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PEICK v. PENSION BEN. GUARANTY CORP.

May 14, 1982

LOUIS F. PEICK, ET AL., PLAINTIFFS,
v.
PENSION BENEFIT GUARANTY CORPORATION, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Getzendanner, District Judge.

      MEMORANDUM OPINION AND ORDER

On September 26, 1980, President Carter signed into law the Multiemployer Pension Plan Amendments Act of 1980 ("MPPAA" or "the Act"). This statute sets forth a comprehensive scheme of federal law regulating multiemployer pension plans. Multiemployer plans are those "to which more than one employer is required to contribute" under the terms of "one or more collective bargaining agreements between one or more employee organizations and more than one employer." 29 U.S.C.A. § 1002(37)(A) (Supp. 1981).

Plaintiffs attack the facial constitutionality of MPPAA on various grounds and cross-motions for summary judgment have been filed. These motions raise complex and novel issues which have been very ably briefed by the parties. The ultimate questions are close, but in my opinion, the challenged provisions of MPPAA survive facial attack.

I. THE BACKGROUND OF MPPAA

The 1974 enactment of the Employee Retirement Income Security Act ("ERISA") marks the initial attempt by the federal government to regulate pension plans in a comprehensive manner.*fn1 This statute contains numerous provisions:

  Title I attacks the lack of adequate "vesting"
  provisions in many plans. Before ERISA, for
  example, if a plan did not provide for vesting
  until retirement, an employee with 30 years of
  service could lose all rights in his pension
  benefits in the event that his employment was
  terminated prior to retirement. Title I
  establishes minimum vesting standards to ensure
  that after a certain length of service an
  employee's benefit rights would not be
  conditioned upon remaining in the service of his
  employer. Employers were required to amend the
  terms of their plans to reflect these minimum
  standards effective January 1, 1976. [29 U.S.C.]
  § 1053(a). A second area of difficulty was the
  inadequacy of the funding cycle used by many plans.
  To improve the fiscal soundness of these pension
  funds, Title II amends the Internal Revenue Code to
  require minimum funding. Title III imposes
  fiduciary responsibilities on the trustees of the
  pension funds and provides for greater information
  and disclosure to employee-participants. The final
  area of concern addressed by ERISA was the loss of
  employee benefits which resulted from plan
  terminations. In order to protect an employee's
  interest in his accrued benefit rights when a plan
  failed or terminated with insufficient funds, Title
  IV establishes a system of

  termination insurance, effective September 2,
  1974.

Nachman Corp. v. Pension Benefit Guaranty Corp., 592 F.2d 947, 951 (7th Cir. 1979), aff'd, 446 U.S. 359, 100 S.Ct. 1723, 64 L.Ed.2d 354 (1980) (hereafter cited as Nachman). Most relevant for present purposes is the termination insurance program contained in Title IV. This program is run by the Pension Benefit Guaranty Corporation ("PBGC"), a governmental entity which receives no direct federal appropriations. The PBGC relies instead primarily on premium payments: In 1974, multiemployer plans paid $.50 per participant per year while single employer plans — those created, operated and maintained by a single employer acting alone — paid $1.00 per participant per year.

Upon enactment of ERISA in 1974, the PBGC immediately insured the receipt of all "nonforfeitable benefits" that had been earned by employees in single employer plans.*fn2 A single employer that wished to terminate its plan was thus first required to notify the PBGC. 29 U.S.C. § 1341(a) (1976). If an investigation subsequently revealed that the plan lacked sufficient assets to pay its "nonforfeitable benefits," the PBGC itself became obligated for the shortfall. Id. at § 1341(c), (b). Any amounts so expended could be recovered from the terminating employer, id. at § 1362, but the latter's liability could in no event exceed thirty per cent of its net worth. Id. at § 1362(b)(2).*fn3

Multiemployer plan benefits were treated differently. They were not insured absolutely upon enactment, but rather were guaranteed solely at the discretion of the PBGC until January 1, 1978. At that time, the guarantees were to become mandatory. Id. at § 1381(c)(1). In the interim, the PBGC was authorized to determine on a case-by-case basis whether it would pay a terminating plan's participants the difference between the value of their guaranteed benefits and the value of the plan's assets on the date of termination. Id. at § 1381(c)(2). As in the single employer context, secondary employer liability was imposed in all cases in which PBGC funds were actually expended. Specifically, all employers that contributed to a terminated multiemployer plan during the five years immediately preceding termination were collectively liable to the PBGC for the amount the latter had disbursed, each employer for its proportionate share of the total. As before, no single employer's termination liability could exceed thirty per cent of its net worth. Id. at § 1364.

