nature of private retirement plans." H.R. 533, 93d Cong., 2d Sess., reprinted in 1974 U.S. Code Cong. & Ad. News 4639. Therefore, in establishing the strict duties under which plan fiduciaries must operate in order to protect the interests of plan participants and beneficiaries, Congress did not mean to constrain the power of an employer, acting as plan fiduciary, to terminate a plan. An employer may terminate a plan without violating the fiduciary duties it must obey when administering the plan. Of course, even when extinguishing a plan an employer may not extinguish the rights of plan participants to their benefits. As otherwise defined by ERISA, these rights are born during the life of a plan, and may if necessary survive its passing.
As noted above, ERISA expressly states as much in respect to the termination of uninsured pension plans, terminations by the Pension Benefit Guaranty Corporation, and the distribution of plan assets once a plan termination has occurred. 29 U.S.C. Section 1103(c)(1), 1103(d)(1), 1104(a)(1), 1108(b)(9). I find that the decision by a plan fiduciary to terminate a Plan in accordance with ERISA Section 4041, 29 U.S.C. Section 1341, is similarly exempt from ERISA's dictates that a fiduciary act in the interests of plan participants and beneficiaries only. See 29 U.S.C. Sections 1103(c), 1104 and 1106.
The notion that an employer may act in its own interests in deciding to terminate a pension plan, and not solely in the interests of plan participants, is consistent with ERISA's general scheme for plan terminations as well as with relevant ERISA case law.
Before an employer may terminate a Plan, it must file for and receive the certification of the Pension Benefit Guaranty Corporation that the Plan has sufficient funds to pay its obligations to plan participants. 29 U.S.C. Sections 1341(a), (b). If the corporation is unable to certify the sufficiency of the Plan, it must move to take control of the Plan under ERISA Section 4042, 29 U.S.C. Section 1342. Therefore, the interests of plan participants are not simply ignored once a fiduciary takes action to terminate a plan; instead, the protection of those interests shifts from the fiduciary to the Federal Government. In addition, distributions of the plan assets after termination are controlled by ERISA Section 4044, 29 U.S.C. Section 1344 (1982), which effectively orders the priorities of all parties with rights in the plan. This scheme for ERISA plan terminations appears to anticipate that plan fiduciaries may decide, in the interests of an employer rather than solely in the interests the plan participants, to terminate a plan, and ensures that the interests of plan participants remain protected despite the decision to terminate.
My finding that a fiduciary's termination decision is not governed by ERISA's fiduciary duties is supported by the relevant case law. In District 65 v. Harper and Row, Publishers, Inc., 576 F. Supp. 1468 (S.D.N.Y.1983), the court held that decisions to terminate are not ruled by ERISA's fiduciary standards, due to the voluntary nature of pension plans and the fact that ERISA's stated exceptions to its fiduciary rules deal with plan terminations. Id. at 1477-78. Cf. Viggiano v. Shenango China Division, 750 F.2d 276, 279 (3d Cir.1984) (ERISA mandates neither the creation nor continuance of employee hospitalization plans, but only concerns itself with the elements of such a plan and its administration while the plan exists). In Dhayer v. Weirton Steel Division, cited supra, the Court held that an employer negotiating with a prospective buyer of its business could bargain for future changes in pension benefits without violating its duties as plan fiduciary, because ERISA's fiduciary duties apply only to "administrating a plan and conducting transactions affecting the moneys and property of the Plan's fund." 571 F. Supp. at 328. In other cases, parties have litigated an employer's right to recover excess pension plan funds without ever questioning the employer's right to terminate the plan. See, e.g., Van Orman v. American Insurance Co., 680 F.2d 301 (3d Cir.1982); In re C.D. Moyer Co. Trust Fund, 441 F. Supp. 1128 (E.D.Pa.1977), aff'd, 582 F.2d 1275 (3d Cir.1978); Pollock v. Castrovinci 476 F. Supp. 606 (S.D.N.Y.1979), aff'd mem., 622 F.2d 575 (2d Cir.1980).
Not only was defendant free to operate outside the fiduciary standards of ERISA in terminating the Plan, defendant was also free of those standards when deciding to amend the plan as he did. Defendant's amendments did not purport to affect the rights of any plan participant, but only to affect Ambassador's obligation to continue the plan. By the reasoning followed above, defendant was exempt from his ERISA-imposed fiduciary duties when he amended Ambassador's pension plan, as well as when he acted to terminate it. See Washington-Baltimore Newspaper Guild v. Washington Star Co., 555 F. Supp. 257 (D.D.C.1983) (employer not held to fiduciary standards when amending plan to provide for employer's own recovery of excess plan funds), aff'd mem., 729 F.2d 863 (D.C.Cir.1984). See also the Van Orman case, the Moyer case, and the Pollock case, cited supra (upholding validity of amendments to provide for employer recovery of excess plan funds).
