# In Re Gulf Pension Litigation

> District Court, S.D. Texas · April 10, 1991 · 764 F. Supp. 1149

URL: https://www.frixlaw.com/law-library/cases/2287476

## Case

- **Full name:** In Re GULF PENSION LITIGATION
- **Court:** District Court, S.D. Texas
- **Decided:** April 10, 1991
- **Citations:** 764 F. Supp. 1149; 13 Employee Benefits Cas. (BNA) 1873; 1991 U.S. Dist. LEXIS 4631; 1991 WL 92963
- **Precedential status:** Published
- **Opinion:** Opinion by Lake
- **Judges:** Lake
- **Cited by:** 35 later opinions in the Frix Law Library

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## Opinion text

*1159
TABLE OF CONTENTS
Page
I. INTRODUCTION.1160
II. PARTIAL TERMINATION CLAIMS.1161
A. General.1161
B. Vertical Partial Termination.1163
1. Significant Number or Percent.1163
2. What Number or Percent is Significant?.1164
3. How is the Number or Percent Calculated?.1164
a. Vested or Non-Vested Terminations.1164
b. Employees Who Transferred to a Successor Plan.1165
c. Turnover Rate .1166
d. Time Period.1167
e. The Relevant Number and Percent.1167
4. Significant Corporate Event.1169
5. The Number and Percent are Significant.1170
6. The IRS Determination.1170
C. Horizontal Partial Termination.1172
III. REMEDY FOR PARTIAL TERMINATION.1178
A. The Gulf Pension Plan.1179
B. Remedy Under the Gulf Pension Plan Upon a Partial Termination.1180
1. Standard of Review.1181
2. The Legally Correct Interpretation.1182
a. Uniformity of Construction .1182
b. Fair Reading of § 10.A.2.1182
(1) Does § 10.A.2 Apply When the Plan is Overfunded at the Time of a Partial Termination?.1182
(2) Does § 18.d of the Chevron Retirement Plan Bar Plaintiffs’ Claims to Surplus Gulf Plan Assets?.1183
(a) Validity of § 18.d Under ERISA’s Exclusive Benefit Rule_1184
(b) Validity of the 1986 Plan Merger Under § 208 of ERISA.... 1185
(c) Validity of § 18.d Under the A & B Plan, the CRP and the SAP.1185
(i) The A & B Plan.1186
(ii) The CRP.1190
(iii) The SAP.1194
(3) Can Surplus CRP and SAP Assets be Distributed Under
§ 10.A.2 Upon a Partial Termination?.1196
(4) Consequences of a Fair Reading of § 10.A.2.1198
c. Unanticipated Costs .1198
3. Abuse of Discretion.1198
a. Internal Consistency. 1198
b. Relevant Regulations.1199
e. Factual Background and Inference of Lack of Good Faith.1199
d. Conclusion.1201
IV. TERMINATION OF THE CRP AND SAP AS WASTING TRUSTS.1201
V. FIDUCIARY CLAIMS .1205
A. Pension Plan Expenses.1205
B. Self-Dealing by Chevron.1208
C. SRAP.1211
D. AVIS .1212
E. Defendants’ Promises to Set Aside Gulf Plan Assets for Plaintiffs’
Benefit.1213
F. Other Alleged Fiduciary Breaches.1214
VI. CONCLUSION.1214
*1160
OPINION
LAKE, District Judge.
I. INTRODUCTION
This is a consolidated class action brought by more than 40,000 former participants in the Pension Plan of Gulf Oil Corporation. Defendants are Chevron Corporation, Gulf Oil Corporation, the Chevron Corporation Retirement Plan, the Pension Plan of Gulf Oil Corporation, the Benefits Committee of the Pension Plan of Gulf Oil Corporation and each of its members, and the Pension Committee of the Pension Plan of Gulf Oil Corporation and each of its members.
To understand the case some appreciation of the demise of Gulf Oil Corporation is necessary. On January 1, 1982, Gulf had 29,706 employees covered under the Gulf Pension Plan and was one of the largest integrated oil companies in the United States. Concerned that Gulfs share price did not reflect its true value, Gulfs management began a plan to streamline the company that included substantial reductions in the number of employees. By the end of 1983 Gulf had reduced its work force to 23,054 active Gulf Plan participants, but its share price had still not risen substantially. In January of 1984 Gulf management learned that a hostile tender offer was imminent from a group led by T. Boone Pickens. Gulf sought to interest several other large oil companies, including Chevron Corporation, in a friendly merger to avoid the Pickens’ takeover attempt.
In February of 1984 Gulf and Chevron announced a merger, and a merger agreement was signed in March of 1984. For the next year the companies operated independently under a standstill agreement while Gulf divested itself of certain assets required by the FTC and a number of combined Gulf-Chevron working groups determined how to integrate the two companies and their pension and other employee benefit plans. Because Gulf and Chevron were in the same business it became apparent that a number of employees would be redundant in the merged company. Chevron also decided to sell parts of Gulf to help pay the debt it had incurred in making the acquisition. By July 1, 1986, when the Gulf Pension Plan and the Chevron Annuity Plan were merged into the Chevron Retirement Plan, 13,545 former Gulf Pension Plan participants remained on Chevron’s payroll. All of the Gulf employees who left between January 1, 1982, and June 30, 1986, were covered by Gulf employee benefit programs, including pension plans.
This action was filed by plaintiffs, Dean Borst,
et al.,
in November 1986. In April of 1987, plaintiffs, Harry Back,
et al.,
filed a similar action in the United States District Court for the Western District of Pennsylvania. On the motion of the defendants, the
Back
action was transferred to this Court and consolidated with the
Borst
action. The Court preliminarily certified the case as a class action on November 9, 1987, and appointed the individual plaintiffs as class representatives. After several hearings, on February 26, 1990, the Court certified the consolidated action under Fed. R.Civ.P. 23(b)(2) and defined the main class as
(1) All participants in the Pension Plan of Gulf Oil Corporation or any predecessor plan (sometimes abbreviated as the “Gulf Plan” or “Plan”) who terminated employment for any reason after December 31, 1981, and before July 1, 1986, with Gulf Oil Corporation or its successors or affiliates, or any subsidiaries that had adopted the Gulf Plan (“Gulf”).
(2) All Gulf Plan participants who were accruing benefits under the Gulf Plan as of June 30, 1986.
(3) All Gulf Plan participants who terminated Gulf employment prior to January 1, 1982, and who were receiving a pension or entitled to an immediate or deferred pension or a refund of accumulated employee contributions under the Gulf Plan as of June 30, 1986.
(4) All Gulf Plan participants who terminated employment with Gulf prior to January 1, 1982, and after December 31,1975, who were not entitled to any pension benefit under the Gulf Plan at the time of such termination (other than a refund of accumulated employee contributions) but who, if they had
*1161
been reemployed by Gulf as of June 30, 1986, would have been entitled under the ERISA break-in-service rules to credit for prior service under the Gulf Plan.
(5) All spouses, joint annuitants, or other plan beneficiaries of any deceased Gulf Plan participants described in the foregoing categories.
(6) All alternate payees under qualified domestic relations orders of separated or divorced Gulf Plan participants described in the foregoing categories.
The Court also certified a divestiture sub-class defined as
All members of the main class who were offered employment by any of the following purchasers of assets applicable to the operation in which they were employed by Gulf: Sohio/BP (“Sohio”), Cumberland Farms, Champion Energy, or Ther-mex.
On January 4, 1990, the Court granted defendants’ motion to strike plaintiffs’ request for a jury trial, and granted defendants’ motion to dismiss most of plaintiffs’ common law claims as preempted by the Employee Retirement Income Security Act of 1974, 88 Stat. 829 , as amended, 29 U.S.C. §§ 1001 ,
et seq.
(“ERISA”). The parties agree that the Court has jurisdiction over the remaining claims pursuant to § 502(e) and (f) of ERISA, 29 U.S.C. § 1132 (e) and (f).
Plaintiffs went to trial seeking relief under ERISA and the language of various benefit plans for four types of wrongs allegedly committed by defendants. First, plaintiffs claimed that defendants’ actions resulted in a partial termination of the Gulf Pension Plan and its predecessor plans that entitled plaintiffs to relief provided by ERISA and the Plan. Alternatively, plaintiffs claimed that two of the plans had served their purposes and their trusts should be terminated as “wasting trusts” under common law. Second, former Gulf employees who were transferred to Sohio, Cumberland Farms, and Champion Energy as a part of divestitures of former Gulf operations in 1985 and 1986 sought early retirement benefits under the Gulf Pension Plan.- Third, former Gulf employees who were transferred to Champion Energy, Cumberland Farms, and Thermex incident to divestitures sought benefits under a severance plan that existed -from February 1, 1984, to February 1, 1986 (Plan 728). Finally, plaintiffs sought damages for a number of alleged breaches of fiduciary duty during the corporate merger and the integration of the two pension plans.
On November 8, 1990, after hearing 16 days of testimony, the Court ordered the attorneys in charge for the class and defendants and the CEO of Chevron to meet and determine if some or all of the claims could be settled. The following week the parties announced a proposed settlement of the plaintiffs’ claims for early retirement benefits and severance benefits under Plan 728. As part of the settlement Chevron also agreed to vest in their accrued benefits under the Gulf Pension Plan all members of the class whose employment with Gulf was terminated between January 1, 1984, and June 30,1986, without a vested pension benefit, and plaintiffs agreed to dismiss the partial termination claims of former Gulf employees who were terminated between January 1, 1982, and December 31, 1983. After notice to the class, the Court held a hearing on the partial settlement on January 25, 1991, and approved it. The Court will now address the plaintiffs’ remaining claims.
II. PARTIAL TERMINATION CLAIMS
A.
General
An understanding of the partial termination claims requires an appreciation of some basic features of pension plans. An employee normally does not have an unconditional right to benefits provided by a defined pension benefit plan
1
until the em
*1162
ployee has worked for the employer for some number of years, as determined by the plan. If the employee ends his employment before he completes this period, he forfeits his right to pension plan benefits. If he meets the plan’s time-in-employment criteria, he becomes vested with the right to receive some minimum pension benefit, as defined by the plan, even if he should later end his employment.
An employer makes contributions to a defined benefit pension plan based on its estimate of the amount of money needed by the plan to pay for current and future liabilities. For a number of reasons, a plan can achieve a surplus over what is needed to fund current and future liabilities. If a surplus is created and the plan terminates, 1.e., ceases to exist, the surplus may revert to the employer if allowed by the plan.
One of the benefits an employer receives by making contributions to a qualified ERISA pension plan is the right to deduct contributions to the plan for federal income tax purposes.
2
As a condition for this favorable tax status, § 401(a)(7) of the Internal Revenue Code (the “Code”) provides that “[a] trust shall not constitute a qualified trust under this section unless the plan of which such trust is a part satisfies the requirements of § 411 (relating to minimum vesting standards).” Section 411(d)(3) of the Code, which was added by ERISA, requires that all qualified plans must provide for vesting (i.e., non-forfeita-bility) of benefits of employees affected by a plan termination or a partial plan termination.
3
The purpose of Code § 411(d)(3) is to prevent the forfeiture of terminated employees’ benefits that have not yet vested and to prevent an employer from reaping a windfall by “mak[ing] deductible contributions on which he would enjoy a tax-free buildup of income, then terminate the plan and have all amounts revert back to him.”
Tipton & Kalmbach, Inc. v. Commissioner,
83 T.C. 154, 160 (1984);
see United Steelworkers of America v. Harris & Sons Steel Co.,
706 F.2d 1289, 1298 (3d Cir.1983).
Unlike a complete termination, a plan continues after a partial termination. The genesis of the partial termination concept was apparently a 1954 article by the IRS’s chief pension expert, Isidore Goodman, who explained that “[a]t times, it is easier to devour an object with several bites than it is to attempt to swallow it in one gulp. So it is with a plan which is chopped down little by little until it becomes merely an empty shell.” 32 TAXES 48, 53 (January 1954). Two kinds of plan-related activities can result in a partial termination: (1) The number of participants can be reduced, thereby causing the number of non-vested employees who forfeit their pension benefits to be greater than would otherwise be anticipated under actuarial formulas, or (2) future benefit accruals can be reduced, thereby increasing the potential for a reversion of plan assets to the employer upon termination of the plan. Commentators have referred to these two scenarios as “vertical” and “horizontal” partial terminations. Stuart M. Lewis,
Partial Terminations of Qualified Retirement Plans—
An
Evolving Doctrine,
13 COMP. PLAN J. (BNA) 223 (1985).
This case involves claims that both types of partial terminations occurred. Even though Chevron agreed, as part of the partial settlement, to vest all plaintiffs who were terminated during the period when .plaintiffs now allege that a vertical partial termination occurred (January 1, 1984,
*1163
through June 30, 1986), the Court must nevertheless address plaintiffs’ partial termination claims because the remedy for a horizontal partial termination is to vest class members who were employed on July 1, 1986, the date of that alleged partial termination, and because plaintiffs seek relief in addition to vesting if they are successful on their vertical or horizontal partial termination claims.
