ROYAL OAK ENTERPRISES, LLC v. PENSION BENEFIT GUARANTY CORPORATION, No. 1:2013cv01040 - Document 32 (D.D.C. 2015)

Court Description: MEMORANDUM OPINION to the Order on the Motions for Summary Judgment. Signed by Judge Gladys Kessler on 1/28/15. (CL, )

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ROYAL OAK ENTERPRISES, LLC v. PENSION BENEFIT GUARANTY CORPORATION Doc. 32 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA ROYAL OAK ENTERPRISES, LLC, Plaintiff, v. Civil Action No. 13-1040 (GK) PENSION BENEFIT GUARANTY CORPORATION, Defendant. MEMORANDUM OPINION Royal Oak, LLC ("Royal Oak," "Plaintiff" or "the Company") brings this action to challenge an Order by the Pension Benefit Guaranty Corporation October 31, Pland) it 2008, had ("PBGC," or "the Agency") . 1 On Royal Oak terminated the pension plan previously operated for the benefit ("the of its employees under the Employee Retirement Income Security Act of 1974 ("ERISA"), termination date, 29 U.S.C. Royal § Oak 1001, et changed seq. the After method the it Plan's used to calculate certain payments to Plan participants. As a result of the change, the participants received approximately $2.1 million less than they would have been paid under the terms of the Plan as written on October 31, 2008. 1 The PBGC is an agency Procedure Act. See 5 U.S.C. § as defined by the Administrative 551(1); 29 U.S.C. § 1302. 1 Dockets.Justia.com The §§ PBGC, which 1301-1461, termination. decreased administers performed an Title audit of IV of Royal ERISA, Oak's 29 U.S.C. pension plan The Agency determined that Royal Oak had improperly the value of plan benefits the after Plan's termination and Ordered Royal Oak to make additional payments to Plan participants. On July 9, 2013, Royal Oak filed judicial review of the PBGC' s Order. 16, 2013, the enforcement both [Dkt. of its 2014. Order. submitted [Dkt. Nos. Nos. [Dkt. 21, 22], 19, [Dkt. their No. 11]. No. Motion 30]. for For Summary the On Motions [Dkt Nos. reasons Judgment the set shall for 2014, Summary their Oppositions, 23, 24]. On April 8, PBGC filed a forth be On September January 22, 20], and thereafter, and Replies, 1]. seeking Counterclaim seeking respective With the Court's permission, [Dkt. Complaint No. PBGC filed its Answer and a parties Judgment, its below, denied, Surreply. Royal and the Oak's PBGC' s Motion for Summary Judgment shall be granted. I. BACKGROUND A. Statutory Framework 1. Overview of ERISA Congress enacted ERISA to provide minimum standards that would assure the equitable character and financial soundness of employee 1001(c); Pension 717, (1984). Guar. pension Corp. v. plans. R.A. Gray See & 29 Co., U.S.C. 467 U.S. § 720 Ben. ERISA 2 aims "to increase the beneficiaries under plans receive § will likelihood that single-employer their participants defined full benefit benefits." and pension u.s.c. 29 10 0 lb (c) ( 3) . ERISA's Titles regime. statutory four Title disclosure, serve functions establishes I participation distinct and vesting, within reporting the funding, and II, ("I. R. C.") , codified relates to within the the III provides administrative, and See 29 U.S.C. §§ Finally, termination Revenue §§ for 401-424. coordination ("IRS") , Code issues of among jurisdictional, the PBGC, the and the Department of Labor. 1201-1242. Title of for enforcement Internal Revenue Service Internal qualification ·of pension plans favorable tax treatment. See I.R.C. Title See 1001-1191c. §§ Title and fiduciary obligations provisions pertaining to ongoing pension plans. 29 U.S.C. the IV defined sets forth benefit rules governing including mandatory the plans, procedures for terminating covered plans and distributing their assets, as well as termination insurance to pay pension benefits under covered plans that terminate without sufficient assets to pay those benefits. See 29 U.S.C. The plan termination §§ 1301-1461. procedures of Title IV are the exclusive means of terminating a defined benefit pension plan. 3 See 29 U.S.C. who § determines 1341 (a) (1). whether Under Title IV, to terminate a it is the employer plan, controls the execution of all plan amendments necessary for termination, and, through its chosen termination date. 96, 101-02 also plan See, (2007); establishes administrator, e.g., Beck v. PBGC and charges plan's the Pace Int'l Union, 29 U.S.C. §§ 1341 (a) (2), the sets 551 U.S. 1348 (a) (1). Title IV it with enforcing and administering that Title's provisions. 29 U.S.C. § 1302. 2. When pension Standard Terminations an employer plan by way decides of a choose a termination date. § 4041.23. voluntary A "plan's and to standard F.2d 647, benefit 649 accruals termination involuntary (2d Cir. cease, a defined termination 2 it benefit must first See 29 U.S.C. § 1341 (a) (2); 29 C.F.R. proceedings." Pension Ben. Guar. 707 terminate and date plan participants are determined. significant [pension plan] in both termination Corp. v. Broadway Maint. Corp., 1983). as is It is the date on which all of which all benefits See 29 U.S.C. § owed to 1341 (b) (1) (D) (mandating that plan liabilities be determined as of the plan's termination date) ; Pension Ben. Guar. Corp. v. Republic Techs. § 1341 (b) "standard termination" under 29 U.S.C. identifies a plan with sufficient asse.ts to cover its liabilities, whereas a "distress termination" under 29 u.s.c. § 1341 (c) identifies a plan which lacks sufficient assets to cover its liabilities. A 4 Int'l, LLC, 386 F.3d 659, 662 (6th Cir. 2004) (citing Broadway Maint. Corp., 707 F.2d at 649). The plan administrator must notify all plan participants, beneficiaries, 3 representing alternate payees, plan participants of and the employee plan's organizations termination date and provide them with an explanation of the benefits to which they are entitled. 