I find that defendant was not subject to his fiduciary duties under ERISA when he amended the plan nor when he began termination of the plan, and that therefore defendant has not violated ERISA's stringent standards of fiduciary behavior.
As his third argument in support of his motion for summary judgment, plaintiff argues that defendant's second plan amendment, providing for the recovery of excess plan assets by Ambassador rather than by plan participants, is invalid, because it was executed after the pension plan had terminated. As a result, defendant's attempts to secure for Ambassador the excess plan funds, by enacting the second plan amendment and beginning termination of the plan under ERISA section 4041, 29 U.S.C. Section 1341, violated the express ban against fiduciary self-dealing proscribed by 29 U.S.C. Section 1106(b), as well as ERISA's general fiduciary standard, 29 U.S.C. Section 1104, and should be enjoined.
It is clear under ERISA that if Ambassador's pension plan had not yet been terminated by the time defendant began his efforts to recover excess plan funds for Ambassador, then the validity of defendant's efforts must be upheld and defendant's recovery of excess plan funds should not be impeded. In order to permit the distribution of any residual assets of a plan to the employer upon plan termination, ERISA Section 4044(d)(1)(C), 29 U.S.C. Section 1344(d)(1)(C), requires that the plan document provide for such distribution. The courts have uniformly held that an employer is entitled to recover residual plan assets upon plan termination if, on the date of termination, plan language properly so provides. See, e.g., Bryant v. International Fruit Products Co., 604 F. Supp. 890 (S.D. Ohio 1985), rev'd on other grounds, 793 F.2d 118 (6th Cir.1986). See also the Washington-Baltimore Newspaper Guild case, cited supra, as well as the Moyer and Pollock cases, cited supra. In addition, it has been held that plan termination can have no effect on the substantive rights embodied by the pension plan. See Audio Fidelity Corp. v. Pension Benefit Guaranty Corporation, 624 F.2d 513, 517 (4th Cir.1980).
On December 9, 1984, as pointed out previously, defendant amended the Ambassador pension plan, providing in part that: "Any residual assets of a Plan may be distributed to the Employer if all liabilities of the Plan to the Participants and their Beneficiaries have been satisfied and such distribution does not contravene any provision of law."
This language is consistent with other plan provisions that have been construed by the courts to permit the reversion of surplus assets to employers. Such cases typically have involved unsuccessful claims that an employer violated the fiduciary provisions of ERISA by amending a pension plan immediately prior to termination to include a provision permitting a reversion. In Bryant v. International Fruit Products Co., cited supra and reversed on other grounds, the court approved an employer's amendment to its pension plan despite the fact that the amendment, creating a reversion of excess plan assets to the employer, was adopted the same day the plan was terminated. The amended provision stated that "after fulfillment of all obligations . . . any portion of the Trust Fund remaining as a result of actuarial error shall be returned to the Employer." Despite the plaintiff's objections as to the timing of the amendment, the court held that the employer was entitled to the surplus. Similarly, in In Re C.D. Moyer Company Trust Fund, cited supra, the employer amended its pension plan to provide that "any assets which remain in the Plan because of erroneous actuarial computations after the Plan has satisfied all of its liabilities shall be returned to the Employer." The court there stated that "the challenged amendment includes the language necessary to reserve the employer's right to the remaining trust assets as required under Section 4044(d)(1)(C) of ERISA and as permitted under the Internal Revenue Code, 26 U.S.C. Section 401(a)(2)." 441 F. Supp. at 1132. See the Pollock case, cited supra.
In light of Section 4044(d)(1)(c) and its interpretation in the cases cited above, it is clear to me that so long as the pension plan had not yet been terminated defendant acquired the power to retain excess plan funds for Ambassador as soon as the December 9th amendment became effective. Only if the pension plan had indeed been terminated before that date would the Court now have reason to enjoin defendant's further actions to recover those excess funds.
Plaintiff contends that the Ambassador pension plan was terminated on April 4, 1984, when defendant amended the plan for the first time. According to plaintiff, the April 4 amendment itself terminated the plan because it froze the amount of accrued benefits of all plan participants as of December 31, 1983. Plaintiff cites 26 U.S.C. Section 411(d)(3) (Supp. III 1985), a section of ERISA amending the Internal Revenue Code, and Treasury Regulation Section 1.411(d)(2), 26 CFR Section 1.411(d)-2 (1986), as the legal provisions which determine when precisely the Ambassador plan was terminated.
