ROYAL OAK ENTERPRISES, LLC v. PENSION BENEFIT GUARANTY CORPORATION
Filing
32
MEMORANDUM OPINION to the Order on the Motions for Summary Judgment. Signed by Judge Gladys Kessler on 1/28/15. (CL, )
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
October 31,
Pland)
it
2008,
had
("PBGC," ~Defendant," or "the Agency") . 1 On
Royal Oak terminated the pension plan
previously
operated
for
the
benefit
("the
of
its
employees under the Employee Retirement Income Security Act of
1974
("ERISA"),
termination
date,
29
U.S.C.
Royal
§
Oak
1001,
et
changed
seq.
the
After
method
the
it
Plan's
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
Procedure Act. See 5 U.S.C.
§
as defined by the Administrative
551(1); 29 U.S.C. § 1302.
1
The
§§
PBGC,
which
1301-1461,
termination.
decreased
administers
performed
an
Title
audit
of
IV of
Royal
ERISA,
Oak's
29
U.S.C.
pension
plan
The Agency determined that Royal Oak had improperly
the
value
of
plan
benefits
the
after
Plan's
termination and Ordered Royal Oak to make additional payments to
Plan participants.
On
July
9,
2013,
Royal
Oak
filed
judicial review of the PBGC' s Order.
16,
2013,
the
enforcement
both
[Dkt.
of
its
2014.
Order.
submitted
[Dkt. Nos.
Nos.
[Dkt.
21,
22],
19,
[Dkt.
their
No.
11].
No.
Motion
30].
for
For
Summary
the
On
Motions
[Dkt Nos.
reasons
Judgment
the
set
shall
for
2014,
Summary
their Oppositions,
23,
24].
On April 8,
PBGC filed a
forth
be
On September
January 22,
20], and thereafter,
and Replies,
1].
seeking
Counterclaim seeking
respective
With the Court's permission,
[Dkt.
Complaint
No.
PBGC filed its Answer and a
parties
Judgment,
its
below,
denied,
Surreply.
Royal
and
the
Oak's
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
1001(c);
Pension
717,
(1984).
Guar.
pension
Corp.
v.
plans.
R.A.
Gray
See
&
29
Co.,
U.S.C.
467 U.S.
§
720
Ben.
ERISA
2
aims
"to
increase
the
beneficiaries
under
plans
receive
§
will
likelihood
that
single-employer
their
participants
defined
full
benefit
benefits."
and
pension
u.s.c.
29
10 0 lb (c) ( 3) .
ERISA's
Titles
regime.
statutory
four
Title
disclosure,
serve
functions
establishes
I
participation
distinct
and
vesting,
within
reporting
the
funding,
and
II,
("I. R. C.") ,
codified
relates
to
within
the
the
III
provides
administrative,
and
See 29 U.S.C.
§§
Finally,
termination
Revenue
§§
for
401-424.
coordination
("IRS") ,
Code
issues
of
among
jurisdictional,
the
PBGC,
the
and the Department of Labor.
1201-1242.
Title
of
for
enforcement
Internal Revenue Service
Internal
qualification ·of pension plans
favorable tax treatment. See I.R.C.
Title
See
1001-1191c.
§§
Title
and
fiduciary
obligations provisions pertaining to ongoing pension plans.
29 U.S.C.
the
IV
defined
sets
forth
benefit
rules
governing
including
mandatory
the
plans,
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.
The
plan
termination
§§
1301-1461.
procedures
of
Title
IV
are
the
exclusive means of terminating a defined benefit pension plan.
3
See 29 U.S.C.
who
§
determines
1341 (a) (1).
whether
Under Title IV,
to
terminate
a
it is the employer
plan,
controls
the
execution of all plan amendments necessary for termination, and,
through
its
chosen
termination date.
96,
101-02
also
plan
See,
(2007);
establishes
administrator,
e.g.,
Beck v.
