Pension Benefit Guaranty Corporation v. Idaho Hyperbarics, Inc.
Filing
58
MEMORANDUM DECISION AND ORDER It is hereby ORDERED Plaintiff's Motion for Summary Judgment (Dkt. 51 ) is GRANTED. Signed by Judge Candy W. Dale. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (jp)
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO
PENSION BENEFIT GUARANTY
CORPORATION,
Plaintiff,
Case No. 4:16-cv-00325-CWD
MEMORANDUM DECISION AND
ORDER
v.
IDAHO HYPERBARICS, INC., as Plan
Administrator of Idaho Hyperbarics, Inc.
Defined Benefit Plan,
Defendant.
INTRODUCTION
This action arises under Title IV of the Employee Retirement Income Security
Act of 1974, as amended, 29 U.S.C. §§ 1301-1461 (2012 & Supp. II 2014) (ERISA).
Pension Benefit Guaranty Corporation (PBGC) brings the action under 29 U.S.C. §
1303(e)(1) to enforce the provisions of Title IV of ERISA, and to enforce a final agency
determination that violations of Title IV occurred with respect to the Idaho Hyperbarics,
Inc. Defined Benefit Pension Plan (the “Plan”) based on a review of the agency’s
administrative record under 5 U.S.C. § 706.
Before the Court is PBGC’s motion for summary judgment, requesting that the
Court uphold PBGC’s administrative determination that Idaho Hyperbarics, Inc. (IHI)
MEMORANDUM DECISION AND ORDER - 1
failed to complete the standard termination of the Plan in accordance with the Plan’s
provisions and under ERISA. PBGC contends the Administrative Record (AR) supports
its determination that IHI improperly reduced the benefits of approximately 17 Plan
participants by: (1) failing to pay Plan participants the full cash surrender value of their
Plan insurance contracts upon Plan termination as required under 26 U.S.C. §
411(b)(1)(F); (2) failing to pay the full amount of benefits elected by one of the
participants; (3) failing to vest certain Plan participants upon the Plan’s termination as
required under 26 U.S.C. § 11(d)(3); and (4) improperly reducing of the benefits of Plan
participants who were not majority owners eligible to waive their benefits under 29
C.F.R. § 4041.2. PBGC contends over $370,000 in additional benefits are owed to Plan
participants.
IHI argues that a third party bears responsibility for any improper administration
of the Plan and its assets, and that if the Court finds in favor of PBGC, IHI likely will file
for bankruptcy, which is not in the plan participants’ best interests. 1
The Court conducted a hearing on May 1, 2018, at which the parties appeared. 2
Having considered the record, the pleadings, relevant authority, and being fully advised,
1
These same arguments were raised in support of IHI’s motion to file a third party complaint, and are
recast here within the framework of the Court’s review under the Administrative Procedures Act (APA).
The Court found IHI’s arguments unavailing and denied IHI’s motion to file a third party complaint,
commenting that PGGC’s claim against IHI arises under ERISA, and IHI cannot delegate fully its
statutory responsibilities under ERISA; IHI’s financial health, which exists independent of the Plan and
its administration, is not ERISA’s concern. Mem. Dec. and Order (Dkt. 50.)
2
At the hearing, IHI conceded there is an amount of underpayment, and did not raise arguments in
opposition to PBGC’s motion other than what was presented in IHI’s memorandum in opposition to
PBGC’s motion.
MEMORANDUM DECISION AND ORDER - 2
the Court concludes PBGC’s Final Determination was neither arbitrary nor capricious.
Accordingly, the Court will grant PBGC’s motion for summary judgment.
FACTS 3
PBGC is a wholly owned United States government corporation established under
29 U.S.C. § 1302 to administer and enforce the provisions of the plan-termination
insurance program under Title IV of ERISA. 29 U.S.C. § 1302. IHI is a wound care and
hyperbaric treatment provider incorporated in the State of Idaho. Am. Compl. ¶ 9; Ans. ¶
9. IHI’s primary place of business is in Pocatello, Idaho. Id.; Ans. ¶ 9. IHI adopted the
Plan effective December 27, 2004. AR 39-67, 623-25, 684-757.
