ROBERT J. MATZ, individually and on behalf of all others similarly situated, Plaintiff-Appellant,
HOUSEHOLD INTERNATIONAL TAX REDUCTION INVESTMENT PLAN, Defendant-Appellee
Submitted October 23, 2014
Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. 96 C 1095 -- Joan B. Gottschall, Judge.
For ROBERT J. MATZ, individually and on behalf of all others similarly situated, Plaintiff - Appellant: Eugene J. Schiltz, Attorney, Coleman & Associates, Chicago, IL; Gerald E. Kubasiak, Attorney, Kubasiak, Fylstra, Thorpe & Rotunno, Chicago, IL.
For Household International Tax Reduction Investment Plan, Defendant - Appellee: Luke DeGrand, Attorney, Tracey L. Wolfe, Attorney, Degrand & Wolfe, P.C., Chicago, IL; Richard Pillsbury Campbell, Attorney, Jenner & Block Llp, Chicago, IL.
Before WOOD, Chief Judge, and POSNER and RIPPLE, Circuit Judges.
Posner, Circuit Judge.
Before us is the fifth appeal in a seemingly interminable class action suit, filed 2 months short of 19 years ago. The suit claims that a defined-contribution ERISA pension plan in which the employer matched contributions that its employees made was partially terminated. Our opinion deciding the third appeal, reported at 388 F.3d 570 (7th Cir. 2004), established the approach to be used by the district court to determine the validity of the claim. Using that approach the district judge granted summary judgment in favor of the defendant. The named plaintiff (which is to say the class representative) has appealed. In a separate appeal, No. 14-2507, he challenges the district court's award of some $64,000 in costs to the defendant. That challenge is frivolous.
When a pension plan is terminated, the rights of the participants in the plan vest in full, and so none of the money contributed by the employer to the individual employees' retirement accounts is returned to the employer. Full vesting is required in the case of partial as well as total terminations. 26 U.S.C. § 411(d)(3)(A); 26 C.F.R. § 1.401-6(b)(2). In our 2004 opinion we said in explanation of the rule that if any of the money in the employees' retirement accounts were returned to the employer, he would obtain a tax windfall that might induce termination because earnings on the employer's contributions are not taxable, provided, as is commonplace, that the plan is " tax-qualified." We now believe that we were mistaken. Although the employer's contributions to a plan do receive tax-free buildup as just noted, any funds that the employer removes from the plan are taxed to him as normal income and are also subject to an excise tax of either 20 or 50 percent. 26 U.S.C. § 4980.
The actual reason for the full-vesting rule appears to be to protect employees against uncertainty. Although they are informed of the vesting schedule in the employer's pension plan when they accept employment and thus could be thought to have assumed the risk of losing benefits should the plan be terminated, they would find it difficult to insure against the risk.
But whatever the correct rationale for full vesting in the case of a partial termination, it does not affect our decision today, which turns on ascertaining whether a termination of some plan participants (as by terminating their employment) amounted to a partial termination of the plan, thereby requiring full vesting of plan benefits in the terminated plan participants.
There was no usable statutory or regulatory definition of " partial termination" when this case began. So we adopted our own in our 2004 opinion: " a rebuttable presumption that a 20 percent or greater ...