Opposition Brief — Spang & Co. v. DelGrosso

No. 85-1304 4osePH F- SPANIOL, JR.

IN THE

Supreme Court of the United States

October Term, 1985

SPANG & COMPANY, oe

o Petitioner

MATTHEW A. DELGROSSO, et al.,

Respondents

Petition For Writ of Certiorari

To The United States Court of Appeals

For The Third Circuit

BRIEF OF RESPONDENT

IN OPPOSITION

DANIEL P. MCINTYRE

35 Community Drive

Augusta, Maine 04350

Joy E. Kiopp (Counsel of Record)

Five Gateway Center

Room 1302

Pittsburgh, Pennsylvania 15222

(412) 562-2535

Counse! for Respondents,

Matthew A. De!Grosso, et al.

Ga" HERBICK & HELD PRINTING COMPANY, PITTSRURGH, PA. 15233

QUESTION PRESENTED

Whether a court’s interpretation of a particular col-

lectively bargained Pension Agreement prohibiting an

employer’s recapture of surplus funds gives rise to an

important national issue or presents a conflict among

circuits, where the other circuits are merely affirming

lower court interpretations of different agreements or

plans.

ii Table of Authorities.

TABLE OF CONTENTS

PAGE

QUE Ree PRIME AEE once ccccencwsctnscceens i

Se rer ro ys > 1

Il. STATEMENT OF THE CASE ................. 2

Be SEE 65 5 c's Sc ew ewneekaetenss onbeeetes 6

i Ae! eer rr rt ee 18

TABLE OF AUTHORITIES

CASES

Connolly v. Pension Benefit Guaranty Corp., 581

F.2d 729 (9th Cir. 1978), cert. denied, 440 U.S.

Pe CD nba vc edd se hnwenendcéeu es caeeieees 14

In Re C.D. Moyer Company Trust Fund, 441 F. Supp.

1128 (E.D. Pa. 1977), aff'd without opinion, 582

> Bho gt te @: Pererrerr error errr he

DelGrosso v. Spang & Co., 769 F.2d 928 (3d Cir.

| eet Aereer rer rere eee ee passim

Donovan v. Mazzoia, 716 F.2d 1226 (9th Cir. 1983),

cert. denied, 464 U.S. 1040 (1984) ............. 13

Maas v. Dubuque Packing Co., 754 F.2d 287 (8th Cir.

1985), on rhg., T57 F.2d 194 (1985) ............

Murphy v. Heppenstall, 635 7.24 233 (3d Cir. 1980),

cert. denied, 454 U.S. 1142 (1982) .............

Nachman Corp. v. PBGC 446 U.S. 359 (1980) ...... 10

NLRB v. Amax Coal Co., 453 U.S. 322 (1981) ...... 13

Pollock v. Castrovinci, 476 F. Supp. 606 (S.D. N.Y.

1979), aff'd without opinion, 622 F.2d 575 (2d

3. SE re errr era ee 1, 7, 8

United Mineworkers of America Health & Retire-

ment Funds v. Robinson, 455 U.S. 562 (1982) 13

Washington-Baltimore ay er Guild Local 35 v.

Washington Star Co., . Supp. 257 (D. D.C.

1983), aff'd without opinion, 729 F.2d 863 (D.C.

Ge SED io ck avant cduccteccsseunneeaseennas oe

Winpisinger v. Aurora Corp., 454 F. Supp 559 (N.D.

Oe Perr re ee

Table of Authorities. iii

STATUTES AND REGULATIONS PAGE

Employee Retirement Income Security Act of 1974

29 U.S.C.

EEE 10

EE 5, 6, 11, 12

SS a ee 6, 14

SE ie a ee 8

29 C.F.R.

oe is ys kas acenavce 12

OTHER AUTHORITIES

12 BNA Pension Reporter 482 (April 1, 1965) ....... 15

13 BNA Pension Reporter 472 (March 17, 1986) ..... 14

I. INTRODUCTION

With good reason, Spang’s' petition would divert

this Court’s attention from its real quarrel with the deci-

sion below. For what discomforts Spang, and what deter-

mined the Third Circuit’s decision, was the interpreta-

tion the Circuit placed on Spang’s collective bargaining

agreement. While Spang now claims to discern a “con-

flict” among the Circuits, the only “conflict” is that the

Third Circuit interpreted a specific contract to prohibit

reversion while other circuits, in per curiam decisions,

have affirmed district court determinations that other,

quite different contracts permit reversions. Washington-

Baltimore Newspaper Guild Local 35 v. Washington Star

Co., 555 F. Supp. 257 (D. D.C. 1983), aff'd without opin-

ion, 729 F.2d 863 (D.C. Cir. 1984); Pollock v. Castrovinci,

476 F. Supp. 606 (S.D. N.Y. 1979), aff'd without opinion,

622 F.2d 575 (2d Cir. 1980); In Re C.D. Moyer Company

Trust Fund, 441 F. Supp. 1128 (E.D. Pa. 1977), aff'd with-

out opinion, 582 F.2d 1273, 1275 (3rd Cir. 1978).

Below, in our argument, we examine the purported

“conflict” at somewhat greater length. Moreover, we

attempt to correct Spang as to three points where its

assertions tend to mislead, and hence, to confuse a

proper analysis of this case: whether the Third Circuit

correctly viewed Spang’s plan as one which required de-

fined contributions; whether the participants had ade-

quately sought the remedy the Third Circuit ultimately

ordered; and whether the Union “bargained away” the

participants’ right to the surplus.

1. Herein, we refer to the petitioner as “Spang” or

“the Company,” to the respondents as the “participants”

and to the United Steelworkers of America as the “Un-

ion.” From time to time we refer to the parties’ Joint

A eert. filed with the Third Circuit. We identify it as

“é t. pp.”

2 Statement of the Case.

II. STATEMENT OF THE CASE

Successive Pension Agreements negotiated with the

United Steelworkers of America, required Spang, the

employer, plan sponsor, administrator and fiduciary, to

fund and maintain a pension plan for the benefit of em-

ployees in its Ferroslag Division. Jt. App. at 685, 717,

737. Under pre-1974 Pension Agreements, the Company

was obligated to fund the plan’s benefits through

contractually specified contributions; e.g., 40¢ per hour

worked by each employee. See, ¢.g., Jt. App. at 730 and

758. The parties determined benefits after fixing the con-

tribution level. Jt. App. at 280-81 and 283. With the plan

substantially overfunded, the parties agreed in the 1974

negotiations to convert Spang’s funding obligation to

actuarially determined variable funding. Jt. App. at 256,

688 and 712. Thereafter, Spang only needed to contribute

the amounts necessary to fund the described benefits. Jt.

App. at 256-57 and 412. Spang never contributed another

penny to the fund after the conversion. Jt. App. at 412.

Thus, the fund consists entirely of fixed hourly contri-

butions and investment proceeds thereon.

Since 1970 all Pension Agreements have unequivo-

cally prohibited reversions to Spang. Jt. App. at 730,

758-762, and 860-863. The most recent 1980 Pension

Agreement provides (as did earlier Agreements):

12.6 The contributions made by the Company here-

under may not, under any circumstances, revert to

the Company. If this Pension Plan shall terminate,

the funds under the Pension Fund shall be used in

the manner provided in Section 13. Without in any

way limiting the foregoing, neither the Company nor

any Participant hereunder nor any beneficiaries nor

persons claiming through them shall have any right,

title or interest in or to any of the funds in the

Le ee ee

Statement of the Case. 3

Pension Fund, except as specifically provided in this

Agreement.

13.3 In the event a plant is permanently shut down

or a plant is relocated outside of the Geographical

Area of its present operation, the assets of the fund

established for the Pension Plan are to be allocated

to each plant location in relationship to the contri-

bution made on behalf of all Participants at such

locations compared to the total Contributions made

on behalf of all locations. From the funds so estab-

lished, there shall be deducted:

(a) The reserves applicable to those Participants

who have been transferred to other locations.

(b) Sufficient reserves to insure those persons

then receiving benefits to continue to so receive

them.

(c) Reserves to provide benefits for those en-

titled to benefits but who are not at that time receiv-

ing them.

(d) The remaining assets will be prorated

among the remaining Participants in relation to each

Participant’s established seniority to the total sen-

iority of all Participants for whom distribution is to

be made.

Jt. App. at 860-63.

In the 1980 negotiations toward a new Pension

Agreement, Spang proposed that the parties remove the

prohibition against reversion and adopt instead a clause

stating that upon termination or partial termination of

the plan any balance remaining in the fund after

allocations for vested and accrued benefits would be paid

to the Company. Jt. App. at 235-38 and 324-25. The Union

4 Statement of the Case.

rejected this proposal, insisting on retaining the prohibi-

tion against reversion of assets. Jt. App. at 238.

In 1981, however, Spang drafted several pension plan

documents, dating them 1976, 1977 and 1980. Jt. App. at

353-57. These pension plans purported to provide for

precisely the reversionary privileges the Union refused

to grant to Spang in negotiations.*

Spang closed two of its Ferroslag Division facilities

prior to 1980. Jt. App. at 264. On neither occasion did

Spang appropriate any “surplus assets.” Rather, al! mon-

ies remained in the fund. Jt. App. at 689.

= The reversionary clause rejected in negotiations

read:

13.3 If the assets in the Pension Trust Fund are

more than sufficient to provide the full

allocations as set forth in such subparagraphs

(a) through (e) of Section 13.1, then any balance

remaining in the Pension Trust Fund shall be

paid to the Company.

The “1980 plan” secretly drafted by Spang read:

(e) To the extent there remains a surplus of

assets of the trust fund after fully funding all of

the above-determined liabilities due to benefits

payable under the Plan, such surplus shuii be

considered an actuarial surplus and shall be re-

turned to the Company.

Jt. App. at 324-25 and 153.

Spang’s unilateral plan attempted to provide for re-

version in other, indirect ways accurately described

by the Third Circuit in its Opinion. DelGrosso v.

Spang & Co., 769 F.2d 928, 931 (3d Cir. 1985).

Statement of the Case. 5

In July 1982, Spang closed the last Ferroslag plant in

Lorain, Ohio. Jt. App. at 688. After Setting aside monies

to cover the present value of the vested and accrued

benefits of the 51 Lorain participants, there remains a

substantial surplus in the fund. Jt. App. at 1050. Accord-

ing to Spang, that surplus in August 1982 equaled ap-

proximately $700,000. Jt. App. at 1050; Brief of Appellee

and Cross-Appellant at 8, filed January 21, 1985, in Nos.

84-3618 and 84-3644.

Participants claimed and the Third Circuit held that

Spang breached its fiduciary duty when it unilaterally

drafted plan documents which contravened the control-

ling Pension Agreement by purporting to arrogate to

Spang a right to the surplus monies. Jt. App. at 15-17:

DelGrosso v. Spang & Co., 769 F.2d 928, 929 and 937 (3rd

Cir. 1985). ERISA, 29 U.S.C. §1104(a)(1)(D).

6 Argument.

Ill. ARGUMENT

The parties are in complete agreement over the prin-

ciples of law that govern this case. We note the more

salient points here:

1. A contract regulating employees’ benefit enti-

tlement constitutes a document ‘vhich, in ERISA’s

terms, governs the plan. 29 U.S.C. §1194(a)(1)(D).

2. Spang’s negotiated Pension Agreement did,

in fact, control its pension plan. The Pension Agree-

ment wrovided with utter specificity that “the Plan

shall be amended to provide as set forth” in the

Pension Agreement.

3. ERISA forbids a reversion which violates a

collectively bargained pension agreement. *

Taken together, these undisputed - propositions

sharply focus che fundamental issue which this case pre-

sents: whether or not Spang’s Pension Agreement re-

stricted the Company’s right to recapture assets. The

Third Circuit found it did. Indeed the clause that prohib-

ited reversion admitted of “not the slightest ambiguity”

and was “simply not susceptible to a restrictive interpre-

tation.” Delgrosso, supra, 769 F.2d at 935 and 938.

In its petition here, Spang undertakes to demon-

strate an error in the Third Circuit’s interpretation. To

be sure, Spang couches its presentation in terms of an

“Important National Issue” and a “Conflict with the Re-

sults in Other Circuits.” Petition (‘‘Pet.”) at 8. Yet, after

removing the chaff, the argument’s kernel is limp indeed:

3. ERISA now prohibits the Pension Benefit Guar-

anty Corporation from proceeding with a plan termina-

tion which violates a collective tf eement.

ERISA, Sec. 4041(a)(3), 29 US.C. §1341(a)(3), as

amended by the Single-Employer Pension Plan Amend-

ments Act of 1986, P.L. 99-272.

Argument. 7

other courts have interpreted other contracts and deter-

mined that the different language of those other con-

tracts permitted reversion. See, cases cited supra at 1.

Spang’s anti-reversion clause bears no relationship

whatsoever to the language in Washington-Baltimore

and Pollock, the decisions of the other Circuits on which

Spang relies. The plan documents in those cases restate

ERISA’s “exclusive benefit” rule, saying, in essence, that

funds may not be diverted to a purpose other than for the

exclusive benefit of participants. Those Courts felt free

to interpret this “boilerplate” language narrowly. See,

e.g., Washington-Baltimore, supra, 555 F. Supp. at 261;

Pollock, supra, 476 F. Supp. at 612. But Spang’s Agree-

ment flatly prohibits reversion, without reference to the

“exclusive benefit” rule. The interpretation of such dis-

similar contracts cannot create a conflict in the circuits.

Admittedly, Spang assesses the “strength” of the

anti-reversion language of these other plans and rates

some “much stronger than the agreement in this litiga-

tion.” Pet. at 11. Apparently it attaches significance to,

and sees a conflict in, the Third Circuit’s gauging Spang’s

Agreement from a different vantage. In fact, Spang’s

different view merely illustrates an inherent character-

istic of the interpretative function; it necessarily in-

volves a subjective element. For while Spang under-

stands the other courts to have confronted stronger

clauses, the Third Circuit was equally adamant that it

faced language that “unlike the anti-reversion clauses in

those other cases, is simply not susceptible to a restric-

tive interpretation.” DelGrosso, supra, 769 F.2d at 935.

Spang’s disagreement with the Third Circuit’s inter-

pretation does not rise to the level of a nationally impor-

tant question nor does it indicate a conflict between the

8 Argument.

Circuits.* For all the courts, the Third Circuit as well as

those district courts on whose per curiam affirmances

Spang relies, agree on the controlling legal principles.

Each of these district court opinions agree (1) that, in

conformity with ERISA, an employer who would recap-

ture plan assets must evidence a valid plan provision

permitting reversion and (2) that a provision violative of

an employer’s contractual obligations will not pass

muster. 29 U.S.C. §1344(d)(1)(c). See, e.g., Washington-

Baltimore, supra, 555 F. Supp. at 259 and 263-64; Pollock

v. Castrovinci, supra, 476 F. Supp. at 616-17. Similarly,

confronted by a contention that reversion is in breach of

a controlling plan document, each of those courts cor-

rectly categorized the resultant dispute as one of con-

tract interpretation. See, e.g., Washington-Baltimore,

supra, 555 F. Supp. at 260-61. Thus, there is no disagree-

ment as to the principles which ultimately determine an

employer’s entitlement to reversion. There remains only

Spang’s contention that, though the Third Circuit con-

cededly applied these very principles, it reached the

wrong result.

For two reasons, this case is a most irapp:upriate

one to review an interpretation of an anti-reversion

4. Nor is “grave doubt” created by DelGrosso as to

employers’ reversionary rights. Pet. at 12. Spang’s at-

tempt to portray the supposed “conflict” as one which

would “chill” employers desire to create new pension

lans or fund such plans cautiously is spurious. The law

is ipa, rape 3 clear and simple to follow: an employer

need only create a defined benefit plan which specifically

rovides for reversion of surplus assets (or negotiate a

ension Agreement expressly permitting reversion) and

the legiti of a later reversion of surplus cannot be

uestioned. — error was in tryin g to invoke

A’s Section (d) even though its collectively bar-

gained Agreement prohibited reversion.

Argument. 9

clause. First, given the unique facts here, the Third Cir-

cuit was palpably correct that Spang’s Pension Agree-

ment flatly prohibited reversion. Second, even were that

interpretation questionable, other clauses in the Agree-

ment resolve that doubt against Spang’s claim to the

surplus. Thus, the Circuit properly held that Spang failed

its duty to observe the instruments controlling the plan

when it prepared formalized plan documents that dero-

gated from the Pension Agreement.

The Circuit’s interpretation properly reflected the

Pension Agreement’s plain language as well as the his-

tory which undergirded that language. The Circuit fo-

cused on the ciause which provided that “contributions

made by the Company hereunder may not, under any

circumstances, revert to the Company.” If contributions

meant the whole of the fund, then there could be no

reversion.

A number of facts bore on the proper interpretation.

First, the entire fund surplus derived from Spang’s con-

tributions pursuant to a collectively bargained formula

that obligated it to pay a stated number of cents for each

hour one of its employees worked. Though Spang and the

Union later amended that obligation, requiring instead

that Spang maintain the fund on an actuarially sound

basis, Spang never contributed a cent subsequent to this

change. Jt. App. at 412. The existing fund, composed of

Spang’s cents-per-hour contributions and swelled by in-

come on those contributions, continually exceeded plan

liabilities.

5. Throughout its petition, Spang invokes sympathy

as one who, assuming the “risk of r investment per-

formance,” nonetheless agreed “to be bound by the addi-

tional! obligation ... of potential indefinite funding.” Pet.

at 14, 16. Spang fails to note the calculated nature of its

10 Argument.

The second significant fact was Spang’s own recogni-

tion of the limits which the Pension Agreement imposed

on it. For though Spang now claims that its Agreement

permits reversion, in collective bargaining in 1980 Spang

quite carefully proposed replacing the Agreement’s pro-

hibition against recapture with a provision permitting

Spang to claim a reversion. Jt. App. at 235-38 and 324-25.

The Union, however, rejected that proposal, opting to

retain the clause that flatly prohibited Spang’s recaptur-

ing surplus. Jt. App. at 238. It was in the face of this

rejection at the bargaining table that Spang subsequently

inserted a reversion clause in the plan it drafted.®

risk. First, Spang structurally limited its risk when it

limited its contractual liability to making the actuariall

determined contributions. Pension eement, Sec. 12.4,

Jt. App. at 65. That clause effectively limited its expo-

sure for benefits to those guaranteed by Title IV of

ERISA. Nachman Corp. v. PBGC, 446 U.S. 359, 384-86

(1980). Second, Spang accepted this “risk” fully aware of

its entirely hypotheticai nature. At the time of the con-

version to “defined benefit” funding, the plan was so

overfunded that it required no contributions. Jt. App. at

258-63, 336-338, and 688-89. Subsequently, Spang care-

fully prescrved the surplus by refusing to negotiate even

those pension benefit — which the fund

could bear. Jt. App. at 679-681.

6. Spang insists that ERISA required that it draft a

formal pension pe This contention, standing alone,

misleads. Though ERISA requires that plans be estab-

lished pursuant to a written instrument, 29 U.S.C.

§1102(a)(1), it does not forbid a Pension A ment’s

fulfilling that office. Cf., Murphy v. Heppenstall, 635 F.2d

233 (3d Cir. 1980), cert. denied, 454 U.S. 1142 (1982);

Winpisinger v. Aurora Corp., 456 F. Supp. 559, 567 (N.D.

Oh. 1978). Indeed, pe oan he Pension Agreement did serve

as the formalized plan until at least 1981. It was only

then that a hae up “plans” and backdated them to

1976 and 1980. Below, Spang claimed the Pension Agree-

ment could not validly serve as the plan because it lacked

Argument. 11

Confronting these facts and reading the anti-

reversion clause in light of other provisions in the Agree-

ment, the Circuit concluded that the Pension Agreement,

which by its terms barred Spang’s recapturing any

contributions, prohibited a reversion of the surplus.’

While advocates can quibble over the rigor of the Cir-

cuit’s interpretation, such a dispute will never implicate

an important national question. And only because it

gives “result” a caged meaning is Spang accurate in its

assertion that the Third Circuit’s “result” differs from

that of other circuits. By result Spang means who pre-

vails—the employer or the participants. But different

results are predictable where the analysis rests on the

interpretation of different agreements or plans and is

shaped by different facts.

Even had the Circuit erred in construing the Agree-

ment’s recapture clause as a total prohibition on rever-

sion, still the Agreement would support the Circuit’s

holding that Spang violated its §1104(a)(1)(D) fiduciary

some provisions ERISA required. In this regard, we note

that Spang and the Union purported to comply with

ERISA when they added a number of required provisions

in 1976. Jt. App. at 801. If these efforts did not suffice to

maintain the pian’s tax qualified status, then the Agree-

ment itself embodied a procedure which the parties could

utilize to make the necessary adjustments. That proce-

dure, of course, foresaw mutual agreement as the proper

means of modifying the Agreement. In short, nothing in

ERISA mandated the particular course Spang followed:

the unilaterai drafting of a plan, concealing its drafting

from the Union, and adorning it with a variety of clauses

that served no one’s interests other than Spang’s.

7. Spang slyly suggests that the Circuit limited its

holding to that portion of the surplus attributable to

Lorain. We note our objection solely to preserve our

rights should Spang subsequently resurrect this brazen

misstatement of the Circuit’s decision.

12 Argument.

duty by drafting a formal plan in contravention of the

controlling plan documents. For other of the Agree-

ment’s provisions also fettered Spang’s freedom to claim

a reversion. First, the Agreement purported to allocate

all the funds, not merely contributions, upon termina-

tion. Moreover, the Agreement flatly precluded Spang’s

raising any extra-contractual claim to the funds, stating

that the Company shall have no “right, title or interest in

or to any of the funds in the Pension Fund, except as

specifically provided in this Agreement.” Jt. App. at 66

(emphasis supplied). In short, the Agreement occupied

the field completely, leaving Spang no loop-hole through

which to weave its claim to a reversion. These provisions

then, lend added emphasis to the Circuit’s hoiding that

“any plan provision permitting reversion is not ‘in ac-

cordance with the documents and instruments governing

the plan’ under ERISA Section 1104(a)(1)(D), and any

plan provision so providing is ineffective. It follows that

We note here, also, mae ge suggestion that payment

of benefits will consume the Lorain contributions.

This assertion is both speculative and irrelevant. Neither

the Agreement nor the “plan” earmarks contributions as

the first source of benefit payments. Only Spang, the fi-

duciary administrator, gieans this hierarchy in the plan.

It does so since even pang recognizes the prohibition

—- its recapture of “contributions,” a recognition

which requires that it eradicate the label “contributions”

from the sums it would appropriate. In the end, this

intricate accounting lacks any relevance. Since the plan

lacks a valid reversion clause, ERISA allocates the entire

= iy among all the plan participants. 29 C.F.R. §2628.

—32(a).

8. Its Section 12.6 provided:

“If this Pension Plan shall terminate, the funds un-

der the Pension Plan shall be used in the manner

provided in Section 13.” Jt. App. at 66.

Argument. 13

Spang breached its fiduciary duty by failing to administer

the Plan in accordance with the governing documents,

i.e., the Pension Agreement.” 769 F.2d at 735-36.°

As we noted initially, we close our response by cor-

recting just three of the assertions Spang makes that

tend to mislead this Court and confuse the issue. The

first is the contention that the Circuit erred when de-

scribing Spang’s as a “defined contribution” plan. The

second is Spang’s suggestion that the Circuit imposed a

remedy foreign to any relief the participants’ had sought.

9. In a footnote, Pet. at 10, n. 10, Spang suggests this

holding contradicts an otherwise unanimous y of doc-

trine that “the creation and termination of a plan are not

fiduciary functions under ERISA.” Spang ignores, how-

ever, that it was not “creating” a plan when it secretly

and unilaterally drafted its plan document. A reticulated

plan already existed, eenbodied in the controlling Agree-

ment which commanded conformity to its terms. This

removed Spang’s discretion as to what the plan said.

— self-serving reversion clause is hardly the only

term Spang added to its plan. We mention but one other:

a clause which permitted Spang to tap the pension funds

to meet the Company’s completely independent obliga-

tion to provide retiree health insurance. DelGrosso,

su 769 F.2d at 931. Such self-dealing directly violates

A’s exclusive benefit rule. See, e.g., Donovan v.

Mazzola, 716 F.2d 1226 (9th Cir. 1983), cert. denied, 464

U.S. 1040 (1984).

The “creation of plan” cases which Spang cites offer

it no comfort since its conduct was not creation, but

transcribing. In assessing its conduct, this Court’s deci-

sions in United Mineworkers of America Health & Re-

tirement Funds v. Robinson, 455 U.S. 562, 574 (1982) and

NLRB v. Amax Coal Co., 453 U.S. 322 (1981) offer far

more relevant guidance: once an employer leaves the

~~ ing table he must adhere to the bargain he struck

at the risk of breaching the fiduciary duty ERISA im-

ses

po

14 Argument.

The third is the Company’s insistence that the partici-

pants’ Union bargained away their right to the fund.

Measured against ERISA’s definitions, the Third Cir-

cuit arguably erred in describing Spang’s pre-1974 pen-

sion arrangements as a defined contribution plan. In fact,

since the plan specified a benefit formula, post-ERISA

jurisprudence would undoubtedly classify ii as a defined

benefit plan. See, e.g., Connolly v. Pension Benefit Guar-

anty Corp., 581 F.2d 729 (9th Cir. 1978), cert. denied, 440

U.S. 935 (1979). Spang is an unseemly critic of the Cir-

cuit’s choice of language, however, since Spang itself

introduced this ambiguous usage into the case.!° Indeed,

Spang also incorrectly asserts that decisions relating

to plan termination are within the sole discretion of the

fiduciary and outside the fiduciary duty standards. Pet. at

10, n. 10. Certainly, the fiduciary’s right to terminate the

plan may be limited by contract. See, e.g., ERISA, Sec.

4041(a)(3), 29 U.S.C. §1341(a)(3); Maas v. Dubuque Pack-

ing Co., 754 F.2d 287 (8th Cir. 1985), on rhg., 757 F.2d 194

(1985). In addition, the Department of Labor emphasized

in a recent letter that “activities undertaken to imple-

ment the termination decision are generally fiduciary in

nature” and thus subject to fiduciary stric.ures. DOL -

Letter, 13 BNA Pension Reporter 472-73 (March 17,

1986). The Department went further, citing the

DelGrosso opinion for the proposition that fiduciary stan-

dards may indeed govern the decision to terminate a

collectively bargained plan. Id.

10. In its very first narrative of fact, Spang asserted

that: “In the 1974 pension agreement covering Lorain

and Chicago, Spang and the Steelworkers agreed to

change the pension benefit provided from a ‘defined con-

tribution’ to a ‘defined benefit.’” Defendant’s Brief In

eg Of Its Motion To Dismiss, filed June 26, 1983 in

C.A. No. 82-2672 in the United States District Court for

the Western District of Pennsylvania. Spang persisted in

this characterization of the pre-1974 plan. Jt. App. at

203, lines 19-22; 254, lines 19-24; 393, lines 2-7. Spang

Argument. 15

it was not until petitioning for rehearing that Spang

objected to the label. Spang’s acquiescence is understand-

able, however, since no one disputed the more significant

fact that the Circuit expressed through the shorthand

“defined contribution.” Prior to 1974, Spang paid into the

plan an agreed upon number of cents-per-hour.'! The

entirety of the plan’s funds today derive from contribu-

tions made before 1974, “pursuant to a defined contri-

bution agreement.”!? 769 F.2d at 935; see, also, Jt. App.

at 688. That undisputed fact, to the Circuit’s mind, evis-

cerated Spang’s prudent funder argument. Spang simply

could not wrap itself in the mantle of the prudent funder

as all it had done was make the contributions required by

even characterized the plan in this manner in its openin

brief to the Third Circuit. See, Brief of Appellee an

Cross-Appeliant at 32, n. 12.

11. Indeed, in those days the parties determined

benefits only after agreeing upon the contributions. Jt.

App. at 280-1 and 283.

12. Spang asserts that “actuarial error” is a concept

of sufficient breadth to account even for its surplus. To be

sure, the general rule classifies any excess assets as an

actuarial surplus. Ronald A. Pearlman, Assistant Secre-

tary of the sony for Tax Policy, 12 BNA Pension

Reporter 482, 484 (April 1, 1985). ether the general

rule applies to Spang’s surplus is, however, an open

uestion and one whose answer, given the extraordinar-

ily peculiar facts involved, is ikely to instruct as to

more common situations. For no actuarial determina-

tions dictated any of Spang’s contributions, these flowing

instead from the economic package it struck with the

Union. Benefits were determined after the contributions

were set. Jt. App. at 280 and 283. As noted, the subse-

quent actuarially based funding provision never required

any contributions. Spang’s claim of actuarial error, ab-

sent any actuarial determination, is simply too removed

from the typical situation to raise issues of broad con-

cern.

16 Argument.

an Agreement that expressly precluded its recapture of

those contributions.

Spang also asserts that the Circuit ordered a remedy

which the participants had not sought. This assertion

lacks even the grace of literal correctness, since the par-

ticipants prayed for the very relief the Circuit ordered.

In essence, the Circuit reformed the plan and ordered the

appointment of a disinterested fiduciary, noting that that

fiduciary could terminate the plan and disburse the sur-

plus pursuant to the very rule which governs such dis-

bursements where no plan provision obtains. DelGrosso,

supra, 769 F.2d at 938. In the:r Complaint, Plaintiffs

sought, among other relief, appointment of an indepen-

dent administrator and reformation of the plan. 769 F.2d

at 932; Jt. App. at 17-18. Throughout this litigation,

Plaintiffs repeatedly asserted that—if they failed in their

own claim to the surplus—the appropriate remedy was

appointment of an administrator who could distribute

the pro-rata share to all participants.'* Though Spang

now claims surprise, its Pre-Trial Narrative cautiously

responds to the participants’ request for an independent

13. See, e.g., Plaintiffs’ Reply Brief In “ye Of

Plaintiffs’ Motion For Summary hay og And a

sition To Defendant’s Cross Motion For Summary Judg-

ment, at 20, n. 11 and 28, n. 20, filed October 31, 1983;

Brief In Support Of Plaintiffs’ Motion For Summary

J a geo On Count IV, at 3-5 and n. 2 and 3, filed oy ie

1984; Defendant’s Brief In Opposition To Plaintiffs’ Mo-

tion For Summary Judgment, at 4, n. 1 (wherein Defend-

ant responds to Plaintiffs’ assertion), filed July 27, 1984;

and Plaintiffs’ reg | Brief In oo Of Plaintiffs’ Mo-

tion For Summary Judgment On Count IV And In Oppo-

sition To Defendant’s Motion For Summary Judgment, at

3, n. 1, filed July 30, 1984, all filed in the United States

District Court for the Western District of Pennsylvania

in Civil Action No. 82-2672.

1 iim cea Seria sata Nome Saat ei) As bates

%

3

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Argument. 17

administrator. Jt. App. at 635. Spang is simply in error in

suggesting otherwise.

Spang’s final assertion is perhaps its most devious. It

suggests that the Union “negotiated away the benefit of

the investment performance on the cents-per-hour con-

tributions.” Pet. at 16. For one reason, we welcome that

assertion since it demonstrates Spang’s recognition that,

at least prior to 1974, the Agreement assigned to: the

participants the entirety of the fund, both the contribu-

tions and the income they produced. The record discloses

no point, however, at which the Union bargained this

interest away. The parties bargained but one change rele-

vant to funding: that which relieved Spang of its cents-

per-hour obligation and substituted the actuarially based

formula that produced no contributions. Consistently,

the parties renewed the prohibition against Spang’s re-

capture and the Agreement’s explicit articulation that

Spang had no interest in any of the funds. The Union

rejected, and Spang withdrew, a bargaining proposal that

would grant Spang a right to the surplus. This bargaining

history simply will not support Spang’s assertion that

the Union negotiated away “the benefit of the invest-

ment performance on the cents-per-hour contributions”

which Spang concedes the participants had earlier en-

joyed.

18 Conclusion.

IV. CONCLUSION

For the foregoing reasons, the petition should be

denied.

Respectfully submitted,

DANIEL P. MCINTYRE

35 Community Drive

Augusta, Maine 04330

Joy E. Klopp

Five Gateway Center

Room 1302

Pittsburgh, Pennsylvania 15222

(412) 562-2535

Counsel for Respondents,

Matthew A. DelGrosso, et al.

Dated: May 1, 1986