utilizing overtime in lieu of recalling workers. Although not necessarily relevant to this action, the court notes and finds that other recommendations of BCG were followed in that Continental acquired a number of new businesses unrelated to metal cans.
The court accepts without question the opinion of Dean Blaydon of the Amos Tuck Business School that industry conditions required that strategic changes be made; that diversification and cash generation were appropriate goals; that realignment and reduction of the work force were necessary; and that better utilization of the work force and assets was necessary and proper. In pursuing the foregoing, calculation of all costs including pension liabilities was consistent with good and accepted business practice. The issue, of course, is what use was made of that information not whether it was appropriate to gather it.
Thus, the court finds that Continental was entirely justified in seeking ways to reduce its costs and improve its productivity and generate cash. The question remains, however, for the court to determine whether or not in pursuing those goals Continental illegally sought to avoid liability for pensions, and whether such purpose was a determinative factor (a motivating consideration) in its decisions and the actions taken pursuant thereto in violation of § 510 of ERISA.
One of the ways in which Continental responded to the foregoing conditions was to create its Management Services Program (MSP). This program allowed Continental to use an extended lease agreement with a customer to obtain financing. In essence, it permitted Continental to recapture the capital cost and interest for the equipment necessary to establish a new two-piece production line. Continental utilized MSP beginning in the 1970's primarily for two-piece aluminum can contracts. By leasing the equipment Continental was able to recoup its capital investment and interest and assure purchase of its services over a fixed term.
In further response to the economic climate in which it found itself, Continental also engaged in strategic planning intended to make projections over a five-year period. The details of said strategic plans will be discussed more fully hereafter.
Continental generated numerous reports to track its costs and profits, and initiated a number of cost reduction measures. Included in these were programs to reduce the weight of the metal used in can bodies and ends, the construction of service centers and the use of larger sheet sizes. Lithography costs were also reduced. Job combinations were implemented, and certain jobs were eliminated as a result. In addition, throughout the relevant period Continental was concerned with pension liability arising out of an agreement with the United Steel Workers. Two major provisions, known as "Magic Number" pensions, provided the basis for this concern.
An employee who qualified for a 70/75 pension could elect to retire before age 62 and receive a lump sum retirement allowance covering the first three months of retirement, and after those three months a 70/75 pension. A 70/75 pension was equal to the normal pension. In addition, the employee received a monthly supplement of $ 300 until eligible for social security, normally until age 62. In order to qualify for a 70/75 pension an employee had to meet the following requirements:
a. The employee's regular continuous service was broken by his or her absence for at least two years as a result of a permanent plant shutdown, involuntary layoff or physical disability; and
b. The employee completed at least 15 years of regular continuous service and was 50 years of age or older with combined years of age and regular continuous service equal to 70 or more; or
c. The employee completed at least 15 years of regular continuous service with combined years of age and regular continuous service equal to 75 or more.
An employee not entitled to retire on a 70/75 pension whose last day worked was on or after March 1, 1977 who qualified for a Rule of 65 pension could retire before age 50 and receive a lump sum retirement allowance covering the first three months of retirement, and after those three months a Rule of 65 pension. A Rule of 65 pension benefit was equal to the normal pension. In addition, the employee received a monthly supplement of $ 300 until eligible for social security, normally until age 62. The supplement payable was reduced by $ 1 for each $ 2 of income earned by the employee in excess of $ 4,500 in any year after retirement and before attainment of eligibility for social security. In order to qualify for a Rule of 65 pension, an employee had to meet the following requirements:
a. The employee's regular continuous service was broken by absence for at least two years as a result of a plant shutdown, involuntary layoff or physical disability, or Continental decided prior to that time that it was unlikely that the employee would return to work;
b. The employee completed 20 years of regular continuous service as of the last day worked;
c. The employee had not attained age 50 and his/her combined years of age and regular continuous service equaled 65 or more but less than 75; and
d. The Company had not provided the employee with suitable long-term employment.
had been a long term USW employee and was very active in the negotiations on behalf of the Union. He testified in deposition testimony that the purpose of the Magic Number pensions was either to prevent the can companies from shutting down or to provide benefits in the event of such shutdowns. It was recognized that the benefits would make plant closures expensive and, therefore, deter them. Ralph Biggs testified to the same effect as to the purpose of the Magic Number pensions.