Although an employer may declare whether a partial termination has occurred, that determination is accorded no deference by a court; the question is one of law for the court to decide
de novo. Anderson v. Emergency Medicine Associates,
860 F.2d 987, 990 (10th Cir.1988). Neither ERISA nor the Internal Revenue Code defines a partial termination. Aside from ease law, most of the authority addressing this question is found in Treasury Regulations, IRS revenue rulings, and the IRS Plan Termination Handbook.
4
These sources offer analytical guidelines, but again do not define a partial termination. Although decisions affecting pension plans must conform to a vast array of detailed statutory and regulatory mandates, no precise guidance is provided on whether a change in plan members or benefits results in a partial termination. Instead, these questions are to be answered by a case-specific factual analysis.
See
Treas.Reg. § 1.411(d)-2(b)(1) (1977).
B.
Vertical Partial Termination
The vertical partial termination rule is found within the “facts and circumstances” test of Treas.Reg. § 1.411(d)-2(b)(l).
General rule.
Whether or not a partial termination of a qualified plan occurs (and the time of such event) shall be determined by the Commissioner with regard to all the facts and circumstances in a particular case.
Such facts and circumstances include: the exclusion, by reason of a plan amendment or severance by the employer, of a group of employees who have previously been covered by the
plan_ (emphasis added)
Perhaps because this rule gives so little guidance, it has spawned a number of complex issues, few of which have been resolved by controlling authority in this Circuit, and most of which are present in this case. Before addressing the issues, the Court will first describe them.
1. Significant Number or Percent
IRS revenue rulings suggest that an employer-initiated permanent reduction of either a significant number or a significant percent of employees from a plan as part of a major corporate event may constitute a partial termination. Rev.Rul. 81-27, 1981- 1 C.B. 228 (termination of 95 of 165 employees in connection with the closing of one of two divisions was a
significant number
that resulted in a partial termination); Rev.Rul. 73-284, 1973- 2 C.B. 139 (when 12 of the 15 employees (80%) covered by a qualified plan declined to transfer to a new location and were terminated, a partial termination occurred because a
significant percent
of the employees were excluded from participating in the plan); Rev.Rul. 72-439, 1972- 2 C.B. 223 (the
significant percent
test was met when 120 of the plan’s 170 participants (71%) became ineligible to participate in future employer contributions).
Although courts have given lip service to the significant number test, they have been reluctant to use this test as a basis for holding that a partial termination has or has not occurred.
See Tipton,
83 T.C. at 160 n. 5 (“[Since 34% and 51% are significant,] [w]e need not and do not decide whether a partial termination would occur where a significant
number
of participants but not a significant
percent,
are excluded from participation in a plan.”);
Ehm v. Phillips Petroleum Co.,
583 F.Supp. 1113, 1115-16 (D.Kan.1984) (since 415 terminated employees comprised only 2.5% of the plan participants, the court found no partial ter
*1164
mination under the significant percent test and declined to apply the significant number test). No court has found a partial termination under the significant number test.
In this case plaintiffs argue that the loss of approximately 10,000 Gulf Plan participants between January 1, 1984, and June 30, 1986, satisfies both the significant percent and the significant number tests. Plaintiffs concede that the only reported instance in which the significant number test has been used to find a partial termination involved the discontinuance of an employer’s business at a particular location with attendant layoffs. Rev.Rul. 81-27, 1981- 1 C.B. 228 .
5
Neither the Court nor the parties have uncovered any instance in which the significant number test has been applied to a case such as the present one in which a large number of company-wide terminations is alleged to have resulted in a partial termination.
6
2.What Number or Percent is Significant?
Problems arise in applying the significant number and the significant percent tests when the facts are not as manifest as those in the cases and revenue rulings cited above. The Internal Revenue Service has stated, and some courts have found persuasive, that an employer-initiated turnover rate in excess of 20% of a plan’s participants might be significant if it is coupled with other factors, such as the closing of a plant or division. These authorities state that termination of a lesser percent of plan participants, especially on a company-wide basis, could only be significant if the plaintiffs present evidence of egregious factors such as evasion of pension obligations or prohibited discrimination in favor of highly compensated employees.
See Weil v. Retirement Plan Administrative Committee of the Terson Co.,
913 F.2d 1045, 1052 (2d Cir.1990) (“Weil II”); Plan Termination Handbook §§ 252(8), 252(9)(d) and 252(10).
7
3.How is the Number or Percent Calculated?
The significant percent and significant number analyses in this ease are further complicated by disagreements concerning:
1. whether terminated vested as well as non-vested employees should be considered in calculating the percent and number;
2. whether employees who transferred to a successor employer, and whose accrued pension benefits were transferred to a successor plan, should be counted;
3. whether defendants should be entitled to exclude from the number of terminations normal turnovers, what turnovers are “normal,” and who has the burden of proof of establishing the normal turnover rate; and
4. whether the percent and number of terminations should be calculated on an annual basis, as defendants argue, or whether the percent and number of terminations occurring from a significant corporate event over a two-and-one-half-year period will satisfy the tests, as plaintiffs argue.
Because the number and percent of terminated Gulf employees must first be quantified before their significance can be
*1165
judged, the Court will address these issues first.
a.
Vested or Non-Vested Terminations
Many of the former Gulf employees who were terminated between January 1, 1984, and June 30, 1986, were vested under the Gulf Pension Plan.
8
Defendants argue that these employees should not be considered in calculating either the percent or number of terminations. The partial termination rule is designed to prevent forfeiture of pension benefits that have not yet vested and to prevent a windfall to the employer through a reversion of money on which the employer has paid no federal income taxes. Including vested terminees does not further the first policy since they forfeit no benefits. Furthermore, Congress has taken a more direct approach to remedy the potential for a tax-free corporate windfall. When a pension plan is terminated, any assets that revert to the employer are not only included in the employer’s gross income, they are also subject to an additional excise tax. The Revenue Reconciliation Act of 1990 raised the excise tax on employer reversions from 15% to 20% and imposed a 50% excise tax unless the employer transfers part of the reversion to a replacement plan or provides more favorable benefits.
9
The Court therefore concludes that in applying both the significant percent and the significant number tests, only non-vested terminations are relevant.
10
However, out of an abundance of caution, the Court has calculated terminations both with and without vested terminees and concludes that the differences in percentages and numbers of terminations are not significant enough to affect the outcome of the vertical partial termination claim.
b.
Employees Who Transferred to a Successor Plan
In 1985 Gulf sold certain refining and marketing facilities to Sohio, and Chevron sold the merged company’s Northeast and Ohio marketing assets to Cumberland Farms. In both divestitures the asset purchase agreements obligated the buyers to establish defined benefit pension plans with terms substantially similar to those of the Gulf Pension Plan. Incident to both divestitures Gulf and Chevron agreed to transfer pension assets in amounts at least equal to the accrued benefits of the transferring employees. Defendants argue that former Gulf employees who transferred to Sohio and Cumberland Farms should not be included as terminees for purposes of the vertical partial termination analysis.
In
Morales v. Pan American Life Ins. Co.,
718 F.Supp. 1297, 1302 (E.D.La.1989),
aff'd,
914 F.2d 83 (5th Cir.1990), the employer, PALIC, closed its Medicare Division on December 31, 1984. During the preceding months PALIC transferred 30 of the 159 Medicare Division employees to other jobs in PALIC. In calculating the percentage of employees who were involuntarily terminated, the Court held that “[t]he transferred employees should not be included with the number of employees involuntarily terminated as they remained PALIC employees and Plan participants ...” The Court is persuaded that the reasoning of
Morales
is also applicable to this case.
Although the Sohio and Cumberland Farms transferees did not remain Gulf employees or members of the Gulf Pension Plan, assets from the Gulf Pension Plan sufficient to cover all of the transferred employees’ accrued benefits under the Gulf Plan were transferred to the Sohio and
*1166
Cumberland Farms’ plans. For the reasons discussed above in connection with the vested, non-vested issue, neither of the policies underlying the partial termination rule would be served by including these employees as “affected employees” for purposes of determining whether a vertical partial termination occurred. In fact, to count such employees could deter employers from taking steps to protect employees in similar situations by potentially penalizing an employer whose terminated employees transfer to a successor employer that is obligated to continue the same or similar benefits and to whom plan assets have been transferred. The Court does not believe that either Congress or the IRS intended such a result.
Cf.
IRS Gen.Couns. Mem. 39,824 (August 27, 1990).
c.
Turnover Rate
Since one of the purposes of the partial termination rule is to deter employers from terminating non-vested employees, it is generally agreed that in calculating the number or percentage reduction of plan members, only involuntary, employer-initiated, terminations should be considered.
E.g., Anderson,
860 F.2d at 990 . In cases involving relatively few employees it may be possible to resolve this issue by determining the facts surrounding each termination. More often, however, as exemplified by this case, it is not feasible to analyze individual terminations. To address this problem, the IRS Plan Termination Handbook allows an employer to exclude its normal turnover rate in determining whether the reduction in employees is significant. Section 252 provides in part:
(6) ... The facts and circumstances must be considered in each case and may include the extent to which terminated employees are replaced, and the normal turnover rate in a base period. The base period ordinarily should be a set of consecutive plan years (at least two) from which the normal turnover rate can be determined, and should reflect a period of normal business operations rather than one of unusual growth or reduction. Generally, the plan years selected should be those immediately preceding the period in question.
(7) The turnover rate is determined by dividing the employer-initiated terminations by the sum of the total participants at the start of the period and the participants added during the period. Employer-initiated terminations are generally all terminations other than those attributable to death, disability retirements and retirement at normal age. In certain situations, the employer may be able to prove that other terminations were also not employer-initiated.
Defendants seek to exclude from consideration those Gulf employees who retired and terminated voluntarily between January 1, 1984, and June 30, 1986. Since defendants recognize that many of these departures, however labeled in defendants’ employment records, may have been prompted by the impending closings or divestitures of Gulf facilities and across-the-board reductions-in-force, defendants have calculated what they contend was Gulf’s “normal turnover rate” before the onset of the troubles described at the beginning of this opinion. Using the years 1978-1981 as the base period, Defendants’ Ex. 10 purports to calculate a “normal” Gulf turnover rate of 8.59% and a “normal” Gulf retirement rate of 2.43%.
There are several problems with defendants’ 8.59% “normal” turnover rate. Although 1978 through 1981 was a period of normal business operations by Gulf, it was also a period when many new employees were hired each year. In contrast, during the period from January 1, 1984, through June 30, 1986, very few new employees were hired by Gulf. From 1978 through 1981 at least 3,500 new employees were hired each year; there were only 1,084 new hires in 1984, 331 in 1985, and 130 during the first six months of 1986. (Defendants’ Ex. 11) This distinction lessens the reliability of the 1978-1981 era as a base period. Plaintiffs’ actuarial expert, Mr. William A. Dreher, testified that fewer long-term employees are terminated either voluntarily or involuntarily. Thus, when an employer is continuously hiring large numbers of new employees, the turnover
*1167
rate will be higher than when the work force is contracting. It is therefore not reasonable to assume that the 1978-1981 turnover rate would have continued in the 1984-1986 era.
Plan Termination Handbook § 252(7) and Examination Tip (4)(a) and case law place the burden on the employer to prove that terminations are voluntary.
See Morales,
718 F.Supp. at 1302-03 . Although defendants tendered a blizzard of numbers, they presented no evidence that the 8.59% normal turnover rate would have continued in the 1984 through 1986 period. Absent such evidence, and considering the dramatic reduction in new hires and the various programs undertaken by Gulf and Chevron to reduce the work force during this period,
11
the Court concludes that defendants have not proved either that there was a normal turnover rate from 1984 through June of 1986, or that the 8.59% rate urged by defendants represents such a rate.
The Court will, however, exclude from its calculation of affected employees the 2.43% normal retirement rate reflected on Defendants’ Ex. 10. Retirement, unlike termination, is not a function of the rate of new hires. Under the Gulf Pension Plan any employee who had 75 points, which generally meant at least 20 years of employment, could retire. Logically, some retirements would have occurred from 1984 through June of 1986 even if Gulf and Chevron had not introduced new initiatives to reduce the size of the work force, and this rate would be unaffected by the low new-hire rate during this period.
The Court is not persuaded by plaintiffs’ argument, based on § 252(7) of the Plan Termination Handbook, that only normal retirement at age 65 should be considered. Section 252(7) states that this is the general rule, but permits proof by the employer to the contrary. The evidence showed that Gulf employees could receive non-discounted early retirement at age 60, and that eligible Gulf employees could and did retire before age 60 with reduced benefits long before the Gulf/Chevron merger. However, since retirements were accelerated by the initiatives of Gulf and Chevron to reduce their work force, the Court will also treat the 2.43% normal retirement rate as a ceiling, and retirements in excess of that rate will be considered to be employer-initiated. In calculating the number of affected employees under the significant number and significant percent tests, the Court will exclude for each year a number of employees equal to the lesser of the actual number of retirements or 2.43% of Gulf Plan participants at the end of the year.
d.
