# Appendix — Pension Benefit Guaranty Corp. v. CF&I Fabricators of Utah, Inc., 119 S. Ct. 2020 (1999) (No. 98-1440) > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386018_1396%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1999 ## Text - FILED 081440 Mu 1 oI No. Dore ens a cr account aspunmmcne sn erysamernanneeas onemoonmmmnpsaensnmnennmnaesm i tAhtentiitfoeadi onan In THE Supreme Court of the United States OCTOBER TERM, 1998 PENSION BENEFIT GUARANTY CORPORATION, Petitioner, v. REORGANIZED CF&I FABRICATORS OF UTAH, INC., ef al., Respondents. On Petition for a Writ of Certiorari to the United States Court of Appeals for the Tenth Circuit APPENDIX TO PETITION FOR A WRIT OF CERTIORARI JAMES J. KEIGHTLEY * General Counsel WILLIAM G. BEYER Deputy General Counsel ISRAEL GOLDOWITZ SUSAN E. BIRENBAUM Assistant General Counsels GARTH D. WILSON NATHANIEL RAYLE Of Counsel: KENNETH J. COOPER RICHARD K. WILLARD JAMES C. MCCARROLL CHARLES G. COLE Attorneys STEPTOE & JOHNSON, L.L.P. 1330 Connecticut Ave., N.W. Washington, D.C, 20036-1795 1200 K Street, N.W. (202) 429-8000 Washington, D.C. 20005 * Counsel of Record (202) 326-4020 PENSION BENEFIT GUARANTY CORPORATION WILSON - Epes PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001 @ ee. TABLE OF CONTENTS Opinions Page Opinion of the United States Court of Appeals for the Tenth Circuit, Filed August 38,1998... la Final Judgment of the United States District Court for the District of Utah, Central Division, Filed PEO Wi TT woe ceed ee ee 16a Decision of the United States District Court for the District of Utah, Central Division, Filed BON hs SORT ihe Se oy 18a Order of the United States Bankruptcy Court for the District of Utah, Central Division, Filed January 26,1996... si ilabilahiblintiadiaca eae ia tao Bod 25a Decision of the United States Bankruptcy Court for the District of Utah, Central Division, Filed SVOWUNIONS i. RO eg A 27a Opinion of the United States District Court for the District of Utah, Central Division, Filed Novem- We CU SO a gk a Foal ie oe 3 4la Order of the United States Bankruptcy Court for the District of Utah, Central Division, Filed PORE We RO a AS a a 56a Decision and Order of the United States Bank- ruptcy Court for the District of Utah, Central Division, Filed November Sy, SE ae 79a Order of the United States Court of Appeals for the Tenth Circuit, Filed October i ee 98a Statutes 29 U.S.C. (1988) ecepnpcintaes dhe page ht SA EN ME Ee 100a FREI BRN aio eh et ad a a 126a POO i cs ha ct 130a ii TABLE OF CONTENTS—Continued Page 11 U.S.C. (1988) aati Oe a iendnadeocannegevpinassuinanpudiataemiaied 14la at TE. as euemenennmenngeanabenapeienalinglimanaail 146a E:T ER Ea ae nae eae ne Ss DOAN CcRUUE TS ELS 147a en ek ERR ene Uleckay Peetreae We ean hee Ore WIRES 152a cay TT assis ccctcect ence sectcscenenespsieninigintncnennh 157a la [Filed Aug. 3, 1998] UNITED STATES COURT OF APPEALS TENTH CIRCUIT No. 97-4121 IN RE: CF&I FABRICATORS OF UTAH, INC., ef al., Reorganized Debtors. PENSION BENEFIT GUARANTY CORPORATION, Appellant, v. CF&I FABRICATORS OF UTAH, INC.; CoLorRADO & UTAH LAND COMPANY; KANSAS METALS COMPANY; ALBU- QUERQUE METALS COMPANY; PUEBLO METALS CoM- PANY; DENVER METALS COMPANY; PUEBLO RAILROAD SERVICE COMPANY; CF&I FABRICATORS OF COLORADO, Inc.; CF&l STEEL CORPORATION;-COLORADO & Wyo- MING RAILWAY COMPANY; UNSECURED CREDITORS COMMITTEE; UNITED STEELWORKERS OF AMERICA AFL-CIO-CLC; WILLIAM J. WESTMARK, Trustee of the Colorado & Wyoming Railway Company, Appellees. No. 97-4122 Lv RE: CF&I FABRICATORS OF UTAH, INC., et al., Reorganized Debtors. 2a PENSION BENEFIT GUARANTY CORPORATION, Appellant, V. CF&I FABRICATORS OF UTAH, INC.; COLORADO & UTAH LAND COMPANY; KANSAS METALS COMPANY; ALBU- QUERQUE METALS COMPANY; PUEBLO METALS COM- PANY; DENVER METALS COMPANY; PUEBLO RAILROAD SERVICE COMPANY; CF&I FABRICATORS OF COLORADO, Inc.; COLORADO & WYOMING RAILWAY COMPANY, Appellees. Appeal From the United States District Court for the District of Utah (D.C. Nos. 93-CV-744-B and 96-CV-202-B) Before PORFILIO, McKAY, and TACHA, Circuit Judges. PORFILIO, Circuit Judge. In this appeal we are asked to determine whether claims for a Chapter 11 debtor’s minimum contributions to an employee pension plan are entitled to tax or ad- ministrative priority in bankruptcy. In addition, we must determine which valuation method should be used to calculate the present value of unfunded benefit