Court Opinion

ID: 2774188
Source: CourtListenerOpinion
Date Created: 2015-01-28 19:01:06.118557+00
Date Added: 2024-06-11T12:11:35.356805
License: Public Domain

UNITED STATES DISTRICT COURT
                          FOR THE DISTRICT OF COLUMBIA

ROYAL OAK ENTERPRISES, LLC,

                       Plaintiff,

       v.                                           Civil Action No. 13-1040 (GK)

PENSION BENEFIT GUARANTY
CORPORATION,

                       Defendant.

                                 MEMORANDUM OPINION

       Royal Oak,       LLC    ("Royal Oak," "Plaintiff" or "the Company")

brings this action to challenge an Order by the Pension Benefit

Guaranty Corporation            ("PBGC," ~Defendant," or "the Agency") . 1 On

October 31,      2008,        Royal Oak terminated the pension plan                           ("the

Pland)      it   had     previously          operated      for      the    benefit       of     its

employees under the Employee Retirement Income Security Act of

1974     ("ERISA"),      29    U.S.C.        §   1001,   et      seq.     After    the     Plan's

termination      date,        Royal     Oak      changed      the    method       it     used    to

calculate certain payments to Plan participants. As a result of

the change, the participants received approximately $2.1 million

less than they would have been paid under the terms of the Plan

as written on October 31, 2008.

1
   The PBGC is an agency                     as defined by the Administrative
Procedure Act. See 5 U.S.C.              §    551(1); 29 U.S.C. § 1302.
                                                                                                  1
        The     PBGC,           which    administers         Title        IV of        ERISA,     29     U.S.C.

§§    1301-1461,           performed          an    audit      of      Royal         Oak's     pension     plan

termination.          The Agency determined that Royal Oak had improperly

decreased            the         value        of    plan       benefits              after      the      Plan's

termination and Ordered Royal Oak to make additional payments to

Plan participants.

        On    July         9,     2013,       Royal    Oak     filed          its     Complaint         seeking

judicial review of the PBGC' s Order.                               [Dkt.       No.     1].    On September

16,     2013,      the     PBGC filed its Answer and a                          Counterclaim seeking

enforcement          of     its       Order.       [Dkt.    No.     11].        On    January 22,         2014,

both     parties           submitted           their       respective           Motions         for     Summary

Judgment,          [Dkt. Nos.           19,   20], and thereafter,                    their Oppositions,

[Dkt.    Nos.      21,      22],      and Replies,           [Dkt Nos.          23,     24].    On April 8,

2014.        With the Court's permission,                           the       PBGC filed a            Surreply.

[Dkt.     No.      30].         For     the    reasons       set       forth         below,     Royal     Oak's

Motion       for     Summary            Judgment       shall      be      denied,        and     the     PBGC' s

Motion for Summary Judgment shall be granted.

I.      BACKGROUND

        A. Statutory Framework

                1.         Overview of ERISA

        Congress          enacted         ERISA       to   provide            minimum        standards     that

would assure the equitable character and financial                                             soundness of

employee        pension          plans.       See     29   U.S.C.         §    1001(c);        Pension     Ben.

Guar.    Corp.       v.     R.A.      Gray     &   Co.,    467 U.S. 717,     720     (1984).    ERISA

                                                                                                               2
aims       "to        increase           the     likelihood             that     participants             and

beneficiaries               under     single-employer                 defined        benefit        pension

plans        will           receive           their        full        benefits."            29      u.s.c.
§   10 0 lb (c) ( 3) .

        ERISA's          four    Titles         serve      distinct          functions        within      the

statutory         regime.           Title        I     establishes             the     reporting          and

disclosure,           participation             and     vesting,        funding,        and       fiduciary

obligations provisions pertaining to ongoing pension plans.                                               See

29 U.S.C.        §§    1001-1191c.

        Title         II,       codified        within          the     Internal        Revenue          Code

("I. R. C.") ,        relates       to    the        qualification ·of pension plans                      for

favorable tax treatment. See I.R.C.                             §§    401-424.

        Title         III     provides         for      coordination           of     jurisdictional,

administrative,               and    enforcement            issues        among       the        PBGC,    the

Internal Revenue Service                       ("IRS") ,    and the Department of Labor.

See 29 U.S.C.            §§   1201-1242.

        Finally,            Title        IV      sets       forth        the         rules        governing

termination            of      defined         benefit          plans,        including           mandatory

procedures for terminating covered plans and distributing their

assets, as well as termination insurance to pay pension benefits

under covered plans that terminate without sufficient assets to

pay those benefits. See 29 U.S.C.                          §§   1301-1461.

       The       plan         termination            procedures         of     Title        IV     are    the

exclusive means of terminating a defined benefit pension plan.

                                                                                                            3
See 29 U.S.C.           §   1341 (a) (1).           Under Title IV,             it is the employer

who     determines          whether            to    terminate           a     plan,         controls         the

execution of all plan amendments necessary for termination, and,

through        its       chosen         plan         administrator,                sets          the     plan's

termination date.              See,     e.g.,        Beck v.      Pace Int'l Union,                    551 U.S.
96,    101-02        (2007);    29 U.S.C. §§ 1341 (a) (2),                     1348 (a) (1). Title IV

also       establishes         the     PBGC         and   charges        it    with         enforcing         and

administering that Title's provisions. 29 U.S.C. § 1302.

                2.      Standard Terminations

       When     an     employer         decides           to    terminate          a    defined         benefit

pension      plan      by   way       of   a    standard          termination 2             it   must       first

choose a termination date.                      See 29 U.S.C. § 1341 (a) (2); 29 C.F.R.

