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PEICK v. PENSION BEN. GUARANTY CORP.
May 14, 1982
LOUIS F. PEICK, ET AL., PLAINTIFFS,
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
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,
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
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
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
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
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
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
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  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  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.
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
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
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
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
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 ...