Pension Benefit Guaranty Corp. v. LTV Corp.

Supreme Court of the United States · 1990 · Administrative Law

Administrative LawERISAAgency DeferenceArbitrary and Capricious ReviewInformal AdjudicationChevronAPAarbitrary and capricious

Facts

LTV entered Chapter 11 while sponsoring three chronically underfunded defined benefit pension plans, and PBGC had earlier terminated those plans under ERISA § 4042(a)(4) because continued operation threatened large losses to the insurance program, including potential shutdown benefits. After termination, LTV and the Steelworkers negotiated new pension arrangements designed to replace benefits lost by plan participants, which PBGC viewed as abusive 'follow-on' plans because they substantially replicated the terminated plans while shifting liability to PBGC. PBGC later concluded that LTV's financial circumstances had improved and that the follow-on plans abused the insurance system, so it restored the plans under § 4047. Restoration returned the plans to ongoing status and made LTV responsible again for administering and funding them.

Issue

Was PBGC's decision to restore LTV's pension plans under ERISA § 4047 arbitrary and capricious or contrary to law under the APA because PBGC did not explicitly consider bankruptcy and labor policies, relied on its anti-follow-on policy, and used informal adjudicatory procedures lacking additional safeguards? More specifically, may PBGC permissibly treat follow-on plans as a basis for restoration under § 4047?

Rule

Under ERISA § 4047, PBGC may restore a terminated plan whenever it determines restoration is appropriate and consistent with its duties under Title IV of ERISA. In reviewing PBGC's interpretation of § 4047, courts apply Chevron: if Congress has not clearly resolved the precise issue, the agency's interpretation stands if it is a permissible, rational construction of the statute. For informal adjudication, reviewing courts may not impose additional procedural requirements beyond those required by the APA, the agency's statute, or due process.

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Granite Forge, Inc., a manufacturing company in Pittsburgh, terminates an underfunded defined-benefit pension plan. After termination, Granite and its union adopt a new retirement arrangement that, together with guaranteed insurance payments, gives workers nearly the same benefits they had before. The pension insurer restores the old plan under a statute authorizing restoration whenever it determines restoration is appropriate and consistent with its duties under the statute.

Granite argues the restoration order is unlawful because the statute never expressly mentions replacement benefit arrangements as a basis for restoration. How should a court rule?

Explanation. The governing rule is Chevron. A court first asks whether Congress directly addressed the precise issue. If not, the agency's interpretation stands if it is permissible and rational. A broad restoration provision tied to the agency's statutory duties leaves room for the agency to treat follow-on or replacement plans as a basis for restoration, so long as that policy rationally advances statutory purposes such as maintaining private plans and controlling insurance costs. (Derived from Pension Benefit Guaranty Corp. v. LTV Corp. (1990).)