§   4041.23.         A "plan's         termination              date    is     significant             in   both

voluntary            and        involuntary                [pension            plan]             termination

proceedings." Pension Ben. Guar.                           Corp. v. Broadway Maint. Corp.,

707 F.2d 647,        649     (2d Cir.            1983).      It is the date on which all

benefit      accruals          cease,      and       as    of    which       all       benefits        owed    to

plan participants are determined.                              See 29 U.S.C.            §    1341 (b) (1) (D)

(mandating that plan liabilities be determined as of the plan's

termination date) ;             Pension Ben.              Guar.        Corp.    v.      Republic Techs.

       A   "standard    termination"  under 29   U.S.C. §  1341 (b)
identifies     a   plan    with  sufficient asse.ts  to cover  its
liabilities, whereas a "distress termination" under 29 u.s.c.
§ 1341 (c)   identifies a plan which lacks sufficient assets to
cover its liabilities.
                                                                                                                4
Int'l,       LLC,     386 F.3d 659,              662   (6th Cir.          2004)     (citing Broadway

Maint. Corp., 707 F.2d at 649).

          The plan administrator must notify all plan participants,

beneficiaries, 3            alternate            payees,       and    employee          organizations

representing             plan participants             of     the    plan's        termination       date

and provide them with an explanation of the benefits to which

they       are      entitled.       See          29    U.S.C.        §§        1341 (a) (2),     (b) ( 1) '

    (b) (2) (B);    29    C.F.R.    §§    4041.23,            4041.24.         Before      distributing

the plan's assets, the administrator must also file the Standard

Termination Notice-PBGC Form 500                            ("Form 500") to notify the PBGC

of the termination date and provide detailed information about

the       plan's      assets       and    benefit            liabilities.            See    29    U.S.C.

§     1341 (b) (2) (A), 29 C. F.R.           §    4041.25.

         Once the PBGC has received the Form 500,                                 the Agency has 60

days to determine whether there is "reason to believe" that the

plan      has      insufficient        assets          to    pay     benefit        liabilities.        29

U.S.C.       §     1341 (b) (2) (C).      To       reach      its    determination,            the   PBGC

relies,          in part,    upon      the       plan administrator's                 calculation of

the actuarial present value of the plan's benefit liabilities as

of the proposed termination date. 29 U.S.C.                                §    1341 (b) (2) (A).

3
     This  Opinion    uses   "participant"    and    "beneficiary"
interchangeably throughout to describe persons who have or
should have received payment from the single-employer defined
pension benefit plan that is the subject of this litigation.
                                                                                                          5
                   3.      Distribution of Benefits

        If the PBGC determines that there is no reason to believe

that         the        plan        has        insufficient               assets        to    pay        benefit

liabilities,             the    plan administrator must                         distribute       the plan's

assets         pursuant              to         Title          IV         of         ERISA.      29       u.s.c.
§   134l(b) (2)&(3); 29 C.F.R. § 4041.28.

        Administrators               generally            may       distribute          benefits         to    plan

participants in the                   form of annuities or lump-sum payments "in

accordance          with       the    provisions              of    the    plan and any             applicable

regulations."             29. U.S.C.                §   1341(b) (3) (A) (ii).            A    participant's

plan    benefits           "are       determined              under       the    plan's       provisions            in

effect       on     the    plan's          termination              date."       29     C.F.R.      §    4041.8.

Post-termination                amendments              are    permissible             only    under      narrow

circumstances -- so long as the amendment does not decrease the

value    of a           participant's benefits                      or is       necessary to meet                  the

qualification requirements imposed by I.R.C. § 401. Id.

                   4.     Calculating Lump-Sum Payments

        In     order           to    calculate             the       dollar           value    of       lump-sum

payments,          the plan administrator must find the present value of

each participant's accrued benefits.                                     That is,       the administrator

must    use        assumptions             about         mortality             and    interest          rates       to

calculate          the     value          of    a       lump-sum         payment       that    will,          in    an

actuarial          sense,       equal          the      value       of    monthly        pension        payments

each     plan           participant            is       entitled          to     receive.        See          I.R.C.

                                                                                                                     6
§ 401 (a) (25);          29    C. F.R.         §4041.28.             The       interest          rate     used    to

calculate          the    present         value       of       accrued          benefits          is    inversely

related       to    the       value       of    the       lump       sum        (i.e.,      higher        interest

rates yield smaller lump-sum payments).

       The power of compounding interest and the long-term nature

of    pension       obligations mean                  that       even      a     slight          change    in    the

interest rate can have a                        significant impact on the size of the

lump-sum payments. Thus, mortality and interest rate assumptions

must    be     specified         in       the       plan       and     may        not       be    left     to    the

employer's discretion.                    I.R.C.         § 401 (a) (25).           Plans are not bound

to    adopt    any particular set of actuarial assumptions.                                               Instead,

the    present        value      of       lump        sums       calculated              according         to    the

plan's        terms       "shall          not       be        less     than           the        pr~sent     value

calculated          by    using"          the       mortality          table          and        interest       rate
                                                          4
specified in I.R.C. § 417 (e) (3).                            In effect, I.R.C. § 417 (e) puts

a    floor            but      not    a        ceiling                on     the      value        of     lump-sum

payments.

       Congress first enacted §                          417 (e) (3)       's    minimum present value

requirement in 1984 and has amended its applicable interest rate

and mortality assumptions three times since then.                                                See Retirement

Equity Act of 1984,              Pub.          L.   No.       98-397,        98 Stat.            1426, § 203(b)

(1984);       Tax Reform Act              of 1986,             Pub.     L.      No.      99-514,        100 Stat.

4
     A parallel provision also appears in Title I                                                 of ERISA.       29
u.s.c. § 1055(g).
                                                                                                                   7
2085,    §        1139 (b)      (1986); Retirement Protection Act of 1994,                                        Pub.

L.     No.        103-465,           108    Stat.      4809,        §        767 (a)        (1994);          Pension

Protection              Act    of     2006,     Pub.     L.    No.           109-280,        120     Stat         780,

§    302(b)        (2006).