29 (b) (2) (B); See §§ C.F.R. 29 U.S.C. 4041.23, 1341 (a) (2), §§ 4041.24. Before (b) ( 1) ' distributing the plan's assets, the administrator must also file the Standard Termination Notice-PBGC Form 500 ("Form 500") to notify the PBGC of the termination date and provide detailed information about the § plan's assets and benefit 1341 (b) (2) (A), 29 C. F.R. § See liabilities. 29 U.S.C. 4041.25. Once the PBGC has received the Form 500, the Agency has 60 days to determine whether there is "reason to believe" that the plan has U.S.C. relies, § insufficient 1341 (b) (2) (C). in part, upon assets To the to reach pay benefit its determination, plan administrator's liabilities. the 29 PBGC calculation of the actuarial present value of the plan's benefit liabilities as of the proposed termination date. 29 U.S.C. § 1341 (b) (2) (A). 3 This Opinion uses "participant" and "beneficiary" interchangeably throughout to describe persons who have or should have received payment from the single-employer defined pension benefit plan that is the subject of this litigation. 5 3. Distribution of Benefits If the PBGC determines that there is no reason to believe that plan the liabilities, assets § has the insufficient assets plan administrator must pursuant IV Title to distribute ERISA. of benefit pay to the plan's u.s.c. 29 134l(b) (2)&(3); 29 C.F.R. § 4041.28. Administrators generally may distribute benefits to plan participants in the form of annuities or lump-sum payments "in accordance provisions with the regulations." 29. U.S.C. plan "are benefits effect on the under termination amendments the plan and any 1341(b) (3) (A) (ii). determined plan's Post-termination § of are the A plan's date." 29 applicable participant's provisions C.F.R. permissible only in 4041.8. § under narrow circumstances -- so long as the amendment does not decrease the value of a participant's benefits or is necessary to meet the qualification requirements imposed by I.R.C. § 401. Id. 4. In Calculating Lump-Sum Payments order payments, to calculate the dollar use assumptions calculate the actuarial sense, each plan of lump-sum the plan administrator must find the present value of each participant's accrued benefits. must value value about of equal participant a the is That is, mortality lump-sum value of entitled and the administrator interest payment monthly to that rates will, pension receive. See in to an payments I.R.C. 6 § 401 (a) (25); 29 calculate present related the to the C. F.R. §4041.28. value value of of the The interest accrued lump rate benefits sum (i.e., is used to inversely higher interest rates yield smaller lump-sum payments). The power of compounding interest and the long-term nature of pension obligations mean interest rate can have a that even a slight change in the significant impact on the size of the lump-sum payments. Thus, mortality and interest rate assumptions must be specified in the employer's discretion. to adopt the I.R.C. value terms calculated may not § 401 (a) (25). of lump "shall by not using" the sums be be left mortality floor but not a 4 to the Plans are not bound calculated less specified in I.R.C. § 417 (e) (3). a and any particular set of actuarial assumptions. present plan's plan than according the table Instead, and to the value interest rate In effect, I.R.C. § 417 (e) puts ceiling on the value of lump-sum payments. Congress first enacted § 417 (e) (3) 's minimum present value requirement in 1984 and has amended its applicable interest rate and mortality assumptions three times since then. See Retirement Equity Act of 1984, 1426, § 203(b) (1984); 4 Pub. Tax Reform Act L. No. of 1986, 98-397, Pub. L. 98 Stat. No. 99-514, A parallel provision also appears in Title I u.s.c. § 1055(g). 100 Stat. of ERISA. 29 7 2085, L. 1139 (b) § No. 103-465, Protection § (1986); Retirement Protection Act of 1994, 302(b) Act 108 Stat. 4809, 767 (a) § of 2006, Pub. L. to 1994, PBGC regulations No. (1994); interest 780, 120 Stat set the applicable amended the 109-280, 1986 rates, but in 1994, Congress explicitly prescribe the applicable assumptions. Equity Act of 1984, Pub. L. No. 98-397, 108 Stat. 4809, I.R.C. 417(e) § 767 (a) § called See Retirement Collectively, for Annuity the 1994 203(b) § Pub. L. No. plan using administrators the interest to rate Treasury securities and the mortality assumptions Group to 103-465, (1994). Generally, the 1994 version of lump-sum payments 1994 statute 98 Stat. 142 6, (1984); Retirement Protection Act of 1994, the Pension (2006). From minimum Pub. Reserve actuarial Table ("1994 assumptions are calculate on 30-year contained in GAR Table") . known as the "GATT Structure." 5. Pension Protection Act of 2006 Congress assumptions most in the recently Pension updated § 302 (b) Assumptions," (2006). "PPA The minimum present Protection· Act Pension Protection Act of 2006, 780, the Pub. new Structure," L. No. actuarial or "§ of value 2006 ("PPA"). 