The Plan was a single-employer, defined benefit pension plan covered under Title
IV of ERISA. AR 36-67, 74, 470-72, 291-92, 623-25, 697-794. The Plan was established
as an IRC Section 412(i) plan, which is fully and solely funded through insurance
policies. AR 181, 255-60, 1090-2052. The insurance policy which funded the Plan was
issued by MONY Life Insurance Company of America (“MONY”). AR 181, 255-60,
1090-2052; Am. Compl. ¶ 23; Ans. ¶ 23. IHI was the Plan’s contributing sponsor, within
the meaning of 29 U.S.C. § 1301(a)(13), and the Plan administrator, within the meaning
of 29 U.S.C. §§ 1002(16) and 1301(a)(1). AR 36-67, 74, 470-72, 291-92, 623-25, 697794.
3
PBGC submitted a statement of material facts in support of its motion, and IHI largely did not contest
the facts other than contending paragraphs 8, 9, 11, 12, and 24 – 28 were not accurate summaries of the
facts. The Court has reviewed the same, and to the extent clarification was required, the Court did so.
However, IHI’s requested clarifications did not present material changes.
MEMORANDUM DECISION AND ORDER - 3
On May 27, 2009, IHI filed a Form 500 with PBGC, with a proposed termination
date of December 26, 2008. AR 1-5, 162-65. On November 15, 2010, IHI filed a Form
501 with PBGC, certifying that all benefit liabilities under the Plan were satisfied. AR
13-14. On the Form 501, IHI stated that it paid a total of $575,900 to fifteen Plan
participants no later than March 19, 2009, more than two months before IHI filed the
Form 500. Id.
On January 4, 2011, PBGC notified IHI that the Plan would be audited. AR 14. On
April 28, 2011, PBGC issued an audit initiation letter to IHI, stating that the Plan’s
standard termination had been selected for audit because, in violation of Title IV of
ERISA, Plan assets were distributed to participants before filing the Form 500. The letter
also requested certain information for the audit. AR 15-16.
During the audit, PBGC determined that, contrary to the information reported on
the Form 501, there were seventeen (rather than fifteen) Plan participants. AR 390-406,
474-490, 731-47, 981-82. Of those participants, two received no distribution, twelve
received their distributions between April 14, 2011, and May 5, 2011; two received their
distributions on April 27, 2009; and one received her benefit on March 1, 2010. AR 84245, 963-67, 2054-60, 2063-81, 2175-76. All distributions were tendered after the date of
proposed termination and March 19, 2009, the last date of distribution reported on the
Form 501. AR 842-45, 963-67, 2054-60, 2080-81.
During the audit, IHI submitted documentation showing that, pursuant to its
insurance policy surrender requests to MONY, IHI received $575,900 in insurance policy
surrender checks from MONY on or about March 29, 2009. AR 321-34, 523-42, 2221MEMORANDUM DECISION AND ORDER - 4
50. Also, IHI submitted documentation showing that only a total of $228,884 was paid to
the fifteen participants who did receive a distribution, less than the $575,900 aggregate
value of the cash surrender checks from MONY and the total distribution amount
reported on the Form 501. AR 826-45, 962-67, 2054-2060, 2080-81, 2175-76, 2221-50,
2263-78.
On July 15, 2014, upon completion of the Plan audit, PBGC issued its initial
determination to IHI with respect to its audit (the “Initial Determination”). AR 2203-06.
In the Initial Determination, PBGC found that IHI did not pay the Plan participants the
full cash surrender value of their contracts, as required under IRC Section 411(b)(1)(F),
because the total distribution amount to participants was only $228,884 – not the
$575,900 that IHI certified that they distributed and less than the full cash surrender value
of the participants’ insurance contracts (“Finding 1”). AR 13, 826-45, 842- 45, 962-67,
2054-2060, 2080-81, 2175-76, 2203-06, 2221-35, 2263-78.
In the Initial Determination, PBGC found that, in addition to not receiving the full
cash surrender value of his insurance contract, Participant A did not receive the full
amount reported on his benefit election form and Form 1099-R (“Finding 2”). AR 220306. Participant A received only $6,346.62 when his insurance contract’s full cash
surrender value was $29,252.04, and the benefit amount that was reported on that
participant’s benefit election and Form 1099-R was $10,433.27. AR 820, 832, 962, 966,
971, 2203-06.
