PBGC Cleared in Distress Termination Claim

January 8, 2007 (PLANSPONSOR.com) - A federal judge in California has thrown out a lawsuit by pension plan participants against the nation's private-sector pension insurer charging the agency breached its fiduciary duties in its handling of a 2003 distress termination.

US District Judge James Ware of the US District Court for the Northern District of California ruled that, while the Employee Retirement Income Security Act (ERISA) allows the Pension Benefit Guaranty Corporation (PBGC) to pursue fiduciary breach claims in plans it takes over, the ERISA provision does not require such action.

Ware’s ruling came in a suit filed by participants in the Consolidated Freightways Corp. (CFC) pension plan, which charged that the PBGC should have sued the plan’s actuary for not determining the plan was underfunded before its June 2003 distress termination.

The court also threw out negligence claims againstactuary Towers, Perrin, Forster and Crosby Inc. as being pre-empted by ERISA. The court found that the participants’ claim under Oregon’s professional negligence law conflicted with the remedial scheme of ERISA.

“Plaintiffs’ attempt to recover directly from Towers squarely conflicts with the ERISA requirement that any recovery for a fiduciary breach inures to the benefit of the pension plan rather than the individual participants,” Ware wrote. 

According to the opinion, between December 1996 and 2001, Towers “consistently determined that the CFC Plan was fully funded, and consequently, CFC made no contributions to the CFC Plan during that time period.” However, at the beginning of 2003, CFC told participants that the program did not have enough money to pay its accrued benefits and would be turned over to the PBGC.

The case is Paulsen v. CNF Inc.,   N.D. Cal., No. C 03-03960 JW, 12/22/06.