Beck v. PACE International Union, handed down by the Supreme Court yesterday, isn’t Marbury v. Madison. It isn’t even Hughes Aircraft Co. v. Jacobson. All that the Court did was reverse (unanimously, ho hum) yet another 9th Circuit frolic and detour. The reason why I mention it is that it is the first Supreme Court case to cite Veal & Mackiewicz, Pension Plan Terminations (on-line updates here).
For anyone who is curious, here is a precis, omitting immaterial details: A bankrupt employer terminated its overfunded pension plan, recovering $5 million in surplus assets for the benefit of its creditors. Before doing so, it rejected a proposal from its employees’ union to merge the plan into a multiemployer pension plan covering union members. The union brought suit, alleging that the company’s failure to consider the proposal adequately was a breach of fiduciary duty.
The claim was too absurd to find favor anywhere outside the Loony Circuit. It is well established that the decision to terminate or continue a plan, like the decision to establish one in the first place, is the employer’s to make on the basis of its own self-interest, without reference to ERISA’s fiduciary standards. To sidestep that principle, the plaintiffs and the 9th Circuit qadis argued that the way in which a termination is implemented is subject to the fiduciary standards (which is true) and that deciding between merger and termination was simply a step in the termination process, like the choice of an insurance company from which to buy close-out annuities. The remedy that the court devised for the employer’s refusal to contemplate that choice was forfeiture of the surplus assets, which it directed be distributed to the plan participants.
Justice Scalia’s opinion punctured this bubble by reciting the many ways in which continuing a plan by merging it into another differs from bringing its existence to an end by terminating it. The effect of upholding the 9th Circuit would have been to impose a constraint on the decision to terminate that Congress never saw fit to enact.
Aside from the citations to my book, I’d like to note a couple of other points about this case.
First, it furnishes an illustration of how difficult it is to read the Justices’ minds during oral argument. Workplace Prof Blog posted a report on the argument that predicted a 5–4 split, with Justices Ginsburg, Souter, Breyer and Stevens siding with the union, and Kennedy and Alito casting the decisive votes. In actuality, the vote was 9–0 for the employer.
Second, despite reaching an irrefragible result, the opinion is one of the too frequent examples of the Court’s amateurish handling of ERISA. Footnote 3, in particular, should be an embarrassment to its author. I know that I can’t reasonably demand that the Their Honors become experts in my particular nook of the law, but it’s nonetheless regrettable that they aren’t.
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