109-280, 120 Stat assumptions 417 (e) ("PPA assumptions") generally result in smaller minimum lump-sum payments than those under the previous GATT Structure. Pension Ben. Guar. Corp. v. 8 Kentucky Bancshares, Inc., No. 14-5573, 2015 WL 221621, at *1 (6th Cir. Jan. 15, 2015). 6. Anti-Cutback Provisions and PPA § 1107 Parallel "anti-cutback" provisions in Title I of ERISA and the I. R. C. prohibit accrued benefits. U.S.C. See 1054(g). § amendments I.R.C. that reduce plan participants' if11(d) (6); § Recognizing that some ERISA 204(g), § sections of the 29 PPA might require plan amendments that would otherwise violate the anti-cutback from ERISA provisions, 204 (g) § Congress and I.R.C. § explicitly 411 (d) (6), provided and relief offered plan administrators a grace period to take advantage of that relief. PPA § 1107. Under PPA § 1107, if a plan administrator amends a pension plan in order to comply with the PPA, "(1) [the] pension plan or contract be [he operated in or she accordance with [grace period] fail to [I.R.C.] . and meet and the § § 1107 the shall terms (2) of treated the plan as being during the such pension plan shall not requirements ·section amendment." PPA PPA administers] 204(g) of of section [ERISA] 411(d) (6) by reason of of the such 1107. only certain requirements. applies First, if plan administrators observe any amendment must be made "on or before the last day of the first plan year beginning on or after January 1, 2009." PPA § 1107 (b) (1). Second, the amendment must 9 apply retroactively to the grace period and the plan must have been operated "as if such . the grace period. PPA Notably, PPA § § amendment were in effect" during 1107 (b) (2). 1107 does not provide relief from the plan termination procedures in Title IV of ERISA and its implementing regulations. B. Factual and Procedural Background5 On January 1, 1971, Royal Oak, a Delaware limited liability company, adopted a defined benefit pension plan ("the Plan") for its hourly and salaried employees. On August 27, 2008, Royal Oak sent Plan participants notice of the Company's intent to terminate ("NOIT") the Plan. The NOIT established October 31, 2008 as the Plan's termination date. Section 5. 02 of the Plan gave the participants a choice between receiving the remainder of their benefits in a lump sum or an annuity. receive a The vast majority of Plan participants chose to lump-sum payment which, pursuant to the Plan's terms 5 Pursuant to Local Civil Rule 7(h), "[i]n determining a motion for summary judgment, the Court may assume that facts identified by the moving party in its statement of material facts are admitted, unless such a fact is controverted in the statement of genuine issues filed in opposition to the motion." The parties have filed Cross-Motions for Summary Judgment. The Court thus takes these facts from the parties' Statements of Material Facts Not in Dispute. Furthermore, since this case calls for review of an administrative agency's decision, the Court relies only on facts contained in the Administrative Record ( "AR") . Unless otherwise noted, the Court states only uncontroverted facts. 10 in Section 5.02, Participant's would Accrued "be the Actuarial Benefit." 6 On Equivalent October 31, of the Plan 2008, Section 1.02 provided that lump-sum payments would be calculated twice using two different sets of actuarial assumptions: 1) the Plan's own chosen interest rate and mortality table; and 2) the minimum-lump-sum Section 1. 02 assumptions provided by the GATT Structure. 7 specified that each participant would be paid in accordance with "whichever [set of assumptions] produce [ d] the larger benefit[.]" On December 5, termination date, calculation 2008, Royal method (the just over a month after the Oak amended "PPA Section Plan's lump-sum Under Amendment") . 1.02's the PPA Amendment, lump sums would no longer be calculated using the two methods computed described using provided in the above. only the Instead, lump-sum interest rates PPA and codified at payments and I.R.C. would mortality § 417(e). be tables The PPA 6 Royal Oak's submission to the PBGC stated that 328 of the Plan's 361 participants had elected to receive lump-sum payments. Def.' s Stmt. <JI 10. However, the PBGC' s auditor found that the Plan had only 351 participants, 320 of whom received lump-sum payments. Def. 's Stmt. <JI 10 n .15. Nevertheless, these figures are not in dispute and do not affect the outcome of this case. 7 More precisely, the two sets of assumptions were: 1) a 7% interest rate and the 1984 UP Mortality Table; and 2) the interest rate on 30-year Treasury securities for the month of November preceding the Plan year in which the calculation is made and the 1994 Group Annuity Reserving Mortality Table (together, the "GATT Structure") , as prescribed by the Retirement Protection Act of 1994. 