liabilities owed by CF&I Steel Corporation and its subsidiaries (CF&I), Appellees-Debtors in this case. This inquiry comes to us because of a conflict between provisions of the Employee Retirement Income Security Act (ERISA) and the Bankruptcy Code. Appellant Pen- sion Benefit Guaranty Corporation (PBGC), a private governmental corporation modeled after the Federal De- posit Insurance Corporation and charged statutorily with protecting and preserving private pension plans, seeks to 3a recover sums by way of priority claims from CF&I’s Chap- ter 11 bankruptcy estate. PBGC bases its rights to bank- ruptcy priority chiefly upon powers and rights vested in it by ERISA, but not the Bankruptcy Code. The major controversy between the parties is whether the ERISA provisions carry over into bankruptcy or whether PBGC comes to Chapter 11 like any other unsecured creditor. After consideration of all the arguments, we conclude PBGC is not entitled to special rights in bankruptcy and its ERISA powers and rights do not give it priority over the other unsecured creditors of CF&I’s estate. A. Background Prior to the economic events which eventually led CF&I into Chapter 11, it sponsored a defined benefit pension plan subject to the termination provisions of Title IV of ERISA. An employer’s choice to initiate such a pension plan is totally voluntary; however, once that plan is estab- lished, the employer must meet the minimum funding standards prescribed in the Internal Revenue Code (IRC) and ERISA. Moreover, the employer must meet these standards until its plan is terminated either voluntarily by the employer or involuntarily by PBGC. CF&I met its funding obligations until a decline in eco- nomic conditions of the American steel industry left it unable to make minimum funding contributions of ap- proximately $14 million. This state of affairs led CF&I into filing a Petition for Relief under Chapter 11 of the Bankruptcy Code. CF&I continued to operate its business as debtor-in- possession and made substantial contributions to non- PBGC insured employee benefit plans providing health and life insurance. Although CF&I made no contributions to its pension plan, it did not seek voluntary termination. Finally, when the assets of the estate dwindled, PBGC terminated the plan and became its statutory trustee. See 29 U.S.C. § 1342 (“The [PBGC] may institute proceed- ings under this section to terminate a plan whenever it 4a determines that . . . the plan has not met the minimum funding standard required under section 412 of Title 26. corn Subsequently, CF&I achieved confirmation of a nego- tiated plan of reorganization which, among other provi- sions, set aside a sum of money as an “Appeal Fund” preserving PBGC’s right to pursue its claims against that fund. PBGC has agreed to limit its recovery, if any, to the amount set aside. PBGC filed two claims against the estate. The first was in the amount of $64,874,511 for CF&lI’s unpaid contributions to the benefit plan. The second was in the amount of $263,200,000 for unfunded benefit liabilities accruing because of the lack of assets in the benefit plan. For reasons we shall discuss later, PBGC asserted its claims were entitled to priority payment as a tax claim and were a cost of the estate entitled to priority as an administrative claim. The bankruptcy court held PBGC was entitled to an administrative priority claim for the post-petition com- ponent of its unpaid contributions claim attributable to post-petition services of employees. However, the court denied tax priority or administrative priority for amounts other than these post-petition costs. The district court affirmed these decisions. However, the district court reversed the bankruptcy court’s holding that PBGC’s unfunded benefits claim, which must be reduced to present value to be allowed, should be valued in accordance with PBGC’s regulatory system and not by Bankruptcy Code standards. Finding an inexorable conflict between ERISA and the Bank- ruptcy Code, the court held the Bankruptcy Code must dominate. Hence, it concluded, “the actuarial present value of guaranteed benefits in a reorganization context [must be] determined according to bankruptcy law.” On remand, the bankruptcy court applied the “prudent- investor” valuation method and allowed PBGC a general sd cans ihetiaitaianinine tina TE ee eee Bae rn a SF Pe MN ee 5a unsecured claim in the amount of $124,441,000 as the present value of CF&I’s unfunded benefit plan future lia- bilities. On appeal to this court, PBGC contends the district court erred by denying tax priority to its first claim based on unpaid past plan contributions in excess of $1 million and administrative priority to its entire claim for unpaid plan contributions. It also contends the court erred by refusing to use PBGC’s regulatory methodology to deter- mine the present value of the unfunded benefits claim. B. Tax Priority PBGC argues because of specific provisions in ERISA, we should conclude Congress expressly directed that CF&l’s unpaid minimum funding contributions in excess of $1 million must be treated as taxes and accorded tax priority under the Bankruptcy Code. The district court’s denial of tax priority is a conclusion of law which we review de novo. Broitman vy. Kirkland (In re Kirkland), 86 F.3d 172, 174 (10th Cir. 1996). PBGC’s argument is grounded upon 26 U.S.C. § 412 (n)(1)(B) which provides, when unpaid minimum fund- ing contributions exceed $1 million, “then there shall be a lien, in favor of the plan . . . upon all property, whether real or personal, belonging to such person... .” More- over, 26 U.S.C. § 412(n)(4) (1990) adds: (B) Period of lien.—The lien imposed by paragraph (1) shall arise on the 60th day following the due date for the required installment... . (C) Certain rules to apply—Any amount with re- spect to which a lien is imposed under paragraph (1) shall be treated as taxes due and owing the United States and rules similar to the rules of subsections (c), (d), and (e) of section 4068 of the Employee Retirement Income Security Act of 1974 shall apply giclee tiie ia usa i a ee ea 6a with respect to a lien imposed by subsection (a) and the amount with respect to such lien. The first question we must resolve, however, is to what extent these ERISA provisions are applicable in bank- ruptcy. To resolve the question, both parties point to United States v. Reorganized CF&l Fabricators, Inc. (In re CF&lI Fabricators (1)), 518 U.S. 213 (1996), where the Court examined whether an “exaction ought to be treated as a tax [in bankruptcy] . . . without some... dispositive direction [from Congress].” Jd. at 219. At issue was an exaction under the IRC of 10% on the amount of the accumulated funding deficiency of CF&I’s Plan for which the IRS asserted a tax priority claim. Although the IRC defines the exaction as a “tax,” the Court stated, “characterizations in the Internal Revenue Code are not dispositive in the bankruptcy context... .” Id. at 224. To determine whether Congress intended the exactions be given tax treatment in the bankruptcy context, the Court first looked for some “explicit connector between” the IRC provision and the Bankruptcy Code. Finding no link, the Court “looked behind the label placed on the exaction” and conducted a “functional examination” of the provision in question to determine whether it was “ ‘a pecuniary burden laid upon individuals or property for the purpose of supporting the Government.’” Jd. (quoting New Jersey v. Anderson, 203 U.S. 483, 492 (1906)). CF&lI argues there is no “explicit connector” between § 412(n) and the Bankruptcy Code; therefore, we must apply the “functional examination” to determine if the 1 See 26 U.S.C. § 4971(a), which states: Initial tax.—For each taxable year of an employer who maintains a plan to which section 412 applies, there is hereby imposed a tax of 10 percent (5 percent in the case of a multi- employer plan) on the amount of the accumulated funding de- ficiency under the plan, determined as of the end of the plan year ending with or within such taxable year. : j Se ae 7a exaction in this case qualifies as a tax. In pursuit of that examination, it reasons because PBGC is a privately funded entity, the payment of the minimum benefits con- tribution cannot possibly be “for the purpose of support- ing the Government.” Thus, CF&I concludes, those re- quired payments do not meet the definition of a tax. In response, the PBGC insists there is a connection between § 412(n) and the Bankruptcy Code in this case because, unlike In re CF&I Fabricators (1), the ERISA provision specifically “connects” to the Bankruptcy Code. PBGC points to that portion of § 412(n)(4)(C) which States, “[a]ny amount with respect to which a lien is imposed . . . shall be treated as taxes . . . and rules similar to the rules of