Audio Fidelity Corporation v. Pension Benefit Guaranty Corporation, 624 F.2d 513, 4th Cir. (1980)
Audio Fidelity Corporation v. Pension Benefit Guaranty Corporation, 624 F.2d 513, 4th Cir. (1980)
Audio Fidelity Corporation v. Pension Benefit Guaranty Corporation, 624 F.2d 513, 4th Cir. (1980)
2d 513
2 Employee Benefits Ca 1856
After receipt of the audit, Audio amended the plan. The amendment was made
seven months after its termination, retroactive to the date of termination. The
amendment was designed to authorize the trustees to pay Audio the remaining
assets by providing:
11.2 Upon such termination, the Participants' rights under the Trust shall be
fully vested and such vested interest shall be converted to cash and paid to or
for the benefit of the Participants.
11.3 No funds or other assets held or received by the Trustees shall be used for
any purpose other than the exclusive benefit of the Participants prior to the
satisfaction of all liabilities to such Participants as provided in Article 11.2.
Upon the satisfaction of all liabilities to such Participants, any remaining assets
of the Trust shall be repaid to the Employer.
10
18.4 No part of the corpus or income hereunder shall ever be used or diverted to
purposes other than for the exclusive benefit of Participants, Retirement
Participants, and Terminated Participants, or their Beneficiaries prior to the
satisfaction of all liabilities to such persons.
11
12
The district court found for Audio on three grounds. First, it considered the
excess payments to the plan to have been a mistake based on "actuarial error."
Further, the district court accepted the amendment as valid. It held that since
the excess funds were paid by mistake, the amendment would have no effect on
benefits properly accrued to the participants. Alternatively, the court ruled that
if the amendment were not valid, it could reform the plan to provide for the
terms of the amendment. Finally, the court found that the distribution of excess
funds would unjustly enrich the participants at the expense of Audio because
the plan fully compensated the employees by paying them the value of their
accrued benefits as set forth in Article IV.
II
13
Audio's pension plan must comply with the statutory requirements of ERISA.
Title 29 U.S.C. 1103(c)(1) provides that "the assets of a plan shall never inure
to the benefit of any employer and shall be held for the exclusive purposes of
providing benefits to participants . . . ." The only relevant exception to this
mandate is 1344(d)(1) on which Audio relies. In plans which are fully
funded, the employer is entitled to "residual assets" if "the plan provides for
such a distribution" without contravening any law. Audio sought to conform the
pension plan to this exception by its amendment after termination arguing that
ERISA has no prohibition against retroactive amendments. Quoting 10.2 of
the plan, Audio asserts that it may amend the plan "at any time to any extent it
may deem advisable" so long as it does not interfere with the participants'
accrued benefits under Article IV.
14
Contrary to Audio's interpretation, 10.2 does not allow any amendment to the
14
Contrary to Audio's interpretation, 10.2 does not allow any amendment to the
plan at the employer's will. Indeed, the power to amend which Audio seeks to
exercise is limited by the prefatory clause, "Except as herein limited . . . ."
Pertinent limitations are set forth in 10.2 subsections (b), "no amendment
shall have the effect of vesting in the Employer any interest in or control over
any Contracts . . . or any other property subject to the terms of this Trust," and
(d), "no amendment shall have the effect of depriving any then Terminated
Participant of the benefits to which he is entitled under this Trust." Audio
therefore had no authority by the terms of the plan to recapture through
retroactive amendment funds that it had dedicated to the trust. As we have
previously noted, 11.2, before its amendment, specifically provided that upon
termination such funds would be distributed equitably among the participants.
15
Furthermore, ERISA afforded Audio no basis for altering the substantive terms
of the plan after its termination. Even though the money was held in trust and
the trust continued after the contributions ended, authority to vary the
participants' interests ended on June 30, 1976. In re Del Chemical Corp., No.
79-C-250 (E.D.Wis.1979). On the date of termination, Audio no longer was
obligated to make contributions, and the participants no longer were entitled to
accrue additional benefits. The rights of both parties became fixed, and
substantive modifications to the plan altering these rights were precluded. Cf.
Rochester Corp. v. Rochester, 450 F.2d 118, 120-22 (4th Cir. 1971). The
scheme established by ERISA relies upon the provisions of each plan at the
time of termination. It would defeat congressional intent and render 1103(c)
(1) and 1344(d)(1) nugatory if retroactive amendments after termination could
alter substantive rights of the pension plan.
16
III
17
18
19
Audio's claim that its employees would be unjustly enriched by receiving their
equitable share of the fund's assets is foreclosed by Rochester Corp. v.
Rochester, 450 F.2d 118, 121 (4th Cir. 1971). There, referring to a pension
plan, Judge Russell wrote:
20 rendering service for the period required under the plan, the employee's rights to
By
benefits under the plan are "earned no less than the salary paid to him (the
employee) each pay period" and are "in the nature of delayed compensation for
former years of faithful service." Whether the plan be contributory or noncontributory, the benefits, thus earned, are not gratuities.
21
The evidence disclosed that Audio's plan was available for inspection by the
participants. Some, in fact, examined it. Examination would reveal that in
return for their services participants were entitled on termination of the plan not
only to the pensions purchased for their benefit but also to their ratable share of
the plan's assets after the payment of expenses. Payment of these sums will not
The judgment of the district court is reversed, and the case is remanded for
entry of a decree consistent with this opinion.
Article II of the plan defines "auxiliary fund" as follows: "A fund established
for the purpose of purchasing additional annuities at retirement to provide the
retirement benefits."