Time Period
Defendants argue that in determining whether a vertical partial termination occurred the Court should consider only the number of employees excluded within a single plan year. The Court does not find this position to be supported by logic or required by authority. Most reported vertical partial termination rulings and decisions did not involve massive corporate restructuring of the scale implemented by Gulf and Chevron. The facts in those decisions were therefore generally limited to a period of less than a year. There is nothing in the language of the rule itself, however, that requires that a significant corporate event occur within a year, and the ending of a calendar or plan year has no intrinsic relevance in making this evaluation. The IRS guidance found in § 252(7) of the Plan Termination Handbook instructs that “[t]he turnover rate is determined by dividing the employer-initiated terminations by the sum of the total participants at the start of
the period
and the participants added during
the period.”
(emphasis added) Both the IRS, in its Technical Advice Memorandum Concerning The Employee’s Retirement Plan of A & P Company, and the Second Circuit in
Weil I,
750 F.2d at 12, have stated that a series of employer-initiated terminations related to the same event may be considered in determining whether a partial termination has occurred even if those terminations occur over a multi-year period. This Court likewise concludes that, assuming plaintiffs can prove it, a vertical partial termination
*1168
may occur from a significant corporate event that manifests itself in employer-initiated terminations occurring over the two- and-one-half-year period urged by plaintiffs.
e.
The Relevant Number and Percent
For purposes of the significant number test, the relevant number of terminations is the total number of plan members terminated, less: (1) those who were already vested, (2) those who voluntarily retired, including both discounted and undiscounted early retirees and disability retirees, (3) those who transferred to the Sohio and Cumberland Farms successor plans, and (4) those who died. To calculate the relevant percent the Court will divide the number obtained by the formula in the previous sentence by the sum of the non-vested plan participants at the start of each period and the non-vested participants added during that period. Application of these formulas to the facts yields the following chart, which the Court finds to be established by the evidence.
Total 2.5 years 10,947 Jan.-June 1986 1984 1985 2,623 6,588 Total terminations
12
Deductions:
(1) vested terminees
13
^ -7] to 03 CCO CO CD 03
(2) retirements
14
l — 1 OO -a t-H CO ID CO CO ^
(3) transfers to Sohio & Cumberland Farms
15
ID ^ 03 t-CD O O
(4) deaths
12
CD t-H O CO 03 ID
Total Deductions 798 2,909 920
Total relevant terminations 6,427 1,825 3,679
Non-Vested Members at Beginning of period
16
12,688 O 03 IQ i — ‘
t-L
CO ^
New members added
17
1,084 id ^ LO O CO r — I CO H
Total non-vested members 13,772 CO CO 03 O »D CD y-1 J — 1 CO O Ol
Percentage Decrease 13.3% 32.4% 12.1% 45.2%
Alternatively, calculating the relevant number and percent by including vested plan participants m both the numerator and the denominator, yields the following chart:
[[Image here]]
*1169
[[Image here]]
4. Significant Corporate Event
The parties differ over the number of significant corporate events that occurred between January 1, 1984, and June 30, 1986. Defendants contend that two distinct corporate events occurred during this period: the merger of Gulf and Chevron in 1984 and 1985, and then a drastic decline in oil prices with resulting layoffs, which began in late 1985 and culminated in 1986. Plaintiffs argue, and the Court finds, that the business decisions by Gulf and Chevron to reduce the work force all resulted in a single corporate event throughout this two-and-one-half-year period.
After the merger between Gulf and Chevron was announced in February 1984, Chevron and Gulf began a series of actions designed to reduce their partially redundant work force.
18
In March of 1984 Gulf suspended hiring new employees. In May of 1984 Chevron announced and implemented a severance plan for involuntary terminations occurring between April 27, 1984, and April 26, 1986. (Plan 728; Plaintiffs’ Ex. 289) Later in 1984 Gulf adopted a three-phase Surplus Manpower Reduction Program to reduce merger-related surplus employees. Under the first phase of the program, announced in November 1984, Gulf offered a Voluntary Termination Incentive Program (“VTIP”) to provide sever-anee pay to employees working in locations where Chevron and Gulf had identified a surplus in their work forces. Under VTIP employees were required to come forward during November and December 1984 and volunteer to terminate their employment. Gulf and Chevron required these employees to remain on the job, however, until they were finally released, and most actual VTIP terminations did not occur until the end of 1985. In the second phase of the program Gulf employees were offered transfers or demotions, and were paid severance if they chose not to accept. The third phase involved involuntary terminations. By late November of 1985 this three-phase program had resulted in 4,468 terminations: 923 by voluntary severance, 1,486 by “transfer/demote severance,” and 2,059 by involuntary severance. (Plaintiffs’ Ex. 484 at p. 3)
At the same time, and also as a result of the merger, Chevron began selling off various assets of Gulf and Chevron, both to reduce redundancies and to finance the enormous debt it had incurred to acquire Gulf. These divestitures, which eliminated thousands of additional Gulf employees, included the sale of Gulf’s explosives group to Thermex, the sale of Gulf Oil Trading Company to GOTCO N.V., the sale of the Cedar Bayou polypropylene plant to Amoco Chemicals, the donation of the Harmarville
*1170
Research Center to the University of Pittsburgh, the shut-down and sale of the Gulf headquarters building in Pittsburgh, and a number of other divestitures, including those to Sohio and Cumberland Farms discussed above.
19
Although the various employee reduction programs and divestitures were initiated in 1984 and 1985, some of the affected employees were not actually terminated until the first half of 1986. For example, the shut-down of Gulfs Harmar-ville Research Center and its Pittsburgh headquarters occurred in gradual increments during this two-and-a-half-year period.
Chevron argues that in 1986 additional terminations occurred because of the steep decline in oil prices that began in late 1985 and that these terminations were not merger-related and should not be included as part of any “merger-related” significant corporate event. The evidence shows that Chevron’s response to the decline in oil prices was to formulate, in the spring of 1986, a new retirement enhancement program known as the Special Retirement Allowance Program (“SRAP”).
20
However, this program was not even announced to employees until June 1986, and the program did not begin until July 1986. (Plaintiffs’ Ex. 865) The Court finds that none of the employee terminations that occurred during the first six months of 1986 were due to the decline in oil prices that occurred during that era. Instead, the Court finds that those terminations were the vestigial effects of merger-related actions — both across-the-board reductions-in-force and the divestitures — that began in 1984 and 1985.
21
The Court finds that all of the terminations between January 1, 1984, and June 30, 1986, that are reflected in the charts above were part of a single, significant, merger-related corporate event.
5. The Number and Percent are Significant
There were 6,427 employer-initiated terminations of non-vested Gulf employees during the single, merger-related, significant corporate event that occurred between January 1, 1984, and June 30, 1986. This represented a 45.2% reduction in the total number of non-vested Plan participants during the period. The Court finds that this number and this percent, and the 8,534 terminations and 34.7% decrease under the alternative analysis, are significant and resulted in a partial termination of the Gulf Pension Plan under both the significant number and the significant percent tests. The Court is led to the conclusion by the magnitude of this reduction in plan membership, by the fact that when these reductions were occurring defendants were planning to reduce the benefits available to those Gulf employees who remained,
22
and by the increased potential for a reversion because of these terminations,
23
which occurred in an atmosphere in which Chevron was considering how to revert surplus Gulf Plan assets for its general corporate use.
24
See
Plan Termination Handbook § 252(4), (8)(a), and (10).
6. The IRS Determination
Defendants argue that the Court should show deference to a determination
*1171
by the IRS that no partial terminations of the Gulf Pension Plan occurred. Months after this action was filed, Chevron, on the advice of its trial counsel, requested its San Francisco counsel, Pillsbury, Madison and Sutro (“PM & S”), to seek a determination from the San Francisco Regional Office of the IRS that a partial termination of the Gulf Pension Plan had not occurred. On May 1, 1987, PM & S submitted a letter accompanied by an IRS Form 5300 seeking a determination that the new Chevron Retirement Plan was a qualified plan under ERISA. Although IRS Form 5300 contains a box to check if a plan sponsor requests a determination on the issue of partial termination, Chevron did not check this box (Defendants’ Ex. 18 at p. 6, line 3.a.(iv)), and PM
&
S’ letter neither requested a determination on the partial termination issue nor submitted any information regarding this issue. In a separate cover letter that accompanied the May 1, 1987, request, PM & S referred to this lawsuit and requested expedited treatment of the application for determination. (Defendants’ Ex. 18 at p. 1) As required by IRS procedures, Chevron gave notice of the May 1, 1987, request to Gulf Plan participants who were still on its payroll and to certain collective bargaining representatives, but gave no notice to former employees who were members of the then alleged class in this action. Since the request did not seek a determination on the partial termination issue, the notice made no mention of that issue. (Defendants’ Ex. 17)
On September 2, 1987, PM & S received questions from the IRS regarding the determination request, which PM & S labeled as “very limited and quite innocuous.” (Defendants’ Ex. 15 at pp. 2 and 3) In a September 2, 1987, letter to Chevron, PM & S stated that in addition to the information sought by the IRS, Chevron’s submission “will also include a request that the Service make a determination that there was no partial termination of the Gulf Plan during the years at issue in the
Borst
litigation. Generally speaking, reviewers like to move active cases along very quickly, so we should receive a prompt response to this filing.” (Defendants’ Ex. 15 at p. 1)
True to its word, on October 5, 1987, PM & S hand-delivered to the IRS District Director in San Francisco a letter responding to the IRS’ questions. (Defendants’ Ex. 16) In one paragraph, comprising a third of a page, PM & S also requested a determination that there was no partial termination of the Gulf Pension Plan during the years 1982 through June 30, 1986.
25
(Id.
at p. 5.) Attached to the letter were three pages of Chevron calculations showing the percentage reductions. Neither the letter nor accompanying calculations provided any discussion of the events surrounding the numbers presented. PM & S did not notify either present or past members of the Gulf Pension Plan or class counsel in this action of this “modification” of its determination request. Although the head of the PM & S Employee Benefits and Deferred Compensation section admitted that if the partial termination determination request contained in the October 5, 1987, letter had been considered as a separate determination request, a separate notice to interested parties would have been required under IRS regulations, she opined that no notice was required of the October 5, 1987, letter because the request was included in a response for information requested by the IRS. On December 9,1987, the IRS District Director in San Francisco issued a favorable determination to Chevron. (Defendants’ Ex. 19) The determination is one page in length, contains no analysis of issues to which this Court has .devoted over 20 pages, and appears to be largely a form letter.
ERISA requires notice to interested parties each time the sponsor of a tax qualified plan requests an IRS determination letter. § 3001(a) of ERISA, 29 U.S.C. § 1201 (a). The notice to interested parties must specify procedures by which interested parties
*1172
(generally participants in the plan and their collective bargaining agents) can obtain copies of the materials filed with the IRS, and can file written comments with the IRS, or request the Department of Labor to file comments with the IRS. Rev.Proc. 80-30, 1980- 1 C.B. 685 , §§ 6 and 7. The notice to interested parties must also indicate the subject matter of the determination letter request.
Id.
at § 7.03(4). In the case of a plan termination, including a partial plan termination, former as well as current employees are interested parties who must receive notice.
Id.
at §§ 3.01(4) and 6.01; Treas.Reg. § 1.7476-l(b)(5) (1976). The purpose of these notice requirements is to afford parties who may have views different from the plan sponsor to make those views known to the IRS before it makes a determination.
Chevron’s failure to notify any Gulf Pension Plan participants that it was seeking a determination of the vertical partial termination issue was contrary to the IRS regulations and the underlying policy requiring notice. This failure also violates fundamental fairness and the reasonable claims procedure requirements of § 503 of ERISA, 29 U.S.C. § 1133 . Apart from the serious procedural defect in the way Chevron obtained the IRS determination letter, the Court also finds that the IRS determination is due no deference because it evidences no investigation or legal analysis of the facts by the IRS. For both reasons the Court concludes that the IRS determination letter is entitled to no weight, and the Court has given it none.
26
C.
Horizontal Partial Termination
The horizontal partial termination rule is found in Treas.Reg. § 1.411(d)-2(b)(2).
Special rule.
If a defined benefit plan ceases or decreases future benefit accruals under the plan, a partial termination shall be deemed to occur if, as a result of such cessation or decrease, a potential reversion to the employer, or employers, maintaining the plan (determined as of the date such cessation or decrease is adopted) is created or increased. If no such reversion is created or increased, a partial termination shall be deemed not to occur by reason of such cessation or decrease.
The rule has two elements: a cessation or decrease in future benefit accruals in a defined benefit plan and a resultant creation or increase of a potential reversion to the employer. The rule does not require that an employer actually attempt to achieve a reversion, only that a
potential
for reversion exist because of a cessation or decrease of future benefit accruals.