11 Amendment adopted by Royal Oak purports to apply retroactively with an effective date of January 1, 2008. On December 31, 2008, Royal Oak used Form 500 to notify the PBGC of the October 31, same date, beneficiary Royal with 2008 termination date. Oak a provided notice of each On or about the Plan benefits participant owed, as and required by ERISA'S Title IV. On June 23, 2009, the IRS issued a the Plan's IRS's Determination Letter qualification "favorable termination in response to a request from Royal Oak, for preferential determination" date of ("IRS Letter") 10/31/08" tax and "to treatment. "to applied the regarding The proposed the amendments dated 12/05/08 [the PPA Amendment] & 01/31/08." Significantly, the IRS made clear deciding it termination that of it [the was Plan] only not [did] that "[Royal adversely Oak's] affect qualification for federal tax purposes." By its own terms, IRS Letter "[was] not a determination regarding the its the effect of other federal or local statutes." According to the post-termination PPA Amendment's formula, Royal Oak distributed million. If Royal 1. 02 written as "approximately lump-sum payments totaling roughly Oak had employed the methodology on $2.1 the termination million in date, it additional would $13 in Section have benefits to paid 314 participants." Royal Oak Mot. at 2. 12 On November 13, 2009, Royal Oak filed Form 501, which certified to the PBGC that all benefits payable under the Plan had been correctly provisions and calculated regulations and in accordance that with benefit all ERISA's liabilities under the Plan had been satisfied. In a letter dated April 27, 2010, PBCG notified Royal Oak that it would perform an audit of the Plan's termination. See 29 U.S. C. § 1303 (a) significant (requiring the number of PBGC to audit terminations a statistically determine to if all participants received the benefits to which they were entitled). On March determination. 2012, 16' initial its issued that the Amendment violated one of Title IV' s implementing regulations, § 4041.8, Agency PBGC found 29 C.F.R. The the post-termination PPA because it decreased the value of benefits provided to Plan participants and beneficiaries receiving lumpsum payments. Section 4041.8 of the implementing regulations does permit post-termination benefit-decreasing amendments that are necessary to meet specific tax code requirements. 401; 29 C.F.R. § 4041.8. However, I. R. C. § the PBGC also found that the decrease imposed by the PPA Amendment was not necessary for tax code compliance. recalculate the Accordingly, lump-sum the PBGC payments ordered and Royal make Oak to additional distributions to Plan participants and beneficiaries as follows: 13 Recalculate the participants' lump sum value using the (1) plan rate [ 7. 00%] and the UP-8 4 Mortality Table; ( 2) 30year Treasury rate in effect for November 2008 [4.00%] and the 94 GAR Mortality Table; and (3) November 2008 segment rates in effect for the 2009 Plan Year . and the 2009 PPA Mortality Table. Participants are entitled to the highest amount. Add interest to the additional benefits due using a reasonable interest rate. . [Pay] the additional benefits to affected participants. AR-0724. 8 On April 30, 2012, Royal Oak requested reconsideration of the PBGC's initial determination. by operation of § 1107 of the First, Royal Oak argued that, Pension Protection Act of 2006, the PPA Amendment was not a post-termination amendment at all. Instead, the Amendment was retroactively effective as of January 1, 2008, and therefore, October 31, 2008. in effect on the § 4041.8 because it did not July 7, 2013, the PBGC it complied with 29 decrease necessary to meet requirements under I.R.C. On date, Second, Royal Oak argued that even if the PPA Amendment was a post-termination amendment, C.F.R. termination issued a § benefits and was 401(a). letter upholding its initial determination. The PBGC reiterated its Order that Royal Oak lump-sum recalculate the payments and make additional distributions. 8 The first two methods of calculation are from Plan Section 1.02 as it appeared on October 31, 2008. AR-0133-0134. The third method employs the assumptions adopted by the PPA Amendment, which are also codified at I.R.C. § 417(e). Regardless of whether the PPA Amendment was in effect on October 31, 2008, the § 417 (e) assumptions provide a statutory floor on the value of lump-sum payments. I.R.C. §§ 401(a), 417(e). 14 On July 9, 2013, Royal Oak filed its Complaint, which asks the Court to declare the PBGC's Findings and Decision "contrary to law, arbitrary, [Dkt. No. as well capricious, 1]. On September 16, as a and an 2013, abuse of discretion." the PBGC filed its Answer Counterclaim to enforce its Final Determination. [Dkt. No. 11]. II. STANDARD OF REVIEW Summary judgment is the "appropriate for mechanism" disposing of actions for judicial review of final determinations by the PBGC. 148, 156 2 013) (D.D.C. (quoting Energy, v. Davis v. Pension Ben. Guar. Corp., 2012) United Allied Indus. Pension Ben. Guar. aff'd in part, Steel, & Serv. Corp., Paper 864 F. Supp. 2d 734 F.3d 1161 Forestry, & Workers 839 F. Rubber, Int' 1 Union, Supp. (D.C. 2d 232, Cir. Mfg. , AFL-CIO-CLC 246 (D.D.C. 2012)). Summary judgment may be granted only if the moving party has shown that there is no genuine dispute of material fact and that the moving party is entitled to law. See Fed. R. 56(a); U.S. 317, (1986); Waterhouse v. 325 Civ. P. judgment Celotex Corp. Dist. as a matter of v. Catrettr 477 of Columbiar 298 F.3d 989, 991 (D.C. Cir. 2002). When, as in the case at bar, the Court must decide a matter on the basis of an administrative record, the record compiled by the agency provides the complete set of facts before the Court. Deppenbrook v. Pension Ben. Guar. Corp., 950 F. Supp. 2d 68, 74 15 (D.D.C. 2013). agency's The action Court's was task is "arbitrary, to determine whether the abuse of an capricious, discretion, or otherwise not in accordance with law." 5 U.S.C. § 7 0 6 ( 2) (A) . An agency's decision will stand unless it "has relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise." Wildlife, Nat'l 551 U.S. Ass'n of U.S., Ass'n 644, of 658 Home (2007) Builders v. Defenders of (quoting Motor Vehicle Mfrs. Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)). With respect to questions of statutory interpretation, courts must first consider "whether Congress has directly spoken to the precise question at Natural Res. Def. Council, issue." Chevron Inc., 467 U.S. U.S.A., Inc. v. 837, 842-43 (1984). If "the intent of Congress is clear" from the statute's language, "that is the end of the matter; agency, for the court, as well as the must give effect to the unambiguously expressed intent of Congress." Id. However, where a statute is ambiguous, courts apply Chevron's second step by deferring to an "agency's construction of [a] statute which it administers." Id.; Nat'l Cable & 16 Telecommunications Ass 1 n v. 967, 98 9 ( 2 005) Brand X Internet Servs., 545 U.S. (" [W] here a statute 1 s plain terms admit of two or more reasonable ordinary usages, the [agency's] choice of one of them is entitled to deference."). because Congress agency, but produce a has also delegated because reasoned law-making that decision." Deference is due "not only agency Vill. authority has of the to the expertise Barrington, to Ill. v. Surface Transp. Bd., 636 F.3d 650, 660 (D.C. Cir. 2011). Finally, an agency's interpretation of its own regulations is controlling unless plainly erroneous or inconsistent with the regulation. See Auer v. Robbins, 519 U.S. 452, 461 (1997); Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512 (1994). III. ANALYSIS 29 U.S.C. terminating 1341 § single-employer administrators to provisions the U.S.C. § primarily § 4041.8, plan provides of 1341 (a) (1) on the pension distribute plan & the assets and any "[e]xclusive plans "in and means" requires accordance applicable for plan with regulations." the 29 (b) (3) (A). Resolution of this matter rests PBGC's regulation codified at 29 C.F.R. which provides that a "participant's or beneficiary's benefits are determined under the plan's effect on the plan's termination date." 29 C.F.R. Royal Oak argues month after the Plan's that, provisions § in 4041.8(a). despite being adopted more than a termination, the PPA Amendment accords 17 with § intended 4041.8. the First, Royal Amendment to Oak contends operate that because retroactively, the it PPA Amendment was "in effect" on October 31, 2008. Second, Royal Oak insists that even if the PPA Amendment was not in effect on the termination date, it is permissible under 4041. 8' s exceptions § for amendments that do not decrease benefits or are necessary to meet certain tax code requirements. Royal Oak's arguments are without merit. A. The PPA Amendment Ter.mination Date. 1. Was Not "in Effect" The PBGC's interpretation entitled to deference. Under 29 C.F.R. § of on "in the Plan's effect" is 4041.8(a), "benefits are determined under the plan's provisions in effect on the plan's termination date." It is undisputed that Royal Oak did not amend the Plan until December 5, 2008, over a month after the Plan's termination on October 31, 2008. Royal Oak, intended for the argues, PPA Amendment to however, operate that because it retroactively, the Amendment was "in effect" on October 31, 2008. In its Final Amendment was not Determination, the PBGC stated that "in effect" on the "[a] s of the date of Plan termination, 4041.8, the PBGC interprets "in PPA termination date, because [Royal Oak] adopted the PPA Amendment[.]" AR-0875. Thus, § the effect" had not yet for the purposes of to require formal adoption. 18 Royal Oak complains about the PBGC's failure to explicitly define "in effect" in the text of straightforward interpretation § is 4041.8. However, the PBGC's a natural and reasonable reading of the regulation which reads as follows: A participant's or beneficiary's plan benefits are determined under the plan's provisions in effect on the plan's termination date. Notwithstanding the preceding sentence, an amendment that is adopted after the plan's termination date is taken into account [if certain exceptions apply.]" 29 C.F.R. § 4041.8(a). Read together, the clear implication of these two sentences is that "an amendment that is adopted after the plan's termination date" is not "in effect on the plan's termination date [unless certain exceptions apply.]" Id. Royal Oak cites Davis v. Pension Ben. Guar. Corp., 734 F.3d 1161, (2014) 1166, 1168 to support (D.C. its Cir. 2013) argument cert. that an denied, 134 S.Ct. amendment effect" before it has been adopted. However, may be 2878 "in the regulatory and statutory provisions discussed in Davis dealt with the priority of payments when a plan did satisfy its pension liabilities, not have assets to and therefore are not relevant in this case. Davis, 734 F.3d at 1168 "in effect" as used in 29 U.S.C. sufficient § (construing the meaning of 1344(a) (3) (A) and 29 C.F.R. § 4044.13) . 9 9 Moreover, the definition of "in effect" at issue in Davis actually accords with the PBGC's reading in this case. In Davis, our Court of Appeals ultimately upheld the PBGC's view that an 19 Because the PBGC'$ interpretation of "in effect" is neither plainly erroneous nor contrary to the Regulation, it is entitled to deference. Auer, 519 U.S. at 461. 