        From        1986       to     1994,     PBGC     regulations                 set     the     applicable

interest           rates,       but    in     1994,     Congress             amended        the     statute         to

explicitly prescribe the applicable assumptions.                                             See Retirement

Equity Act of 1984, Pub. L. No.                           98-397,            98 Stat. 142 6,             §    203(b)

(1984); Retirement Protection Act of 1994,                                       Pub. L. No.             103-465,

108 Stat.           4809,      §    767 (a)     (1994). Generally, the 1994 version of

I.R.C.        §     417(e)         called      for     plan     administrators                 to     calculate

minimum           lump-sum payments              using        the       interest           rate     on       30-year

Treasury securities and the mortality assumptions                                                 contained in

the     1994         Group         Annuity       Reserve        Table           ("1994        GAR        Table") .

Collectively,               the     1994      actuarial       assumptions              are     known         as    the

"GATT Structure."

                   5.         Pension Protection Act of 2006

        Congress            most      recently       updated        the        minimum present                 value

assumptions              in    the     Pension         Protection· Act                 of    2006        ("PPA").

Pension Protection Act of 2006,                              Pub.       L.     No.     109-280,          120 Stat

780,     §        302 (b)       (2006).        The     new     actuarial               assumptions                ("PPA

Assumptions,"                 "PPA     Structure,"            or        "§      417 (e)       assumptions")

generally result in smaller minimum lump-sum payments than those

under the previous GATT Structure.                              Pension Ben.                 Guar.       Corp.      v.

                                                                                                                      8
Kentucky Bancshares,                            Inc.,     No.        14-5573,          2015 WL 221621,               at    *1

(6th Cir. Jan. 15, 2015).

                         6.         Anti-Cutback Provisions and PPA § 1107

           Parallel "anti-cutback" provisions in Title I of ERISA and

the        I. R. C.           prohibit        amendments             that        reduce        plan participants'

accrued benefits.                         See       I.R.C.      §        if11(d) (6);      ERISA      §   204(g),          29

U.S.C.           §       1054(g).         Recognizing               that        some      sections        of    the       PPA

might require plan amendments that would otherwise violate the

anti-cutback                       provisions,          Congress               explicitly         provided           relief

from        ERISA             §    204 (g)      and     I.R.C.           §    411 (d) (6),      and   offered            plan

administrators a grace period to take advantage of that relief.

PPA    §    1107.

           Under PPA                §   1107, if a plan administrator amends a pension

plan in order to comply with the PPA, "(1)                                                [the] pension plan or

contract             [he           or   she      administers]                 shall       be    treated        as    being

operated in                       accordance with             the        terms       of   the plan        during          the

[grace period]                            . and         (2)                    such pension plan shall not

fail        to       meet           the      requirements                of     section         411(d) (6)          of    the

[I.R.C.]             and           ·section         204(g)          of        [ERISA]      by     reason       of        such

amendment." PPA                     §   1107.

           PPA       §        1107      only        applies         if        plan    administrators                observe

certain requirements.                           First,        any amendment must be made "on or

before the last day of the first plan year beginning on or after

January 1, 2009." PPA                           §    1107     (b) (1).          Second,        the amendment must

                                                                                                                            9
apply retroactively to the grace period and the plan must have

been operated "as if such .                 amendment were in effect" during

the grace period. PPA         §   1107 (b) (2).

     Notably,    PPA    §    1107 does not provide relief from the plan

termination procedures in Title IV of ERISA and its implementing

regulations.

     B. Factual and Procedural Background5

     On January 1, 1971, Royal Oak, a Delaware limited liability

company, adopted a defined benefit pension plan ("the Plan")                    for

its hourly and salaried employees.

     On August 27, 2008, Royal Oak sent Plan participants notice

of the Company's intent to terminate                ("NOIT") the Plan. The NOIT

established October 31, 2008 as the Plan's termination date.

     Section    5. 02   of    the    Plan   gave    the   participants   a   choice

between receiving the remainder of their benefits in a lump sum

or an annuity.     The vast majority of Plan participants chose to

receive a   lump-sum payment which,               pursuant to the Plan's terms

5
     Pursuant to Local Civil Rule 7(h), "[i]n determining a
motion for summary judgment, the Court may assume that facts
identified by the moving party in its statement of material
facts are admitted, unless such a fact is controverted in the
statement of genuine issues filed in opposition to the motion."
The parties have filed Cross-Motions for Summary Judgment. The
Court thus takes these facts from the parties' Statements of
Material Facts Not in Dispute. Furthermore, since this case
calls for review of an administrative agency's decision, the
Court relies only on facts contained in the Administrative
Record ( "AR") . Unless otherwise noted, the Court states only
uncontroverted facts.
                                                                                 10
in   Section    5.02,    would       "be   the    Actuarial        Equivalent      of      the

Participant's       Accrued     Benefit." 6       On   October         31,    2008,        Plan

Section 1.02 provided that lump-sum payments would be calculated

twice using two different sets of actuarial assumptions:                              1)   the

Plan's own chosen interest rate and mortality table; and 2)                                the

minimum-lump-sum        assumptions        provided     by   the       GATT    Structure. 7

Section 1. 02    specified that each participant would be paid in

accordance with "whichever             [set of assumptions]              produce [ d]      the

larger benefit[.]"

      On December 5,        2008,      just over a month after the                    Plan's

termination     date,     Royal      Oak   amended      Section         1.02's    lump-sum

calculation     method        (the     "PPA      Amendment") .         Under      the       PPA

Amendment, lump sums would no longer be calculated using the two

methods    described     above.       Instead,     lump-sum        payments       would      be

computed    using    only     the    interest      rates     and       mortality      tables

provided in the         PPA and codified at            I.R.C.      §    417(e).    The      PPA

6
      Royal Oak's submission to the PBGC stated that 328 of the
Plan's   361  participants    had  elected   to receive   lump-sum
payments. Def.' s Stmt. 29

U.S. C.     §    1303 (a)        (requiring the            PBGC to audit               a   statistically

significant           number           of     terminations               to     determine          if      all

participants received the benefits to which they were entitled).

