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BROWN v. PENSION BEN. GUAR. CORP.

May 12, 1993

CLINTON SALT BROWN, Plaintiff,
v.
PENSION BENEFIT GUARANTEE CORPORATION, Defendant.



The opinion of the court was delivered by: CHARLES R. RICHEY

 Before the Court are the parties' Cross Motions for Summary Judgment. The Plaintiff, a participant in a guaranteed pension plan assumed by the Defendant Pension Benefit Guarantee Corporation (PBGC), brought this action challenging PBGC's denial of his pension benefits. The question before the Court is whether the Defendant's interpretation of provisions in the Employee Retirement Income Security Act (ERISA) restricting pension benefit guarantees for "substantial owners" is erroneous. See 29 U.S.C. § 1322(b)(5).

 After careful consideration of the parties' motions, the Agreed Statement of Facts, the supporting and opposing memoranda, and the applicable law, the Court concludes that the plain language and legislative history of the statute support the Defendant's interpretation of ERISA's substantial owner restrictions, and therefore, the Court shall, pursuant to Rule 56 of the Federal Rules of Civil Procedure, deny the Plaintiff's Motion for Summary Judgment, and grant the Defendant's Motion for Summary Judgment.

 I. BACKGROUND

 In 1974, Congress passed the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001, et seq., in order "that minimum standards be provided to assure the equitable character of (pension) plans and their financial soundness." See 29 U.S.C. § 1001 (a). *fn1" For nearly twenty-eight years, the Plaintiff was an employee of the National Manufacturing Corporation (National) and was a participant in its pension plan from the plan's inception in 1957 until National's dissolution in 1980. In addition, the Plaintiff was a "substantial owner" of National throughout the relevant term of his employment with the company, that is, one who owned at least 10% of the company's stock. See Agreed Statement of Facts at P 8; see also 29 U.S.C. § 1322(b)(5)(A) (defining substantial owner). When National dissolved in 1980, its pension plan was deemed by the Defendant to be under-funded and proceedings were initiated for PBGC to assume the plan. *fn2"

 National's pension plan, known as the National Manufacturing corporation Retirement Income Plan for Salaried Employees (the Plan), while first implemented in 1957, was expanded and amended thirteen times before the company's dissolution in 1980. See Agreed statement of Facts at P 11. The original Plan provided that an employee who had worked for National for at least fifteen (15) years and who retired after October 1, 1957, was eligible to receive benefits upon retirement so long as (a) the participant had reached his or her sixtieth birthday at the time of retirement; or (b) they had reached their fifty-fifth birthday at the time of retirement and were totally and permanently disabled. Id. at P 12. Under the original Plan, there was to be no vesting of benefits until the participant reached the stated age of retirement. Id. Therefore, if the Plan had not been amended, the Plaintiff here would not be entitled to any guaranteed benefits, as ERISA only guarantees benefits that have vested at the time of a Plan's termination. See 29 U.S.C. § 1322(a).

 However, accelerated vesting provisions were incorporated into the Plan by several amendments. In particular, a "restatement" of the Plan adopted in 1976 allowed for earlier vesting of benefits in order to bring the Plan in line with the early vesting provisions of ERISA. *fn3" Thus, at the time of the Plan's dissolution in 1980, the Plaintiff's normal retirement benefits were vested and nonforfeitable under the terms of the amended Plan, even though he had yet to reach the established age of retirement. *fn4" However, as a substantial owner, the guaranteed benefits available to the Plaintiff are restricted by ERISA. See 29 U.S.C. § 1322(b)(5). The issue for resolution in this case is the scope of ERISA's substantial owner restrictions.

 II. DISCUSSION

 A. AS A SUBSTANTIAL OWNER, THE PLAINTIFF'S VESTED BENEFITS UNDER AN ASSUMED PENSION PLAN ARE SIGNIFICANTLY LIMITED.

 ERISA defines a substantial owner as "an individual who . . . in the case of a corporation, owns directly or indirectly, more than 10 percent in value of either the voting stock of that corporation or all the stock of that corporation." 29 U.S.C. § 1322(b)(5)(A). ERISA provides several limitations upon the pension benefits of a substantial owner that are available under a plan assumed by the government. These restrictions are differentiated according to whether or not the benefits available under a plan had been increased as a result of any plan amendment.

 If an assumed pension plan has not been amended, the guaranteed benefits a substantial owner receives are directly related and proportional to the number of years the owner participated in the plan. More specifically, ERISA provides a thirty-year phase-in provision for substantial owner's benefit guarantees, multiplying the owner's vested monthly benefits by a fraction equal to (x/30), with (x) being the number of years the substantial owner participated in the plan. *fn5" See 29 U.S.C. § 1322(b)(5)(B). For example, if a substantial owner participated in a pension plan for twenty years and the vested benefits available to him under the terms of the original plan were $ 100, his guaranteed benefit under § 1322(b)(5)(B) would be $ 100 times 20/30 or $ 66.66.

 If, on the other hand, the assumed plan had been amended, ERISA restrictions mandate that the Defendant "shall, under regulations proscribed by the corporation [PBGC], treat each benefit increase attributable to a plan amendment as if it were provided under a new plan." 29 U.S.C. § 1322(b)(5)(C). Regulations promulgated by the Defendant under this statute mandate that any increase in benefits conferred as a result of amendment to a plan be subject to a separate 30 year phase in provision. *fn6" See 29 C.F.R. § 2621.7(c). Therefore, for example, if an assumed plan had been amended ten years before its termination to provide for a further benefit of $ 100, the guaranteed benefit under this amendment would be $ 100 times 10/30 or $ 33.33.

 In addition to the thirty-year phase in provisions applicable to a substantial owner's plan amendment increases, ERISA places a cap on the guarantee of increases available under plan amendments. The statute provides that "the benefits guaranteed under this section with respect to all such [plan] amendments shall not exceed the amount which would be determined under subparagraph (B) if subparagraph (B) applied." *fn7" See 29 ...


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