In the Initial Determination, PBGC found that two participants who terminated
MEMORANDUM DECISION AND ORDER - 5
employment before Plan termination, Participant B and Participant C (who IHI failed to
account for on the Form 501), were not vested 100% in their benefits upon Plan
termination as required by law (“Finding 3”). AR 288-90, 292-93, 495, 509, 656, 962,
1004-11, 1039-41, 2058-59, 2203-06.
In the Initial Determination, PBGC found that the benefits for non-majority
owners had been incorrectly waived because IHI failed to submit evidence that the
participants were majority owners eligible to waive benefits (“Finding 4”). AR 897,
2203-06.
Regarding Finding 1, Finding 2, and Finding 3, the Initial Determination required
IHI to (a) calculate the underpayments due to participants by determining the difference
between the amount each participant actually received and the full cash surrender value
of their annuity contract and adding a reasonable rate of interest to the additional amounts
due, (b) submit such calculations for PBGC’s review, and (c) pay participants the
additional amounts due. AR 2203-06.
Regarding Finding 4, the Initial Determination requested proof of majority
ownership for participants that reportedly waived their benefit. Id. By letter dated
November 12, 2014, IHI, through counsel, requested reconsideration of PBGC’s Initial
Determination and supplemented the request for reconsideration by an email dated March
3, 2015 (together, the “Reconsideration Request”). AR 2211-17, 2283-2326.
With respect to Finding 1, IHI argued that (a) because all premiums were paid as
instructed by the Plan’s actuary, the Plan should not be subject to IRC § 411; and (b) all
available Plan assets were fairly distributed to participants, after taking out expenses and
MEMORANDUM DECISION AND ORDER - 6
losses the Plan incurred. AR 2211-17, 2283-2326. The Reconsideration Request did not
dispute Finding 2. AR 2211-17, 2283-2326. Accordingly, Finding 2 became a final
determination on February 22, 2015. See 29 C.F.R. § 4003.22.
With regard to Finding 2, the Reconsideration Request stated that IHI would
forward to PBGC proof of a $2,000 payment allegedly accounting for the difference
between the benefit reported on Participant A’s benefit election and Form 1099-R, and
the amount he received on Plan termination. AR 2211-17. To date, PBGC has received
no proof of the alleged $2,000 payment.
With respect to Finding 3, IHI argued that Participants B, C, and an additional
Participant E, should not be fully vested after leaving employment with IHI. AR 2211-17,
2283-2326.
The Reconsideration Request generally stated that some participants agreed to
receive a lesser benefit and, with regard to Finding 4, specified that Participant E had
agreed to such reduction but did not argue that Participant E was a majority owner
eligible to waive benefits. AR 2208, 2211, 2283-2326.
The Reconsideration Request did not dispute Finding 4 with respect to any other
participant. AR 2208, 2211, 2283-2326. Accordingly, with respect to all participants,
except Participant E, Finding 4 became a final determination on February 22, 2015. See
29 C.F.R. § 4003.22.
On April 28, 2015, PBGC issued its final determination (“Final Determination”).
AR 2330-34. The Final Determination upheld Finding 1 on the grounds that, inter alia,
(1) IRC § 411(b)(1)(F) specifically requires that a participant’s accrued benefit in a
MEMORANDUM DECISION AND ORDER - 7
412(e)(3) plan be at least the cash surrender value of their insurance contracts of any
applicable date; (2) ERISA § 4041(b)(3) requires all benefit liabilities to be paid upon a
standard termination and does not allow for expenses or losses by the plan to be deducted
from a participant’s benefits; and (3) IRC § 401(a)(2) and ERISA § 403(c)(1) require that
Plan assets be used exclusively for the benefit of participants until all benefits liabilities
are satisfied. Id. The Final Determination upheld Finding 3 on the grounds that IRC §
411(d)(3) requires that the non-vested portion of benefits of all affected participants,
including terminated participants who have not yet incurred a five-year break in service,
become non-forfeitable on the date of the Plan termination. Id.
