PBGC Cannot Force Termination of Pension Plan

October 25, 2013 (PLANSPONSOR.com) – A district court has decided the Pension Benefit Guaranty Corporation (PBGC) cannot force termination of a pension plan without a court order.

In the case of Pension Benefit Guaranty Corporation v. Saint-Gobain Corporation Benefits Committee, the PBGC asked the U.S. District Court for the Eastern District of Pennsylvania for a decree adjudicating that the Saint-Gobain Containers, Inc. Retirement Income Plan, administered by the Saint-Gobain Corporation Benefits Committee, must be terminated. After receiving notice from PBGC, in April, of its intent to terminate the plan, the committee did not consent to termination, with committee arguing that 29 U.S.C., Section 1342(c) should direct the court’s decision.

According the court’s opinion, the PBGC asserted that its decision to initiate plan termination falls within an “informal adjudication” under the Administrative Procedure Act (APA). As such, the PBGC argued that the court needed to review its determination under the “arbitrary and capricious standard,” and consider only the administrative record in making that decision.

The committee’s counterargument was that the PBGC’s determination was not “agency action” requiring judicial review under the APA. The committee asked that the court adopt the analysis of the 7th U.S. Circuit Court of Appeals from In re UAL Corp., 468 F.3d 444 (7th Cir. 2006), and make its own determination as to whether the plan should be terminated. In making its decision, the committee argued, the court was not limited to review of the administrative record.

The court agreed with the committee and concluded that Section 1342(c) directed the court to decide whether the plan should be terminated in the first place. The court found the PBGC’s decision to initiate termination proceedings was not an “agency action” for which the PBGC seeks “review,” and therefore the “arbitrary and capricious” standard of review under the APA did not apply. The court then granted the committee’s motion for partial summary judgment.

In January, Compagnie de Saint-Gobain agreed to sell Saint-Gobain Containers—a glass container manufacturer in Muncie, Indiana—for $1.7 billion to a unit of Ardagh Group S.A., a Luxembourg-based glass and metal packaging company. The transaction moved the pension plan from Compagnie de Saint-Gobain, which is an investment grade company, to Ardagh, which is not. As a result, the PBGC took responsibility for the plan in April (see “PBGC to Take Plan of Glass Container Maker”).

The full text of the court decision can be found here.