Plan purchased 30,000 Class A shares in 1962 on the occasion of its creation and U.S. News's reorganization. At the time that amounted to about a 23 percent interest in the company. 663 F.Supp. at 1500. Although U.S. News continued to issue stock bonuses thereafter, repurchases evidently exceeded issuances; in any event, the Plan's percentage of outstanding stock gradually increased. In 1966 it bought 20,000 more Class A shares (at $80 a share), bringing its holdings to 50,000 shares, or 45 percent of the 110,574 shares then outstanding. Id. at 1501. In 1971 the Plan's 50,000 share block became a majority of U.S. News's outstanding shares. Id. The relative size of the Plan's block continued to grow. By April 1975, for example, employees' direct holdings were only 17,444 shares. III J.A. 935. 27 The Plan document explicitly provided that, for purposes of computing a departing employee's retirement benefit, the Plan Trustee should use the fair market value established under Article Fifth, Paragraph (e) of U.S. News's Certificate of Incorporation: 28 For all purposes of the Plan, the market value of shares of stock of the Employer, which are held by the Trustee as a part of the Fund, shall be the fair market value established under Article Fifth, Paragraph (e), of the Certificate of Incorporation of U.S. News & World Report, Inc..... The Committee shall be fully justified and exonerated in relying on the figures so provided by the Board of Directors and/or the appropriate financial or accounting officer of the Employer, and the Trustee shall be fully justified and exonerated in relying on the figures so provided by the Committee, as to the accuracy of the figures and as to the compliance with the aforesaid provisions of the Certificate of Incorporation. 29 Profit-Sharing Plan, Art. VI, Sec. 6.3, III J.A. 924-26 (emphasis added). 30 Each year the Plan in fact used the per share dollar value that American Appraisal had computed for U.S. News under Article Fifth (e). The plaintiffs agree that the Plan cross-referenced the Certificate of Incorporation, and that therefore as a matter of trust and contract law the fiduciaries were right to adopt the company's valuation; as we have seen, however, they thought that the latter should have been on a majority basis. Our rejection of the latter view of course dooms their claim that the Plan document required valuation on a majority basis. It is true that the Plan's reference to each participant's undivided share in the whole suggests that the Plan's assets could have been totalled up--on a majority basis--and then apportioned to each employee in pro rata shares. But the Plan's express direction to accept the valuation made by the company for purchase of bonus stock--a direction not merely conceded but embraced by plaintiffs--clearly controls over any emanations from the choice of these terms for description. As a matter of contract and trust law, therefore, the Plan correctly used a figure computed on a minority basis.