PBGC
and
charges
plan's
the
Pace Int'l Union,
29 U.S.C. §§ 1341 (a) (2),
the
sets
551 U.S.
1348 (a) (1). Title IV
it
with
enforcing
and
administering that Title's provisions. 29 U.S.C. § 1302.
2.
When
pension
Standard Terminations
an
employer
plan
by
way
decides
of
a
choose a termination date.
§
4041.23.
voluntary
A "plan's
and
to
standard
F.2d 647,
benefit
649
accruals
termination
involuntary
(2d Cir.
cease,
a
defined
termination 2
it
benefit
must
first
See 29 U.S.C. § 1341 (a) (2); 29 C.F.R.
proceedings." Pension Ben. Guar.
707
terminate
and
date
plan participants are determined.
significant
[pension
plan]
in
both
termination
Corp. v. Broadway Maint. Corp.,
1983).
as
is
It is the date on which all
of
which
all
benefits
See 29 U.S.C.
§
owed
to
1341 (b) (1) (D)
(mandating that plan liabilities be determined as of the plan's
termination date) ;
Pension Ben.
Guar.
Corp.
v.
Republic Techs.
§
1341 (b)
"standard
termination"
under
29
U.S.C.
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.
A
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
representing
alternate
payees,
plan participants
of
and
the
employee
plan's
organizations
termination
date
and provide them with an explanation of the benefits to which
they
are
entitled.
29
(b) (2) (B);
See
§§
C.F.R.
29
U.S.C.
4041.23,
1341 (a) (2),
§§
4041.24.
Before
(b) ( 1) '
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
1341 (b) (2) (A), 29 C. F.R.
§
See
liabilities.
29
U.S.C.
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
U.S.C.
relies,
§
insufficient
1341 (b) (2) (C).
in part,
upon
assets
To
the
to
reach
pay
benefit
its
determination,
plan administrator's
liabilities.
the
29
PBGC
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
plan
the
liabilities,
assets
§
has
the
insufficient
assets
plan administrator must
pursuant
IV
Title
to
distribute
ERISA.
of
benefit
pay
to
the plan's
u.s.c.
29
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
provisions
with
the
regulations."
29. U.S.C.
plan
"are
benefits
effect
on
the
under
termination
amendments
the
plan and any
1341(b) (3) (A) (ii).
determined
plan's
Post-termination
§
of
are
the
A
plan's
date."
29
applicable
participant's
provisions
C.F.R.
permissible
only
in
4041.8.
§
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.
In
Calculating Lump-Sum Payments
order
payments,
to
calculate
the
dollar
use
assumptions
calculate
the
actuarial
sense,
each
plan
of
lump-sum
the plan administrator must find the present value of
each participant's accrued benefits.
must
value
value
about
of
equal
participant
a
the
is
That is,
mortality
lump-sum
value
of
entitled
and
the administrator
interest
payment
monthly
to
that
rates
will,
pension
receive.
See
in
to
an
payments
I.R.C.
6
§ 401 (a) (25);
29
calculate
present
related
the
to
the
C. F.R.
§4041.28.
value
value
of
of
the
The
interest
accrued
lump
rate
benefits
sum
(i.e.,
is
used
to
inversely
higher
interest
rates yield smaller lump-sum payments).
The power of compounding interest and the long-term nature
of
pension
obligations mean
interest rate can have a
that
even
a
slight
change
in
the
significant impact on the size of the
lump-sum payments. Thus, mortality and interest rate assumptions
must
be
specified
in
the
employer's discretion.
to
adopt
the
I.R.C.
value
terms
calculated
may
not
§ 401 (a) (25).
of
lump
"shall
by
not
using"
the
sums
be
be
left
mortality
floor
but
not
a
4
to
the
Plans are not bound
calculated
less
specified in I.R.C. § 417 (e) (3).
a
and
any particular set of actuarial assumptions.
present
plan's
plan
than
according
the
table
Instead,
and
to
pr~sent
interest
the
value
rate
In effect, I.R.C. § 417 (e) puts
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,
1426, § 203(b)
(1984);
4
Pub.