The Final Determination upheld Finding 4 with respect to Participant E on the
grounds that no documentation had been provided showing that Participant E waived her
benefit or that she was a majority owner eligible to waive her benefit under 29 C.F.R. §
4041.2. Id. PBGC later filed suit to enforce the portion of its Initial Determination that
became final on February 22, 2015, and its Final Determination on July 27, 2016, and
amended its complaint on August 25, 2016. See Compl. and Am. Compl.
ANALYSIS
1.
Standard of Review
Summary judgment is appropriate where a party can show that, as to any claim or
defense, “there is no genuine dispute as to any material fact and the movant is entitled to
judgment as a matter of law.” Fed. R. Civ. P. 56(a). “[T]he mere existence of some
alleged factual dispute between the parties will not defeat an otherwise properly
MEMORANDUM DECISION AND ORDER - 8
supported motion for summary judgment.” Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 247–48 (1986). There must be a genuine dispute as to any material fact—a fact
“that may affect the outcome of the case.” Id. at 248. The Court must be “guided by the
substantive evidentiary standards that apply to the case.” Id. at 255.
The PBGC is an administrative agency, and its decisions generally are reviewable
under the Administrative Procedures Act (“APA”), 5 U.S.C. §§ 551–559, 701–706. See
generally PBGC v. LTV Corp., 496 U.S. 633, 645–652 (1990); Dycus v. PBGC, 133 F.3d
1367, 1369 (10th Cir. 1998). The APA contains two different standards of judicial review
with regard to administrative determinations. The APA permits a court to set aside an
administrative determination only on a showing that the determination is either (1)
“arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the
law,” 5 U.S.C. § 706(2)(A), or (2) “unwarranted by the facts to the extent that the facts
are subject to trial de novo by the reviewing court,” 5 U.S.C. § 706(2)(F). Here, the
parties agree that the arbitrary and capricious standard applies.
Under the APA, agency action that is based upon the consideration of relevant
factors and that establishes a rational connection between the facts found and the decision
made may not be set aside as arbitrary or capricious. Citizens to Preserve Overton Park,
Inc. v. Volpe, 401 U.S. 402, 416-17 (1971); Friends of the Clearwater v. Dombeck, 222
F.3d 552, 561 (9th Cir. 2000). The agency's determination is accorded substantial
deference, and the reviewing court may not substitute its judgment for the agency's.
Overton Park at 416; Ninilchik Traditional Council v. United States, 227 F.3d 1186, 1191
(9th Cir. 2000). “Rather, [the Court] will reverse a decision as arbitrary and capricious
MEMORANDUM DECISION AND ORDER - 9
only if the agency relied on factors Congress did not intend it to consider, ‘entirely failed
to consider an important aspect of the problem,’ or offered an explanation ‘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.’” Ecology Ctr. v.
Castaneda, 574 F.3d 652, 656 (9th Cir. 2009) (quoting Earth Island Inst. v. U.S. Forest
Serv., 442 F.3d 1147, 1156 (9th Cir. 2006)).
In this case, where the appropriate standard of review is set forth in APA section
706, summary judgment is an appropriate remedy. City & County of San Francisco v.
United States, 130 F.3d 873, 877 (9th Cir. 1997); Occidental Eng'g Co. v. I.N.S., 753
F.2d 766, 770 (9th Cir. 1985). The judicial determination as to whether an agency has
satisfied the applicable standard is a question of law, and the relevant facts are those
contained in the Administrative Record. San Francisco, 130 F.3d at 877; Occidental
Eng'g, 753 F.2d at 769.
2.
ERISA Standards
Title IV of ERISA 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. 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
MEMORANDUM DECISION AND ORDER - 10
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.
When an employer decides to terminate a defined benefit pension plan by way of a
standard termination, 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 the date 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. Int'l, LLC, 386
F.3d 659, 662 (6th Cir. 2004) (citing In re Pension Plan for Employees of Broadway
Maint. Corp. (PBGC v. Broadway Maint. Corp.), 707 F.2d 647, 649 (2d Cir. 1983)).
The plan administrator must notify all plan participants, beneficiaries, 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, or 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.
MEMORANDUM DECISION AND ORDER - 11
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).
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. § 1341(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.
3.
