Pension & Benefits News PBGC should win default judgment, act as trustee for underfunded plan, says magistrate
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Thursday, January 31, 2019

PBGC should win default judgment, act as trustee for underfunded plan, says magistrate

By Pension and Benefits Editorial Staff

The Pension Benefit Guaranty Corporation (PBGC) should win a default judgment against an underfunded defined benefit plan and should be appointed trustee of the newly terminated plan, a magistrate judge for the U.S. District Court in Maryland has determined.

A defined benefit plan with approximately 81 participants was frozen in 1997 and the employer and plan sponsor ceased operations about 10 years ago. Subsequently, the employer’s president and owner died in November 2017. The plan has paid no benefits to plan participants since the owner’s death.

The PBGC filed suit, seeking a judicial determination that the plan had terminated and that the PBGC should be appointed as plan trustee. The PBGC asserted that the plan did not have sufficient funds to pay benefits under the terms of the plan. The employer and plan sponsor failed to enter a plea or otherwise assert a defense.

Having failed to hear from the plan sponsor, a magistrate judge recommended that judgment be entered in favor of the PBGC. Under the federal rules governing default judgments (Federal Rule of Civil Procedure No. 55), the court accepted as true the PBGC’s factual allegations in its complaint.

Under the rules governing default judgments, a court must make an independent determination regarding damages, but need not hold an evidentiary hearing. In this instance, the PBGC sought not damages but a judicial determination that the plan has terminated and the PBGC should be appointed as trustee.

The court agreed that under ERISA the PBGC was entitled to take the steps it outlined. Under ERISA Sec. 4042, the PBGC may begin proceedings to terminate a plan it has determined cannot pay benefits. The court determined the agency had provided a “Notice of Determination” of its intent to terminate the plan as required by ERISA Sec. 4042. In addition, pursuant to PBGC Policy 3.4-1 (Benefit Payments Prior to Trusteeship), the PBGC has acted to place eligible participants in the plan into pay status prior to the agency’s formal appointment as trustee.

The magistrate also recommended that the court, pursuant to its authority under ERISA Sec. 4048, grant the PBGC’s request to establish the date of death of the employer’s owner as a reasonable termination date for the plan.

SOURCE: PBGC v. Metropolitan Washington Orthopedic Association, Chartered 1975 (DC MD).

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