2. Section 1107 of the 2006 does not 29 C.F.R. § 4041.8. Separate provisions, and apart from ERISA's Title I Pension Protection Act of provide relief from Title IV's plan termination includes "anti-cutback" provisions, which prohibit plan amendments that reduce accrued benefits even if the reductions 204(g), 29 provision Act of occur U.S.C. in 1054(g); § I.R.C.). 2006 ("PPA") before plan I.R.C. Recognizing would require that termination. ERISA 411(d) (6) § (parallel Pension Protection the plan See amendments that might reduce accrued benefits, Congress provided relief from the anticutback provisions. See PPA fail to meet [I.R.C.] and the § 1107 ("such pension plan shall not requirements section 204(g) of of section [ERISA] 411(d) (6) by reason of the of such observed the amendment.") . Royal Oak requirements of contends § 1107, that because it that section operated to make the PPA Amendment retroactively effective as of January 1, 2008. Thus, according to Royal Oak, the PPA Amendment was "in effect" on the amendment is not "in effect" until the "later of the date on which [it] is adopted or the date it becomes effective." Davis, 734 F.3d at 1168. 20 termination date for purposes of Title IV and its implementing regulation 29 C.F.R. § 4041.8. Contrary to Royal Oak's position, not is give a amendments "condition" retroactive that however, effect. amendments PPA § 1107 does Instead, must fulfill qualify for the relief section 1107 provides. ("CONDITIONS- this unless section such shall plan not apply in PPA § to contract or retroactivity order to 1107 (b) (2) any amendment applies amendment retroactively for such period."). Moreover, retroactive amendments are unquestionably bound by § 4041.8's prohibition on post-termination benefit-decreasing amendments. limit that the do After set not compliance. a of plan is terminated,§ permissible decrease retroactive benefits Nothing in PPA § 4041.8 or are operates amendments necessary 1107 affects this to for tax to those code crucial portion of Title IV's implementing regulations. It is perfectly clear I.R.C., [it] benefit reducing, Guar. Corp. (E.D. Ky. Jan. [the] says v. 2014) that while "PPA § 1107 nothing about Title IV' s post-termination Kentucky Bancshares, aff'd, No. prohibition against amendments." Inc., 14-5573, to termination requirements. also The comply two 2015 WL Ben. 221621 [does] (6th Cir. not obviate ERISA' s standard requirements are not with sets of Pension 7 F. Supp. 3d 689, 700 15, 2015). "[C]ompliance with PPA § 1107 obligation amended the 21 contradictory[.]" (emphasis in Kentucky original). Bancshares, For these 2015 reasons, WL 221621, this at Court *4 agrees with the Chief Judge of the United States District Court.for the Eastern District of Kentucky that the "PBGC was not arbitrary or capricious in determining that PPA post-termination reduction in 1107 did not authorize the § benefits." Kentucky Bancshares, 7 F. Supp. 3d at 700. Royal Oak claims the PBGC' s reading of PPA conflicts with the IRS's Determination Letter. § 1107 somehow However, the IRS determined only that Royal Oak's amendments to and termination of the Plan " [did] not adversely affect its qualification for federal tax purposes." AR-0745. The IRS Letter distinctly states that it "is not a determination regarding the effect of other federal or suggest in any way that § 4041.8 local or any statues." § other Id. In sum, the Letter does not 1107 provides relief from 29 C. F. R. part of Title IV's statutory and several practical concerns that regulatory provisions. Finally, Royal Oak raises it believes cut against the PBGC's interpretation of PPA The Company argues that unless § insufficient funds to 1107. 1107 is read to permit benefit- decreasing post-termination amendments, with § meet some plans may be their liabilities. left However, minimum plan funding rules already rely on the actual terms of the plan in effect and generally require plans to have 22 sufficient assets to pay benefit liabilities. See 2 6 C. F. R. §§ 1.430(d)-1(f)(4)(iii)(B) and (D). Royal Oak also worries that unless § 4041.8's prohibition on § 1107 is read to negate post-termination benefit cuts, plan administrators could be forced to violate their fiduciary duties by treating similarly situated participants differently. The Company offers this example: [I] f a Royal Oak employee terminated employment in June 2008 and was eligible for a lump-sum distribution, his benefit would be calculated using the PPA Assumptions because plans were required to be in good faith compliance with the PPA beginning in January 1, 2008. See PPA § 1107 (a) (1), (b) (2). But a participant eligible for the same lump-sum benefit distribution when the Plan terminated on October 31, 2008 would receive a benefit calculated using pre-PPA assumptions. Royal Oak Opp'n at 13. Royal Oak's concern is unfounded. In its hypothetical, the Company could have: 1) simply adopted the PPA amendment prior to the plan termination date (all plan participants would then have been Assumptions) ; paid payments under after the PPA termination to ensure or 2) that made all additional participants received lump sums of the value required by the Plan's terms on the date, termination date. By waiting until after the Royal Oak was bound to comply with 29 C.F.R. termination § 4041.8's prohibition on post-termination benefit decreases. Interestingly, Royal Oak never explains why it delayed its adoption of the PPA Amendment. 