27
The partial termination claim arises because of changes in the benefits that were available to former Gulf employees under the Gulf Pension Plan and those available to them after the Gulf Pension Plan and the Chevron Annuity Plan were merged into the new Chevron Retirement Plan effective July 1, 1986. Plaintiffs argue that the effect of the plan merger was to reduce substantially future benefit accruals to former Gulf employees, thereby increasing the potential for a reversion to Chevron upon any final termination of the merged plan.
As evidence of this decrease in future benefit accruals, plaintiffs cite a September 25, 1985, presentation to the Chevron Executive Committee analyzing the prospective plan merger. (Defendants’ Ex. 353) The presentation projected that the Chevron Retirement Plan would achieve a decrease
*1173
of $102 million in present value liability through net decreases in benefits that would otherwise have been paid to former Gulf employees under the Gulf Pension Plan.
28
(A $162 million increase in present value liability was projected for improved benefits to former Chevron employees under the merged plan.)
Another schedule presented to the Executive Committee at the same presentation (Plaintiffs’ Ex. 529) showed that this $102 million decrease was achieved because the increase in the present value of the more favorable lump-sum death benefits to former Gulf employees under the merged plan (+ $30 million) was more than offset by four other changes:
(1) undiscounted retirement at age 60 under the Gulf Plan was ended, thus eliminating future accruals of this benefit for service after the July 1, 1986, Plan amendment ( — $17 million);
(2) the immediate payment of disability retirement benefits to employees with at least 15 years of service under the Gulf Plan based on the level of compensation and years of service to the date of disability without any early retirement discount was eliminated and substituted with an actuarially discounted benefit ( — $65 million);
(3) the 40% post-retirement spousal annuity was frozen, thereby eliminating ' future accruals of this benefit for service after the July 1, 1986, plan amendment ( — $31 million); and
(4) the pre-Social Security “bridge” benefits provided for Plan members whose early or disability retirement benefit began before age 62 was restricted to service up to the July 1, 1986, Plan amendment, thus eliminating future accruals of this benefit ( — $19 million).
Analyzing the same changes in pension plan benefits, plaintiffs’ actuarial expert, William A. Dreher, independently calculated a reduction in pension liability of $118,-563,000. (Plaintiffs’ Ex. 1255 at p. 14) After considering improvements in SRAP benefits to former Gulf employees under the Chevron Retirement Plan, Dreher testified that the net reduction in future benefit accruals to former Gulf employees was $83,803,000.
29
(Plaintiffs’ Ex. 1254, column 4.b) Dreher testified that on June 30, 1986, the Gulf Pension Plan had fully funded all past and future benefit accruals for present employees and was overfunded on an ongoing Plan basis by $125 million. According to Dreher, the net effect of the Gulf Pension Plan changes enacted by Chevron was to increase substantially the already overfunded status of the Plan, thereby also increasing the amount of any reversion to Chevron were the Chevron Retirement Plan terminated, or, in any event, allowing Chevron to delay the amount or timing of further contributions to the merged plan..
Defendants mount both factual and legal defenses against the alleged horizontal partial termination. At trial Chevron witnesses Neil Darling, who in 1985 was responsible for financial affairs of all Chevron pension plans, and Alex Ross, who was then manager of the Chevron corporate benefits staff, attempted to deflate the size of the $102 million projected decrease and to disavow its importance in several ways. First, Darling sponsored a chart designed to show that the $102 million estimated decrease was inaccurate by $59 million and that the correct estimated decrease was only $43 million. (Defendants’ Ex. 348) When other non-pension plan benefits available under the Chevron Profit Sharing/Savings Plan were also considered,
*1174
Darling’s chart purported to show that the present value of future benefits to former Gulf employees under the Chevron Retirement Plan actually increased by $32.5 million.
Ross reiterated Darling’s contentions and testified that the $102 million decrease was not intended to represent a reduction in benefit accruals to Gulf Plan members. He also testified that because of a recently discovered oversight, the —$102 million figure was unreliable because it failed to include more favorable benefits under the Chevron Annuity Plan which, although carried forward into the merged Chevron Retirement Plan, were not considered in the 1985 presentation to the Executive Committee or in other contemporaneous Chevron documents.
The Court is not persuaded by Chevron’s attempt at trial to disassociate itself with figures developed over a number of months and presented by the manager of its corporate benefits staff to the Chevron Executive Committee at the conclusion of extensive planning by Chevron to evaluate the cost and method of merging the Gulf Pension Plan and Chevron Annuity Plan. The Court does not find Defendants’ Ex. 348 to be relevant because some of the offsetting adjustments used to moderate the $102 million decrease to a $43 million decrease, e.g., replacement of lump-sum death benefits with life insurance coverage and replacement of disability retirement benefits with a company-paid, long-term disability insurance plan, do not affect the liability of the Gulf Pension Plan or the Chevron Retirement Plan. Although these changes and the others discussed in the next two paragraphs may be relevant to the general effect of the plan merger on former Gulf employees, they are not relevant in determining whether there was a decrease in the present value of Gulf pension plan liability, which is the issue represented in defendants’ 1985 documents (Plaintiffs’ Ex. 529; Defendants’ Ex. 353), or whether there was a decrease in future benefit accruals under the Chevron Retirement Plan within the meaning of the horizontal partial termination rule, Treas.Reg. § 1.411(d)-2(b)(2).
30
For the same reason the alleged benefit that former Gulf employees now receive under the Chevron Profit Sharing/Savings Plan, which Chevron argues resulted in an increase in Chevron’s liability by $32.5 million, is irrelevant in considering a possible horizontal partial termination of the Gulf Pension Plan.
31
Nor is the Court persuaded by Ross’ testimony that improved benefits to former Gulf employees under the Chevron Retirement Plan should be considered as offsetting any possible effect of the $102 million decrease presented to the Chevron Executive Committee. Defendants’ Ex. 363 lists these additional improvements, some of which are also quantified in Defendants’ Ex. 348. Some of these improvements, such as the ability of a former Gulf employee to retire from Chevron and elect a lump-sum payment instead of an annuity, were not considered to be plan benefits during the plan merger discussions because of their optional nature. (Plaintiffs’ Ex. 212, October 17, 1985, Memo from Carter to Ross) There was even disagreement on the witness stand between Darling, who thought this option was not a benefit, and
*1175
Ross, who now thinks it is. Both witnesses agreed, however, that it would be very difficult to quantify the effect of this alleged benefit because a former Gulf employee who elected a lump-sum pension payment option would lose the benefit of the 40% annuity his spouse would otherwise be entitled to receive (a benefit based on the employee’s
past
as well as future service) and would likewise lose the benefit of any future AVIS pension enhancements that Chevron might declare.
Ross attempted to demonstrate the effect of five of the plan improvements listed in Defendants’ Ex. 363 (and to refute Dre-her’s testimony) through exhibits showing the effect of the alleged Chevron improvements on five categories of former Gulf employees: Case A — Terminated Vested Benefits, Case B — Disability Benefits, Case C — Death Benefits, Case D — Early Retirement Benefits, and Case E — a different Early Retirement Benefit scenario. (Defendants’ Exs. 361 and 362) Ross admitted, however, that if non-pension welfare benefits and benefits under the Chevron Profit Sharing/Savings Plan were not considered, and the focus was limited solely to improved pension benefits under the Chevron Retirement Plan, former Gulf employees who fell within Cases D and E would be better off under the Gulf Pension Plan. He also admitted that under that scenario it would not be possible to make an accurate comparison of benefits under the two plans for Cases A and B and that only under Case C — Death Benefits, would former Gulf employees be better off under the Chevron Retirement Plan. Ross acknowledged that very few employees would fall under Case C and, more importantly, he testified that none of the five cases compared normal retirement benefits under the two pension plans.
The most important factor in the Court’s analysis of defendants’ factual defense, however, is that Chevron’s exhibits and supporting testimony are all admitted after-thoughts developed in the course of this litigation. Chevron documents from 1985 show that Ross and Darling then believed and told the Chevron Executive Committee that the new Chevron Retirement Plan would create a decrease of $102 million in the present value of benefits otherwise payable under the Gulf Pension Plan. Chevron’s litigation position that this 1985 estimate was unreliable because of an oversight in the way it was calculated, or its failure to also address non-pension benefits or additional benefits under the Chevron Retirement Plan, does not ring true.
There was abundant evidence besides the documents prepared for the September 25, 1985, Executive Committee presentation that Chevron anticipated and planned for a reduction in Gulf pension benefits. In an August 8, 1985, memo to Ross (Plaintiffs’ Ex. 190), Carter stated that “Gulf participant liability has been reduced $205.2 million while Chevron participant liability has increased $176.7. This reflects the deliber-alization of some Gulf Plan provisions ...” The plan design described in this memo went through several modifications, e.g., Plaintiffs’ Ex. 138, September 9, 1985, memo from Carter to Ross, and ultimately resulted in the benefit structure that achieved the $102 million reduction presented to the Executive Committee on September 25, 1985Í
The March 5, 1984, corporate merger agreement between Gulf and Chevron limited to two years Chevron’s obligation to continue pension benefits to former Gulf employees at the pre-merger level. (Plaintiffs’ Ex. 497 at § 6.10) On July 1, 1986, less than three months after the expiration of this two-year period, Chevron merged the Gulf Pension Plan and the Chevron Annuity Plan into the Chevron Retirement Plan, and reduced benefits to former Gulf employees. Section 204(h)(1) of ERISA, 29 U.S.C. § 1054 (h)(1), requires a plan administrator to give plan members written notice of any plan amendment that provides “for a significant reduction in the rate of future benefit accruals].” In June of 1986, shortly before the plan merger, Chevron filed a notice under § 204(h)(1) articulating seven ways in which the July 1, 1986, amendments to the Gulf Pension Plan resulted in such reductions of benefit accruals. (Plaintiffs’ Ex. 552) Four of the reductions listed were those quantified in
*1176
arriving at the $102 million decrease shown on Plaintiffs’ Ex. 529.
32
In assessing defendants’ factual defenses to plaintiffs’ horizontal partial termination claim, the Court finds that defendants’ contemporaneous belief, not a position developed for trial, is most probative of the truth. The contemporaneous evidence establishes that when Chevron was planning to merge the two plans it consistently considered reducing benefits available under the Gulf Pension Plan and ultimately concluded that these reductions would result in a $102 million decrease in Chevron’s pension plan liability to former Gulf employees.
Defendants also argue that the Gulf Pension Plan changes quantified in Plaintiffs’ Ex. 529, and in particular the change in disability retirement benefits, cannot be considered in determining if a horizontal partial termination occurred because the horizontal partial termination rule only protects “accrued benefits,” and these four categories of reduced benefits are “non-accrued,” or “ancillary benefits.” This argument is premised upon the contention that the term “benefit accruals” in the rule refers to the rate at which an employee earns an “accrued benefit,” which is defined, in the case of a defined benefit plan, by Code § 411(a)(7)(A)(i) as “the employee’s accrued benefit determined under the plan and ... expressed in the form of an annual benefit commencing at normal retirement age....” According to defendants, none of the four benefits that were reduced meet this definition because they did not have a specified accrual rate and did not commence at normal retirement age.
33
The crux of defendants’ argument is that because Code § 411 “protects only accrued benefits” (Defendants’ Post-Trial Brief Regarding Horizontal and Vertical Partial Termination at p. 3), the horizontal partial termination rule adopted to implement this section of the Code must also be limited in scope to protecting future accruals of accrued benefits. Defendants argue that the rule does not prohibit an employer from prospectively eliminating or reducing ancillary benefits.
The Court is not persuaded by this argument for several reasons. Defendants have cited no authority, and the Court has found none, that would so circumscribe Code § 411 or the horizontal partial termination rule. Although § 411 is indeed full of references to “accrued benefits,” the only reference in § 411(d)(3) to benefits, whether accrued or otherwise, occurs in addressing the remedy for a plan termination. Section 411(d)(3) provides that if a termination or partial termination has occurred, the remedy is to vest “all affected employees to benefits accrued to the date of such ... partial termination ... to the extent funded as of such date.... ” Given the repeated use of the term “accrued ben
*1177
efits” in parts of § 411 other than § 411(d)(3), the Court does not conclude that the failure of § 411(d)(3) to define a partial termination by reference to a particular type of benefit, and the failure of Treas.Reg. § 1.411(d)-2(b)(2) to speak in terms of a plan amendment that decreases future accruals of “accrued benefits,” were drafting oversights. '
Section 252 of the Plan Termination Handbook is also inconsistent with such a limited reading of the horizontal partial termination rule. It states:
(2) The regulations under IRC 411 do not refer to the curtailment concept
34
as determinative of whether there has been a partial termination. Therefore,
when benefits
or employer contributions
are reduced
or the eligibility or vesting requirements under the plan are made more restrictive, facts and circumstances, other than the mere fact that
benefits,
employer contributions, etc. have been cut back, enter into the determination of whether there has been a partial termination....
(3) I.T.Regs. 1.411 (d) — 2(b)(2) sets forth a “special rule” for defined benefit plans which cease
future accruals.