Employers that withdrew from an on-going (i.e., non-terminating) multiemployer plan thus incurred a contingent liability. It was contingent first upon the plan's terminating within the next five years, and second, in the absence of mandatory benefit insurance, upon the PBGC's deciding to insure the plan's benefits. ERISA did not, in general, obligate a withdrawing employer to provide the PBGC with any security for this potential debt. An exception was recognized, however, in the case of a "substantial" employer, one that had contributed at least ten per cent of all contributions received by the plan over a specified period of time. Id. at § 1301(a)(2). Withdrawing employers meeting this description were required to place in escrow an amount equalling what their termination liability would have been had the plan terminated on the date of withdrawal. Id. at § 1363(b). Alternatively the employer could furnish a bond. Id. at § 1363(c)(1). If no termination actually occurred during the next five years, the escrow was refunded or the bond cancelled. Id. at § 1363(c)(2).

There were several reasons why Congress chose not to insure all multiemployer plan benefits immediately in 1974. Congress viewed multiemployer plans as more stable and secure than single employer plans and thus saw less need to insure the former.

See, e.g., Connolly v. Pension Benefit Guar. Corp., 581 F.2d 729, 734 (9th Cir. 1978); 126 Cong.Rec. H4116 (daily ed. May 22, 1980) (remarks of Rep. Biaggi). Congress, moreover, was worried about the potential costs of such a program. These worries became more prevalent as January 1, 1978 approached. Senator Javits warned his colleagues in late 1977 that he knew of several multiemployer plans which planned to terminate soon after the first of the year. See id. at S10099 (daily ed. July 29, 1980). Recognizing that it needed more time to study the entire problem, Congress delayed the effective date of the mandatory guarantee program and extended the PBGC's discretionary authority through June 30, 1979. Pub.L.No.95-214, 91 Stat. 1501 (1977). At the same time Congress ordered the PBGC to prepare a comprehensive report analyzing the multiemployer situation.

The PBGC submitted its report on July 1, 1978. Its major factual findings were that:

    1. There were about two thousand covered
  multiemployer pension plans with approximately
  eight million participants. Pension Benefit
  Guaranty Corporation, Multiemployer Study
  Required by P.L. 95-214, at 1, 20 (1978)
  (hereafter cited as PBGC Report).
    2. About ten per cent of these plans were
  experiencing financial difficulties that could
  result in plan terminations before 1988. These
  plans had about 1.3 million participants.
  Id. at 1, 138.
    3. If all of these plans were to terminate, it
  could cost the insurance system about $4.8
  billion to fund all plan benefits then covered by
  Title IV's guarantee. The annual premium needed
  to fund this liability would be unacceptably
  high. Id. at 2, 16, 139.
    4. Limiting consideration to only those covered
  multiemployer pension plans which were
  experiencing sufficiently serious financial
  difficulties that it was likely they would become
  insolvent before 1988, the cost to the insurance
  system to fund all guaranteed plan benefits could
  be approximately $560 million. The annual per
  capita premium needed to fund this liability
  could rise from fifty cents to as much as nine
  dollars. Id. at 2, 16, 140.

