Robert Matz v. Household International Tax R
Filing
Filed opinion of the court by Judge Posner. AFFIRMED. Diane P. Wood, Chief Judge; Richard A. Posner, Circuit Judge and Kenneth F. Ripple, Circuit Judge. [6630435-1] [6630435] [14-1683, 14-2507]
Case: 14-1683
Document: 44
Filed: 12/24/2014
Pages: 6
In the
United States Court of Appeals
For the Seventh Circuit
____________________
Nos. 14‐1683, 14‐2507
ROBERT J. MATZ, individually and on behalf of all others
similarly situated,
Plaintiff‐Appellant,
v.
HOUSEHOLD INTERNATIONAL TAX REDUCTION INVESTMENT
PLAN,
Defendant‐Appellee.
____________________
Appeals from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 96 C 1095 — Joan B. Gottschall, Judge.
____________________
SUBMITTED OCTOBER 23, 2014 — DECIDED DECEMBER 24, 2014
____________________
Before WOOD, Chief Judge, and POSNER and RIPPLE, Circuit
Judges.
POSNER, Circuit Judge. Before us is the fifth appeal in a
seemingly interminable class action suit, filed 2 months short
of 19 years ago. The suit claims that a defined‐contribution
ERISA pension plan in which the employer matched contri‐
butions that its employees made was partially terminated.
Case: 14-1683
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Pages: 6
Nos. 14‐1683, 14‐2507
Our opinion deciding the third appeal, reported at 388 F.3d
570 (7th Cir. 2004), established the approach to be used by
the district court to determine the validity of the claim. Us‐
ing that approach the district judge granted summary judg‐
ment in favor of the defendant. The named plaintiff (which
is to say the class representative) has appealed. In a separate
appeal, No. 14‐2507, he challenges the district court’s award
of some $64,000 in costs to the defendant. That challenge is
frivolous.
When a pension plan is terminated, the rights of the par‐
ticipants in the plan vest in full, and so none of the money
contributed by the employer to the individual employees’
retirement accounts is returned to the employer. Full vesting
is required in the case of partial as well as total terminations.
26 U.S.C. § 411(d)(3)(A); 26 C.F.R. § 1.401‐6(b)(2). In our 2004
opinion we said in explanation of the rule that if any of the
money in the employees’ retirement accounts were returned
to the employer, he would obtain a tax windfall that might
induce termination because earnings on the employer’s con‐
tributions are not taxable, provided, as is commonplace, that
the plan is “tax‐qualified.” We now believe that we were
mistaken. Although the employer’s contributions to a plan
do receive tax‐free buildup as just noted, any funds that the
employer removes from the plan are taxed to him as normal
income and are also subject to an excise tax of either 20 or 50
percent. 26 U.S.C. § 4980.
The actual reason for the full‐vesting rule appears to be
to protect employees against uncertainty. Although they are
informed of the vesting schedule in the employer’s pension
plan when they accept employment and thus could be
thought to have assumed the risk of losing benefits should
Case: 14-1683
Document: 44
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Pages: 6
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the plan be terminated, they would find it difficult to insure
against the risk.
But whatever the correct rationale for full vesting in the
case of a partial termination, it does not affect our decision
today, which turns on ascertaining whether a termination of
some plan participants (as by terminating their employment)
amounted to a partial termination of the plan, thereby re‐
quiring full vesting of plan benefits in the terminated plan
participants.
There was no usable statutory or regulatory definition of
“partial termination” when this case began. So we adopted
our own in our 2004 opinion: “a rebuttable presumption that
a 20 percent or greater reduction in plan participants is a
partial termination and that a smaller reduction is not. …
[But] we assume … that there is a band around 20 percent …
. A generous band would run from 10 percent to 40 percent.
Below 10 percent, the reduction in coverage should be con‐
clusively presumed not to be a partial termination; above 40
percent, it should be conclusively presumed to be a partial
termination.” 388 F.3d at 577. The Internal Revenue Service
has adopted our suggested 20 percent presumption, Rev.
Rul. 2007‐43 (2007), but has not specified a percentage (such
as our 10 percent) below which there would be a conclusive
presumption that no partial termination had occurred.
Household International, Inc., which owned subsidiaries
that employed Matz and the other class members, was a
sprawling conglomerate until the mid‐1980s, when it began
to sell off a number of the subsidiaries. (In its present,
stripped‐down form, it’s called HSBC Finance Corporation.)
The plaintiff was employed by one of the subsidiaries, Ham‐
ilton Investments, Inc., from March 1989 until the sale of
Case: 14-1683
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Pages: 6
Nos. 14‐1683, 14‐2507
Hamilton at the end of August 1994. Matz argues that in
1993 Household adopted a restructuring plan that directed
the shrinkage that began the following year and concluded
in 1996, by which time the elimination of subsidiaries, plus
layoffs of some workers in retained subsidiaries, had re‐
duced the total number of participants in Household Inter‐
national’s pension plan by at least 20 percent.
In general the period over which plan reductions may be
aggregated to determine whether a partial termination has
occurred is a single plan year. But we held in a Matz decision
in 2000 that because nothing “requires a significant corpo‐
rate event to occur within a plan year, Matz can combine
terminations from 1994, 1995 and 1996, provided that he
show that the corporate events of those years were related.
We believe this view reflects the realities of the modern cor‐
porate world. Mergers and corporate reorganizations have
grown into large and complex events, and often cannot be
completed in one year. Furthermore, to establish a rigid rule
that only terminations in individual plan years can be count‐
ed allows an unscrupulous employer to terminate some par‐
ticipants in December of one year and January of the next
year, thereby eviscerating … the purpose of protecting em‐
ployee benefits … . We are convinced that the requirement
that the multiple year terminations be proven related pre‐
vents a plaintiff from gaining undue advantage too.” Matz v.
Household Int’l Tax Reduction Investment Plan, 227 F.3d 971,
977 (7th Cir. 2000) (citations omitted), vacated on unrelated
grounds, 533 U.S. 218 (2001) (mem.); see also Rev. Rul. 2007‐
43, supra.
The district judge had thus to decide whether the series
of reductions in the number of plan participants should be
Case: 14-1683
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considered a single partial termination. Examining the doc‐
umentation that the plaintiff contends amounted to a re‐
structuring plan that tied all the subsequent terminations to‐
gether, the judge determined that there had been no such
plan—that the decisions to sell particular subsidiaries had
been made sequentially, on the basis of economic conditions
in the particular market in which each subsidiary operated,
and that these conditions had varied from market to market.
Restricting her focus to 1994, the year in which Matz had
been terminated, the judge found that the number of plan
participants had fallen by less than 5 percent—far below
both the 20 percent presumptive cutoff for partial termina‐
tions and our 10 percent irrebuttable cutoff.
So Matz loses. But a complication ignored by the district
court and by the parties as well is that this is a class action,
and Matz merely the class representative. Ordinarily when a
class representative is dismissed on grounds applicable to
him but not to all other members of the class, the suit is not
dismissed but rather another member of the class is substi‐
tuted as class representative. Sosna v. Iowa, 419 U.S. 393, 399
(1975); Robinson v. Sheriff of Cook County, 167 F.3d 1155, 1157
(7th Cir. 1999). But there is no other eligible class representa‐
tive in this case. Employees of seven subsidiaries of House‐
hold International were terminated. Matz was terminated by
Hamilton Investments in 1994; the percentage of Hamilton’s
employees who were terminated was as we said below 5
percent of the plan participants in that year. Household’s
sale of another subsidiary, Household Bank, resulted in the
termination of an additional 9.5 percent of plan participants.
As for the other five subsidiaries, their percentages of plan
participants terminated were even lower than Hamilton’s.
For completeness we note that even if all the terminations
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Nos. 14‐1683, 14‐2507
were deemed to constitute a single termination, the percent‐
age terminated would be only 17 percent, still below the 20
percent cutoff and with no justification shown for waiving it.
The suit has no merit, and the judgment dismissing it
(while awarding costs to the defendant) is therefore
AFFIRMED.
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