subsections (c), (d), and (e) of section 4068 of [ERISA] shall apply . . . .” Moreover, § 4068 (c) adds, “[iJn a case under Title 11 or in insolvency proceedings, the lien imposed under subsection (a) of this section shall be treated in the same manner as a tax due and owing to the United States for purposes of Title 11 weee 29US.C. § 1368(c). Reading these provisions together, we can see at least a tangential connection between § 412(n) and the Bank- ruptcy Code. The deciding question, however, is whether they constitute an “explicit connection” within the mean- ing of In re CF&I Fabricators (1). We do not believe they do. As we read the Court’s analysis, the key to whether a Statutory provision is “explicit” in this context is whether the Bankruptcy Code adopts and makes specific reference to the provisions of the other law. In re CF&I Fabri- cators (I), 518 U.S. at 220. In this case, even though ERISA tangentially refers to “a case under Title 11 or in insolvency proceedings,” the defect in the statutory con- struct found in Jn re CF&I Fabricators (1) is still present. That is, Congress made no specific reference in 11 U.S.C. § 507(7) to 29 U.S.C. § 412(n)(4). Asa consequence, the relationship established between ERISA and the Bank- ee rn 8a ruptcy Code is not explicit by definition. Thus, we con- clude there is no expressed congressional intent that the “tax treatment” described in § 412 was meant to apply in the bankruptcy context. This conclusion takes us into the functional analysis initiated in In re CF&I Fabricators (I). The quest begins with City of New York v. Feiring, 313 U.S. 283 (1941), in which the Court instructed tax priority in bankruptcy “extends to those pecuniary burdens laid upon individuals or their property, regardless of their consent, for the pur- pose of defraying the expenses of government or of under- takings authorized by it.” Id. at 285 (emphasis added). As we have noted recently in United Mine Workers 1992 Benefit Plan v. Rushton (In re Sunnyside Coal Co.), No. 97-1276, 1998 WL 380966 (10th Cir. Colo. July 9, 1998), F.3d —— (10th Cir. 1998), this analysis was sharpened in LTV Steel Co. v. Shalala (In re Chateau- gay Corp.), 53 F.3d 478 (2d Cir. 1995), which followed the lead of the Ninth Circuit ? in setting forth four factors for determining whether contributions required of a debtor are entitled to tax priority in bankruptcy.* If the contri- butions are: 1. An involuntary pecuniary burden, regardless of name, laid upon the individuals or property; 2. Imposed by, or under authority of the legislature; 3. For public purposes, including the purposes of defraying expenses of government or undertak- ings authorized by it; 4. Under the police or taxing power of the state; the contributions have the functionality of a tax and claims for those contributions are entitled to tax priority. This analysis disposes quickly of PBGC’s basic contention. 2 See County Sanitation Dist. No. 2 v. Lorber Indus., Inc. (In re Lorber Indus., Inc.), 675 F.2d 1062, 1066 (9th Cir. 1982). 3 Although the cases do not involve ERISA contributions, we choose to follow the paradigm because of its rationality. — ease tera ren eee ty a a Ne eee ee 9a We believe the ERISA contribution fails the third ele- ment of the Chateaugay test. PBGC admits the contribu- tions are directed to and for the protection of individual benefit plans. Thus, the object of the contributions is not to defray the expenses of the government or any govern- mental undertaking, but rather, is to finance a private obligation. Although mandated by statute, there is simply no credible argument that the required payments fund either a function of the United States or any of its under- takings. It thus follows PBGC’s claim for unpaid mini- mum contributions is not to be accorded tax priority.