PBGC Did Not Breach Fiduciary Duties in Plan Termination.

Position:PLAN TERMINATION - Pension Benefit Guaranty Corporation

The District of Columbia Court of Appeals reverses a district court decision that had allowed participants in a pension plan to seek recovery of an increase in the value of plan assets that took place after the plan had been terminated.

The plaintiffs are a class of commercial airline pilots and beneficiaries who participated in a pension plan sponsored by the airline. The defendant is the Pension Benefit Guaranty Corporation (PBGC).

In 2005, the airline filed for bankruptcy and stopped contributing to the pension plan. The following year, the airline and PBGC agreed to terminate the pension plan because it had insufficient assets to support the benefit payments it promised to the pilots.

Title IV of the Employee Retirement Income Security Act of 1974 (ERISA) created PBGC to ensure that employees and their beneficiaries would not be completely deprived of anticipated retirement benefits from pension plans that terminated before sufficient funds had been accumulated. For that purpose, PBGC collects premiums from plan sponsors like the airline and guarantees certain benefits to plan participants even if a plan terminates without enough money to pay its ongoing obligations. Guaranteed benefits are subject to limitations outlined in Title IV.

When a plan terminates without enough funding to provide even the guaranteed benefits established by Title IV, a statutory trustee collects the remaining assets of the plan and begins making promised payments according to a list of statutory priorities. PBGC then provides additional money from its own funds to make up the difference between those payments and the guaranteed benefits. Although it is not required, PBGC is almost always appointed as the statutory trustee that administers terminated plans, assuming this responsibility in addition to its role as guarantor. When the airline and PBGC agreed to terminate the pension plan, they agreed that PBGC would become the statutory trustee.

PBGC determined the pension plan had a deficit of more than $2.5 billion in unfunded benefits when it terminated, almost $800 million of which were guaranteed under Title IV Based on this information, PBGC began paying estimated posttermination benefits to the pilots. It took six years, however, to finish making final benefit determinations. The plaintiffs sued the defendant PBGC to challenge their benefit determinations and alleged that it breached its fiduciary duty as statutory trustee in various ways, such as creating...

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