The PBGC derived these figures by using a computer model that analyzed and predicted the projected financial health of a selected sample of plans. The PBGC stressed that it relied solely on economic data and statistical analysis in forecasting the expected number of terminations. It did not attempt to factor in as well any incentives favoring termination which ERISA itself might foster. Id. at 137, Appendix XIV. Nevertheless the PBGC argued that such incentives were both present and troubling:

    Under the current statutory provisions,
  mandatory termination insurance for multiemployer
  plans would protect virtually all vested benefits
  in multiemployer plans, since the maximum
  guaranteeable benefit of $1,000 per month at age
  65 is well above the average vested benefit level
  in multiemployer plans . . .
    Since all, or nearly all, of the vested
  benefits of participants would be guaranteed upon
  termination under the current law, the cost of
  plan termination to participants would be greatly
  reduced. This does not necessarily mean that
  participants will have an incentive to bargain
  for plan termination merely to take advantage of
  the insurance program. However, the removal of
  the threat of benefit losses does make
  termination a viable option to active employees
  in situations in which a high proportion of
  pension contributions is being used for the
  benefits of retirees.
    The principal deterrent to plan termination
  under the current program is employer liability,
  which imposes a direct cost upon employers for
  termination, and an indirect cost on active
  employees since less money will be available for
  other labor costs. However, to assure that
  termination liabilities do not cause undue
  business hardship and loss of jobs, employer
  liability is limited to 30 percent of net worth.
  Because of this net worth limitation, employer
  liability may very well be less than the cost of
  maintaining

  the plan in some situations. Since the insurance
  program would cover most, if not all, of
  participants' vested benefits, it may be to the
  mutual economic advantage of the employers, the
  union, and the active employees to terminate the
  plan.
    Other ERISA rules also may weaken a plan and
  result in eventual termination. The withdrawal
  rules may discourage large employers from
  entering multiemployer plans. The restrictions on
  benefit reductions contained in ERISA may cause a
  financially troubled plan to terminate, even
  though the benefits that would be paid if the
  plan terminated would be less (because of the
  guarantee limitations) than the benefits that
  would be paid if the plan were permitted to
  reduce its obligations to avoid termination.
  Id. at 23-24 (footnote omitted).

The PBGC analyzed in addition a number of ways ERISA could be amended. It examined proposals that would:

  1.  Require the PBGC to pay guaranteed benefits
      only when a multiemployer plan became
      insolvent, rather than simply terminated.
      Id. at 56, 57, 69, 70.
  2.  Reduce the level of benefits which were
      guaranteed. Id. at 56, 57.
  3.  Authorize the PBGC to provide financial
      assistance to multiemployer plans
      experiencing temporary financial problems.
      Id. at 56.
  4.  Permit multiemployer plans experiencing
      financial difficulties to reduce benefit
      payments. Id. at 40.
  5.  Require faster funding of multiemployer plan
      obligations. Id. at 56.
  6.  Increase the premiums paid by multiemployer
      plans. Id. at 18, 137-63.
  7.  Impose upon a withdrawing employer a fixed
      liability equal to that employer's share of
      the plan's unfunded vested liability.
      Id. at 40, 57.

On February 27, 1979, the PBGC submitted a legislative proposal advocating these ideas. This was followed on May 3, 1979 by the formal introduction in both houses of Congress of the legislation which ultimately became MPPAA. Because of the scope of the bill, Congress once again delayed the effective date of the 1974 mandatory guarantee program, this time until May 1, 1980. Pub.L.No.96-24, 93 Stat. 70 (1979).

The House Education and Labor Committee favorably reported MPPAA on April 3, 1980. The Committee specifically agreed with the PBGC's assessment of the 1974 Act:

    Under the existing termination insurance rules,
  guarantees are provided by the PBGC to
  participants in a terminated plan. Guarantee
  levels are high enough to result in coverage of
  virtually 100 percent of the vested benefits of
  participants in certain multiemployer plans.
  Employers who withdraw from a multiemployer plan
  more than five years before termination have no
  further obligation to fund the liabilities of the
  plan, while employers who remain with a plan
  until it terminates, or withdraw within five
  years of termination, are liable to the PBGC for
  unfunded guaranteed benefits up to 30 percent of
  net worth.
    In the case of a financially troubled plan,
  termination liability creates an additional
  incentive for employers to withdraw early. In
  such a plan, contribution increases may be
  escalating so sharply that termination liability
  may prove cheaper than continuing the plan. The
  remaining employers have an incentive to
  terminate the plan. Where active employees
  determine that benefits may be provided for them
  at considerably less cost than current
  contributions and are satisfied that vested
  benefits for retirees and others are virtually
  100 percent covered by the guarantees, there is
  an incentive for the union to agree to terminate
  the plan. The result is to transfer the cost of
  providing benefits to the insurance system. The
  current termination insurance provisions of ERISA
  thus threaten the survival of multiemployer plans
  by exacerbating the problems of financially weak
  plans and encouraging employer withdrawals from
  and termination of plans in financial distress.
  H.R.No.96-869, Part I, 96th Cong. 2d Sess., 54-55, reprinted in [1980] U.S.Code Cong. & Ad.News 2918, 2922-23 (hereafter cited as Education and Labor Report); accord, id. at 60-61, reprinted in id. at 2928-29. The House Ways and Means Committee expressed similar views in its report released April 23, 1980. See H.R.No.96-869, Part II, 96th Cong. 2d Sess., 15, reprinted in [1980] U.S.Code Cong. & Ad.News 3004 (hereafter cited as Ways and Means Report). On April 30, 1980, Congress for a third time delayed the implementation of the 1974 mandatory guarantees. This extension lasted until July 1, 1980. Pub.L.No.96-239, 94 Stat. 341 (1980). Finally, on May 22, 1980, the House approved MPPAA by a vote of 374-0. 126 Cong.Rec. H4170 (daily ed.).

Senate approval followed on July 29, 1980, but only after yet another extension — to August 1, 1980 — of the PBGC's discretionary authority under the 1974 law. Pub. L.No.96-293, 94 Stat. 610 (1980). The Senate vote in favor of MPPAA was 85-1. 126 Cong.Rec. S10169 (daily ed.). Differences between the House and Senate versions were eventually reconciled in September of 1980*fn4 and President Carter's approval followed soon thereafter on the 26th of that month.*fn5

For present purposes, what is most significant is that on September 26, 1980, the rules governing an employer's withdrawal from an on-going multiemployer pension plan changed. No longer did such behavior give rise, as it had under ERISA, to a contingent liability payable to the PBGC. Under MPPAA, an employer that withdraws must immediately begin to pay a fixed and certain debt owed to the plan.*fn6

The details of this "withdrawal liability" are extremely complex. To obtain a basic grasp, it is important to realize that MPPAA regulates multiemployer plans of the "Taft-Hartley" variety. These plans are in reality trusts created by collective bargaining between a union and several employers. By law, the union appoints half the fund's trustees, and the employers appoint the other half. 29 U.S.C. § 186(c)(5)(B) (1976). The trust is funded by employer contributions which are made at a rate established by the terms of the collective contract. Id. This rate is usually expressed as an amount per time worked or product produced, e.g., $.75 per hour or $1.50 per item. The trustees collect the contributions and then determine, after considering all restraints imposed by the contract and all necessary actuarial data, the level of benefits which can prudently be offered. All decisions as to benefits are within the sole province of the trustees. As a general rule, once an employer parts with its contribution, it retains no rights thereafter to determine how that money should be spent. But see Borden, Inc. v. United Dairy Workers Pen. Program, 517 F. Supp. 1162 (E.D.Mich. 1981), discussed at p. 1049, n. 50, infra.

A plan's vested liability is the actuarial present value of the benefit obligations which have vested.*fn7 The difference between this figure and the value of the plan's assets is called its unfunded vested liability. Hansen Aff. at 24.*fn8 Under MPPAA, a withdrawing employer becomes liable on the date of withdrawal for a proportionate share of the latter figure.*fn9 29 U.S.C.A. § 1381 (Supp. 1981). The duty to calculate and collect this liability falls to the plan's trustees.*fn10 Id. at § 1382. The trustees have substantial discretion in deciding how much to assess any given employer; the statute lists several different methods of allocating a plan's unfunded vested liability, and it further empowers the trustees to seek PBGC approval of a completely different method of their own design. Id. at § 1391. Under the "presumptive" method of section 1391(b), the liability is derived basically by multiplying the plan's aggregate unfunded vested liability by a fraction whose numerator is the sum of all contributions required to have been made by the withdrawing employer during the previous five years. The denominator is the sum of all contributions made by all employers during this same period.*fn11 If disputes between an employer and the trustees arise over an assessment, they are to be resolved, at least initially, in arbitration. Id. at § 1401.

