Court: PBGC Can Be Sued As Fiduciary in Pan Am Pension

September 4, 2003 ( - The Pension Benefit Guaranty Corporation (PBGC) can be sued for a breach of fiduciary duties surrounding its calculation of pension benefits for former Pan American World Airways employees.

>US District Judge Gerard Lynch of the US District Court for the Southern District of New York made the determination even though he interpreted original Congressional language as spelling out a different type of fiduciary duty for the PBGC than the duties associated with the fiduciary of a traditional defined benefit plan.   However, in the court’s ruling, Lynch still found meaning in the Congressional layout of the PBGC to act as a trustee of plan assets, and thus subject to  ERISA fiduciary responsibility provisions when it calculated benefit payments owed to the former Pan Am employees.  

>With this determination, the court then rejected the Pan Am employee’s contention that the PBGC breached its fiduciary duties when it failed to separate its trustee and fiduciary duties.   However, even with the ruling, the court denied summary judgment on the behalf of both parties, finding several matters of fact still surrounded the case, among them:

  • whether the PBGC breached its duties of loyalty and care to the Pan Am workers when it took eight years to issue Benefit Determination Letters (BDL)
  • whether the PBGC acted carelessly in selecting contractors to assist the agency in the calculations of benefits owed to Pan Am workers.
  • whether Pan Am workers were entitled to any meaningful relief under ERISA.

In fact, turning to the issue of the issuance of BDLs, the court found that Pan Am employees could continue their suit against the PBGC in the matter of whether or not a fiduciary breach occurred in how the agency issued the documents.   Even with this ruling, the court still found that an eight-year delay in issuing BDLs could be found reasonable given the bad shape of Pan Am’s pension records and its 39,000 participants.  

Regardless of the delay, the court raised questions about the PBGC’s ERISA duties and a possible ERISA breach, in failing to reveal in the BDLs how the agency arrived at its pension benefit calculations.   This was true even though, the court found it unlikely, given the time and number of participants involved, that many participants retained copies of their original plan documents.

Additionally, the court found reasonable grounds for a breach of fiduciary duty claim based on the PBGC’s contention that participants of the Pan Am plan should rely on the Freedom of Information Act to obtain information such as employment records and pension information.   This procedure the court found unnecessary and a means of the PBGC to cloak its trustee duties behind its status as an agency by using the Act to shift the burden of obtaining the documents to the participants.

The case is Pineiro v. PBGC, Southern District of New York, Number 96 Civ. 7392 (GEL).