Tax Reform Act
L.
No.
of 1986,
98-397,
Pub.
L.
98 Stat.
No.
99-514,
A parallel provision also appears in Title I
u.s.c. § 1055(g).
100 Stat.
of ERISA.
29
7
2085,
L.
1139 (b)
§
No.
103-465,
Protection
§
(1986); Retirement Protection Act of 1994,
302(b)
Act
108
Stat.
4809,
767 (a)
§
of
2006,
Pub.
L.
to
1994,
PBGC
regulations
No.
(1994);
interest
780,
120
Stat
set
the
applicable
amended
the
109-280,
1986
rates,
but
in
1994,
Congress
explicitly prescribe the applicable assumptions.
Equity Act of 1984, Pub. L. No.
98-397,
108 Stat.
4809,
I.R.C.
417(e)
§
767 (a)
§
called
See Retirement
Collectively,
for
Annuity
the
1994
203(b)
§
Pub. L. No.
plan
using
administrators
the
interest
to
rate
Treasury securities and the mortality assumptions
Group
to
103-465,
(1994). Generally, the 1994 version of
lump-sum payments
1994
statute
98 Stat. 142 6,
(1984); Retirement Protection Act of 1994,
the
Pension
(2006).
From
minimum
Pub.
Reserve
actuarial
Table
("1994
assumptions
are
calculate
on
30-year
contained in
GAR
Table") .
known
as
the
"GATT Structure."
5.
Pension Protection Act of 2006
Congress
assumptions
most
in
the
recently
Pension
updated
§
302 (b)
Assumptions,"
(2006).
"PPA
The
minimum present
Protection· Act
Pension Protection Act of 2006,
780,
the
Pub.
new
Structure,"
L.
No.
actuarial
or
"§
of
value
2006
("PPA").
109-280,
120 Stat
assumptions
417 (e)
("PPA
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
accrued benefits.
U.S.C.
See
1054(g).
§
amendments
I.R.C.
that
reduce
plan participants'
if11(d) (6);
§
Recognizing
that
some
ERISA
204(g),
§
sections
of
the
29
PPA
might require plan amendments that would otherwise violate the
anti-cutback
from
ERISA
provisions,
204 (g)
§
Congress
and
I.R.C.
§
explicitly
411 (d) (6),
provided
and
relief
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
be
[he
operated in
or
she
accordance with
[grace period]
fail
to
[I.R.C.]
. and
meet
and
the
§
§
1107
the
shall
terms
(2)
of
treated
the plan
as
being
during
the
such pension plan shall not
requirements
·section
amendment." PPA
PPA
administers]
204(g)
of
of
section
[ERISA]
411(d) (6)
by
reason
of
of
the
such
1107.
only
certain requirements.
applies
First,
if
plan
administrators
observe
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 .
the grace period. PPA
Notably,
PPA
§
§
amendment were in effect" during
1107 (b) (2).
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.
receive a
The vast majority of Plan participants chose to
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,
Participant's
would
Accrued
"be
the
Actuarial
Benefit." 6
On
Equivalent
October
31,
of
the
Plan
2008,
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
Section 1. 02
assumptions
provided
by
the
GATT
Structure. 7
specified that each participant would be paid in
accordance with "whichever
[set of assumptions]
produce [ d]
the
larger benefit[.]"
On December 5,
termination
date,
calculation
2008,
Royal
method
(the
just over a month after the
Oak
amended
"PPA
Section
Plan's
lump-sum
Under
Amendment") .
1.02's
the
PPA
Amendment, lump sums would no longer be calculated using the two
methods
computed
described
using
provided in the
above.
only
the
Instead,
lump-sum
interest
rates
PPA and codified at
payments
and
I.R.C.
would
mortality
§
417(e).
be
tables
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.
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