       On       March          16'      2012,        the      PBGC            issued       its      initial

determination.             The    Agency       found       that     the       post-termination             PPA

Amendment violated one of Title                            IV' s    implementing regulations,

29 C.F.R.        §    4041.8,        because it decreased the value of benefits

provided to Plan participants and beneficiaries receiving lump-

sum    payments.           Section          4041.8    of     the     implementing            regulations

does permit post-termination benefit-decreasing amendments that

are necessary to meet specific tax code requirements.                                              I. R. C.    §

401;   29 C.F.R.           §    4041.8.       However,       the PBGC also found that the

decrease imposed by the PPA Amendment was not necessary for tax

code      compliance.           Accordingly,           the        PBGC    ordered          Royal     Oak      to

recalculate            the        lump-sum           payments            and      make           additional

distributions to Plan participants and beneficiaries as follows:

                                                                                                              13
       Recalculate the participants' lump sum value using the (1)
       plan rate [ 7. 00%] and the UP-8 4 Mortality Table; ( 2) 30-
       year Treasury rate in effect for November 2008 [4.00%] and
       the 94 GAR Mortality Table; and (3) November 2008 segment
       rates in effect for the 2009 Plan Year .        and the 2009
       PPA Mortality Table. Participants are entitled to the
       highest amount.            Add interest to the additional
       benefits due using a reasonable interest rate.       . [Pay]
       the additional benefits to affected participants. AR-0724. 8

       On April          30,      2012,    Royal Oak requested reconsideration of

the PBGC's initial determination.                         First,    Royal Oak argued that,

by operation of              §    1107 of the           Pension Protection Act of 2006,

the PPA Amendment was not a post-termination amendment at all.

Instead, the Amendment was retroactively effective as of January

1,    2008,       and    therefore,             in    effect   on   the    termination   date,

October 31, 2008.                Second, Royal Oak argued that even if the PPA

Amendment was a post-termination amendment,                               it complied with 29

C.F.R.      §    4041.8        because      it       did not   decrease     benefits   and was

necessary to meet requirements under I.R.C.                          §    401(a).

       On       July    7,     2013,      the    PBGC    issued a    letter upholding      its

initial determination.                 The PBGC reiterated its Order that Royal

Oak    recalculate               the   lump-sum         payments     and     make   additional

distributions.

8
     The first two methods of calculation are from Plan Section
1.02 as it appeared on October 31, 2008. AR-0133-0134. The third
method employs the assumptions adopted by the PPA Amendment,
which are also codified at I.R.C. § 417(e). Regardless of
whether the PPA Amendment was in effect on October 31, 2008, the
§ 417 (e) assumptions provide a statutory floor on the value of
lump-sum payments. I.R.C. §§ 401(a), 417(e).
                                                                                            14
         On July 9,            2013, Royal Oak filed its Complaint, which asks

the Court to declare the PBGC's Findings and Decision "contrary

to     law,     arbitrary,          capricious,           and    an     abuse    of      discretion."

[Dkt. No.        1]. On September 16,                    2013,   the PBGC filed its Answer

as well         as   a    Counterclaim to enforce                    its    Final     Determination.

[Dkt. No. 11].

II.      STANDARD OF REVIEW

         Summary          judgment          is     the     "appropriate             mechanism"        for

disposing of actions for judicial review of final determinations

by the PBGC.             Davis v.       Pension Ben. Guar. Corp.,                   864 F. Supp. 2d

148,     156     (D.D.C.        2012)       aff'd in part,           734 F.3d 1161          (D.C.    Cir.

2 013)     (quoting        United       Steel,       Paper       &    Forestry,       Rubber,       Mfg. ,

Energy,        Allied Indus.            &    Serv.   Workers         Int' 1 Union,        AFL-CIO-CLC

v.    Pension Ben.             Guar.    Corp.,       839 F.      Supp.      2d 232,       246   (D.D.C.

2012)). Summary judgment may be granted only if the moving party

has shown that there is no genuine dispute of material fact and

that the moving party is                         entitled to         judgment       as   a matter of

law.     See Fed.         R.    Civ.    P.       56(a);   Celotex Corp.          v.      Catrettr     477

U.S.     317,    325      (1986); Waterhouse v.                 Dist.      of Columbiar 298 F.3d

989, 991 (D.C. Cir. 2002).

         When, as in the case at bar, the Court must decide a matter

on the basis of an administrative record, the record compiled by

the agency provides the complete set of facts before the Court.

Deppenbrook v.            Pension Ben. Guar. Corp.,                     950 F.      Supp.   2d 68,      74

                                                                                                        15
(D.D.C.      2013).     The    Court's           task     is    to   determine          whether    the

agency's       action     was          "arbitrary,             capricious,         an     abuse     of

discretion, or otherwise not in accordance with law." 5 U.S.C.                                       §

7 0 6 ( 2) (A) . An agency's decision will stand unless it "has relied

on   factors     which        Congress           has    not     intended     it     to    consider,

entirely failed to consider an important aspect of the problem,

offered an explanation for its decision that runs counter to the

evidence before the agency,                      or is so implausible that it could

not be ascribed to a difference in view or the product of agency

expertise."      Nat'l        Ass'n         of     Home        Builders      v.     Defenders       of

Wildlife,     551 U.S.        644,      658      (2007)    (quoting Motor Vehicle Mfrs.

Ass'n of U.S.,        Inc. v. State Farm Mut. Auto.                        Ins. Co.,       463 U.S.

29, 43 (1983)).

      With     respect        to       questions          of    statutory         interpretation,

courts must first consider "whether Congress has directly spoken

to   the   precise      question            at     issue."       Chevron     U.S.A.,        Inc.    v.

