Pension & Benefits News ERISA bars recovery by participants from PBGC of post-termination asset gains
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Friday, October 12, 2018

ERISA bars recovery by participants from PBGC of post-termination asset gains

By Pension and Benefits Editorial Staff

ERISA Sec. 4044(c) bars participants in a terminated pension plan for which the PBGC was acting as trustee from employing the equitable remedy of disgorgement to recover from the agency the post-termination gain in the value of the plan assets, the U.S. Court of Appeals for the District of Columbia (D.C. Cir.) has ruled.

Terminated plan. In 2006, Delta Airlines and the PBGC agreed to terminate the Delta Pilots Retirement Plan because, in the wake of Delta’s bankruptcy, it had insufficient assets to support the benefit payments it promised to plan participants. The PBGC determined that $800 million of the plan’s $2.5 billion in unfunded benefits were guaranteed under Title IV of ERISA. The PBGC finished making final benefit determinations in 2012 and administrative appeals filed by participants to challenge their benefit determinations concluded in 2013.

Nearly 1,700 plan participants subsequently filed suit against the PBGC to further challenge their benefit determinations. They also asserted the agency mishandled the benefit determination process in ways that amounted to a breach of its fiduciary duty as statutory trustee. The participants argued that the PBGC should be required to disgorge itself of the investment gains the plan experienced during the several years it was under the PBGC’s control.

The PBGC countered that ERISA Sec. 4044(c) prevents disgorgement. The district court sided with the participants and denied the PBGC’s motion to dismiss, but, uncertain as to controlling law, certified for interlocutory appeal the question (among others) of whether ERISA Sec. 4044(c) precluded use of disgorgement as a remedy in this instance.

No disgorgement. The appellate court reversed the district court and found for the PBGC, concluding disgorgement is not an available remedy in this case. The relevant sentence in ERISA Sec. 4044(c) states that “any increase or decrease in the value of the assets of a single-employer plan occurring after the date on which the plan is terminated shall be credited to, or suffered by, the [PBGC].” Given the plain terms of the statute, the court reasoned, Congress has already decided that the PBGC is the party that benefits or suffers the loss from a change in the value of plan assets once the plan has terminated. Thus, that money is not available to participants.

In addition, because the operation of Sec. 4044(c) does not depend on whether the PBGC acts as statutory trustee of the terminated plan, any post-termination change in asset value must be credited to (or suffered by) the PBGC in its capacity as guarantor of benefits, and not in its role as a statutory trustee that has allegedly breached its fiduciary duties. This disconnect further demonstrates that disgorgement is inconsistent with the statutory scheme for terminated pension plans.

Finally, the appellate court rejected the distinction made by the district court between assets properly held by the statutory trustee and assets held due to a breach of a fiduciary duty. No such “implied exception” exists in the unambiguous terms of ERISA Sec. 4044(c).

Source: Lewis v. PBGC (D.C. Cir.).

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