The opinion of the court was delivered by: Ellen Segal Huvelle United States District Judge
This Court is again confronted by difficult and novel issues that have arisen between the Pension Benefit Guaranty Corporation ("PBGC" or "agency") and the Flight Attendants-CWA, AFL-CIO ("AFA") over the flight attendant's defined benefit pension plan ("the FA Plan") as a result of United Air Lines' Chapter 11 bankruptcy in the Northern District of Illinois. The first round of this dispute was resolved by the Court's opinion in Ass'n of Flight Attendants v. PBGC, 372 F. Supp. 2d 91 (D.D.C. 2005) ("AFA I"). There, the Court refused plaintiff's request to preliminarily enjoin PBGC from instituting involuntary termination proceedings under § 1342 of ERISA*fn1 pursuant to an April 22, 2005 Settlement Agreement ("Agreement") between United and PBGC. Plaintiff also challenged the Agreement in the bankruptcy proceedings, arguing that United had violated its collective bargaining responsibility by entering into the Agreement. This argument was rejected by the bankruptcy court, and on November 25, 2005, the Seventh Circuit affirmed. In re UAL Corp., 428 F.3d 677 (7th Cir. 2005).*fn2 While the union's efforts to stop PBGC from considering whether it should terminate the FA Plan have been rebuffed by the courts, both the Seventh Circuit and this Court recognized that the union's right to challenge a termination decision by PBGC has been preserved under § 1303(f), which provides the "exclusive means for bringing actions against [PBGC]" concerning termination decisions. 29 U.S.C. § 1303(f)(4). See also In re UAL Corp., 428 F.3d at 684; AFA I, 372 F. Supp. 2d at 98.
By Notice of Determination ("NOD") issued on June 23, 2005, PBGC has now decided to terminate the FA Plan effective June 30, 2005, and plaintiff has invoked its rights under § 1303(f) by attacking the termination decision under ERISA and the Administrative Procedure Act ("APA"), 5 U.S.C. § 706(2)(A). In particular, plaintiff argues that: (1) PBGC violated ERISA by relying on the Agreement as a basis for its termination decision; and (2) PBGC's other rationales for termination should be rejected under the APA as arbitrary and capricious and the product of biased decisionmaking resulting from the agency's desire to realize the Agreement's benefits. As explained more fully below, the Court agrees that PBGC's reliance on the Agreement to justify the termination is contrary to § 1342, but nonetheless, upholds the agency's decision under the APA given the existence of other valid bases for termination.
Much of the relevant factual background and the governing legal framework has been set forth previously in AFA I, 372 F. Supp. 2d at 93-97, as well as by the Seventh Circuit. In re UAL Corp., 428 F.3d at 680-82. Therefore, only a brief summary is needed before turning to the events that post-dated the April 22, 2005 Agreement.
The FA Plan is one of four underfunded United benefit plans, and despite staggering unfunded liabilities for these four plans, the FA Plan has stood out as "the least financial burdensome of [the] . . . plans."*fn3 (Administrative Record ["AR"] 129.) At the time it was terminated, the FA Plan covered 28,402 participants or 23% of all participants in United's four plans and had an unfunded liability of roughly $2 billion, including $1.7 billion in guaranteed benefits. (Pl.'s Statement of Material Facts Not In Dispute ["Pl.'s Facts"] ¶ 7.) When combined with the other three plans, there were 121,557 participants and an unfunded liability totaling nearly $10 billion. (PBGC's Statement of Undisputed Material Facts ["Def.'s Facts"] ¶ 18.) As of April 2005, United valued its minimum funding requirements for all its defined benefit plans for the next six years at $4.4 billion, with $624 million attributable to the FA Plan. (AR 726.) Thus, the FA Plan accounted for only 14% of United's total minimum funding requirements for 2005-2010. (Pl.'s Facts ¶ 9.)
In 2004 and until mid-2005, PBGC unsuccessfully resisted United's efforts in bankruptcy court to terminate its pension responsibilities. First, in the summer of 2004, PBGC opposed United's request to cease making minimum funding payments to its plans; nevertheless, pursuant to an order of the bankruptcy court, United has not, since July 2004, made any minimum funding contributions to its pension plans, as required by Title IV of ERISA, 29 U.S.C. §§ 1301-1461 (2000 & Supp. II 2002), and by the Internal Revenue Code. (Pl.'s Facts ¶¶ 11-12.) Further, on November 25, 2004, United moved under 11 U.S.C. § 1113(c) to reject any provisions within its collective bargaining agreements ("CBA") that would prohibit it from seeking a "distress termination" of its union pension plans, including the FA Plan, as the first step toward seeking a "distress termination" in bankruptcy court under § 1341 of ERISA.*fn4 Following this filing, PBGC issued its NOD to terminate the Pilot Plan and then the Ground Plan under § 1342. See supra note 3. The agency also filed an objection to United's § 1113 motion, however, asserting, based on an analysis done by Michael Kramer, a Managing Director at Greenhill & Co., LLC ("Greenhill"), which had been retained by PBGC to help analyze United's financial forecasts, that "it is clear that United can reorganize in Chapter 11 and maintain one or more of its Pensions Plans" and suggesting that the alternative to plan termination "that most easily satisfied" the credit metrics identified by United was "retaining only the Flight Attendants Plan, with minimum funding waivers [from the IRS]." (Pl.'s Facts ¶ 20.)*fn5
Throughout the spring, PBGC continued to publicly support AFA's efforts to preserve its plan,*fn6 including opposing United's renewed § 1113 motion, filed on April 11, 2005, to reject its CBA with the flight attendants and to obtain a judicial determination that it had satisfied § 1341's requirements for a distress termination. In its memorandum in support of its motion, United provided an updated financial analysis that cited higher than expected fuel prices, increased competitive pressures from low cost carriers and from fares instituted by competitors (i.e., Delta's SimpliFares), and demands by exit financiers to further justify a distress termination of its plans. (AR 619-780.) United also notified its plan participants of its intent to terminate the FA Plan as of June 30, 2005, and a trial was set by the bankruptcy court for May 11. (Pl.'s Facts ¶ 39.) PBGC opposed this motion, calling the airline's motion "premature" in light of its failure to show that the FA Plan was not salvageable.*fn7 (AR 609.) PBGC argued that an affordability analysis of the plans could not be done without "an updated business plan" and a plan of reorganization and that further data was needed "regarding fleet planning, negotiations with the public debt group and contracting with United's regional partners" before PBGC could "even determine its [own] position on whether United can afford to maintain the Pension Plans." (AR 613-14.) While the agency acknowledged that "United's financial picture may get grimmer, in which case PBGC could very well conclude that it would not oppose the distress motion," it asked the bankruptcy court to postpone the trial until after United filed its updated business plan and proposed plan of reorganization, which were expected in July. (AR 609, 614-15.)