23 For all these reasons, the PBGC' s determination that the PPA Amendment was not in effect on the Plan's termination date was not arbitrary, capricious, or otherwise contrary to the law. B. The PPA Amendment Is Not a Permissible PostTermination Amendment under Title IV of ERISA and 29 C.F.R. § 4041.8. Royal Oak argues that the PPA Amendment escapes prohibition because on post-termination the ( 1) participants' amendment benefits and did (2) benefit-decreasing not decrease 4041.8's § amendments the value of even if it did, the decrease was necessary to comply with tax code provisions. Neither argument is convincing. The PPA Amendment participant[s'] or under the plan's termination date." 1. It is undisputed resulted in less distributions in absence. Plan Royal that Oak "decrease[s] the value of the beneficiar[ies'] plan benefits provisions in effect on the 29 C.F.R. § 4041.8(a) (1). adoption of receiving than they contends, would however, the PPA roughly have that Amendment $2.1 million received Plan in its participants experienced no decrease at all in the value of their benefits. The PBGC concluded that because Plan participants received smaller lump-sum payments would have under the under the PPA Amendment than they Plan as written on the termination date, the Amendment "decreased the value of the participant [ s'] plan benefits" within.the meaning of 29 C.F.R. § 4041.8. AR-0875 24 ("There is no doubt that the value of the lump sums calculated by [Royal Oak] is less using the PPA interest rate and mortality table than the value of the lump sums formula provided under the Plan (i.e., 94 GAR Mortality Table)."). Thus, calculated using the 30-year Treasury rate and the PBGC reads the word "value" to mean the dollar amount of payments actually received by Plan participants. § 4041.8(a)(1) with the is Id. neither Regulation, The PBGC's plainly and interpretation erroneous nor consequently, is, of inconsistent entitled to deference. Auer v. Robbins, 519 U.S. 452, 461 (1997). Royal Oak attempts to draw the focus language by contending that when Congress value assumptions codified at I.R.C. "legislative judgment" that lump away from § 4041. 8' s enacted the present § 417(e), sums it expressed its calculated according to § 417(e) are necessarily equivalent to the value of accrued plan benefits. The company argues "[i] n Code section 417 (e) Congress has prescribed how actuarial equivalence must be calculated for lump-sum distributions." Royal Oak Mot. "Thus," benefits, Royal the Oak PPA contends, "rather Amendment's [Assumptions codified at§ 417(e)] updates the Plan's statutorily at 16 than (emphasis added). decreasing substitution of the plan PPA for the GATT Structure merely required methodology for calculating the present value of a participant's benefit under the Plan." Royal Oak Mot. at 16. 25 Royal Oak's characterization of the assumptions codified in § 417(e) is simply wrong. I.R.C. § 417(e) provides only the minimum value of lump-sum payments. Despite Royal Oak's repeated claims to the contrary, a there is no evidence that Congress made "legislative judgment" that the value of benefits calculated using the 417(e) calculated using 417 (e) ( 3) (A) methods to assumptions other methods. calculate I.R.C. 417(e) (3) (A) the mortality Just the to the opposite is larger or smaller present values That is why§ 417(e) than equivalent value true contemplates that plans will choose among different benefits. § is present table and establishes a statutory minimum. ("[T]he present value the of plan value shall not be calculated by using applicable interest the less applicable rate." (emphasis added)) . Royal Oak further argues that "[t]he appropriate inquiry is not whether the PPA Amendment reduced the amount of benefits, but whether it reduced the value of benefits:" Royal Oak Reply at 11 (emphasis in original) . This attempt to draw a distinction between the "amount" of benefits may decrease) 4041.8, may and not interpretation the decrease), has n0 itself. Subsection (a) the "value of" "value" Id., basis (which, according to Royal Oak, of benefits is in (which, unconvincing. the text of the under Royal § Oak's Regulation of § 4041.8 discusses only "benefits" and benefits. The word "amount" appears only in a 26 subsection § unrelated 4041.8 (b) to the (concerning issues plan's in this "residual case. 29 assets" C.F.R. following termination) . Moreover, Royal Oak's interpretation of the words "decrease . the value of plan benefits" is unconvincing on its face. 29 C.F.R. 4041.8. § Despite the fact that Plan participants received approximately $2.1 million less in today's dollars than they would have under the terms of the Plan on its termination date, Royal same "value." situation § 417 (e) Oak contends that Plan participants Confronted employer's (an with a nearly post-termination assumptions in reaction to the of 2006), the Court of Appeals noted that received identical adoption the factual of the Pension Protection Act for the Sixth Circuit recently "the post-termination amendment undeniably resulted in a decrease in the value of benefits to which participants and beneficiaries were otherwise entitled under