PBGC’s denial of shutdown benefits OK given evidence that shutdown occurred after plan termination

The PBGC’s decision to not pay “shutdown” benefits to participants whose plant closed was not arbitrary and capricious because there was sufficient evidence in the record for the agency to reasonably conclude that a permanent shutdown of plan operations did not occur until after the employer’s defined benefit plan was terminated, the U.S. Court of Appeals for the District of Columbia (CA-DC) has held.

Shutdown benefits

Under the terms of the plan, “shutdown” benefits were early retirement benefits triggered by “permanent shutdown” of a plant.

In May 2003, a mining company ceased operations at a plant. It filed for bankruptcy, and eventually put its assets up for sale. After a review of the plan’s underfunded status, the PBGC initiated proceedings to terminate the plan. The district court granted the PBGC’s motion and set the plan termination date as July 24, 2003.

In 2006, when calculating the monthly payment the participants in the terminated plan would receive from the PBGC, the agency took the position that shutdown benefits were not subject to the agency’s guarantee because the plant had not shut down permanently prior to the plan termination date. (The PBGC guarantees benefits that are nonforfeitable as of the date of plan termination.) The district court granted summary judgment to the PBGC and the participants appealed.

Standard of review

The participants argued the agency’s decision was subject to de novo review. The appellate court disagreed, noting that when the shutdown became permanent was at issue, but the definition of “permanent shutdown” as used in the plan was not.

An agency’s application of an undisputed legal standard to a particular set of facts is reviewed under a deferential standard, such as the arbitrary and capricious standard. Although significant facts supporting the participants’ position existed in the record, sufficient support for the agency’s position could also be found to affirm the agency’s decision under the arbitrary and capricious standard. For example, the employer was still trying to secure new sales contracts in July, two months after the plant ceased operations.

Source: United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, AFL-CIO-CLC, on behalf of the Participants and Beneficiaries of the Thunderbird Mining Co. Pension Plan v. PBGC (CA-DC).

For more information, visit http://www.wolterskluwerlb.com/rbcs.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer’s Benefits Reports.

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