The U.S. 2nd Circuit Court of Appeals reversed a district court’s ruling that upheld the Pension Benefit Guaranty Corporation’s refusal to provide financial assistance to a pension fund solely because the plan had been terminated. A three-judge panel vacated the denial and ordered the district court to instead rule in favor of the pension fund and require the PBGC to reconsider the New York City-based pension’s application.
The ruling is the latest development in a complaint filed by the Bakery Drivers Local 550 and Industry Pension Fund, a multiemployer pension plan serving unionized bakery drivers in New York City. The case stems from the PBGC’s 2022 denial of the pension fund’s application for financial aid under the Special Financial Assistance Program.
The termination was triggered in 2016 when the plan, facing insolvency, signed an agreement with its four remaining employers to transfer some of their members to a newly created pension plan, which resulted in all other employers leaving the plan. The plan continued to make payments to retired former members. According to the pension fund’s 2022 application for special financial assistance, it was 10.4% funded and faced insolvency in the next year. It had more than 1,100 total participants—including those with vested rights, spouses, pensioners and beneficiaries—as of 2019.
Despite the plan declaring itself in “critical and declining status,” the PBGC rejected the 2022 application on the grounds that the pension had been terminated six years before the application. In a letter to the plan, then PBGC Director Gordon Hartogensis said the plan could not be considered in critical and declining status because it “has had no zone status since plan year 2016, when the plan terminated by mass withdrawal.”
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The agency also argued that providing funds for terminated plans would “severely challenge” its ability to process applications from eligible plans within the “tight statutory deadlines.”
In response to the rejection, the plan sued the PBGC under the Administrative Procedure Act, which governs the procedures of administrative law, in U.S. District Court for the Eastern District of New York. The district court granted summary judgment against the plan, agreeing that the pension was ineligible for Special Financial Assistance funds due to its prior termination and holding that a terminated plan could not be restored under the Employee Retirement Income Security Act of 1974.
The April 29 decision saw a three-judge panel on the 2nd Circuit overturn the lower court’s ruling, stating the SFA Program does not exclude plans based solely on having been terminated and that the specific ERISA definition cited by the PBGC does not apply to the SFA Program.
“Despite its connotation, ‘a termination’ of this kind does not mark the end of a plan’s operations,” U.S. Circuit Judge Myrna Pérez wrote on behalf of U.S. Circuit Judges Beth Robinson and Alison Nathan in the court’s ruling. “In the succeeding years, the fund continued to perform audits, conduct valuations, file annual reports, and make payments to more than 1,100 beneficiaries.”
The plaintiffs in the case were represented by Morgan, Lewis & Bockius LLP.
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Tags: Bakery Drivers Local 550 and Industry Pension Fund, multiemployer plans, PBGC, Pension Benefit Guaranty Corporation, Special Financial Assistance
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