Appeal from the United States District Court for the District of New Jersey, D.C. Civil No. 83-99 & 84-3038.
Gibbons, Chief Judge, Weis, Circuit Judge, and Pollak,*fn* District Judge.
Two questions are presented in this ERISA appeal. First, whether the Act gives a contributing employer the right to have a multiemployer pension fund transfer assets and liabilities pursuant to previously adopted rules. Second, whether, on partial termination of a pension plan, the trustees may use a method of valuation more conservative than current market rates to determine if non-vested participants' benefits have become non-forfeitable. The district court answered "no" to the first question and "yes" to the second. We agree and will affirm.
Plaintiff Vornado, Inc., formerly operated a chain of retail stores. Beginning in 1972, it entered into a series of collective bargaining agreements that included obligations to contribute, for the benefit of its store employees, to the multiemployer Retail Store Employees Union Local 1262 (Non-Food) Industry Pension Fund.
In November 1981, Vornado began to withdraw from the retail field. After closing its last store in February 1982, the company stopped making contributions to the fund. As a result of the termination of Vornado's retail business, many of its employees were discharged.
The fund had been qualified under ERISA; consequently, when Vornado ceased making payments it became subject to withdrawal liability. See 29 U.S.C. § 1381. The trustees of the fund submitted a claim for $952,810 and later requested an additional $830,500.
Since the inception of the fund, about thirteen employers have contributed on behalf of their employees. Most, however, have made payments for only a few years and in much smaller amounts than Vornado, which accounted for approximately seventy-nine percent of total employer payments to the fund until 1980. That was the last full year that Vornado contributed before it began closing the stores. The eight smallest employers collectively accounted for slightly more than one percent.
Faced with the prospect of substantial withdrawal liability, Vornado cast about for alternative ways to meet its obligations to its former employees. After investigating the actuarial condition of the fund and mindful of the predominance of its former employees as beneficiaries, Vornado concluded that it would be desirable to transfer the assets and liabilities attributable to its employees to a single-employer plan.*fn1 The result would protect the interests of the Vornado beneficiaries but free the company from obligations to the multiemployer fund.
Discovering that the fund had not yet adopted rules governing the transfer of assets, as required by ERISA, 29 U.S.C. § 1414(a), Vornado brought suit in the district court to compel the fund to do so. The district court concluded that the trustees had a duty to comply with this provision of the statute, and the fund responded by adopting rules in April 1984.
One of the adopted rules prohibited the transfer of ten percent or more of the fund's assets. Vornado's proposal would have required a transfer of substantially more than that amount; thus, the rules effectively frustrated Vornado's hopes to create a single-employer plan.
Vornado attacked the rules in the district court as unreasonable and violative of the statutory requirements. The district court rejected that argument, concluding that ERISA requires rules which apply only when a liability transfer occurs, and that the statute mandates no general rules governing transfer of both assets and liabilities. Vornado has appealed from that determination.
A separate consequence of Vornado's decision to close its doors was the partial termination of the fund within the meaning of the Internal Revenue Code. Section 1012(a), 26 U.S.C. § 411(d)(3), requires a qualified plan to provide that the employees' rights to benefits are nonforfeitable "to the extent funded" on termination. The occurrence of a partial termination thus has significance for beneficiaries of the fund because it may result in nonforfeiture of their benefits.
A second suit was filed by Vornado and three of its employees -- one of whom was a former fund trustee, another whose interest was vested because of completion of the ten years service required by the plan, and a third individual who had not been employed for the necessary ten years. Plaintiffs alleged that the trustees had failed to declare a formal partial termination in accordance with the Internal Revenue Code and that this inaction had both jeopardized Vornado's tax exemption and prejudiced the rights of non-vested employees.*fn2 This suit was consolidated with the one raising the asset transfer issue.
The district court found that the occurrence of a partial termination was not in dispute. The question, as the court saw it, was whether the partial termination was of any consequence to the beneficiaries and the employer. The interpretation given the "to the extent funded" clause in the Internal Revenue Code determined whether all employees had become vested, and that inquiry focused on the actuarial data used by the fund. The trustees assumed that future earnings on the fund's assets should be calculated at seven ...