Natural Res. Def. Council,                  Inc., 467 U.S.           837, 842-43 (1984). If

"the intent of Congress is clear" from the statute's language,

"that is the end of the matter;                         for the court,            as well as the

agency,    must give effect to the unambiguously expressed intent

of Congress." Id.

      However,        where        a    statute           is    ambiguous,         courts      apply

Chevron's second step by deferring to an "agency's construction

of   [a]     statute     which         it        administers."        Id.;        Nat'l    Cable     &

                                                                                                    16
Telecommunications Ass 1 n v.                            Brand X Internet             Servs.,            545     U.S.

967,     98 9       ( 2 005)        (" [W] here a statute 1 s plain terms admit of two

or more reasonable ordinary usages, the [agency's] choice of one

of them is entitled to deference.").                                  Deference is due "not only

because         Congress             has     delegated          law-making           authority            to      the

agency,         but        also       because        that       agency        has    the       expertise           to

produce         a     reasoned             decision."        Vill.       of     Barrington,               Ill.     v.

Surface Transp. Bd., 636 F.3d 650, 660 (D.C. Cir. 2011).

       Finally,            an agency's interpretation of its own regulations

is controlling unless plainly erroneous or inconsistent with the

regulation.             See         Auer     v.     Robbins,       519      U.S.     452,          461     (1997);

Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512 (1994).

III. ANALYSIS

       29       U.S.C.          §     1341        provides      the      "[e]xclusive              means"         for

terminating               single-employer                pension      plans         and       requires           plan

administrators                 to     distribute          assets       "in      accordance               with     the

provisions            of       the     plan        and    any    applicable           regulations."                29

U.S.C.      §   1341 (a) (1)           &    (b) (3) (A). Resolution of this matter rests

primarily            on     the        PBGC's        regulation          codified             at    29      C.F.R.

§   4041.8,         which provides that a "participant's or beneficiary's

plan     benefits              are    determined           under      the      plan's         provisions           in

effect on the plan's termination date." 29 C.F.R.                                         §    4041.8(a).

       Royal Oak argues                      that,       despite being adopted more than a

month after             the         Plan's        termination,        the     PPA Amendment                accords

                                                                                                                   17
with     §     4041.8.       First,     Royal      Oak    contends         that    because       it

intended        the     Amendment       to      operate     retroactively,            the       PPA

Amendment was "in effect" on October 31, 2008. Second, Royal Oak

insists that even if the PPA Amendment was not in effect on the

termination date,            it is permissible under              §    4041. 8' s exceptions

for amendments that do not decrease benefits or are necessary to

meet     certain tax         code     requirements.       Royal       Oak's    arguments        are

without merit.

        A.     The PPA Amendment             Was   Not    "in   Effect"       on    the    Plan's
               Ter.mination Date.

               1.      The PBGC's interpretation                      of    "in    effect"       is
                       entitled to deference.

        Under 29 C.F.R.          §   4041.8(a), "benefits are determined under

the plan's provisions in effect on the plan's termination date."

It    is undisputed that Royal Oak did not                        amend the         Plan until

December 5,          2008,   over a month after the Plan's termination on

October 31,          2008.     Royal Oak,       argues,    however,         that because it

intended       for    the    PPA Amendment          to    operate      retroactively,           the

Amendment was "in effect" on October 31, 2008.

        In its       Final     Determination,       the    PBGC stated that               the   PPA

Amendment was          not     "in effect" on the           termination date, because

"[a] s of the date of Plan termination,                      [Royal Oak]           had not yet

adopted the PPA Amendment[.]" AR-0875. Thus,                           for the purposes of

§    4041.8,    the     PBGC    interprets         "in    effect"      to     require      formal

adoption.

                                                                                                 18
        Royal Oak complains about the PBGC's failure to explicitly

define "in effect" in the text of                    §   4041.8. However, the PBGC's

straightforward          interpretation         is       a    natural       and    reasonable

reading of the regulation which reads as follows:

        A participant's    or   beneficiary's   plan   benefits   are
        determined under the plan's provisions in effect on the
        plan's termination date.     Notwithstanding the preceding
        sentence, an amendment that is adopted after the plan's
        termination  date   is  taken   into   account  [if   certain
        exceptions apply.]" 29 C.F.R. § 4041.8(a).

Read together,       the clear implication of these two sentences is

that "an amendment that is adopted after the plan's termination

date" is not "in effect on the plan's termination date                                  [unless

certain exceptions apply.]" Id.

        Royal Oak cites Davis v. Pension Ben. Guar. Corp., 734 F.3d

1161,    1166,    1168     (D.C.   Cir.    2013)      cert.       denied,   134 S. Ct.        2878

(2014)    to     support    its    argument        that      an    amendment      may   be    "in

effect" before it has been adopted. However,                          the regulatory and

statutory provisions discussed in Davis dealt with the priority

of   payments      when     a   plan      did   not      have      sufficient      assets      to

satisfy its pension liabilities,                 and therefore are not relevant

in this case. Davis, 734 F.3d at 1168                        (construing the meaning of

"in effect" as used in 29 U.S.C.                §     1344(a) (3) (A)       and 29 C.F.R.       §

4044.13) . 9

9
     Moreover, the definition of "in effect" at issue in Davis
actually accords with the PBGC's reading in this case. In Davis,
our Court of Appeals ultimately upheld the PBGC's view that an
                                                                                               19
        Because the PBGC'$ interpretation of "in effect" is neither

plainly erroneous nor contrary to the Regulation, it is entitled

to deference. Auer, 519 U.S. at 461.

                2.      Section 1107 of the                     Pension Protection Act of
                        2006     does    not                     provide    relief    from
                        29 C.F.R. § 4041.8.

        Separate        and      apart       from        Title        IV's       plan    termination

provisions,          ERISA's Title I             includes "anti-cutback" provisions,

which prohibit plan amendments that reduce accrued benefits even

if     the    reductions         occur       before       plan        termination.          See        ERISA

204(g),       29      U.S.C.     §     1054(g);          I.R.C.       §     411(d) (6)        (parallel

provision       in     I.R.C.).        Recognizing            that    the    Pension        Protection

Act    of     2006     ("PPA")       would    require          plan       amendments     that          might

reduce accrued benefits, Congress provided relief from the anti-

cutback provisions. See PPA                  §    1107 ("such pension plan shall not

fail     to    meet     the      requirements            of     section          411(d) (6)       of     the

[I.R.C.]        and     section        204(g)       of        [ERISA]       by     reason     of        such

amendment.") .

        Royal        Oak       contends          that         because        it      observed            the

requirements of            §   1107,     that section operated to make the PPA

Amendment retroactively effective as of January 1,                                       2008.         Thus,

according to Royal Oak, the PPA Amendment was "in effect" on the

amendment is not "in effect" until the "later of the date on
which [it] is adopted or the date it becomes effective." Davis,
734 F.3d at 1168.
                                                                                                          20
termination date                    for purposes of Title IV and its                          implementing

regulation 29 C.F.R. § 4041.8.

           Contrary to Royal Oak's position,                            however,          PPA § 1107 does

not     give       amendments             retroactive          effect.     Instead,         retroactivity

is     a        "condition"          that        amendments        must       fulfill       in     order     to

qualify for the relief section 1107 provides.                                         PPA §       1107 (b) (2)

("CONDITIONS-                 this       section       shall     not     apply       to    any     amendment

unless                               such      plan       or     contract            amendment       applies

retroactively for such period.").

           Moreover,          retroactive            amendments         are     unquestionably            bound

by § 4041.8's prohibition on post-termination benefit-decreasing

amendments.             After        a    plan    is     terminated,§            4041.8       operates       to

limit       the       set      of    permissible          retroactive           amendments         to     those

that       do     not        decrease         benefits      or    are    necessary          for    tax     code

compliance.             Nothing in PPA §                 1107 affects this                crucial portion

of Title IV's implementing regulations.

           It    is   perfectly clear                that      while     "PPA § 1107          amended the

I.R.C.,          [it]    says        nothing about             Title    IV' s    prohibition against

benefit           reducing,              post-termination          amendments."             Pension        Ben.

Guar.       Corp.       v.    Kentucky Bancshares,                Inc.,       7 F. Supp. 3d 689, 700

(E.D.       Ky.       2014)     aff'd,         No.      14-5573,       2015     WL    221621       (6th    Cir.

Jan.       15, 2015). "[C]ompliance with PPA § 1107                                  [does]    not obviate

[the]           obligation               to    also       comply        with         ERISA' s       standard

termination requirements.                         The    two     sets of        requirements         are not

                                                                                                             21
contradictory[.]"            Kentucky       Bancshares,            2015      WL     221621,       at    *4

(emphasis         in   original).      For       these         reasons,      this     Court       agrees

with the Chief Judge of the United States District Court.for the

Eastern District of Kentucky that the "PBGC was not arbitrary or

capricious in determining that PPA                         §    1107 did not authorize the

post-termination             reduction      in        benefits."        Kentucky       Bancshares,

7 F. Supp. 3d at 700.

       Royal Oak claims the PBGC' s                     reading of PPA            §   1107 somehow

conflicts with the IRS's Determination Letter.                                 However,       the IRS

determined only that Royal Oak's amendments to and termination

of the       Plan " [did]      not    adversely affect                 its   qualification for

federal tax purposes." AR-0745. The IRS Letter distinctly states

that it "is not a determination regarding the effect of other

federal      or     local     statues."       Id.       In      sum,   the     Letter     does         not

suggest      in any way that           §    1107 provides relief from 29 C. F. R.

§   4041.8     or      any    other        part       of       Title    IV's        statutory          and

regulatory provisions.

       Finally,        Royal Oak raises               several practical concerns                       that

it believes cut against the PBGC's interpretation of PPA                                      §    1107.

The Company argues that unless                    §    1107 is read to permit benefit-

decreasing post-termination amendments,                            some plans may be                   left

with   insufficient           funds    to     meet         their       liabilities.           However,

minimum plan funding rules already rely on the actual terms of

the    plan       in    effect       and     generally            require         plans   to           have

                                                                                                         22
sufficient assets to pay benefit liabilities.                         See 2 6 C. F. R.   §§

1.430(d)-1(f)(4)(iii)(B) and (D).

        Royal Oak also worries that unless              §   1107 is read to negate

§    4041.8's    prohibition      on    post-termination         benefit      cuts,   plan

administrators could be forced to violate their fiduciary duties

by     treating    similarly      situated     participants           differently.       The

Company offers this example:

         [I] f a Royal Oak employee terminated employment in June
        2008 and was eligible for a lump-sum distribution, his
        benefit would be calculated using the PPA Assumptions
        because plans were required to be in good faith compliance
        with the PPA beginning in January 1, 2008. See PPA §
        1107 (a) (1), (b) (2). But a participant eligible for the same
        lump-sum benefit distribution when the Plan terminated on
        October 31, 2008 would receive a benefit calculated using
        pre-PPA assumptions. Royal Oak Opp'n at 13.

        Royal Oak's concern is unfounded.               In its hypothetical,             the

Company could have: 1) simply adopted the PPA amendment prior to

the plan termination date              (all plan participants would then have

been     paid    under    the    PPA   Assumptions) ;       or   2)    made    additional

payments        after    termination      to   ensure       that      all    participants

received lump sums of the value required by the Plan's terms on

the     termination      date.    By waiting     until      after      the    termination

date,    Royal Oak was bound to comply with 29 C.F.R.                         §   4041.8's

prohibition on post-termination benefit decreases.

        Interestingly,      Royal Oak never explains why it delayed its

adoption of the PPA Amendment.

                                                                                          23
       For all      these      reasons,    the    PBGC' s    determination that              the

PPA Amendment was not in effect on the Plan's termination date

was not arbitrary, capricious, or otherwise contrary to the law.

