Appeals Court Mandates Aggregate Consideration of Failing Pension Programs

August 21, 2006 ( - An employer seeking to terminate more than one pension plan as part of its case before a US Bankruptcy Court should consider all of its plans together when making its case for termination, the 3rd US Circuit Court of Appeals has ruled.

In a case involving Kaiser Aluminum Corp, the appellate court determined that it is most logical and equitable to group a company’s plans together when it tries to demonstrate to a bankruptcy judge that it will be unable to pay its debts and continue in business outside of Chapter 11 unless the pension programs are halted. The court said it was the first case of its kind at the federal appellate court level.

Circuit Judge Marjorie Rendell, who wrote the opinion, asserted the 3 rd  Circuit’s decision was the best way to go without any additional guidance from federal lawmakers.  

“Faced with a choice of burdening some of the participants in Kaiser’s plans and burdening them all, the PBGC contends that equity weighs in favor of the former,” Rendell wrote. “We are not unsympathetic to this view. There is undoubtedly a tension between treating similarly situated workers alike and doing the least that is necessary for the company to emerge from bankruptcy. However, we are persuaded that, on the whole, an aggregate approach is more in line with the objectives of the Bankruptcy Code.”

The Kaiser case, in which the aluminum manufacturer set out to kill six of its pension plans, was first considered by  Delaware’s Bankruptcy Court in early 2004, according to Rendell’s ruling (See Kaiser to Court: Let Us Drop Retiree Benefits, DB Plans  ). The Delaware bankruptcy judge granted the request, allowing the plan terminations as part of Kaiser’s reorganization.

However the Pension Benefit Guaranty Corporation (PBGC) appealed that decision to the US District Court for the District of Delaware where, in March 2005.  According to the 3rd Circuit opinion, the PBGC was seeking to reduce its liability for Kaiser’s pension plans. The PBGC, the nation’s insurer of private-sector pensions, insisted that Kaiser could maintain the four smaller plans and still meet its obligations under reorganization.

US District Judge Joseph Farnan upheld the bankruptcy court. The ruling In re Kaiser Aluminum Corp is here .