By Pension and Benefits Editorial Staff
ERISA does not require the adjudication of the involuntary termination of a pension plan if the plan administrator and the PBGC both consent to the termination, according to a U.S. district court in Michigan. Under the PBGC’s agreement with Delphi, a car parts manufacturer, and over the objections of plan beneficiaries, the Delphi Salaried Pension Plan was terminated and the PBGC was appointed as trustee.
Delphi bankruptcy. Delphi maintained two defined benefit plans: the Salaried Employees Pension Plan (covering its non-unionized workforce) and the Hourly Employees Pension Plan (covering its unionized employees). Delphi filed for Chapter 11 bankruptcy in 2005. The PBGC was actively involved in the bankruptcy proceedings in order to minimize risk to the agency’s insurance program.
As of 2009, the best possibility to avoid terminating the plans appeared to be for General Motors to assume the liabilities of both plans. (Delphi was originally established as an integrated division of GM but was spun off in 2009). Because GM was also facing potential bankruptcy at that time, the Treasury Department and a task force established by former President Obama became involved in negotiations over the fate of the two pension plans. In the spring of 2009, GM agreed to assume the liabilities of the hourly plan but not the salaried plan, while the parties agreed that the PBGC would terminate the salaried plan. (As it turned out, however, GM assumed only partial liability for the hourly plan.)
In July 2009, the bankruptcy court approved Delphi’s reorganization plan under which the PBGC would initiate involuntary termination of the salaried plan. In August 2009, PBGC and Delphi entered into an agreement terminating the salaried plan, effective July 31, 2009.
Beneficiaries of the salaried plan filed suit against the PBGC and others, alleging among other things that ERISA’s requirements regarding plan termination had not been met.
Court action not required. The court granted summary judgment to the PBGC. It rejected the beneficiaries’ argument that ERISA Sec. 4042 required the PBGC to obtain district court adjudication that termination was necessary before entering the agreement with Delphi. The plain language of ERISA shows this argument to be without merit.
ERISA Sec. 4042(c) clearly sets forth two alternative procedures for termination of a pension plan: application to the district court for a decree that the plan must be terminated; or agreement between the PBGC and the plan administrator that the plan should be terminated.
The court also concluded, contrary to the beneficiaries’ assertions, that the PBGC did not violate its fiduciary obligations to plan participants when it decided to terminate the plan. The PBGC owed no fiduciary obligations to plan participants until after the plan was terminated and PBGC became the plan’s statutory trustee under the termination agreement. The court also rejected the beneficiaries’ contention that Delphi breached its fiduciary duties. Under the Supreme Court’s opinion in Beck v. PACE Int’l Union, 555 U.S. 96 (2007), an employer’s decision whether to terminate an ERISA plan is a settlor function immune from ERISA’s fiduciary obligations.
SOURCE: Black v. PBGC (DC MI).
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