Nachman Corp. v. Pbgc, 446 U.S. 359 (1980)
Nachman Corp. v. Pension Benefit Guaranty Corporation
No. 78-1557
Argued January 7, 1980
Decided May 12, 1980
446 U.S. 359
CERTIORARI TO THE UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT
Syllabus
As one of the means of protecting the interests of beneficiaries under private pension plans for employees, Title IV of the Employee Retirement Income Security Act of 1974 (ERISA) created a plan termination insurance program that became effective in four successive stages. Section 4022(a) of Title IV provides that, if benefits are "nonforfeitable," they are insured by respondent Pension Benefit Guaranty Corporation (PBGC), and, under § 4062(b) of that Title, PBGC has a right to reimbursement from the employer for insurance paid to cover nonforfeitable benefits. Section 3 of Title I of ERISA provides that,
[f]or purposes of this title [t]he term "nonforfeitable" when used with respect to a pension benefit or right means a claim obtained by a participant or his beneficiary to that part of an immediate or deferred benefit under a pension plan which arises from the participant’s service, which is unconditional, and which is legally enforceable against the plan.
Petitioner employer, pursuant to a collective bargaining agreement, established a pension plan covering employees represented by respondent union at one of petitioner’s plants, and this plan contained a clause limiting benefits, upon termination of the plan, to the assets in the pension fund. Petitioner, upon closing such plant, terminated the pension plan the day before January 1, 1976, the date on which much of ERISA became effective, at which time the pension fund assets were sufficient to pay only about 35% of the vested benefits to those employees entitled thereto. Petitioner thereafter filed an action against the PBGC in Federal District Court seeking a declaration that it has no liability under ERISA for any failure of the pension plan to pay all of the vested benefits in full, and an order enjoining the PBGC from taking actions inconsistent with that declaration. Granting summary judgment for petitioner, the District Court held that the limitation of liability clause in the plan was valid on the date of termination, and that such clause prevented the benefits at issue from being characterized as "nonforfeitable." The Court of Appeals reversed, concluding, in reliance on the Title I definition of "nonforfeitability," that the limitation of liability clause merely affected the extent to which the benefits could be collected, without qualifying the employees’ rights against the plan.
Held: The plan’s limitation of liability clause does not prevent the vested benefits from being characterized as "nonforfeitable," and thus covered by the insurance program. Petitioner’s argument that the Title I definition of "nonforfeitable" determines which benefits are insured under Title IV, that, thus, benefits are not insured unless they are "unconditional" and "legally enforceable against the plan," that, because of the limitation of liability clause such elements of the definition are not satisfied, and that therefore the benefits are forfeitable, and necessarily uninsurable, is without merit. Such argument is not supported by a literal reading of the definition on which it relies, and it is inconsistent with t.he clear language, structure, and purpose of Title IV. Pp. 370-386.
(a) To view the term "nonforfeitable" as describing the quality of the participant’s right to a pension, rather than a limit on the amount he may collect, is consistent with the Title I definition of such term, and accords with the interpretation of the term in Title IV adopted by the PBGC, the agency responsible for administering the Title IV insurance program. Pp. 370-374.
(b) There is no evidence that Congress intended to exclude otherwise vested benefits from the insurance program solely because the employer had disclaimed liability for any deficiency in the pension fund. To the contrary, § 4062(b), the reimbursement provision, makes it clear that Congress was not only worried about plan terminations resulting from business failures, but was also concerned about the termination of underfunded plans, such as the one here, by solvent employers. And the fact that the provision of § 4062(b) limiting the amount of employer liability for reimbursement to 30% of the employer’s net worth would be meaningless unless the employer has disclaimed direct liability demonstrates that Congress did not intend such a disclaimer to render otherwise vested benefits "forfeitable" within the meaning of § 4022. Pp. 374-382
(c) Petitioner’s proposed construction of the statute, whereby cost-free terminations of pension plans would be authorized prior to January 1, 1976, with full liability for all promised benefits thereafter, would distort the orderly phase-in of the statutory program designed by Congress. It appears that Congress intended to discourage unnecessary terminations even during the phase-in period, and to place a reasonable ceiling on the potential cost of a termination during the principal life of ERISA -- the period after January 1, 1976. Pp. 382-386.
592 F.2d 947, affirmed.
STEVENS, J., delivered the opinion of the Court, in which BURGER, C.J., and BRENNAN, MARSHALL, and BLACKMUN, JJ., joined. STEWART, J., filed a dissenting opinion, in which WHITE, POWELL, and REHNQUIST, JJ., joined, post, p. 386. POWELL, J., filed a dissenting opinion, post, p. 396.