Pension Benefit Guaranty Corporation v. The LTVF Corp.

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Pension Benefit Guaranty Corp.


The LTVF Corp.


The plaintiff is governmental agency that insures the pension benefits of 30 million private sector employees. When a covered pension plan cannot satisfy its obligations under the plan, the plaintiff takes over the plan and covers any liabilities that cannot be covered by the assets. The insurance is funded by fees to the plan participants but despite this the plaintiff, at this time, has a deficit of $1.5 billion. A insured company can terminate a pension plan voluntarily if it can pay all of the liabilities of the plan, or it can demonstrate financial distress (at which point the insurance kicks in.) This voluntary termination can only happen if the plan was not negotiated in a collective bargaining agreement. The plaintiff also has statutory authority to both "involuntarily" terminate a plan and eventually reinstate it (at which point the employer takes on the liabilities of the pension plan.) This involuntary termination can happen even if there was a collective bargaining agreement.

Defendant had three plans insured by the plaintiff. Defendant filed for bankruptcy in July of 1986 but since two of its pension plans were negotiated by a collective bargaining agreement, it could not terminate them voluntarily. Plaintiff, realizing that the pension plans would continue to pile up liability, allowed for their termination. Because this termination the employees of the defendant filed a suit against them in the Bankruptcy court. The employees and defendant settled such that the defendant would pay the employees the difference between how much insurance would pay them and the value of the plan before it was terminated. Therefore, the employees were put in as good a position as they would have been had the plan not been terminated.

Plaintiff objected to this "follow on" plan because shifts liability from the corporation while still allowing the plan to continue as it was. As a result of this abuse, and an amelioration of the financial situation of the defendant, the plaintiff reinstated the pension plan under its section 4047 powers. The defendant refused to reinstate the plan.

Procedural History

Plaintiff tried to initiate an enforcement action in district court. The district court vacated the plaintiff's reinstatement finding that it had abused its authority under section 4047. The court of appeals affirmed because:

  1. the restoration was arbitrary and capricious because plaintiff relied on the ERISA to the exclusion of other laws and because there were no procedural safeguards for the decision. (Section 706 of the APA).
  2. follow-on plans are not grounds for restoration of a pension plan
  3. restoration based on improving financial conditions was not explained


The court rules that this is not formal adjudication, so sections 554, 556, and 557 of the APA do not apply. This case is informal adjudication so section 555 applies instead. The court then goes on to reject each of the court of appeals' findings. Specifically it rejects defendants use of the case Overton Park. It says, "at most Overton Park suggests that Section 706(2)(A) ... imposes a general "procedural" requirement of sorts by mandating that an agency take whatever steps it needs to provide an explanation that will enable the court to evaluate the agency's rationale at the time of decision." It does not mean, as the court of appeals suggests, that it requires some procedures for fairness.