One final aspect of MPPAA requires comment. Though its provisions take effect in general upon enactment, the withdrawal liability rules are expressly retroactive to April 29, 1980. Id. at § 1461(e)(2)(A). Any employer that withdraws after this date and before MPPAA's enactment is thus just as liable as those who leave after September 26, 1980.

II. THE PARTIES

This suit was brought in part by the trustees of the Local 705 International Brotherhood of Teamsters Pension Fund (the "Fund"). The Fund was created through collective bargaining in 1954 and is now one of the largest multiemployer plans in the country. Hansen Aff. at 4. As of January 31, 1980, 15,733 workers were employed by companies contributing to the Fund. Nearly 4300 additional workers enjoyed a vested pension right even though they no longer worked for a contributing employer. The Fund thus served roughly 20,000 "participants". Id. at 12.

During the five plan years ending January 31, 1980, over 600 employers withdrew from the Fund, and over 100 other companies joined. The bulk of all contributing employers employ fewer than five employees. Id. at 13. In 1981 each firm contributed $51.00 per week per employee. Id. at 17. This contribution rate has steadily increased since the plan's inception and especially in recent years. As late as 1971, it was only $16 per week. Id. at 22.

The trustees have increased benefits for active workers over 100% since 1971, keeping these workers roughly even with inflation. However, "[d]ue to the prohibitive high cost, it has not been possible to increase retiree benefits to meet this goal." Id.

On January 31, 1980 the Fund possessed assets with a market value of $174.7 million. Id. at 7. During the fiscal year ending on that date, the Fund collected $29.8 million in contributions, earned $13.6 million more on investments and disbursed $17.2 million in benefit payments. Administrative costs consumed $677,000. Id. at 9.

Despite the positive cash flow generated during this year, the Fund's unfunded vested liability exceeded $183 million on January 31, 1981. This translates into a figure of $11,645 per active worker. Id. at 25.

Joining the trustees as plaintiff is the Truck Drivers, Oil Drivers, Filling Station & Platform Workers Local 705, International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America (the "Union"). The Union bargained for the Agreement and Declaration of Trust establishing the Fund as well as all subsequent amendments thereto.

Plaintiffs Illinois Motor Truck Operators Association (IMTOA), Illinois Trucking Association, Inc., (ITA),*fn12 Cartage Exchange of Chicago (CEC), and Motor Carriers Labor Advisory Council (MCLAC) are employer associations that represent numerous companies that contribute to the Fund. IMTOA, ITA, and CEC negotiated the initial Declaration of Trust establishing the Fund. MCLAC became a party to the Second Amended Trust Agreement in 1975.

The named defendants are the PBGC, the Secretary of Labor and the Secretary of the Treasury.*fn13

III. THE PLAINTIFFS' CLAIMS

Plaintiffs base their main constitutional challenge on the due process clause of the fifth amendment. They point out that each contributing employer's sole contractual obligation is to make timely contributions to the Fund in the amounts and under the conditions set forth in the governing collective bargaining agreement; once an employer pays its contributions, it is specifically exempted by the terms of the contract from any future liability to either the Fund or an employee seeking vested benefits. MPPAA thus increases each employer's obligations beyond the level agreed upon. Because of the withdrawal liability provisions, each withdrawn employer must continue to fund the plan following withdrawal even though contributions are not then required under the contract. MPPAA as well increases the obligations of the trustees since it obligates them to calculate and collect a liability that would not otherwise have been due and owing. Plaintiffs conclude from all this that their contractual rights have been impaired to such an extent that due process has been denied.*fn14

Plaintiffs argue further that the duties and obligations imposed upon them are arbitrarily more onerous than those imposed upon their single employer counterparts by ERISA. Such invidious discrimination is said to violate the equal protection component of the fifth amendment. Various phrases in MPPAA are also claimed to be impermissibly vague. Plaintiffs finally challenge the arbitration provisions on seventh amendment grounds.*fn15

IV. JUSTICIABILITY

Before addressing the merits of the constitutional attacks on MPPAA, it is first necessary to consider the arguments which have been pressed by various parties appearing as amici curiae. The TMX amici*fn16 note that though twenty-two employers withdrew from the Fund between April 29, 1980 and the date suit was filed,*fn17 none was ever assessed a withdrawal liability by the Fund's trustees. The trustees instead came to this court seeking a declaratory judgment that MPPAA is void. This scenario leads TMX to conclude that no Article III "case or controversy" exists. TMX, joined by the American Trucking Association, Inc. (ATA), further contends that even if subject matter jurisdiction is present, the controversy nevertheless remains insufficiently ripe for adjudication.

