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Sara Lee Corp. v. American Bakers Association Retirement Plan

December 1, 2009


The opinion of the court was delivered by: Henry H. Kennedy, Jr. United States District Judge


Sara Lee Corporation ("Sara Lee") brings this action under the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. §§ 1001 et seq., seeking reversal of a 2006 determination of the Pension Benefit Guaranty Corporation ("PBGC") that the American Bakers Association Retirement Plan ("ABA Plan" or "Plan") is a multiple-employer pension plan. Sara Lee is a participating employer in the ABA Plan; the Plan, its Board of Trustees, and other participating employers are also parties to this suit. Before the Court is PBGC's motion for summary judgment [#46], which the Court held in abeyance pending an assessment of the completeness of the administrative record and which is now ripe for decision. Upon consideration of the motion, the opposition thereto, and the record of this case, the Court concludes that the motion shall be granted.


A. Regulatory Background

PBGC is a federal agency and wholly-owned corporation of the U.S. Government that administers the pension plan insurance program established by Title IV of ERISA. 29 U.S.C. §§ 1301-1371. PBGC exists to ensure that retirees receive pension benefits they have earned even if their employer has terminated its pension plan or is otherwise unwilling or unable to pay. Mead Corp. v. Tilley, 490 U.S. 714, 717-18 (1989). When a pension plan covered by Title IV terminates without sufficient assets to pay all of its promised benefits, PBGC typically becomes trustee of the plan and pays participants their benefits, up to statutory limits. See 29 U.S.C. §§ 1321-1322, 1361.

Under ERISA, groups of employers may form joint pension plans. There are two types of joint plans for employees whose pensions are not maintained pursuant to collective bargaining agreements. A "multiple[-]employer plan" is a plan "maintained by two or more contributing [employers] . . . under which all plan assets are available to pay benefits to all plan participants and beneficiaries." 29 C.F.R. § 4001.2. An "aggregate of single-employer plans" is an association of separate plans in which each employer's contributions are maintained in separate accounts or otherwise effectively restricted so that the funds of each employer are used only to pay the benefits of that employer's employees. See Pension Benefit Guar. Corp. v. Artra Grp., 972 F.2d 771, 773 (7th Cir. 1992) (adopting PBGC's definition of an aggregate of single-employer plans); Pension Benefit Guar. Corp. v. Potash, 1986 WL 3809, at *2-3 (W.D.N.Y. Mar. 26, 1986) (same).

The distinction is relevant, inter alia, to determining an employer's liability when it terminates a plan with insufficient funds to pay benefits due to retirees. Artra Grp., 972 F.2d at 772. In a multiple-employer plan, an employer is generally only liable for underfunding if it is a "substantial employer" within the meaning of ERISA, 29 U.S.C. § 1301(a)(2), or has made contributions to the plan within the five years preceding the termination of the plan as a whole, id. §§ 1363, 1364. Otherwise, the obligation for that liability falls to the other contributors to the fund. See id. § 1301(a)(2). In an aggregate plan, however, the employer must make up the missing contributions or seek to qualify for a "distressed" or "involuntary" termination by PBGC, in which case PBGC becomes liable for that plan's obligations. See Artra Grp., 972 F.2d at 772-73; 29 U.S.C. § 1322.

B. Factual Background

The ABA Plan is a defined-benefit pension plan to which seven employers, including Sara Lee, currently contribute on behalf of their current and former employees. The Plan was founded in 1961 and has been covered by ERISA since that statute's enactment in 1974.

1. 1979 Determination

On June 21, 1979, PBGC sent a letter to the American Bakers Association ("1979 Letter") stating that it had "concluded that the [ABA Plan] constitutes an aggregate of separate pension plans." Administrative Record ("AR") 212. PBGC described the standard for making such a determination:

Our determination as to the nature of an entity-whether it is a single plan or an aggregate of single plans-is based on its structure and how it actually operates on an ongoing basis. We look to the documents governing the entity and to relevant evidence of how it has operated and continues to operate. Such evidence may include the reasonable expectations and intent of the parties.

The availability of funds held by an entity to provide benefits is a central factor in our analysis. Restrictions on the use of such funds indicate that the entity may be an aggregate of single plans. For example, if separate accounts are maintained for each contributing employer, it may be possible to restrict the use of assets from each separate account to pay only the benefits of the employee-participants of the employer maintaining the account. If the evidence shows that payments are effectively restricted, by whatever means, so that there is a minimal risk of funds attributable to the contributions of one employer being used to pay the benefits of another employer's employee-participants, then the entity is an aggregate of single plans.

AR 212-13.

PBGC's letter then discussed certain aspects of the functioning of the Plan. Any employer entering the Plan, or any employer changing its contribution rates, was required to sign a participation agreement that set rates of coverage and "state[d] that the employer's participation in the Fund is only with respect to its own employees"; to be the subject of an actuarial evaluation to determine whether a surcharge is necessary to "avoid any actuarial deficiency"; to apply to the Internal Revenue Service for a determination that its plan met certain requirements; and to be aware of the intent, expressed in a document titled "Summary Plan Description," that each employer provide the funds to pay its employees' benefits. AR 213-14.

The 1979 Letter acknowledged that "all contributions are paid into and all distributions are paid from the commingled trust" and "on an ongoing basis the [Plan] only maintains separate accounting per employer for purposes of cost allocation." AR 214. But it also noted that upon termination of a participating employer's plan, the Plan had the requisite information to "historically re-create separate accounts" so that, pursuant to a 1976 amendment to the Plan, "any amount attributable to [the employer's] contributions that prove to be in excess of the accrued pensions of its employees" could revert to that employer. AR 214-15. PBGC thus concluded that "[i]n this case the separate actuarial valuations made with regard to each employer and the system of surcharges . . . effectively minimize the risk that one employer's contributions will be used to fund the benefits of another employer's employees." AR 215.

2. 2006 Determination

In 2005, an assessment of the Plan's finances revealed that several participating employers carried negative balances in the Plan, meaning that the benefits owed to the employer's retirees, along with administrative expenses, were greater than the contributions and investment income in the Plan's account attributable to that employer. Compl. ¶ 27.*fn1 Sara Lee, which had a positive balance in the Plan's account, sought to withdraw its funds to establish an independent pension plan exclusively for Sara Lee employees. See AR 287; Compl. ¶ 28. Meanwhile, Interstate Brands Corporation ("IBC"),*fn2 a participating employer in the ABA Plan with a negative balance, had filed for bankruptcy. See AR 1572.

In June 2005, IBC asked PBGC to reconsider its 1979 determination that the ABA Plan was an aggregate of single-employer plans rather than a multiple-employer plan. AR 339. As noted, this distinction controls which entity is liable for IBC's negative balance: if the Plan was properly categorized as an aggregate of single-employer plans, PBGC would be largely responsible for the deficit; if instead the Plan is multiple-employer plan, Sara Lee and other participating employers would be obligated to cover the costs of paying benefits to IBC's former employees.*fn3

In November 2005, PBGC notified the ABA Plan, as well as participating employers Sara Lee, IBC, and Kettering Baking Company ("Kettering Baking"), that it intended to revisit its 1979 determination. AR 427-28. PBGC requested that these "interested parties" submit "any written statement or documents that you would like PBGC to consider in its decision-making ...

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