Discussion
PBGC argues its determination that IHI failed to pay Plan participants their full
benefits is reasonable and fully supported by the administrative record. In response, IHI
argues PBGC failed to consider important aspects of the problem related to the Plan’s
termination --- first, that PBGC failed to consider the role and potential liability of the
Plan’s third-party administrator, First Actuarial Corporation; and second, that PBGC
failed to consider the best interests of the Plan’s participants, because IHI will be
financially insolvent if forced to pay the alleged liability. PBGC contends that neither
MEMORANDUM DECISION AND ORDER - 12
argument has merit, as IHI was the plan administrator responsible for providing benefits,
and IHI’s financial health is not ERISA’s concern.
Here, the underlying rationale for PBGC’s decision is uncontested in the briefing.
IHI neither disputes that it underpaid Plan participants, nor the amounts PBGC
determined were due. IHI does not assert PBGC failed to interpret statutes or regulations
correctly. See e.g. Pension Ben. Guar. Corp. v. Town & Country Bank & Tr. Co., No.
3:11-CV-602-H, 2012 WL 4753352, at *2 (W.D. Ky. Oct. 4, 2012) (employer argued
PBGC ignored applicable regulations). Rather, IHI blames the third-party administrator. 4
Asserting an analogous argument to that asserted by IHI, Town & Country argued
PBGC’s final determination was unreasonable based upon the facts and circumstances of
the case. Id. at *3. Town & Country argued that it had sought an IRS determination letter
to ensure the termination of its plan would not adversely affect its qualification for
favorable tax treatment. The letter was not received for nearly two years, and by that
time, financial markets deteriorated, resulting in a marked increase in the amount payable
to beneficiaries since the time benefits were computed on the plan termination date.
Town & Country attempted to amend its plan to take advantage of more favorable rates,
which in turn would have reduced the amount it owed to participants and bring those
amounts in line with what it expected to pay as of the date of plan termination. The court
4
IHI’s Reconsideration Request argued that the Plan should not be subject to IRC § 411 because all premiums were
paid as instructed by the Plan’s actuary, First Actuarial Corporation; all available Plan assets were fairly distributed
to participants, after taking out expenses and losses the Plan incurred; certain participants should not be fully vested
after leaving employment; and generally that some participants, specifically Participant E, agreed to receive a lesser
benefit. (AR 2211-17, 2283-2326.) PBGC’s Final Determination concluded that IHI’s Reconsideration Request
provided no defense to PBGC’s finding that IHI failed to pay the participants their full benefits in violation of Title
IV of ERISA.
MEMORANDUM DECISION AND ORDER - 13
upheld PBGC’s determination that benefits were to be calculated in accordance with the
plan’s provision as of the date of termination, and rejected that Town & Country could
amend its plan to alter the amounts owed to participants. Id. at *4.
Similarly, in Powell Valley Nat’l Bank v. PBGC, No. 2:12CV00018, 2013 WL
4759242 (W.D. Va. Sept. 4, 2013), the employer argued that its third party administrator
reasonably interpreted the plan to permit the calculation of benefits as paid. PBGC
disagreed, contending that the plan had not been properly amended to take advantage of a
statutory change, which would have resulted in a lesser calculation of amounts owed to
beneficiaries. Rather, PBGC argued that the employer was required to calculate the
benefits on the basis of the plan’s existing language, which adopted the former statutory
minimum methods of calculation, even though the statute was no longer in force at the
time of the plan’s termination. The court held that the discretion of the plan administrator
was not unfettered, and determinations must follow the plain language of the plan. Powell
Valley, 2013 WL 4759242 at *4. Accordingly, the court found that PBGC’s decision was
not arbitrary or capricious. Id. at *5. See also PBGC v. Wilson H. Jones Mem’l Hosp.,
374 F.3d 362 (5th Cir. 2004) (affirming district court’s determination that PBGC’s
finding that employer applied the incorrect interest rate to calculate distribution payments
should be upheld).
