The United States Court of Appeals for the District of Columbia Circuit ruled Friday that the Pension Benefit Guaranty Corporation ("PBGC") properly denied "shutdown benefits" to a former employee of a now-defunct steel producer under the employer's terminated pension plan. See Deppenbrook v. PBGC, No. 13-5254 (D.C. .Circ. 2/20/15). The D.C. Circuit affirmed a ruling by the U.S. District Court for the District of Columbia, which had granted summary judgment to the PBGC on the grounds that an employee did not experience a break in service that would entitle him to "shutdown benefits" under the plan ("shutdown benefits" are explained below). According to the appellate court, the 60-day Worker Adjustment Retraining and Notification Act ("WARN Act") notice period doesn't serve as a “waiting period” that would create a constructive termination of employment, resulting in shutdown benefits for anyone still employed on the notice date. Additionally, the court ruled that the "anti-cutback" provisions of the Employee Retirement Income Security Act ("ERISA") apply only to a situation in which the employer retains control over the plan, not to a situation in which the PBGC has exercised its power to involuntarily terminate a plan.
By way of background, Paul Deppenbrook was a former employee of Republic Technologies International LLC's now-defunct facility in Beaver Falls, Pa. Republic filed for bankruptcy in 2001 and issued WARN Act notices to its employees. The notices stated that Republic planned to close the Beaver Falls facility in July 2002. Republic contemporaneously negotiated an agreement with the United Steelworkers of America that allowed eligible employees to receive shutdown benefits. Shutdown benefits are enhanced early retirement benefits for certain workers who are affected by a facility shutdown or business cessation. In the course of the bankruptcy proceedings, the PBGC terminated Republic's four defined benefit plans. The PBGC decided to involuntarily terminate the plans effective June 14, 2002, which was before the accrual of shutdown benefits as the plant wasn't scheduled to close until July, a decision the PBGC said would avoid adding $96 million in unfunded liabilities to the plans. Because disputes arose between, among others, the PBGC and the Steelworkers Union, as to the appropriate termination date for Republic's plans, the PBGC filed suit in the U.S. District Court for the Northern District of Ohio, seeking a judicial determination of the proper termination date. In 2003, that court set the termination date as Aug. 17, 2002, one day after the actual closure of the plant, thus making the employees eligible for shutdown benefits. The U.S. Court of Appeals for the Sixth Circuit reversed and agreed with the PBGC that June 14, 2002, was the appropriate termination date.
Under a subsequent settlement agreement between the PBGC and Republic, the agency administered and insured the traditional defined benefit parts of the plans at issue but turned over the defined contribution portions of the plans to a third-party administrator and disclaimed any insurance for those portions of the plans. As part of the administration of the defined contribution portions, plan participants were required to take some form of distribution of the entire amount contained within their individual accounts. The PBGC then offset the employees' monthly defined benefit payments by the amount distributed from each account. Deppenbrook and a group of employees challenged the PBGC's calculations of these offsets as well as its denial of shutdown benefits. After the PBGC Appeals Board denied their challenge, the employees filed a lawsuit in the U.S. District Court for the Western District of Pennsylvania. That Court ruled in March 2011 that the matter should be transferred to the District of Columbia, which serves as the venue for any post-termination judicial review of PBGC benefit determinations involving a terminated pension plan.
In a June 17, 2013, decision, the United States District Court for the District of Columbia ruled in favor of the PBGC. The court found that the agency's decision to deny shutdown benefits was valid since the employees each continued to work at the plant until Aug. 16, 2002. According to the court, the WARN Act notice, while it preceded the termination date of the plan, failed to provide a constructive termination date for the employment of the affected workers. The court found that the notice only informed the employees that the shutdown of the plant was a possibility and that their actual employment wasn't terminated until the plant actually closed. The court also ruled that the PBGC was within its statutory mandate to refuse to insure the defined contribution portion of the plans.
Deppenbrook appealed the district court's decision to the D.C. Circuit The appellate court rejected Deppenbrook's argument that his shutdown benefits had vested on the date of the WARN Act notice in May 2002. In support of this contention, Deppenbrook had argued that the WARN Act's required 60-day notice period acted as a “waiting period” and that was actually prohibited from being considered for vesting purposes under the definition of a “nonforfeitable benefit” in ERISA Section 4001(a)(8). Finding that the terms of the statute required that such a “waiting period” be included in the terms of the plan or within the provisions of ERISA, the court found that Deppenbrook wasn't entitled to the shutdown benefits. The court further ruled that, even if a waiting period were considered, Deppenbrook didn't actually have a break in service since he was continuously employed at the plant until August 2002 and thus wouldn't have qualified for the benefits anyway.According to the court, the PBGC also was correct in refusing to insure the defined contribution portion of the plans, finding that such an action is prohibited by statute. Finally, the court ruled that the PBGC didn't violate the anti-cutback provisions of ERISA when it forced Deppenbrook to take a distribution from his defined contribution portion. According to the court, those anti-cutback provisions, present in Section 204(g), apply only to a situation in which the employer retains control over the plan, not in which the PBGC has exercised its power to terminate the plan.