In such a case, a partial termination shall be deemed to occur if, as a result of such cessation or decrease, a potential reversion to the employer is created or increased. If no such potential for reversion is created or increased, a partial termination shall not be deemed to occur solely by reason of the cessation or decrease .... (emphasis added)
Section 22.5 of the IRS Training Program, which deals with Employee Plans, also focuses on future benefit accruals, not curtailment of accrued benefits.
The Court concludes that the horizontal partial termination rule, although not a model of clarity, is intended to deter employers from adopting plan amendments that lessen accruals of future benefits, including ancillary benefits, if the effect of such an amendment would be to create or increase the likelihood that the employer would receive a reversion of plan assets in the future. This is a broader goal than the other provisions of § 411, which protect already accrued benefits. Many employers make plan contributions not only to keep pace with currently accrued benefits but also to fund future liabilities, which although they have not yet been incurred, will be incurred in the future if the employer’s actuarial projections concerning future increases in time-in-seryice and salary prove correct. Those future benefit accruals (which are not protected by the anti-cutback rule) are protected by the horizontal partial termination rule.
Were an employer allowed to avail itself of such a source of funds by deliberalizing benefits that have been promised, but not yet accrued, the employer would have an economic motive for amending a pension plan to eliminate or reduce future accruals of benefits promised by the plan. This is exactly what happened here. Chevron adopted a new pension plan that substantially reduced future accruals of benefits to former Gulf (but not former Chevron) employees at a time when the Gulf Plan was overfunded on an ongoing basis by $125 million. When Chevron made these changes it was aware of the potential economic advantage of doing so through either a reversion of the surplus or by using the surplus to fund future benefit obligations.
In defining the scope of the horizontal partial termination rule it is important not to lose sight of the remedy it affords. Neither ERISA nor the Code expressly protects “unearned” benefits, i.e., benefits based on future service.
See Blessitt v. Retirement Plan for Employees of Dixie Engine Co.,
848 F.2d 1164, 1175 (11th Cir.1988). Unlike breaches of ERISA’s fiduciary provisions, which are remedied by damages, and violations of the anti-cutback rule of Code § 411(d)(6), which can result in disqualification' of a plan,
see
Code § 401(a)(7), the remedy for a horizontal partial termination is merely to vest the affect
*1178
ed employees in accrued (i.e., earned) benefits (which were selected by the employer in the first place) to the extent they have been funded by the employer. The employer is saddled with no additional plan contributions, damages, or disqualification of its plan; the horizontal partial termination rule only reduces the employer’s ability to obtain a reversion of its previous, tax-deductible, contributions to the plan.
The Court does not find persuasive defendants’ attempt to read into the horizontal partial termination rule a limitation that is not corroborated by the Code or its implementing regulations and that would disserve the policies underlying the rule.
35
Although the horizontal partial termination rule could have been drafted to make its meaning clearer, the Court concludes that the reductions in benefits imposed by the Chevron Retirement Plan satisfy both the language and purpose of the rule. The changes enacted by Chevron in benefits that would otherwise have been available to plaintiffs under the Gulf Pension Plan resulted in decreases in future benefit accruals within the meaning of the horizontal partial termination rule. These decreases increased the potential reversion to Chevron if the Chevron Retirement Plan were terminated. The Court therefore finds that a horizontal partial termination occurred as a result of the elimination of these future benefit accruals by merging the Gulf Pension Plan into the Chevron Retirement Plan. The Court will order that all members of the class who were employed by Chevron on July 1, 1986, be vested in all Gulf Pension Plan benefits accrued as of that date.
36
The Court also concludes that even were these reductions in future benefit accruals insufficient to result in a finding of horizontal partial termination, they would nevertheless be additional “fact[s] and circumstance[s]” that would support the Court’s finding of a vertical partial termination.
See
Plan Termination Handbook § 252(8)(a) and (10).
37
The Court is not persuaded by defendants’ argument that the combined effects of facts that could lead to findings of both types of partial terminations cannot be considered since the remedies for vertical and horizontal partial terminations benefit different groups of employees. Different remedies apply because different manifestations of an employer’s conduct frustrate different employee expectations. A vertical partial termination affects non-vested terminated employees, and the remedy therefore is to vest them when their employment ended. A horizontal partial termination affects current employees through the cessation or decrease in future benefit accruals, and the remedy is to vest them in their then accrued benefits. Both the history and pur
*1179
pose of the partial termination rule convince the Court that horizontal partial terminations defined in the “special” rule are merely a particular type of partial termination covered by the “general” rule.
See
Treas.Reg. 1.411(d)-2(b)(l) and (2).
III.. REMEDY FOR PARTIAL TERMINATION
The remedy provided by Code § 411(d)(3) for a partial termination is to vest all non-vested plan members in accrued benefits on the date of the partial termination. Plaintiffs argue that the Gulf Pension Plan also entitles them to an allocable share of surplus assets upon a partial termination. Analysis of this claim first requires some understanding of the history of the Gulf Pension Plan.
A.
The Gulf Pension Plan
The Gulf Pension Plan was created in 1975 as an amendment, restatement and continuation of the Annuity and Benefits Plan of Gulf Oil Corporation (“A & B Plan”), the Supplemental Annuity Plan of Mene Grande Oil Company (“SAP”) and the Contributory Retirement Plan of Gulf Oil Corporation (“CRP”). The A & B Plan, originally established in 1944 as the successor of a 1927 plan, contained only employer contributions. The SAP, established in 1957, covered employees in Venezuela who worked for the Mene Grande Oil Company. The CRP, established in 1963, was a continuation of the Employees’ Savings Plan of Gulf Oil Corporation (“ESP”), which was created in 1950. Plaintiffs’ Ex. 1249 depicts this history.
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Both the SAP and the CRP contained employee and employer contributions. The SAP and CRP have never been terminated, although no additional employee contributions were made to these plans after December 31, 1970. Gulf made no contributions to either plan after they were amend
*1180
ed in 1975.
38
After the 1975 amendments Gulf generally administered the three plans as a single merged plan. However, the Gulf Plan acknowledged that the trust funds of the three plans would be separately maintained and not merged. (January 1, 1976, Gulf Plan Foreword, paragraph 1, and § 8.A.; Plaintiffs’ Ex. 401 at pp. 1 and 51)
39
From 1976 to 1979 the plans’ assets were governed by separate trust agreements.
40
Beginning in 1979 the plans’ assets were governed by a single “Master” Trust Agreement that allowed commingling of assets attributable to the three plans for investment purposes. The Master Trustee was required, however, to account separately for the assets and liabilities of each plan and to “insure that benefits and liabilities payable with respect to each Plan shall be paid only from the assets held by the Master Trustee which are allocable to each such Plan.” (1979 Master Trust Agreement § 2.6, Plaintiffs’ Ex. 391 at p. 4) There was no evidence that Gulf ever used the assets of one plan to pay benefits under another plan, and Gulf continued to account separately for the assets and liabilities of each plan.
Defendants cite an IRS determination approving the 1975 plan merger (Defendants’ Ex. 3) and a certification from Gulf’s enrolled actuary (Defendants’ Ex. 7) as evidence that the plans were merged in 1975. The Court does not find that the correspondence that defendants furnished between the IRS and Gulf supports defendants’ first argument. In this correspondence Gulf stated that “the trust funds are being continued as separate trust funds” (June 2, 1976, letter, Defendants’ Ex. 3 at p. G4B017104), but failed to mention that assets of one trust were unavailable to pay benefits due under other plans. An earlier letter made the same statement, and enclosed a number of documents, but not the trust agreements (December 29, 1975, letter, Defendants’ Ex. 3 at p. G4B001055). Both IRS determinations contain less than a page of text and are largely form documents that evidence no awareness of the trusts’ limitations and contain no legal or factual analysis. (Defendants’ Ex. 3 at pp. G4B006896 and G4B001058) The actuarial certification only addressed the validity of the merger under § 208 of ERISA, 29 U.S.C. § 1058 . Before the propriety of a proposed merger under § 208 of ERISA even becomes relevant, the plans must first qualify as a single plan under ERISA.
See
Treas.Reg. § 1.414(1) — 1(b)(2), IRS Private Letter Rulings 7918014 (January 30, 1979), 7943126 (July 27, 1979), and 8725089 (March 27, 1987). The Court therefore accords little weight to the IRS determinations and the actuarial certification.
In determining whether a merger of plans has occurred, “the substance rather than form of a transaction controls.” IRS Private Letter Ruling 8725089 at p. 2;
see
PBGC Opinion 85-2 (January 14, 1985). Although defendants met some of the formalistic requirements of a plan merger, and although defendants frequently refer to the 1975 “plan merger” (and the Court sometimes does so for ease of style), the Court finds that the three plans were not merged in 1975 into a “single plan” under ERISA because all of the assets of each plan were not available on an ongoing basis to pay benefits due under the other plans.
See
Treas.Reg. § 1.414(1) — 1(b)(1).
B.
Remedy Under the Gulf Pension Plan Upon a Partial Termination
Before July 1, 1986, when the Gulf Pension Plan was merged into the Chevron Retirement Plan, §§ 4.D and 10.A.2 of the Gulf Plan addressed the consequences of a
*1181
plan termination. Section 4.D required that in the event of a partial plan termination all Plan participants were to be vested in their pension benefits regardless of years of service. Section 10.A.2, which addressed both complete and partial plan terminations, provided in pertinent part:
Distribution of Assets.
Upon termination of the Plan the rights of members to the benefits accrued under the Plan to the date of such termination, to the extent then funded, shall be nonforfeitable. All of the assets held in trust, after provision for any properly chargeable expenses, shall be used solely for the members, pensioners, spouses, beneficiaries and joint pensioners until all liabilities under the Plan shall have been satisfied in full. The Benefits Committee shall determine on the basis of an actuarial valuation the share of the funds of the Plan allocable to each member, pensioner, spouse, and joint pensioner in the following order.
(The Plan then sets out a six-tier schedule for the distribution of assets upon termination.)
In the event of a partial termination of the Plan the provisions of this section 10 A-2 shall be applicable to the members affected by such partial termination.
41
In no event shall any part of the Plan assets held in trust or any income on it, prior to the satisfaction of all liabilities under the Plan, revert to the Company or be used other than for the members, pensioners, spouses, beneficiaries and joint pensioners. (Defendants’ Ex. 29 at pp. 44-45)
Plaintiffs argue that § 10.A.2 entitles them to a distribution of all surplus assets of the Gulf Plan upon a partial plan termination.
42
Defendants do not dispute that upon a complete termination of the Gulf Plan members would be entitled to a return of surplus CRP and SAP assets that are attributable to their own contributions.
See
§ 4044(d)(2) of ERISA, 29 U.S.C. § 1344 (d)(2). Defendants deny, however, that § 10.A.2 or the three predecessor plans afford plaintiffs any right to surplus assets resulting from employer contributions. Alternatively, defendants argue that if plaintiffs are entitled to that part of the surplus attributable to employer contributions, that right would only accrue, and any surplus assets would only be distributable, upon a complete Plan termination.
1. Standard of Review
ERISA fiduciaries are obligated to operate pension plans solely in the interest of participants in accordance with the instruments governing the plan. § 404(a)(1)(D) of ERISA, 29 U.S.C. § 1104 (a)(1)(D). ERISA allows plan participants to sue to recover benefits provided them by the terms of a pension plan. § 502(a)(1)(B) of ERISA, 29 U.S.C. § 1132 (a)(1)(B). A § 502(a)(1)(B) action challenging benefit denials is reviewed under a
de novo
standard unless the plan gives the administrator discretionary authority to determine eligibility for benefits or to construe the terms of the plan.
Firestone Tire & Rubber Co. v. Bruch,
489 U.S. 101, 115 , 109 S.Ct. 948, 956 , 103 L.Ed.2d 80 (1989). If so, the administrator’s decisions are reviewed under an abuse of discretion standard.
Section 7.C of the Gulf Pension Plan made the Gulf Plan Benefits Committee the administrator of the Plan for purposes of ERISA. (After the plan merger this responsibility was assumed by Chevron Corporation.) Section 7.C.4 gave the Benefits Committee all powers necessary to carry out the provisions of the Plan including, but not limited to, “the powers necessary to ... construe and interpret the Plan and, subject to the provisions of the Plan, decide all questions of eligibility and determine the amount, time and manner of payment of any benefits hereunder.”
*1182
(§ 7.C.4(a); Defendants’ Ex. 29 at p. 32) However, the Benefits Committee could not “add to, subtract from, or modify the terms of the Plan or change or add to any benefits provided by the Plan, or to waive or fail to apply any requirements of eligibility for benefits under the Plan.” (Section 7.C.4 at p. 33) The language of § 7.C.4 is sufficient under
Firestone
for the abuse of discretion standard to apply.
Application of the abuse of discretion standard may involve a two-step process. First, the Court must determine the legally correct interpretation of the plan’s provisions. If the administrator did not give the plan the legally correct interpretation, the Court must then determine whether the administrator’s decision was an abuse of discretion.