the provisions in effect on the termination date." Kentucky Bancshares, Inc., 2015 WL 221621, at *2. Finally, Royal Oak argues that because 1107 § of Pension Protection Act of 2006 provided relief from Title I ERISA's decrease discussed anti-cutback the value above, § provisions, of Plan 1107's the PPA benefits. grant of Amendment However, relief as from did the of not already specific provisions of Title I has no effect on Royal Oak's obligation to 27 abide by § 4041.8, which implements Title IV. Moreover, the anti-cutback relief provided under § 1107, see discussion at 20 supra, was necessary precisely because assumptions Contrary implies was to likely Royal that to Oak's Congress lead to view, viewed § a change smaller 1107's new in actuarial lump-sum payments. anti-cutback actuarial relief assumptions as its date of termination, the potentially benefit-decreasing. As the PBGC explained, Plan did not benefits, greater simply promise payment of actuarially equivalent but actuarially equivalent benefits valued using the of the Reply at 7 n.12. after " [on] the Plan's assumptions or GATT assumptions." PBGC By amending its Plan to pay participants less termination date, Royal Oak decreased the value of Plan benefits and violated§ 4041.8. 2. The The "decrease" in the value of plan benefits caused by the PPA Amendment was not necessary "to meet a qualification requirement under section 401 of the [Internal Revenue] Code[.]" 29 C.F.R. § 4041.8(c) (1). parties agree that Royal Oak had an obligation to ensure that Plan participants received lump-sum payments no less than those calculated using the assumptions of the PPA Structure, codified at I.R.C. § 417(e). Royal Oak contends that the PPA Amendment consistent, § 417 (e), was constant the only compliance amendment that with PPA's the would ensure changes to and therefore was the only amendment that Royal Oak 28 could have adopted to ensure tax qualification. Royal Oak's position is not correct. The PBGC concedes that Royal Oak could have complied with § 417(e)'s minimum-lump-sum obligations by enacting the PPA Amendment prior to the termination date. If Royal Oak had simply amended the Plan itself chose), before October 31, 2008 (a date Royal Oak no barrier would have been posed by 29 C.F.R. § 4041.8, which limits only post-termination amendments. However, by waiting until after the Plan's termination date, Royal Oak took on the burden of complying with both I.R.C. § 417(e) Oak and 29 C.F.R. could decrease "necessary" § § the 4041.8. After October 31, value to maintain its assertions of lump-sum payments compliance. tax 2008, Royal only if C.F.R. 29 4041.8 (c) (1). Despite have easily complied with to the the tax contrary, code Royal without Oak could decreasing benefits to its Plan participants. The PBGS' s Final Determination expl.ains that: [Royal Oak] could have amended the Plan to pay the greater of the PPA interest rates and the 30-year Treasury rates [i.e., the rates outlined in the Plan on its termination date]. As a result, the . PPA Amendment eliminating the use of 30-year Treasury rates and the GAR 94 mortality table for valuing lump sums was not necessary for Plan qualification, and the exception under 29 C.F.R. § 10 4041.8(c) (1) does not apply. AR-0875-0876. 10 IRS guidance also suggests that plan administrators may comply with the I.R.C. and ERISA by calculating lump sums under 29 Royal Oak never two" formula, met the states this of I.R.C. § 417(e) without decreasing The Company does argue that "[u] sing any assumptions other than those dictated under Code § 417 (e) interest rates] would run the risk that, nature of interest rates, produce "greater-of-the- endorsed by both the PBGC and IRS, would not have requirements benefits. plainly why a lower [that is, the PPA given the fluctuating those assumptions could at some point benefit amount than that produced assumptions in Code § 417 (e) . " Royal Oak Opp' n at 17. the PBGC's suggested alternative addresses by the However, precisely this problem. If Royal Oak had amended its Plan to pay the greater of the lump sums produced under§ 417(e) and under the Plan's terms as of the terminations date, it would have complied with both 29 C.F.R. § 4041.8 and I.R.C. § 417(e). Moreover, the PBGC has not ordered that Royal Oak adopt the "greater-of-the-two" that the "could benefit have interest decrease amended rates formula. and the the was Plan The Agency merely unnecessary to 30-year pay the demonstrates because greater Treasury Royal of rates." the Oak PPA AR-087 5 (emphasis added). two methods and making payments pursuant to whichever method is more favorable to plan participants. 26 C.F.R. § 1.417(e)1 (d) (5); 2008-12 I.R.B. 638-42, IRS Notice 2008-30. 30 Accordingly, the PPA Amendment adopted by Royal Oak was not a valid post-termination amendment, and therefore it must make additional payments to ensure that Plan participants receive the benefits to which they were- entitled "under the plan's provisions in effect on the plan's termination date." 29 C.F.R. § 4041.8 (a). IV. CONCLUSION For the foregoing reasons, Judgment is denied, and PBGC' s Royal Oak's Motion for Motion for Summary Summary Judgment is granted. An Order shall accompany this Memorandum Opinion. January$. 2015 Judge Copies to: attorneys on record via ECF 31

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