Despite these public statements and filings and unbeknownst to the union, PBGC and United had begun settlement discussions as early as February 2005.*fn8 These negotiations continued for three months, and on April 22, an agreement was reached. The terms of the Agreement are detailed in AFA I, 372 F. Supp. 2d at 95, and by the Seventh Circuit, In re UAL Corp., 428 F.3d at 681. As noted, the Agreement was approved by the bankruptcy court on May 11, 2005, and this decision was subsequently affirmed by the district court for the Northern District of Illinois and the Seventh Circuit. See supra note 2.
II. Post-Settlement Events
Pursuant to the Agreement, PBGC initiated § 1342 proceedings by first requesting that Greenhill update its affordability analysis of the FA Plan. In response, on May 18, 2005, Greenhill issued a memorandum to PBGC revising its December 2004 analysis and concluding that "the Company is unlikely to be able to support the funding obligations of the [FA Plan] due to unfavorable developments in the airline industry." (AR 129.) Greenhill cited four developments since December 2004 that caused it to revise its analysis: (1) substantial increases in current and projected fuel costs; (2) worsening competitive conditions in the industry; (3) United's issuance of $755 million in debt to labor groups; and (4) United's failure to apply for an IRS waiver of its 2004 plan year pension funding requirement. (AR 129.) As a result of these developments, Greenhill found it "unlikely" that United would be able to afford the FA Plan after exiting bankruptcy or to obtain sufficient exit financing to reorganize without terminating the Plan. (AR 134.)
PBGC's Division of Insurance Supervision and Compliance ("DISC") completed its analysis of the FA Plan on June 16, 2005, and concluded that PBGC had grounds for involuntary termination under § 1342(a)(2) and (4) of ERISA; i.e., that United would be "unable to pay benefits when due," and that "the possible long-run loss of the corporation with respect to the plan may reasonably be expected to increase unreasonably if the plan is not terminated." (AR 25.) DISC estimated losses to PBGC of $3.3 million each month after June 30, 2005 that the FA Plan remained in existence. (AR 32.) PBGC's Trusteeship Working Group ("TWG") endorsed DISC's conclusion, and on June 22, 2005, recommended by a vote of 10-2 that Executive Director Belt approve the termination of the FA Plan. (AR 5, 23.) On June 23, 2005, Executive Director Belt issued a NOD that the FA Plan would be terminated effective June 30, 2005, pursuant to 29 U.S.C. § 1342(a)(2) and (4). (AR 1.)*fn9
On June 30, 2005, AFA amended its complaint in this Court to challenge the agency's June 23 NOD under 29 U.S.C. § 1303(f), claiming that the decision to terminate the FA Plan was contrary to ERISA and the APA. Thereafter, cross-motions for summary judgment were filed, and arguments were presented by counsel at a hearing held on January 5, 2006. In addressing the issues raised by these motions, the Court will first describe the statutory framework which governs PBGC and the terminations of pension plans and then the governing standards under the APA, and finally, it will address the validity of the agency's decision to terminate under ERISA and the APA.
Under Title IV of ERISA, PBGC administers the pension termination insurance program. 29 U.S.C. § 1302; see also Nachman Corp. v. PBGC, 44 U.S. 359, 361 (1980). In that capacity, it pays the guaranteed benefits of terminated pension plans to former participants, up to certain statutory maximums. See 29 U.S.C. § 1322(b)(3); 29 C.F.R. §§ 4022.22, 4022.23. PBGC is financed through four sources of revenue: premiums paid by plan sponsors; investment income; the assets of terminated plans; and recoveries from the sponsors of terminated plans. (Def.'s Mot. at 2.) "Though Congress was concerned chiefly with protecting the employees' expectations of pension benefits, it also realized that employers would not create, maintain, or expand pension plans if ERISA imposed too much cost. Consequently, the entire statute is a finely tuned balance between protecting pension benefits for employees while limiting the cost to employers." A-T-O Inc. v. PBGC, 634 F.2d 1013, 1021 (6th Cir. 1980). Because PBGC is self-financed, in part through employer premiums, limiting the cost to employers necessarily means, at least in part, limiting PBGC's own liabilities.*fn10 See Rettig v. PBGC, 744 F.2d 133, 154 (D.C. Cir. 1984).
Indeed, by statute the agency's mission is defined in terms of potentially conflicting duties:
(1) to encourage the continuation and maintenance of voluntary private pension plans for the ...