Jordan v. Cameron Iron Works, Inc.,
900 F.2d 53, 56 (5th Cir.),
cert. denied,
— U.S. —, 111 S.Ct. 344 , 112 L.Ed.2d 308 (1990).
2. The Legally Correct Interpretation
In determining the legally correct interpretation of a plan provision the Court must consider (1) whether the administrator has given a uniform construction to the plan, (2) whether the interpretation is consistent with a fair reading of the plan, and (3) whether the interpretation results in any unanticipated costs.
Jordan,
900 F.2d at 56 .
a.
Uniformity of Construction
There was no evidence that before this action the Benefits Committee had ever determined whether § 10.A.2 required allocation of surplus assets to Gulf employees upon a partial termination of the Gulf Pension Plan.
43
Accordingly, there is no basis for finding that the Committee uniformly construed § 10.A.2 of the Gulf Plan,
b.
Fair Reading of § 10.A.2
Defendants advance three arguments why § 10.A.2 prohibits a distribution of surplus assets to plaintiffs: (1) § 10.A.2 was intended to apply to partial terminations only if the Plan was underfunded at the time of the partial termination, and does not apply when, as here, there is a surplus; (2) § 10.A.2 was amended by § 18.d of the Chevron Retirement Plan, which states that all surplus assets belong to Chevron, not to plan participants; and (3) even were § 18.d held to be invalid with respect to CRP or SAP assets, and even assuming that plaintiffs were entitled to surplus assets from those plans, as a matter of law and under the terms of § 10.A.2, such a right would only accrue when the assets are distributed upon complete plan termination. The Court will examine each of these arguments in turn.
(1) Does § 10.A.2 Apply When the Plan is Overfunded at the Time of a Partial Termination?
Defendants offer a complex explanation why § 10.A.2 does not apply to partial terminations when the Plan is over-funded. Defendants begin this argument with an attempt to reconcile the last two paragraphs of § 10.A.2, which state:
In the event of a partial termination of the Plan the provisions of this Section 10 A-2 shall be applicable to the members affected by such partial termination.
In no event shall any part of the Plan assets held in trust or any income on it, prior to the satisfaction of all liabilities under the Plan, revert to the Company or be used other than for the members, pensioners, spouses, beneficiaries and joint pensioners.
At trial Barbara Creed, the head of the Employee Benefits and Deferred Compensation section of PM & S, agreed that the language of the first paragraph quoted above required that § 10.A.2 apply to partial as well as complete Plan terminations. Creed also testified that the first and last paragraphs of § 10.A.2 permitted an employer reversion of any surplus Plan assets upon a complete Plan termination. Creed testified that to determine Gulf’s intent with respect to the effect of § 10.A.2 upon a partial termination, the Court must first determine the consequences under § 10.A.2 of a complete Plan termination. According
*1183
to Creed, upon a complete termination of the Plan, once all liabilities were satisfied through a distribution of assets under § 10.A.2’s six-tier allocation scheme, any remaining Plan assets would revert to Gulf. Because the Code prohibits employer reversions upon a partial termination,
44
Gulf could not achieve a reversion of any surplus assets upon a partial termination notwithstanding its reversionary rights under § 10.A.2. If the Plan were underfunded at the time of a partial termination, no reversion to Gulf would be possible because all Plan assets would be exhausted via the six-tier allocation scheme. Therefore, § 10.A.2 could apply when the Plan was underfunded at the time of a partial termination without running afoul of the Code rule prohibiting an employer reversion before a complete termination. Creed therefore concluded that since
Gulf
could not lawfully achieve a reversion upon a partial termination, Gulf must have intended that § 10.A.2 not apply to a partial termination if the Plan were overfunded. Although this analysis may arguably be supportable by a kind of reverse symmetry, it does not persuade the Court.
45
The next to last paragraph of § 10.A.2 does not say that the treatment of partial terminations under § 10.A.2 is dependent upon the funding status of the Plan. The Plan makes no distinction between over-funded, fully funded, and underfunded Plan status. Given the plain language of § 10.A.2 and the failure of defendants to produce any contemporaneous evidence that § 10.A.2 was to apply to partial terminations only if the Plan were underfunded, the Court will not read such an intent into § 10.A.2. The Court concludes that § 10.A.2 was intended to apply to partial terminations regardless of the level of Plan funding. Furthermore, the underlying problem on which Creed’s analysis is premised — potentially illegal reversions to Gulf upon a partial termination — does not exist if, as the Court finds in part III.B.2.(b)(3),
infra,
no surplus assets are distributable under § 10.A.2 upon a partial termination.
(2) Does § 18.d of the Chevron Retirement Plan Bar Plaintiffs’ Claims to Surplus Gulf Plan Assets?
Defendants argue that because § 10.A.2 of the Gulf Plan was amended by § 18.d of the Chevron Retirement Plan, plaintiffs have no right to any surplus Gulf Plan assets. Section 18.d expressly states that upon a plan termination surplus assets are to revert to Chevron.
Any residual assets of the Trust Fund remaining after such allocation shall be distributed to the Participating Companies if (i) all liabilities of the Plan for the accrued benefits of the Members, spouses, joint pensioners and Beneficiaries who have an interest in the Plan have been satisfied and (ii) such a distribution does not contravene any provision of law. (Defendants’ Ex. 21 at p. 41)
Plaintiffs reply that § 18.d is invalid with regard to Gulf Plan assets for three rea
*1184
sons. First, plaintiffs contend that § 18.d violates ERISA’s exclusive benefit rule, § 403(c)(1) of ERISA, 29 U.S.C. § 1103 (c)(1), and Code § 401(a). Second, they contend that the merger of the Gulf and Chevron plans was illegal under the plan merger rules § 208 of ERISA, 29 U.S.C. § 1058 . Finally, plaintiffs contend that § 18.d contravenes the A & B Plan, the CRP, and the SAP, which state that all plan assets are to be used for the exclusive benefit of participants and that all contributions are to be irrevocable. The Court will address each of these arguments to determine whether § 18.d bars plaintiffs’ claims to surplus Gulf Plan assets.
(a)
Validity of § 18.d Under ERISA’s Exclusive Benefit Rule
Prior to ERISA the common law of trusts allowed employers to retain surplus assets.
Washington-Baltimore Newspaper Guild Local 35 v. Washington Star Co.,
555 F.Supp. 257, 260 (D.D.C.1983), aff
'd,
729 F.2d 863 (D.C.Cir.1984). At common law when a trust had fully performed its purpose without exhausting the trust estate, a resulting trust arose by operation of law for the benefit of the creator of the trust unless he had manifested a different intention.
Pollock v. Castrovinci,
476 F.Supp. 606, 616 (S.D.N.Y.1979),
aff'd mem.,
622 F.2d 575 (2d Cir.1980);
Wilson v. Bluefield Supply Co.,
819 F.2d 457, 464 (4th Cir.1987). Under ERISA employers may recapture surplus assets or amend plans to permit a reversion of such assets as long as the reversion does not violate ERISA and is not prohibited by the plan’s language.
Wright v. Nimmons,
641 F.Supp. 1391, 1406 (S.D.Tex.1986);
Washington-Baltimore Newspaper Guild,
555 F.Supp. at 259 . Section 403(c)(1) of ERISA, 29 U.S.C. § 1103 (c)(1), sets forth the general rule regarding the use and purpose of pension plan assets. Known as the exclusive benefit rule, this section states in pertinent part:
Except as provided in paragraph (2), (3), or (4) or subsection (d) of this section, or under sections 1342 and 1344 of this title (relating to the termination of insured plans), the assets of a plan shall never inure to the benefit of any employer and shall be held for the exclusive purposes of providing benefits to participants in the plan and their beneficiaries and defraying reasonable expenses of administering the plan.
Despite its “exclusive benefit” language concerning the use of plan assets, § 403 of ERISA does not prohibit employer reversions. Section 4044(d)(1) of ERISA, 29 U.S.C. § 1344 (d)(1), outlines the circumstances under which employers may recapture surplus assets.
[A]ny residual assets of a single-employer plan may be distributed to the employer if—
(A) all liabilities of the plan to participants and their beneficiaries have been satisfied,
(B) the distribution does not contravene any provision of law, and
(C) the plan provides for such a distribution in these circumstances.
Allowing an employer to recover surplus assets if these conditions are met is consistent with the policies underlying ERISA.
Employers will continue to fund their plans under ERISA guidelines, but will not be penalized for overfunding in “an abundance of caution” or as a result of a miscalculation on the part of an actuary. Thus, employees will continue to be protected to the extent of their specific benefits, but will not receive any windfalls due to the employer’s mistake in predicting the amount necessary to keep the Plan on a sound financial basis.
In re C.D. Moyer Co. Trust Fund,
441 F.Supp. 1128, 1132-33 (E.D.Pa.1977),
aff'd,
582 F.2d 1273 (3d Cir.1978);
Washington-Baltimore Newspaper Guild,
555 F.Supp. at 260 . Consistent with § 4044(d) of ERISA, Code § 401(a)(2) allows a plan to qualify if it prohibits diversion of plan assets prior to the satisfaction of employees’ liabilities.
These statutes “are clearly intended to ensure that while an employer is obligated to provide defined benefits to plan participants, the participants should not be able to claim a windfall stemming from the employer’s accidental overfunding of a de
*1185
fined benefit plan.”
Washington-Baltimore Newspaper Guild,
555 F.Supp. at 260 .
See Pollock,
476 F.Supp. at 612-613 . The Court therefore concludes that § 18.d of the Chevron Retirement Plan does not violate ERISA’s exclusive benefit rule.
(b)
Validity of the 1986 Plan Merger Under § 208 of ERISA
Plaintiffs argue that before the 1986 merger of the Gulf and Chevron plans, Gulf Plan participants would have received surplus Plan assets upon a termination of the Gulf Plan. After the merger, however, § 18.d expressly provided that any residual assets would revert to Chevron. According to plaintiffs, § 18.d therefore violates § 208 of ERISA because under § 18.d plaintiffs would not receive everything they would have received had the Gulf Plan terminated immediately prior to the 1986 plan merger. Section 208 of ERISA, 29 U.S.C. § 1058 , provides in relevant part:
A pension plan may not merge or consolidate with, or transfer its assets or liabilities to, any other plan after September 2, 1974, unless each participant in the plan would (if the plan then terminated) receive a benefit immediately after the merger, consolidation, or transfer which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation, or transfer (if the plan had been terminated).
Code § 414(Z) sets forth a similar rule for plan qualification.
Under these statutes the benefits a plan participant would have received prior to a merger, upon a hypothetical plan termination, must be at least equivalent to the benefits the plan participant would receive after the merger, upon a hypothetical plan termination. Treasury Regulations promulgated pursuant to § 208 of ERISA limit the protections afforded by § 208 to accrued benefits, and provide that benefits other than accrued benefits may be modified, reduced, or eliminated in a plan merger without violating § 208 of ERISA or Code § 414(l). Treas.Reg. § 1.414(l)-l(e)(l) states:
Section 414(Z) compares the benefits on a termination basis before and after the merger. If the sum of the assets of all plans is not less than the sum of the present values of the
accrued
benefits (whether or not vested) of all plans, the requirements of section 414(i) will be satisfied merely by combining the assets and preserving each participant’s
accrued
benefits. This is so because all the
accrued
benefits of the plan as merged are provided on a termination basis by the plan as merged. However, if the sum of the assets of all plans is less than the sum of the present values of the
accrued
benefits (whether or not vested) in all plans, the
accrued
benefits in the plan as merged are not provided on a termination basis, (emphasis added)
46
Plaintiffs concede that an entitlement to the actuarial surplus that may exist at any given time in an ongoing pension plan is not an “accrued benefit” for the purposes of regulations promulgated pursuant to § 208 of ERISA. (E.g., Plaintiffs’ Corrected Trial Brief at pp. 87-88)
Accord, Van Orman v. American Insurance Co.,
608 F.Supp. 13, 25-26 (D.N.J.1984)
(“Van Orman II”); Walsh v. Great Atlantic & Pacific Tea Co.,
96 F.R.D. 632, 651-52 (D.N.J.),
aff'd,
726 F.2d 956 (3d Cir.1983). The Court therefore concludes that the merger of the Gulf and Chevron Plans did not violate § 208 of ERISA or IRS regulations governing plan mergers.
47
(e)
Validity of § 18.d Under the A & B Plan, the CRP and the SAP
Whether a pension plan permits a reversionary amendment turns on the doe-
*1186
uments creating the plan.
Bryant v. International Fruit Products Co.,
793 F.2d 118, 123 (6th Cir.),
cert. denied,
479 U.S. 986 , 107 S.Ct. 576 , 93 L.Ed.2d 579 (1986);
Wilson v. Bluefield Supply Co.,
650 F.Supp. 578, 581 (S.D.W.Va.1986),
aff'd,
819 F.2d 457 (4th Cir.1987). Because the three plans that were amended and restated as the Gulf Plan were not a single ERISA plan, the Court must analyze the validity of § 18.d of the Chevron Retirement Plan in light of the language of each of these plans. Even had the three plans been merged into a single ERISA plan in 1975, the same analysis would be required since the three plans had previously been administered separately.
See Bryant,
793 F.2d at 122-23 (Court examined 1959 plan and trust instruments to determine the legality of a 1982 reversion amendment). This analysis requires the Court to review the language of each plan and its constituent trust agreement to determine whether they (1) allowed a reversion by Gulf, and (2) reserved to Gulf the right to later amend the plan to allow a reversion.
(i) The A & B Plan
Plaintiffs argue that § 10 of the 1944 A & B Plan prohibited both employer reversions and reversionary amendments by stating that all employer contributions were to be “irrevocable” and would be used for the “exclusive benefit” of plan participants. Section 10 provided in pertinent part:
Section 10. Provision for Agreement of Trust
In order further to implement the Plan the Corporation has entered into an Agreement of Trust to the end that such funds, as may be
irrevocably contributed
from time to time for the payment of all or any part of the annuities under the Plan, shall be segregated from the Corporation’s own assets and held in trust for the
exclusive benefit of the participants, retired participants or their beneficiaries
under the Plan who may in accordance with the terms of such Agreement of Trust be entitled to participate thereunder. To the extent that reserves are provided under such a trust fund to cover all or part of the benefits under this Plan, the payment of such benefits shall be a charge against the Trust Fund and only the remaining part, if any, of such benefits shall be charged directly to the Corporation. (Plaintiffs’ Ex. 448 at p. 11) (emphasis added)
However, §§ 1 and 9 of the accompanying trust agreement created an implied reversion of surplus plan assets to Gulf.
... Any and all contributions made by the Corporation shall be
irrevocable
and no part of the corpus of the Fund nor any income therefrom shall
at any time prior to the satisfaction of all liabilities under the Plan revert to the Corporation or be used for or diverted to purposes other than for the exclusive benefit of participants,
retired participants or their beneficiaries under the Plan. (A & B Plan Agreement of Trust, § 1, Plaintiffs’ Ex. 448 at p. 24) (emphasis added)
In no event shall any part of the corpus of the Fund or any income therefrom at any time
prior to the satisfaction of all liabilities under the Plan revert to the Corporation or be used for or diverted to purposes other than for the exclusive benefit of participants,
retired participants or their beneficiaries under the Plan. (A & B Plan Agreement of Trust, § 9, Plaintiffs’ Ex. 448 at p. 33) (emphasis added)
In 1975 when the A & B Plan was amended and restated as the Gulf Pension Plan, Gulf’s implied right of reversion was preserved in § 10.A.2, which stated in the last paragraph:
In no event shall any part of the Plan assets held in trust or any income on it,
prior to the satisfaction of all liabilities
under the Plan, revert to the Company or be used other than for the members, pensioners, spouses, beneficiaries and
*1187
joint pensioners. (Defendants’ Ex. 29 at p. 45) (emphasis added)
Similar language appeared in the first paragraph of § 10.A.2.
The original A & B trust agreement gave Gulf unilateral power to amend the plan and the trust agreement and did not prohibit an amendment that would allow a reversion to Gulf.
Section 10. Amendment of Trust Agreement or Plan
Subject to the provisions hereinafter set forth in this Section 10, the Corporation reserves for itself and its successors the right, at any time and from time to time, by action of its Board of Directors (or the Board of Directors of such successors) to modify or amend, in whole or in part, any or all of the provisions of this Agreement of Trust and of the Plan. All such modifications or amendments relating to classification of employees, contributions or benefits shall be uniform in their nature and application shall be applied to all those similarly situated ... (A & B Plan Agreement of Trust, Plaintiffs’ Ex. 448 at pp. 34-35)
This amendment authority was confirmed in § 8 of the Plan.
The Board of Directors shall have the right, at any time, to withdraw or modify this Plan. The Corporation guarantees that once an annuity has accrued and has been granted by the Annuity Committee as a regular allowance, it will be continued for the life of the annuitant or his beneficiary nominated in accordance with the provisions of Section 5(3), subject, however, to the provisions of this Plan as it is in effect at the time such annuity is granted. (Plaintiffs’ Ex. 448 at p. 10)
Notwithstanding the implied right of reversion of surplus assets and the absence of any prohibition of an amendment allowing such a reversion, plaintiffs argue that amendments allowing reversions to Gulf were prohibited by exclusive benefit language found in the amendment provisions of the 1961 amended A & B Plan and the 1975 Gulf Plan. Sections 11(8) and (9) of the 1961 A & B Plan stated:
(8) The Board of Directors reserves the right at any time and from time to time to modify or amend, in whole or in part, any or all of the provisions of the Plan, provided that:
(a) No modification or amendment may be made which will deprive any person of any benefit under the Plan which has accrued on or prior to the time of such modification or amendment, and
(b) No such modification or amendment shall make it possible for any part of the Trust Fund to be used for, or diverted to, purposes other than for the
exclusive benefit
of participants and retired participants, or their beneficiaries under the Plan.
0) ...
In no event shall any part of the corpus of the Trust Fund or any income therefrom at any time prior to the satisfaction of all liabilities under the Plan revert to the Corporation or be used for or diverted to purposes other than for the
exclusive benefit
of participants, retired participants or their beneficiaries under the Plan. (Plaintiffs’ Ex. 449 at p. 10) (emphasis added)
Section 9.9 of the 1975 Gulf Pension Plan did not substantially change the amendment authority of the 1961 amended A & B Plan. It stated:
(9)
Right of Amendment
The Company reserves the right to modify or amend the Plan, in whole or part, provided that:
(a) No modification or amendment may deprive any member or other person of any benefits accrued to date, and
(b) No modification or amendment shall allow any Plan assets to be used for, or diverted to, purposes other than the exclusive benefit of the members, pensioners, spouses and other joint pensioners and beneficiaries. (Defendants’ Ex. 29 at p. 41)
If ERISA or the Code do not bar a contemplated asset distribution, judicial review of plan language concerning
*1188
such a distribution is guided by general principles of contract construction. Although a minority of courts have held that the inclusion of “exclusive benefit” language such as in the A & B Plan of the Gulf Plan prohibits an employer’s recapture of surplus assets, the majority of courts, including this Court, has held that exclusive benefit language is mandated by ERISA and the Code and that
standing alone
it cannot be read to prohibit a reversion of surplus assets.
See Wright,
641 F.Supp. at 1406 ;
Chait v. Bernstein,
835 F.2d 1017 (3d Cir.1987);
Pollock,
476 F.Supp. at 612, 617 .
48
The mere recitation of exclusive benefit language does not “represent a unique expression of its designers’ desire to mandate that every penny, even amounts in excess of accrued benefits, must revert to employees.”
Chait,
835 F.2d at 1023 . Rather, such language is standard language in every ERISA plan and merely rescribes the language of ERISA and the Code.
Id.
A court must therefore look for additional language reflecting the employer’s intent in using exclusive benefit language. A significant factor in determining the employer’s intent in using such language is whether the plan contained a provision for the distribution of surplus assets to participants before the challenged amendment.
Wright,
641 F.Supp. at 1406 . Another factor is employer communications about asset distributions. While such communications are not part of the plan and cannot be used to modify plan provisions, they do provide an indication of the employer’s intent.
Bryant,
793 F.2d at 123 .
In addition to the exclusive benefit language, the A & B Plan stated that all employer contributions would be “irrevocable.” This language is not boiler plate required either by ERISA or Code § 401(a) and is relevant in discerning Gulf’s intent. While the predecessor to § 401(a) may have mandated the exclusive benefit language of the A & B Plan, it did not require that employer contributions to a plan must be irrevocable. The legislative history of § 401(a) reflects that Congress expressly considered and rejected an irrevocability requirement for qualified plan status.
See
IRS General Counsel Memorandum 35351, May 29, 1973, at p. 4. Nor, as defendants argue, was the “irrevocable contribution” language of the A & B Plan required by Treas.Reg. § 1.404(a)-2(a)(2). This regulation, entitled “Information to be furnished by employer claiming deductions ...,” merely lists the information that an employer must furnish the IRS in the first taxable year in which a deduction is taken in order to justify the deduction. The regulation imposes no substantive requirements on the contents of the plan.
See
IRS Technical Advice Memorandum 7002206860A, February 20, 1970 (National Office of the IRS rejects use by a district office of § 1.404(a)-2 for substantive support).
Nevertheless, the Court finds that the “irrevocable” language in the A & B Plan did not prohibit a Plan amendment allowing a reversion to Gulf. At common law a trust is irrevocable if the written instrument creating the trust was adopted by the settlor as the complete expression of his intent and did not allow the settlor to revoke the trust. RESTATEMENT (SECOND) OF TRUSTS § 330, Comment b (1959). Conversely, where the settlor reserved a power of revocation in the terms of the trust, he could revoke the trust in the manner and to the extent that he reserved such a power. A. Scott & W. Fratcher, THE LAW OF TRUSTS, § 330 (4th ed. 1987). The intention to reserve a power of revocation need not be stated in exact terms; it may be indirectly expressed or inferred from plan language.
Id.
at § 330.1. A statement that the trust is intended to be irrevocable will control to prohibit revocation unless this term is contradicted by other terms of the trust. G.G. Bogert & G.T. Bogert, TRUSTS & TRUSTEES, § 1000 (2d ed. 1983). If the meaning
*1189
of the trust instruments’ language is uncertain or ambiguous as to whether the settlor intended to reserve a power of revocation, evidence of the circumstances under which the trust was created can be used to determine its interpretation. RESTATEMENT (SECOND) OF TRUSTS § 330, Comment b (1959).
The A & B Plan contained conflicting language about revocation. Although the plan and trust language cited by plaintiffs stated that all Gulf contributions were “irrevocable,” that language was contradicted by §§ 1 and 9 of the Agreement of Trust in which Gulf impliedly reserved the right to take a reversion of surplus assets. The most logical way to harmonize this apparent conflict, and to give meaning to all of these provisions, is to conclude that Gulf intended that it could not withdraw its contributions from the trust until all plan liabilities had been satisfied.
The circumstances surrounding the creation of the A & B Plan and Agreement of Trust also indicate that the “irrevocable” language was not intended to prohibit a reversion by Gulf. Although the A & B Plan and the CRP and SAP all contained “irrevocable” language, there were material differences in the context in which this language appeared. Unlike the irrevocable language in the CRP and SAP,
discussed infra,
the irrevocable language in the A & B Plan and Agreement of Trust was accompanied by language, sometimes in the following sentence, implying a right of reversion to Gulf after all Plan liabilities had been satisfied.
49
Also, unlike the CRP and SAP, no version of the A & B Plan ever contained a schedule for distributing surplus assets to plan participants.
The Court does not find, as urged by plaintiffs, that § 14.4 of the 1976 Agreement of Trust (Plaintiffs’ Ex. 390 at p. 19), which then governed only the A & B portion of the Gulf Pension Plan, required that surplus assets be distributed to Plan participants. That provision merely instructed the trustee that if the Plan were silent as to the distributions to be made upon a termination, or if the terms of the Plan were inconsistent with then applicable law, the trustee “shall distribute the Fund to the participants and their beneficiaries in an equitable manner that will not adversely affect the qualified status of the Plan [and will be legal].” The Court finds that this provision was intended to give the trustee authority to completely distribute assets in an equitable manner upon a Plan termination if the Plan itself gave the trustee no guidance, or if that guidance was then unlawful.
Also, unlike the CRP, discussed
infra,
no evidence was presented of communication to Gulf employees regarding their right to surplus assets from the A & B Plan or the Gulf Plan.
50
The Court is not persuaded by plaintiffs’ argument that Gulf’s intent to prohibit both reversions and reversion-ary amendments is evidenced by language in the Gulf Pension Plan Summary Plan Descriptions (SPDs). The September 1, 1982, SPD, which was the last summary provided to participants prior to the July 1, 1986, merger, stated:
The Company has the right to change the plan. But if it does, you should know that ... it
cannot
make any change that would allow the assets of the Plan to be used for anything but the exclusive benefit of members or their beneficiaries ... If the Company should ever terminate the Plan, the procedures in § 10 of the Plan will control who will get what from the trust assets. (Plaintiffs’ Ex. 425 at p. 21) (emphasis in original)
Earlier SPDs use the same language. (E.g., Plaintiffs’ Ex. 424, 1977 SPD at p. 21)
*1190
This language is a restatement of the exclusive benefit language of the A & B Plan, the Agreement of Trust, and § 8.C of the Gulf Plan. (The only other communication from Gulf relied upon by plaintiffs — a May 3, 1984, letter from Gulf to plan participants [Plaintiffs’ Ex. 505] — merely says that the merger with Chevron will not jeopardize accrued benefits.) Exclusive benefit language in a plan standing alone does not prohibit either reversions or reversionary amendments. Likewise, SPD language that merely paraphrases such a plan provision does not evidence Gulfs intent not to allow reversions or reversionary amendments. For the reasons discussed in part III.B.2.b.(3),
infra,
the Court also concludes that the reference in the SPD to “the procedures in § 10 of the Plan” does not reflect Gulfs intent that surplus assets be distributed to Plan participants.
Were the language of the Gulf Pension Plan free from doubt this lawsuit probably would not have consumed the time devoted to it by the litigants and the Court. Having carefully weighed the arguments of plaintiffs and defendants, the Court concludes that the Gulf Pension Plan, and its predecessor, the A & B Plan, did not prohibit the amendment allowing the right of reversion contained in paragraph 18.d of the Chevron Retirement Plan. Although the Court is somewhat troubled by the use of the word “irrevocable” in the A & B Plan and Agreement of Trust, the Court is nevertheless led to this conclusion because (1) the A & B Plan and the Gulf Plan and their accompanying trust agreements have always contained an implied right of a reversion to Gulf of surplus assets after all plan liabilities were satisfied, (2) these plans and trust agreements never prohibited an amendment allowing a reversion to Gulf, (3) unlike the CRP and SAP, no version of the A & B Plan ever contained a schedule or other provision for distributing residual assets to Plan participants, and (4) unlike the CRP and SAP, all contributions to the A & B Plan were made by Gulf.
This construction of the Gulf Plan is consistent with the policies underlying ERISA. It guarantees that the plaintiffs will receive all benefits accrued under the A & B Plan and the Gulf Plan. However, it also allows the employer, which made all of the plan contributions, to recover any remaining surplus after all plan liabilities have been satisfied. A contrary construction could deter employers from fully funding plans, or from erring on the side of plan members in making funding projections, out of fear that the penalty for making a mistake in funding calculations would be to forego an eventual right to receive any surplus upon termination of the plan. This consideration should not be understated. Underfunded pension plans can seriously prejudice members’ rights to receive benefits provided to them by the plan and, even when those benefits are insured, can require the Pension Benefit Guaranty Corporation, and ultimately the taxpayers, to assume responsibility for them. From a policy standpoint, allowing an employer to obtain a reversion of a surplus attributable to overfunding is a better alternative, especially since as discussed in part II.B.3(a),
supra,
the substantial excise tax on reversions deters employers from terminating plans and taking reversions.
(ii) The CRP
Plaintiffs argue that in § 8 of the ESP, Article II of the accompanying ESP Agreement of Trust, and Article II of the CRP Amended Agreement of Trust made all CRP contributions irrevocable and prohibited reversions of surplus assets to Gulf. These provisions stated in pertinent part:
In order to further implement the Plan the Corporation has entered into an Agreement of Trust with a corporate trustee to the end that the assets of each Fund of the Plan shall separately be held in trust for the
exclusive benefit of
members and annuitants, or their beneficiaries and contingent annuitants, who may in accordance with the provisions of the Plan be entitled to participate there-under_ (ESP § 8, Plaintiffs’ Ex. 428 at p. 17) (emphasis added)
... Any and all contributions made by The Gulf Companies to the Annuity Fund and each Stock Bonus Fund shall be
ir
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revocable,
and no part of the corpus of any Fund, or any income therefrom or accretions thereto, shall revert to The Gulf Companies or be used for or diverted to purposes other than those provided for in the Plan.... (ESP Agreement of Trust, Article II, Plaintiffs’ Ex. 428 at p. 36) (emphasis added)
... Any and all contributions made by The Gulf Companies to the Annuity Fund and each Stock Bonus Fund shall be
irrevocable,
and no part of the corpus of any Fund, or any income therefrom or accretions thereto, shall revert to The Gulf Companies or be used for or diverted to purposes other than those provided for in the related Plan.... (CRP Amended Agreement of Trust, Article II, Plaintiffs’ Ex. 441 at p. 6) (emphasis added)
In contrast to the A & B Plan, the ESP and CRP contained schedules for the distribution of all assets, including any surplus assets, to plan participants and beneficiaries upon a complete plan termination.
(6) The Board of Directors may terminate the Plan for any reason at any time. In the case of termination of the Plan, the cash, securities and properties then held in the Funds of the Plan shall be used for the exclusive benefit of the members and annuitants, or their beneficiaries and contingent annuitants. In such event, the share of each such person in the assets of each Fund of the Plan, i.e., the investments and cash held therein, shall be computed and distributed as follows:
(a) The investments and cash held in the Annuity Fund shall be allocated as follows:
Fourth, the remaining balance in the Fund, if there is any after the distributions under First, Second and Third above, shall be divided among members and annuitants (including contingent annuitants in receipt of annuities) in the proportion which the amounts credited to each, under First, Second and Third above, bears to the total of the amounts credited to all such persons under First, Second and Third above. (ESP § 9(6), Plaintiffs’ Ex. 428 at pp. 19 & 20)
A.
Plan Termination
The Board of Directors may terminate the Plan for any reason at any time. Upon termination of the Plan, all the Plan assets, after provisions for any properly chargeable expenses, shall be used solely for the members, annuitants, beneficiaries and joint annuitants.... [and] the assets shall be allocated as follows:
Third, the remaining balance shall be divided among members, annuitants, and joint annuitants receiving annuities, in the ratio of the amount credited
to each
under FIRST and SECOND above bears to the total of these amounts credited to
all
such persons. (CRP § 7, Plaintiffs’ Ex. 429 at p. 22)
Plaintiffs also argue that Gulf’s intent to prohibit reversionary amendments to the CRP is evidenced by the ESP and CRP amendment authority provisions.
(5) The Board of Directors reserves the right at any time and from time to time to modify or amend, in whole or in part, any or all of the provisions of the Plan, provided that;
(a) No modification or amendment may be made which will deprive any member or other person of any benefits which have accrued on or prior to the time of such modification or amendment, and
(b) No such modification or amendment shall make it possible for any part of the Funds of the Plan to be used for, or diverted to, purposes other than for the exclusive benefit of members and annuitants, or their beneficiaries and continuant annuitants. (ESP § 9, Plaintiffs’ Ex. 428 at pp. 18-19)
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The same language was present in § 6 of the CRP, Plaintiffs’ Ex. 429 at p. 22.
The features of the ESP were reiterated in the Questions and Answers that Gulf included in the ESP booklet “as a convenient aid to its understanding.” (Plaintiffs’ Ex. 428 at p. 22) Questions and Answers 19 and 52 stated:
19.Q. Are the contributions which will be made by The Gulf Companies irrevocable?
A. Yes. All contributions made by The Gulf Companies to the Annuity Fund and to each Stock Bonus Fund will be irrevocable, and no part of the corpus of any Fund or any income therefrom or accretions thereto, will revert to The Gulf Companies or be used or diverted to purposes other than those provided for in the Plan. (ESP, Questions & Answers, Plaintiffs’ Ex. 428 at p. 25)
52.Q. Can the Plan be amended or terminated?
A. Yes. The Board of Directors may amend or terminate the Plan at any time. However, no modification or amendment may be made which will deprive any member or other person of any benefits which have accrued on or prior to the time of such modification or amendment, and no such modification or amendment shall make it possible for any part of the Funds of the Plan to be used for, or diverted to, purposes other than for the exclusive benefit of members and annuitants, or their beneficiaries and contingent annuitants; and in the case of termination of the Plan, the cash, securities, and properties then held in the Funds of the Plan shall be used for the exclusive benefit of the members and annuitants, or their beneficiaries and contingent annuitants. (ESP, Questions & Answers, Plaintiffs’ Ex. 428 at p. 34)
51
Like the A & B Plan, the ESP and CRP stated that employer contributions were to be “irrevocable” and that plan assets were to be used solely for the “exclusive benefit” of plan participants, and reserved the right of Gulf to amend the plan. However, unlike the A & B Plan, the ESP and CRP (1) contained no language impliedly reserving a right of reversion by Gulf, (2) barred an amendment that would permit a reversion to Gulf, and (3) allocated surplus assets to plan participants upon a complete plan termination.
Defendants respond that assuming
arguendo
that the original ESP and CRP prohibited reversions and reversionary amendments, such a right was nevertheless provided in the 1974 amended CRP. Section 7.2 of the 1974 Amended CRP deleted the earlier language that allocated any surplus to plan participants and substituted the following language:
A.
Plan Termination
1. Right of termination. The Board of Directors may terminate the Plan for any reason at any time and in such case neither the Company nor any other of The Gulf Companies shall be liable to make any further payments to the Annuity Fund or otherwise except to the extent, if any, required to fulfill the guarantees described in Section 7.
2. Distribution of assets. Upon termination of the Plan all of the assets in the Annuity Fund, after provision for any properly chargeable expenses, shall be used solely for the members, annuitants, beneficiaries and joint annuitants, until all liabilities under the Plan shall have been satisfied in full....
In no event shall any part of the Annuity Fund or any income on it,
prior to the satisfaction of all liabilities
under the Plan, revert to the Company or be used other than for the members, annuitants, beneficiaries and joint annuitants. (Plaintiffs’ Ex. 439 at pp. 63-64) (emphasis added)
The Court is not persuaded by defendants’ argument. Even after this amend
*1193
ment, the CRP trust agreement still stated that all contributions were irrevocable and that no trust assets could revert to Gulf. (CRP Amended Agreement of Trust, Article II; Plaintiffs’ Ex. 441 at p. 6) This language was not deleted from the CRP trust agreement until 1976, when it was amended to adopt the language similar to the Master Trust Agreement of the Gulf Pension Plan, which did not require that contributions be irrevocable. (CRP Agreement of Trust as amended October 8, 1976, § 2.6, Plaintiffs’ Ex. 443 at pp. 3-4)
Also, despite the fact that the CRP was amended in 1974 and the CRP trust agreement was amended in 1976 to include implied reversion language similar to that of the Gulf Plan and to delete the “irrevocable” language, under the original terms of the CRP and trust no right of reversion was reserved by Gulf. Changes in 1974 and 1976 could not create a right of reversion in the face of explicit language of the ESP and CRP trust agreements that trust funds were irrevocable and could not revert to Gulf. In fact, paragraph 3 of the 1976 amended Agreement of Trust stated that “[t]his Amendment and Restatement shall not increase or decrease any rights an employee may have had under the prior Trust, as amended.” (Plaintiffs’ Ex. 443 at p. 2)
Furthermore, even assuming
arguendo
that Gulf had a right of reversion after the 1974 amendment to the CRP or the 1976 amendment to the CRP trust agreement, that right would only apply to a surplus due to future employer contributions to the CRP trust. Gulf had no right to the CRP assets at the time of the amendment because those assets existed before the CRP or its trust agreement contained any implied right of reversion.
See Audio Fidelity Corp. v. Pension Benefit Guaranty Corp.,
624 F.2d 513, 517 (4th Cir.1980). Although defendants presented evidence that Gulf’s actuaries
recommended
that Gulf make additional contributions to the CRP after 1970, when employee contributions ceased, defendants offered no evidence at trial that Gulf
actually
made any contributions to the CRP (or SAP) after 1970. Based upon an extensive analysis of the reports of Gulf’s actuaries and the IRS Form 5500’s filed by Gulf and Chevron (see, e.g., Plaintiffs’ Ex. 1330), which the Court finds persuasive, Dreher testified that it was highly unlikely that such contributions were ever made by Gulf.
Lastly, defendants argue that despite the language of the CRP and its trust agreements, the last paragraph of § 10.A.2 of the 1975 Gulf Pension Plan amended the CRP (and the SAP) to afford Gulf a right of reversion, and that the “irrevocable” language in the CRP and SAP trust agreements was deleted when these trusts became part of the “Master” Trust Agreement of the Gulf Pension Plan in 1979. The Court is not persuaded by these arguments for two reasons. First, neither § 10.A.2 nor the 1979 Master Trust Agreement could create a right of reversion because under the original terms of the CRP and SAP no right to revert trust contributions was reserved by Gulf. Second, even if Gulf had a right of reversion after 1975 or 1979, that right would only apply to a surplus due to subsequent Gulf contributions to the CRP or SAP, and there is no evidence that Gulf made contributions to the CRP or SAP after 1970.
While precedent is of limited value because the construction of a plan turns primarily on its unique language, two cases involving analogous plan language support the Court’s conclusion that Gulf and Chevron could not amend the Gulf Plan to obtain a reversion of CRP or SAP assets. In
Re Reevie & Montreal Trust Co.,
25 D.L.R. 4th 312 (Ont.App.1986), the Court analyzed language in a Canada Dry pension plan very similar to the language of the CRP and SAP. Like these plans, all contributions to the Canada Dry plan were irrevocable and the employer reserved the right to amend the plan. Section 11.1 of the original Canada Dry plan adopted in 1973 stated in pertinent part:
While it is the intention and hope of the Company to make contributions regularly and build up a reserve fund sufficient to provide all of the benefits contemplated under the Plan, the Company does
*1194
not assume a contractual obligation to continue its contributions. It
reserves the right to change, modify, suspend or discontinue the Plan, or reduce its contributions.
(emp

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/2287476. Public record. Not legal advice.