Section 411(d)(3) states that upon the "termination or partial termination" of a plan, the rights of all affected participants must be nonforfeitable, or the plan is ineligible for favorable tax treatment under 26 U.S.C. Section 401. Treasury Regulation Section 1.411(d)(2) states in part: "If a defined benefit plan ceases or decreases future benefit accruals under the plan, a partial termination shall be deemed to occur if, as a result of such cessation or decrease, a potential reversion to the employer, or employers, maintaining the plan (determined as of the date such cessation or decrease is adopted) is created or increased." Plaintiff cites United Steelworkers of America v. Harris & Sons Steel Co., 706 F.2d 1289 (3d Cir.1983), in support of his contention that the aforementioned tax rules set the plan's termination date, and set it as April 4, 1984, the day "future benefit accruals" were frozen.
I reject plaintiff's contention that the tax rules previously cited determine the date on which the Ambassador plan ended, and I do so by relying on Harris.
In Harris, defendant argued that 26 U.S.C. Section 411 and its accompanying regulations determined the date on which Harris' pension plan terminated. Id. at 1290-91. The Third Circuit rejected that position, holding instead that the tax rules only served the "limited purpose" of identifying pension plans eligible for favorable tax treatment under 26 U.S.C. Section 401 (1982). Id. at 1298-99. The Court expressly held that tax precepts governing the termination or partial termination of a plan "are intelligible in the context of the limited purposes they are meant to serve," but not in other contexts. Id. 1299. The proper method for determining the termination date of a pension plan is to look to the plan document itself.
The Ambassador plan document does not define the termination date of the Ambassador plan other than to state at Section 11.04 that "The terms 'termination' and 'partial termination', as used in this plan, shall have the meaning imparted thereto under ERISA."
Following Section 11.04 of the plan, as well as the teachings of Harris that the tax provisions related to pension plans serve only tax code purposes, I look next to Title IV of ERISA, which establishes plan termination procedures and rules for the distribution of assets after plan termination.
Section 4041 of ERISA's Title IV, 29 U.S.C. Section 1341, defines the procedure by which an employer may terminate its own plan. Section 4041 provides for termination by a plan administrator by filing a notice with the Pension Benefit Guaranty Corporation that the plan is to be terminated on a proposed date, and further provides that the plan administrator may proceed with termination upon receiving a notice of sufficiency from the Pension Benefit Guaranty Corporation. The only termination of a plan by any other method which is permitted under Section 4041 is the adoption of an amendment which changes the plan to one which is not insured by the Pension Benefit Guaranty Corporation under ERISA Section 4021, 29 U.S.C. Section 1321 (1982). See 29 U.S.C. Section 1341(f).
ERISA Section 4041 serves as a sufficient definition of a plan termination to apply in this case. The Ambassador plan will terminate only upon the execution of the Section 4041 procedure, under which defendant notifies the PBGC of an intent to terminate and the PBCG acts upon the notification. Therefore, the Ambassador plan had clearly not been terminated before the December 9th amendment took effect since defendant had not even filed with the PBGC until after he amended the plan for the second time. Defendant's second amendment was made before the Ambassador plan was terminated; it, therefore, controls the particulars of termination, and defendant may proceed with his termination of the plan in accordance with ERISA and the Ambassador plan document, as amended.
I hereby conclude that defendant Bernstein, as agent of Ambassador's court-appointed receiver, has been granted power by the Vermont Superior Court sufficiently broad to enable him to amend and terminate the Ambassador pension plan without the approval of Ambassador's board of directors. Furthermore, while defendant Bernstein, as fiduciary of the Ambassador pension plan, must be held to all stringent fiduciary standards imposed by ERISA in order to guarantee the rights of plan participants and the sound administration of the plan, I conclude that ERISA did not impose fiduciary standards on defendant's decisions to amend and terminate the Ambassador pension plan. Finally, I conclude that the Ambassador pension plan had not been terminated before defendant made his second amendment to the plan, and that defendant's second amendment to the plan and his subsequent efforts to terminate the plan under 29 U.S.C. Section 1341 cannot be challenged as having been made after the plan terminated.
For all the foregoing reasons, plaintiff Chait's motion for summary judgment is denied in its entirety. Defendant Bernstein's motion, which I decide as a motion for summary judgment, is granted in its entirety.