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12/22/89 Bridgestone/Firestone, Inc v. Pension Benefit Guaranty

December 22, 1989




Mikva, Silberman and D. H. Ginsburg, Circuit Judges.


Appeal from the United States District Court for the District of Columbia (Civil Action No. 86-CV-3306).


Opinion for the Court filed by Circuit Judge Silberman.


This appeal presents the question of whether the pension plan termination provisions of the Employee Retirement Income Security Act of 1974 1, prior to its amendment in 1987, allowed an employer to retain all residual assets of an overfunded plan when actual investment earnings on employee contributions exceeded the plan specified interest rate on those contributions. The Pension Benefit Guaranty Corporation , a United States government corporation that administers and enforces the pension plan termination insurance program designed to guarantee the payment of nonforfeitable pension benefits, promulgated regulations mandating the distribution of such excess earnings to employees and their beneficiaries upon the termination of a contributory defined benefit plan. The district court upheld those regulations on a challenge by Bridgestone/Firestone, Inc. ("Firestone"), and the company now appeals. We agree with the district court that the governing statute is ambiguous and that the PBGC's interpretation of the legislation is reasonable. We therefore affirm. I.

An employer sponsored "defined benefit" plan provides a fixed level of retirement benefits to employees, the plan participants. Since the employer must contribute the actuarially determined amounts necessary to fund the benefits promised, the company's periodic contributions to the plan vary with, inter alia, the investment performance of plan assets. See Mead Corp. v. Tilley, 490 U.S. 714, 109 S. Ct. 2156, 2159, 104 L. Ed. 2d 796 (1989); D. DUNKLE, GUIDE TO PENSION AND PROFIT SHARING PLANS § 1.03, at 1-3 (1989). In a "contributory defined benefit" plan, employees contribute to the funding of their defined benefit plans, typically by contributing a fixed percentage of their salaries. See, e.g., LLC Corp. v. PBGC, 703 F.2d 301, 304 (8th Cir. 1983). A contributory defined benefit plan usually specifies a rate of return on the employee contributions. These "plan-rate earnings" become part of the employees' accrued benefits, and earnings based on the plan rate are typically less than a plan's "investment earnings," which represent the actual market rate of return on a plan's assets.

In September 1984, Firestone terminated its contributory defined benefit plan. At that time, the Plan assets totaled over $647 million and far exceeded the $363 million in accrued benefits owed to the Plan's participants (the Plan liabilities), creating a surplus of approximately $284 million. Of the $647 million in total assets, about $171 million reflected the employees' contributions and market-level investment earnings on them. The remaining $475 million represented Firestone's contributions and corresponding investment earnings. Thus, the Plan assets derived from the employees' contributions and earnings were insufficient by themselves to satisfy the Plan liabilities. Firestone discharged the Plan liabilities by purchasing with the Plan assets a $397 million group annuity contract from an insurance company.

Firestone then proposed a method of dividing the surplus between the employees and the company that would permit Firestone to retain the entire pool for itself. The PBGC, however, believed that $8.1 million of the surplus (earnings on employee contributions in excess of the plan rate as calculated under PBGC's "presumptive method") were "attributable to employee contributions," within the meaning of section 4044(d)(2) of ERISA, 29 U.S.C. § 1344(d)(2), and therefore Firestone had a statutory duty to return that sum to the employees. Firestone placed $9 million in an escrow account pending resolution of the dispute, and the PBGC authorized the reversion of the remainder of the surplus to Firestone.

After the PBGC issued its final determination in August 1987 disallowing Firestone's proposed method of allocating the surplus, Firestone challenged the agency's decision in the district court, claiming that the $9 million in escrow should revert to the employer. The district court granted summary judgment for the PBGC, deferring to the agency's interpretation of ERISA's plan termination provisions. See Firestone Tire & Rubber Co. v. PBGC, 701 F. Supp. 836 (D.D.C. 1988). The court also concluded that the language of the Plan did not permit Firestone's proposed distribution of surplus assets, see id. at 843, and that in any case, Firestone provided inadequate documentation to support its proposed allocation method, see id. at 844. II.

If "Congress has directly spoken to the precise question at issue," our inquiry ends because we must give effect to the "unambiguously expressed intent of Congress." Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43, 81 L. Ed. 2d 694, 104 S. Ct. 2778 (1984) (footnote omitted). Section 4044 of ERISA, 29 U.S.C. § 1344, outlines the mandatory scheme for the distribution of assets to participants and beneficiaries on the termination of a pension plan covered by Title IV of the Act. The statute categorizes benefit liabilities at the time of termination into a six-tier order of priority. The first and second tiers, the highest in priority, require payment of all accrued benefits derived from the employees' voluntary and mandatory contributions. See 29 U.S.C. §§ 1344(a)(1) and (2). Under these provisions, employees must receive all of their contributions plus the plan-rate earnings on those contributions. Next, the third and fourth tiers require the distribution of all other nonforfeitable benefits that the PBGC guarantees through its pension plan termination insurance program. See 29 U.S.C. §§ 1344(a)(3) and (4). Finally, the fifth and sixth tiers provide for the payment of "all other benefits under the plan." See 29 U.S.C. §§ 1344(a)(5) and (6).

Under section 4044(d)(1) of the Act, the employer can recover any pension plan assets remaining after the complete satisfaction of the six-tier plan liabilities. However, at the time of the Plan's termination,2 section 4044(d)(2) added a crucial caveat that is at the core of this controversy:

Notwithstanding the provisions of paragraph (1), if any assets of the plan attributable to employee contributions, remain after all liabilities of the plan to participants and their beneficiaries have been satisfied, such assets shall be equitably distributed to the employees who made such ...

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