       B.    The   PPA  Amendment  Is  Not   a  Permissible Post-
             Termination Amendment under Title IV of ERISA and 29
             C.F.R. § 4041.8.

       Royal Oak argues that the PPA Amendment escapes                           §    4041.8's

prohibition        on   post-termination           benefit-decreasing            amendments

because     ( 1)    the       amendment     did    not      decrease       the       value    of

participants'       benefits and      (2)    even if it did,             the decrease was

necessary to comply with tax code provisions.                            Neither argument

is convincing.

             1.     The PPA Amendment             "decrease[s] the value of the
                    participant[s'] or            beneficiar[ies'] plan benefits
                    under the plan's              provisions in effect on the
                    termination date."            29 C.F.R. § 4041.8(a) (1).

       It   is     undisputed       that     adoption       of     the     PPA       Amendment

resulted     in    Plan     pa~ticipants         receiving       roughly    $2.1       million

less   in   distributions          than    they    would      have       received      in     its

absence.    Royal       Oak    contends,     however,       that     Plan    participants

experienced no decrease at all in the value of their benefits.

       The PBGC concluded that because Plan participants received

smaller     lump-sum      payments        under    the   PPA     Amendment       than        they

would have under the             Plan as written on the termination date,

the Amendment "decreased the value of the participant [ s']

plan benefits" within.the meaning of 29 C.F.R.                       §    4041.8. AR-0875

                                                                                               24
("There is no doubt that the value of the lump sums calculated

by   [Royal Oak]           using the PPA interest rate and mortality table

is   less     than the value of the                  lump    sums    calculated using the

formula provided under the Plan (i.e.,                           30-year Treasury rate and

94     GAR    Mortality           Table).").       Thus,     the     PBGC    reads     the   word

"value" to mean the dollar amount of payments actually received

by     Plan      participants.              Id.     The     PBGC's        interpretation       of

§ 4041.8(a)(1)             is     neither     plainly       erroneous       nor    inconsistent

with      the        Regulation,        and        is,     consequently,          entitled     to

deference. Auer v. Robbins, 519 U.S. 452, 461 (1997).

        Royal Oak attempts to draw the focus                         away from § 4041. 8' s

language        by    contending that             when    Congress    enacted the present

value assumptions codified at I.R.C.                        § 417(e),       it expressed its

"legislative           judgment"      that        lump    sums    calculated      according    to

§ 417(e) are necessarily equivalent to the value of accrued plan

benefits.       The company argues "[i] n Code section 417 (e)                         Congress

has prescribed how actuarial equivalence must be calculated for

lump-sum distributions." Royal Oak Mot.                           at 16     (emphasis added).

"Thus,"       Royal         Oak     contends,        "rather       than     decreasing       plan

benefits,            the     PPA     Amendment's           substitution           of   the    PPA

[Assumptions codified at§ 417(e)]                         for the GATT Structure merely

updates         the        Plan's     statutorily           required        methodology       for

calculating the present value of a participant's benefit under

the Plan." Royal Oak Mot. at 16.

                                                                                               25
        Royal Oak's characterization of the assumptions codified in

§     417(e)        is    simply      wrong.     I.R.C.         §    417(e)    provides          only    the

minimum value of lump-sum payments. Despite Royal Oak's repeated

claims to the contrary,                      there is no evidence that Congress made

a   "legislative judgment" that the value of benefits calculated

using     the            417(e)       assumptions          is       equivalent        to     the     value

calculated           using        other methods.           Just      the     opposite       is    true

417 (e) ( 3) (A)         contemplates that plans will choose among different

methods        to    calculate         larger or smaller present values                            of plan

benefits.       That is why§ 417(e)                    establishes a statutory minimum.

I.R.C.     §    417(e) (3) (A)              ("[T]he present          value     shall not be             less

than     the        present        value       calculated           by     using     the      applicable

mortality           table       and    the     applicable           interest        rate."       (emphasis

added)) .

        Royal Oak further argues that "[t]he appropriate inquiry is

not whether the                 PPA Amendment          reduced the            amount       of benefits,

but whether it reduced the value of benefits:" Royal Oak Reply

at 11     (emphasis in original) . This attempt to draw a distinction

between the "amount" of benefits                           (which, according to Royal Oak,

may     decrease)           and       the    "value"       of       benefits        (which,      under     §

4041.8,        may       not    decrease),          Id.,    is      unconvincing.          Royal     Oak's

interpretation              has       n0    basis     in     the      text     of    the      Regulation

itself. Subsection (a)                     of § 4041.8 discusses only "benefits" and

the    "value        of"       benefits.       The    word       "amount"      appears        only in      a

                                                                                                          26
subsection         unrelated         to   the    issues           in    this     case.      29    C.F.R.

§    4041.8 (b)       (concerning         plan's        "residual              assets"        following

termination) .

        Moreover, Royal Oak's interpretation of the words "decrease

        . the value of plan benefits" is unconvincing on its face.

29     C.F.R.     §   4041.8.        Despite      the       fact       that    Plan    participants

received approximately $2.1 million less in today's dollars than

they would have under the terms of the Plan on its termination

date,     Royal       Oak    contends      that     Plan          participants         received        the

same      "value."          Confronted       with       a      nearly          identical         factual

situation         (an       employer's       post-termination                  adoption          of    the

§    417 (e)    assumptions in reaction to the                          Pension Protection Act

of 2006),         the Court of Appeals              for the Sixth Circuit recently

noted that         "the post-termination amendment                           undeniably resulted

in a decrease in the value of benefits to which participants and

beneficiaries           were    otherwise        entitled          under       the    provisions        in

effect on the termination date." Kentucky Bancshares, Inc., 2015

WL 221621, at *2.