The constitutional argument is that no plaintiff has standing to challenge MPPAA. TMX contends that only the twenty-two withdrawn employers have actually suffered injury-in-fact within the meaning of Article III. Since there are no allegations that any one of these twenty-two companies is now a member of a plaintiff association, it follows in TMX' view that no plaintiff can assert the needed injury. In addition, TMX argues that in any event, the named defendants have done nothing by themselves to cause any plaintiff harm. Cf. Valley Forge v. Americans United, ___ U.S. ___, ___, 102 S.Ct. 752, 758, 70 L.Ed.2d 700 (1982) ("at an irreducible minimum, Art. III requires the party who invokes the court's authority to `show that he personally has suffered some actual or threatened injury as a result of the putatively illegal conduct of the defendant,' . . .") (quoting Gladstone, Realtors v. Village of Bellwood, 441 U.S. 91, 99, 99 S.Ct. 1601, 1607, 60 L.Ed.2d 66 (1979) (emphasis added)). Neither argument withstands analysis.

Subsequently filed affidavits establish that at least three of the withdrawn employers*fn18 currently remain members of the plaintiff associations. Supplemental Exhibits 4-6. Moreover, TMX is mistaken in believing that the requisite injury is felt only by those employers who have actually withdrawn from the Fund. Injury-in-fact is also suffered by all employers who are members of the plaintiff associations and who are seriously contemplating withdrawal in the near future.*fn19 These employers must disclose their potential liabilities to the financial community, and this likely diminishes their access to credit. See Supplemental Exhibits 7-9. Furthermore, in that the trustees must now discharge extensive unbargained-for responsibilities and obligations, they too have been injured in a concrete way. On the other hand, I agree with TMX that the Union's assertion of injury is too speculative to support federal jurisdiction. The possibility that the withdrawal liability provisions might create long-run incentives harmful to both the Fund and its Union beneficiaries is simply too remote and nebulous.*fn20

TMX further errs when it asserts that the PBGC is an inappropriate defendant for the trustees and employers to sue for redress of their injuries. Hardly an innocent bystander, the PBGC itself possesses ultimate responsibility for administering and enforcing the very law which causes the noted injuries. The PBGC, for example, can bring civil actions to enforce all provisions of Title IV.*fn21 29 U.S.C.A. § 1303 (Supp. 1981); see also id. at § 1451 (authorizing PBGC intervention in private suits relating to withdrawal liability). The PBGC also promulgates all regulations needed to implement the statute. Id. at § 1302(b)(3) (Supp. 1981).*fn22 In short, there is a sufficiently strong nexus between the acts of the PBGC, on the one hand, and the harm felt by the trustees and the employers, on the other, "that the[se] injur[ies] `fairly can be traced to the challenged action' and `[are] likely to be redressed by a favorable decision.'" Valley Forge v. Americans United, supra, 102 S.Ct. at 758 (quoting Simon v. Eastern Kentucky Welfare Rights Org., 426 U.S. 26, 38, 41, 96 S.Ct. 1917, 1924, 1925, 48 L.Ed.2d 450 (1976)); cf. Hodel v. Virginia Surface Mining & Reclamation Association, 452 U.S. 264, 295, 101 S.Ct. 2352, 2370, 69 L.Ed.2d 1 (1981) (claim that a federal statute was unconstitutional on its face held to be "properly before" the court in a suit for declaratory and injunctive relief brought against the federal official responsible for administering the law); Duke Power Co. v. Carolina Env. Study Group, 438 U.S. 59, 68-81, 98 S.Ct. 2620, 2627-2634, 57 L.Ed.2d 595 (1978) (same).

A constitutional "case or controversy" thus pits the PBGC against both the trustees and the employers that either withdrew from the Fund or seriously contemplate doing so. Since the plaintiff associations properly represent these employer interests,*fn23 both the ...


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