Applying the rational of Town & Country and Powell Valley, IHI cannot argue it
was the third-party administrator’s fault that benefits were not distributed in accordance
with the Plan’s provisions, especially considering IHI does not dispute PBGC’s
deficiency calculations or Findings 1 - 4 on any statutory or regulatory grounds. Further,
MEMORANDUM DECISION AND ORDER - 14
ERISA clearly defines the term “administrator” in 29 U.S.C. § 1002(16) as the person so
designated by the terms of the instrument under which the plan is operated, and the Plan
in turn named IHI as the Plan Administrator. (AR 66.) Thus, while IHI may have relied
upon First Actuarial Corporation and others to administer the Plan, no provision in
ERISA recognizes that such reliance absolves the named plan administrator from
responsibility for correctly terminating a plan and distributing benefits; the Court has
found no case law supporting such an interpretation of any ERISA provision applicable
here.
PBGC determined IHI received $575,900 in insurance policy surrender checks
from MONY, but only $228,884 was paid to the fifteen participants who received a
distribution. Yet Title IV of ERISA requires that a pension plan sponsor or administrator
pay all participants their full benefits under the Plan and applicable laws. 29 U.S.C. §
1341(b). For a section 412(e) plan like IHI’s, which was fully and solely funded by
insurance policies, the pension plan sponsor or administrator must pay all participants the
full cash surrender value of their insurance contracts. 26 U.S.C. § 411(b)(1)(F). Failure to
do so violates the requirement that plan assets be used exclusively for the benefit of
participants until all benefit liabilities are satisfied. 26 U.S.C. § 401(a)(2) and 29 U.S.C. §
1103(c)(1).
PBGC’s Final Determination upheld its Initial Determination on the grounds that
(1) IRC § 411(b)(1)(F) specifically requires that a participant’s accrued benefit in a
412(e)(3) plan be at least the cash surrender value of their insurance contracts of any
applicable date; (2) ERISA § 4041(b)(3) requires all benefits liabilities to be paid upon a
MEMORANDUM DECISION AND ORDER - 15
standard termination and does not allow for expenses or losses by the plan to be deducted
from a participant’s benefits; (3) IRC § 401(a)(2) and ERISA § 403(c)(1) requires that
Plan assets be used exclusively to the benefit of participants until all benefits liabilities
are satisfied; (4) IRC § 411(d)(3) requires that the nonvested portion of benefits of all
affected participants, including terminated participants who have not yet incurred a five
year break in service, become non-forfeitable on the date of the Plan termination; and (5)
IHI provided no documentation showing that a participant waived her benefit or that she
was a majority owner eligible to waive her benefit under 29 C.F.R. § 4041.2. Under the
circumstances presented here, the Court finds PBGC’s order was not arbitrary and
capricious.
In the cases cited above and that the Court reviewed, PBGC’s determinations
undoubtedly worked a hardship upon the employers. 5 They ended up owing more to plan
participants under PBGC’s determination than anticipated. Here, IHI should have
anticipated it would owe plan participants the full amount of the cash surrender value of
the MONY insurance contracts. That the plan administrator interpreted otherwise, or
believed IHI could distribute less, and the fact that PBGC’s determination will work a
financial hardship upon IHI in order to comply, is not a sufficient reason to overcome
PBGC’s rational interpretation and application of the statutory rules governing plan
termination and distribution of benefits. 6
5
It would defy common sense for a plan administrator to contest a determination that it owed less than
what was distributed.
6
There is support in the record that IHI used the money it received from MONY, and which it did not
distribute to plan participants, for its own purposes to support its ongoing operations, which were in
financial trouble. IHI sought also to recoup losses suffered by the Plan itself, and based its distribution to
MEMORANDUM DECISION AND ORDER - 16
CONCLUSION
IHI, as the Plan Administrator, is the party responsible for the proper termination
of the Plan under title IV of ERISA. Upon review of the Administrative Record, the
Court finds that it supports PBGC’s Final Determination, and that PBGC did not act
arbitrarily or capriciously.
ORDER
NOW THEREFORE IT IS HEREBY ORDERED:
1)
Plaintiff’s Motion for Summary Judgment (Dkt. 51) is GRANTED.
2)
PBGC is to submit a proposed form of judgment.
DATED: May 4, 2018
_________________________
Honorable Candy W. Dale
United States Magistrate Judge
plan participants on the amounts IHI contributed to fund the Plan. (See email correspondence, AR 2304 –
2319; 2320 – 2329.) IHI confirmed at the hearing that IHI used the money to keep the business afloat.
MEMORANDUM DECISION AND ORDER - 17
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?