        Finally,        Royal       Oak   argues        that       because       §    1107        of   the

Pension Protection Act of 2006 provided relief from Title I                                             of

ERISA's        anti-cutback          provisions,            the        PPA    Amendment       did      not

decrease        the     value       of    Plan     benefits.             However,        as      already

discussed         above,        §   1107's      grant        of         relief       from        specific

provisions of Title I has no effect on Royal Oak's obligation to

                                                                                                        27
abide     by    §     4041.8,    which        implements           Title    IV.    Moreover,     the

anti-cutback relief provided under § 1107, see discussion at 20

supra,        was    necessary precisely because                     a    change    in   actuarial

assumptions          was     likely    to     lead      to    smaller       lump-sum payments.

Contrary        to    Royal     Oak's       view,       §    1107's        anti-cutback     relief

implies        that        Congress     viewed       new       actuarial          assumptions     as

potentially benefit-decreasing.

        As the PBGC explained,                 " [on]       its date of termination,             the

Plan did not           simply promise payment                     of actuarially equivalent

benefits,       but actuarially equivalent benefits valued using the

greater       of     the    Plan's     assumptions           or    GATT     assumptions."       PBGC

Reply at 7 n.12.             By amending its Plan to pay participants less

after    the        termination       date,     Royal        Oak decreased the           value    of

Plan benefits and violated§ 4041.8.

                2.     The  "decrease" in  the value of plan benefits
                       caused by the PPA Amendment was not necessary "to
                       meet a qualification requirement under section
                       401 of the [Internal Revenue] Code[.]" 29 C.F.R.
                       § 4041.8(c) (1).

        The     parties       agree     that     Royal        Oak    had     an    obligation     to

ensure that Plan participants received lump-sum payments no less

than     those        calculated        using        the       assumptions          of   the     PPA

Structure, codified at I.R.C. § 417(e). Royal Oak contends that

the    PPA     Amendment        was    the     only         amendment       that    would   ensure

consistent,           constant        compliance            with    the     PPA's     changes     to

§ 417 (e),      and therefore was the only amendment that Royal Oak

                                                                                                  28
could     have      adopted     to       ensure     tax    qualification.          Royal         Oak's

position is not correct.

        The PBGC concedes that Royal Oak could have complied with

§    417(e)'s       minimum-lump-sum          obligations           by     enacting        the      PPA

Amendment prior to the termination date. If Royal Oak had simply

amended       the    Plan   before        October        31,     2008    (a   date        Royal    Oak

itself chose),         no barrier would have been posed by 29 C.F.R.                                  §

4041.8, which limits only post-termination amendments.

        However,       by   waiting        until     after        the    Plan's       termination

date, Royal Oak took on the burden of complying with both I.R.C.

§    417(e)   and 29 C.F.R.          §    4041.8. After October 31,                   2008,      Royal

Oak     could       decrease    the       value     of     lump-sum        payments         only     if

"necessary"            to      maintain           tax          compliance.           29         C.F.R.

§    4041.8 (c) (1).

        Despite      its    assertions       to     the        contrary,      Royal       Oak     could

have     easily       complied       with     the       tax     code     without       decreasing

benefits to its Plan participants.

        The PBGS' s Final Determination expl.ains that:

        [Royal Oak] could have amended the Plan to pay the greater
        of the PPA interest rates and the 30-year Treasury rates
        [i.e., the rates outlined in the Plan on its termination
        date]. As a result, the . PPA Amendment eliminating the use
        of 30-year Treasury rates and the GAR 94 mortality table
        for   valuing   lump   sums   was  not  necessary for   Plan
        qualification,    and  the   exception  under  29 C.F.R.   §
                                                    10
        4041.8(c) (1) does not apply. AR-0875-0876.

10
     IRS guidance also suggests that plan administrators may
comply with the I.R.C. and ERISA by calculating lump sums under
                                                                                                     29
       Royal      Oak never      states     plainly why             this    "greater-of-the-

two" formula,        endorsed by both the PBGC and IRS, would not have

met    the       requirements     of     I.R.C.        §    417(e)     without    decreasing

benefits.        The Company does argue that "[u] sing any assumptions

other than those dictated under Code § 417 (e)                             [that is, the PPA

interest rates]          would run the risk that,                   given the fluctuating

nature of interest rates,               those assumptions could at some point

produce      a     lower    benefit       amount       than     that       produced    by    the

assumptions in Code § 417 (e) . " Royal Oak Opp' n at 17.                             However,

the    PBGC's       suggested          alternative          addresses       precisely       this

problem. If Royal Oak had amended its Plan to pay the greater of

the lump sums produced under§ 417(e) and under the Plan's terms

as of the terminations date, it would have complied with both 29

C.F.R. § 4041.8 and I.R.C. § 417(e).

       Moreover, the PBGC has not ordered that Royal Oak adopt the

"greater-of-the-two"             formula.        The       Agency    merely      demonstrates

that   the       benefit    decrease       was    unnecessary          because     Royal     Oak

"could    have      amended      the    Plan     to    pay    the    greater     of   the    PPA

interest         rates     and    the     30-year           Treasury       rates."     AR-087 5

(emphasis added).

two methods and making payments pursuant to whichever method is
more favorable to plan participants. 26 C.F.R. § 1.417(e)-
1 (d) (5); 2008-12 I.R.B. 638-42, IRS Notice 2008-30.
                                                                                              30
       Accordingly, the PPA Amendment adopted by Royal Oak was not

a   valid post-termination amendment,         and therefore it must make

additional payments to ensure that Plan participants receive the

benefits     to   which   they     were- entitled        "under   the   plan's

provisions in effect on the plan's termination date." 29 C.F.R.

§   4041.8 (a).

IV.    CONCLUSION

       For the foregoing reasons,         Royal Oak's Motion for        Summary

Judgment    is denied,    and   PBGC' s   Motion   for   Summary Judgment       is

granted.

       An Order shall accompany this Memorandum Opinion.

January$. 2015
                                                                        Judge

Copies to: attorneys on record via ECF

                                                                                31