In 1971, Continental did not attain its budgeted sales and income and, as a result, reevaluated its position. An extensive realignment program was considered and a reserve was established in 1972, called the Extraordinary Charge Authorization (ECA), in the sum of $ 231,000,000. The expectation at the time was that the realignment would result in business growth rather than decline. Primarily, the ECA was utilized to write off liabilities which included labor costs incurred through work force reductions, charges for removing excess and obsolete equipment, and for transportation expenses for machinery moved from one factory to another in order to consolidate production. The need for this program arose from most of the conditions outlined above.
ECA was succeeded by the Plant Utilization Program (PUP), and once again a reserve was established in the approximate sum of $ 100,000,000, but the source of this reserve was the income of the can company. PUP reserves were created so as not to charge local managers with certain costs over which they had no control. Whereas ECA was intended to position Continental for a growing market, PUP anticipated a declining market. PUP contemplated closures or reductions in plants. Continental claims that PUP's purpose was to size the company to available business so that Continental could fully utilize its facilities and reduce its capital investment.
In the mid-1970's, Stephen Rexford, Continental's Manager of Employee Relations and Strategy Planning, devised a computer system known as the Bell System. Bell I was followed by Bell II. The Bell systems employed scattergraphs, which were computer printouts depicting a plant's work force at a particular point in time. The scattergraphs assigned codes to each employee. Continental admits that it often referred to the goals of the Bell Systems as "the Liability Avoidance Program", which had two aspects:
(a) sheltering or keeping employed 70/75 qualified employees so that their employment was assured throughout their normal careers; and (b) preventing further employees from qualifying for 70/75 pensions.
(Defendant's Proposed Findings of Fact #368, page 118.)
In essence, Continental contends that its main objective was in maintaining antiquated, marginally profitable plants to keep senior workers employed, concluding that it cost less money to operate an inefficient plant with a dwindling customer base than it did to absorb the expense of shutting it.
Liability Avoidance Program
As set forth above, the original 70/75 Magic Number pension came into existence in 1971, and the Rule of 65 pension came into existence in the 1977 contract with the Steel Workers Union. Soon after these pensions became part of the collective bargaining agreement, Continental became concerned with them, particularly due to the fact that they were in large part unfunded. The more apparent it became that the business was in a declining mode, the more likely it became that Continental would have to concern itself with this potential liability. Continental realized that as additional employees gained the requisite age and service requirements, its liability would increase, and that one of the ways to avoid this occurrence would be to prevent those employees from meeting the necessary requirements.
The documents which come from Continental's own files are replete with evidence not only of the creation and existence of Liability Avoidance Program but of its implementation throughout the company. The court in rendering its opinion in this matter will make no effort to review the testimony of each and every witness or set forth each and every document which clearly supports the existence and operation of this program designed to deprive Continental employees of attaining the requirements necessary to entitle them to Magic Number pensions. Where the testimony of defendants' witnesses
has purported to contradict the clear documentary evidence, the court specifically finds that the documents created at the time accurately reflect what transpired and clearly are more credible than the testimony of the witnesses many years after the events.
No contemporaneous document has been produced by defendants which directly challenges either the existence, propriety, or implementation of the Liability Avoidance Program.
Liability avoidance was calculated by reference to the Bell System referred to above, which provided Continental with information as to who should be laid off and who should be kept on layoff in order to avoid the vesting of such liabilities. From the outset, this plan was devised and operated in secrecy. Indeed, the name Bell is a reverse acronym standing for "Lowest Level of Employee Benefits" or "Let's Limit Employee Benefits".
The fundamental principles of liability avoidance are set forth in the Bell User Manual (PX 754 at 185271) as follows: