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Fisher v. Pension Benefit Guaranty Corp.

United States District Court, D. Columbia.

February 25, 2016

FISHER, Plaintiff,

          For JOSEPH V. FISHER, Plaintiff: David S. Preminger, LEAD ATTORNEY, PRO HAC VICE, KELLER ROHRBACK L.L.P., New York, NY; George Michael Chuzi, KALIJARVI, CHUZI & NEWMAN & FITCH, P.C., Washington, DC.



         RANDOLPH D. MOSS, United States District Judge.

         This is an action brought under the Administrative Procedure Act, 5 U.S.C. § 701 et seq., to recover unpaid retirement benefits regulated by the Employee Retirement Income Security Act of 1974 (" ERISA" ). ERISA establishes certain limitations on the payment of retirement benefits by failing plans. An administrator of such a plan--known as a " distressed" plan--is barred from making payments other than in the order established by the statute, and from making lump-sum payments of any kind. 29 U.S.C. § § 1341(c)(3)(D), 1344. But the text of ERISA states that such limitations apply only once the administrator provides notice that the plan will be terminated. Id. § 1341(c)(3)(D)(i)(I). This case is about the administrator's obligations in the period before it provides notice of termination.

         Plaintiff Joseph Fisher is a former executive of a corporation that sponsored a retirement plan governed by ERISA. He requested a lump-sum benefits payment several months before the plan administrator submitted formal notice of its intent to terminate the plan. The administrator denied Fisher's request on the ground that " applicable law prohibits the payment of lump sum distributions in anticipation of the termination of the Plan." The plan was terminated, and the Pension Benefit Guaranty Corporation (" PBGC" ) took over as trustee. Fisher submitted another request for a lump-sum benefits payment, which the PBGC again denied, citing a PBGC policy. Fisher now brings this action, arguing that the PBGC should have honored his request for a lump-sum payment of his retirement benefits.

         This matter is before the Court on the parties' cross-motions for summary judgment. Because the Court concludes that the PBGC Appeals Board failed to justify its decision not to honor Fisher's request for a lump-sum payment, it will REMAND the matter to the agency for further proceedings.

         I. BACKGROUND

         A. Statutory and Regulatory Background

         In 1974, animated by concerns over the growth in size and the unregulated state of the employee benefit plan sector, Congress passed the Employee Retirement Income Security Act (" ERISA" ), Pub. L. No. 93-406, 88 Stat. 829 (codified at 29 U.S.C. § 1001 et seq. ). " Among the principal purposes of this 'comprehensive and reticulated statute' was to ensure that employees and their beneficiaries would not be deprived of anticipated retirement benefits . . . ." PBGC v. R. A. Gray & Co., 467 U.S. 717, 720, 104 S.Ct. 2709, 81 L.Ed.2d 601 (1984) (quoting Nachman Corp. v. PBGC, 446 U.S. 359, 361-62, 100 S.Ct. 1723, 64 L.Ed.2d 354 (1980)). In order to accomplish this purpose, Title IV of ERISA created a plan termination insurance program, administered by the PBGC. Id. ; see 29 U.S.C. § 1301 et seq. That program protects plan participants " by guaranteeing a class of 'nonforfeitable benefits,' reimbursing eligible participants or beneficiaries when a guaranteed plan terminates without sufficient funds." Davis v. PBGC, 734 F.3d 1161, 1164, 407 U.S.App.D.C. 119 (D.C. Cir. 2013) (quoting 29 U.S.C. § 1322(a)). The basic premise of this program is that " if a worker has been promised a defined pension benefit upon retirement[,] . . . he actually will receive it." Nachman Corp., 446 U.S. at 375.

         One central function of Title IV is to facilitate the orderly wind-down of retirement plans that cannot meet their payment obligations. Such a retirement plan can enter into what is known as a " distress termination" if the PBGC finds that it has " insufficient assets to satisfy its pension obligations." Davis, 734 F.3d at 1164; 29 U.S.C. § 1341(c). A plan in distress must provide sixty days' notice to all affected parties, including participants and the PBGC--an event known as a " notice of distress termination." Id. § 1341(a)(2), (c)(3)(D)(i)(I). Once the plan has provided such notice, the PBGC determines whether the plan has sufficient assets to pay all, some, or none of its liabilities. Id. § 1341(c)(3)(A)-(C). If the PBGC determines that the plan lacks the assets to pay all liabilities that are guaranteed by Title IV, " the PBGC becomes trustee of the plan, taking over the plan's assets and liabilities." PBGC v. LTV Corp., 496 U.S. 633, 637, 110 S.Ct. 2668, 110 L.Ed.2d 579 (1990); 29 U.S.C. § 1341(c)(3)(B)(iii). In order to pay those benefits guaranteed by ERISA, the PBGC " uses the plan's assets to cover what it can," but " then must add its own funds to ensure payment of most of the remaining . . . benefits." LTV Corp., 496 U.S. at 637.

         Because such plans do not have the resources to meet their obligations, ERISA imposes certain limitations on what a plan administrator (and the PBGC) may pay the participants of a distressed plan. Most basically, ERISA " guarantees" only a portion of the benefits to which participants would have been entitled to under a plan.[1] See 29 U.S.C. § 1322. ERISA also establishes a priority order under which a plan administrator (or the PBGC) shall pay participants if the plan has sufficient assets to pay guaranteed benefits, but not enough to pay all benefits. Id. § 1344(a). ERISA imposes several other restrictions on the benefits payable by an administrator of a plan entering into a distress termination (or by the PBGC). For instance, the statute states that any benefits that result from an amendment to a plan that was executed within five years of the date on which the plan terminated shall be " phased in" over the course of five years, not honored as provided in the plan document. Id. § 1322(b)(1), (7). The purpose is to protect the PBGC--and the plan's beneficiaries as a whole--from amendments that increase the benefits made payable to some (but not all) beneficiaries in the period of time immediately preceding a plan's termination.

         At issue in this case are the statutory provisions that govern the payment of benefits by a plan entering into a distress termination. ERISA imposes certain payment restrictions that take effect " on the date on which the plan administrator provides a notice of distress termination to the" PBGC. See id. § 1341(c)(3)(D)(i)(I). The administrator of such a plan is prohibited from paying benefits except those " guaranteed by the [PBGC]" under 29 U.S.C. § 1322 and those " to which assets are required to be allocated" under 29 U.S.C. § 1344. Id. § 1341(c)(3)(D)(ii)(IV). Most significantly, for present purposes, the administrator of a plan entering into a distress termination is also required to " pay benefits attributable to employer contributions, other than death benefits, only in the form of an annuity." Id. § 1341(c)(3)(D)(ii)(II) (emphasis added). These provisions, which were enacted in 1986 as part of a revision to ERISA, were meant " to increase the likelihood that participants and beneficiaries . . . will receive their full benefits" by ensuring that the limited resources of a distressed plan were allocated for the benefit of all participants. H.R. Rep. No. 99-241, pt. 2, at 27 (1985), as reprinted in 1986 U.S.C.C.A.N. 685, 685. The provision limiting the lump-sum distribution of plan assets, in particular, was enacted in response to congressional concern that such distributions " would dilute plan assets and may adversely affect participants' benefits under Title IV and the PBGC's recovery." Id. at 50.

         The PBGC has promulgated regulations and policies to implement Title IV. It has promulgated regulations that mirror § 1341's prohibition on paying lump-sum benefits. See 29 C.F.R. § 4041.42(b)(2) (prohibiting plan administrators from " [p]aying benefits attributable to employer contributions, other than death benefits, in any form other than as an annuity," as of " the first day [the administrator] issues a notice of intent to terminate" ). It has also promulgated regulations that prohibit administrators from allocating plan assets " upon plan termination in a manner other than that prescribed in" 29 U.S.C. § 1344, and that provide that " a distribution . . . of assets . . . made in anticipation of plan termination[] is considered to be an allocation of plan assets upon termination." Id. § 4044.4(a), (b). It has even promulgated regulations that bar the PBGC itself from paying benefits as a lump sum, at least in most circumstances. Id. § 4022.7(a). Finally, the PBGC has adopted an internal policy under which it will not pay out a request for a lump-sum payment made to a plan in distress " even if [the request] was received before the date of the Notice of Intent to Terminate." Dkt. 24-1 at 125 (Administrative Record (" A.R." ) 53 at 3) (" Policy 5.4-9" ) (emphasis added).

         B. Facts and Proceedings

         Fisher is a former executive of the Penn Traffic Company, a corporation that operated a chain of supermarkets throughout the Mid-Atlantic and New England. See Compl. ¶ 7. Until it declared bankruptcy in 2003, Penn Traffic operated a retirement plan known as the Penn Traffic Plan. See Dkt. 24-1 at 3 (A.R. 2 at 2) (" Appeals Board Decision" ); id. at 47 (A.R. 3, Ex. 9, at 1). In 2002, Penn Traffic adopted an amendment to the plan in order to increase the benefits owed to Fisher under the plan. Id. at 9 (Appeals Board Decision, Encl., at 1). The amendment, known as the Second Amendment, provided Fisher with an immediate credit to his retirement account " in the amount of $318,449," as well as subsequent annual credits of over $100,000. Id. at 10 (Appeals Board ...

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