ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY.
Adams, Garth,*fn* and Van Dusen, Circuit Judges.
The Pension Benefit Guaranty Corporation (PBGC), a government corporation established by the Employee Retirement Income Security Act of 1974 (ERISA), appeals from a district court determination that the Harris & Sons Steel Company Pension Plan (the Plan) terminated in significant part in July 1972. It is undisputed that the Plan ended completely on August 15, 1976; the case centers on whether the greater portion of the Plan had already ceased to exist approximately four years earlier. The holding that most of the Plan ended in July 1972 was predicated on the stipulated fact that Harris moved to a new facility at that time and discharged most of its former employees. This case turns principally on whether the district court correctly relied on tax principles to ascertain that the 1972 events constituted a partial termination, or whether instead the district court should have treated the question as involving the interpretation of the terms of the Plan. If tax principles are not controlling, then there was no partial termination in July 1972.
The termination date is crucial because the Plan assets appear to be inadequate to pay the vested pension benefits of Plan participants, and, if the Plan terminated after September 1, 1974, then ERISA requires the PBGC to assure that, within certain limits, the participants will receive their anticipated benefits despite the insufficiency of Plan funds. ERISA does not provide PBGC insurance for pension plans terminated in 1972, but does enable the PBGC to guarantee benefits to participants in plans continuing after this date even if those participants had ended their employment at an earlier time. PBGC seeks here to carry out its statutory mandate to insure pension benefits; it argues that the 1972 events are irrelevant and that the entire Plan survived until 1976. Harris expects, based upon ERISA, that it will be required to reimburse the PBGC for at least some portion of the payments that PBGC makes to the Plan participants, and therefore opposes the PBGC's view that the events in 1972 did not partially terminate the Plan in any relevant sense. There is no contention by Harris that the partial termination alleged to have occurred in 1972 divested participants of any any benefits; nonetheless Harris' position would have the effect of depriving many participants of the benefits that are due them under the Plan.
We hold that it would be at variance with the language and purposes of ERISA to determine that there was, in any relevant sense, a partial termination in 1972. Because no part of the Plan terminated until August 15, 1976, the PBGC is statutorily authorized to guarantee benefits of participants whose employment was terminated during or before July 1972.
The basic facts of this controversy are not in dispute. In 1964, Harris and the United Steelworkers of America (the Union) entered into an agreement establishing the Plan on behalf of members of Local 4805.*fn1 The Plan governed the rights to pension benefits of Harris' employees who were members of the Local. All employees covered by the Plan worked at Harris' plant in Harrison, New Jersey. The Plan provided, among other things, that any employee whose service to the company was terminated after ten continuous years would be eligible "to receive a deferred vested retirement pension" by making an application upon reaching retirement age.
Subject to some exceptions, monthly pension benefits were to be calculated by multiplying years of continuous service by a dollar amount. Harris was designated as the Plan administrator (see 29 U.S.C. § 1002(16)(A)(i)) and was obligated to contribute an agreed amount of money to a pension fund (trust) for each hour worked by a Union employee. The term of the initial pension plan agreement was three years, but three subsequent agreements continued the Plan until August 15, 1976.
In 1965, the Internal Revenue Service (IRS) determined that the Plan was "qualified" for certain tax benefits by virtue of the fact that the requirements of I.R.C. § 401(a) were met.*fn2 The determination letter advised Harris that the IRS was "to be notified in the event of . . . termination of the plan." The IRS never redetermined the Plan's qualification; the 1965 letter was never superseded. In 1971, the Connecticut General Life Insurance Company (Connecticut General) issued a group annuity contract to Harris for the purpose of funding the Plan. Thereafter until April 1974 Harris paid its contributions under the Plan to Connecticut General.
Harris opened a plant in Camden, New Jersey in January 1972, and began to transfer operations from Harrison to the new facility. All Union employees at the Harrison plant were offered positions in Camden, but only five of approximately fifty-five employees took advantage of the offer.*fn3 In June, 1972, the Camden employees elected to be represented by Local 4805, the same local that represented the Harrison employees. Harris recognized the Union as the exclusive bargaining agent of the Camden employees, and agreed to the coverage of these employees under the existing collective-bargaining and pension agreements. In July, 1972, the Harrison plant was closed.
Throughout the present litigation, Harris has taken the position that because a significant percentage of its employees was effectively excluded from the Plan in July, 1972, the Plan terminated at that time as to all employees who did not transfer from Harris to Camden. The terms of the Plan, however, did not state that the Plan should be considered to have ended, in whole or in part, upon the occurrence of events such as took place in 1972. Furthermore, in 1972, and until 1976, Harris failed to indicate in any way that it considered the Plan partially terminated. Harris did not notify the Union, the employees, or the IRS of any termination. Nor did it amend the Plan or the Group Annuity Contract. Benefit increases under the Plan, which were scheduled to go into effect shortly after the Harrison plant closed, were in fact implemented. Harris and the Union agreed in August 1973 to extend the Plan for three additional years, with no apparent break in the continuity of the Plan.
Several employees with deferred vested rights who had ceased working for Harris by the time of the Harrison plant closure reached retirement age and applied for benefits between 1972 and 1974. Consonant with the Plan, and tending to belie any claim of a partial termination, Harris purchased a retirement annuity for each of these former employees from the Plan assets held by Connecticut General. The Union became concerned, however, that the purchase of these annuities was rapidly draining the pension fund. Because of a dramatic decrease in the number of its employees, Harris' contributions under the Plan had greatly diminished. The relatively small contributions made on behalf of the Camden employees were being utilized to help fund annuities for the Harrison employees, and the Union feared that no funds would be available by the time the Camden workers reached retirement age.*fn4 In April 1974 the Union therefore requested that Harris withhold payments to Connecticut General and place such contributions in an escrow ...