* C. Administrative Priority PBGC next argues if its minimum contributions claim does not qualify as a priority tax claim, it is still entitled to a priority administrative claim because the contribu- tions were “actual, necessary costs and expenses of pre- serving the estate . . . for services rendered after the commencement of the case.” 11 U.S.C. § 503(b) (1) (A). PBGC argues we should be governed by the reason- ing of Reading Co. v. Brown, 391 US. 471 (1968). In Reading, a case under the former Bankruptcy Act, the Court granted administrative priority to a claim for post-petition “damages resulting from the negligence of the receiver.” Later cases have expanded this analysis. See, e.g., Cumberland Farms, Inc. y. Florida Dep’t of Envtl. Protection, 116 F.3d 16 (1st Cir. 1997) (fine for # The bankruptcy court and district court both determined PBGC’s minimum contrbutions claim was not entitled to this tax priority because the lien of § 412/n) did not arise prior to CF&I’s bank- ruptey petition. Section 412(n)(4)(B) states the lien imposed “shall arise on the 60th day following the due date ....” Here. the due date for CF&I’s minimum contribution was less than 60 days before the Debtors filed bankruptcy: hence, the automatic stay of bankruptcy would have prevented the lien from arising. As Debtors insist, “the automatic stay prevented any liens from affixing, being created, perfected, or enforced.” Our holding here makes consideration of this point moot, 10a violation of financial responsibility provision of environ- mental laws); Alabama Surface Mining Comm'n v. N.P. Mining Co. (In re N.P. Mining Co.), 963 F.2d 1449 (11th Cir. 1992) (civil penalties for violations of the Alabama Surface Mining Act). At a minimum, these cases demon- strate a judicial willingness to extend administrative claim status to tortious damages incurred post-petition and statu- tory penalties in the environmental law arena incurred post-petition. For PBGC’s argument to succeed, therefore, the minimum contributions would have to be statutory and post-petition. In support of its position that the minimum contribu- tions are a statutory requirement, PBGC cites the provi- sion requiring satisfaction of the minimum funding stand- ard. 29 U.S.C. § 1082(a)(1). PBGC then notes CF&I was obliged to meet these statutory obligations until the Plan was terminated and maintains that obligation con- tinued even during bankruptcy, relying upon In re New Center Hosp., 200 B.R. 592, 593 (E.D. Mich. 1996) (“Courts have held that statutory obligations that bind the debtor will subsequently bind the bankruptcy trustee.”). PBGC argues this provision makes clear the minimum contributions claim in this case arises out of a statutorily required post-petition obligation that could not be aban- doned. CF&I responds this contention overlooks the fact the CF&I pension plan was written, collectively bargained, relied upon, and was part of the consideration for the work performed by its beneficiaries in the decades before its bankruptcy. Moreover, CF&I reminds, the Bankruptcy Code itself recognizes contributions to pension plans are compensation for services and, thus, by definition are contractual in nature. See, e.g., 11 U.S.C. § 507(a)(4) (granting a fourth priority to “allowed unsecured claims for contributions to an employee benefit plan... (a) arising from services rendered within 180 days before the date of the filing of the petition . . . .” (emphasis added)). lla Curiously, PBGC’s own Reply Brief boosts CF&I’s ar- gument in stating: In this case CF&I and the USWA bargained for pen- sion benefits that the company later found it could not afford. These parties together could have agreed, either before or after bankruptcy, to terminate the Pension Plan (“Plan”) voluntarily before contribu- tions went unpaid and the funding gap widened. It is evident the plan and the obligations arising from it were a matter of contractual bargaining and agreement between an employer and its employees. The fact a stat- ute provides the means by which they may terminate their agreement does not trump the contractual nature of the benefits plan. Even if we were to assume the contributions were statu- tory in nature, the Reading line of cases only allows ad- ministrative priority for post-petition expenses. See In re Sunarhauserman, Inc., 126 F.3d 811, 817 (6th Cir. 1997) (“To be sure, the Reading rationale allows admin- istrative expense priority in the absence of a post-petition benefit to the estate. However, even in Reading and cases following it, the debt at issue arose post-petition.”). Hence, the issue devolves to whether the minimum con- tributions are pre- or post-petition debts. CF&I argues the claims are “derived from pension credits under a pension plan, all of which were earned by pre-petition consideration consisting of the labor of the pension plan’s participants who did the work that earned these pensions.” This position rests on the princi- ple that liabilities are not incurred post-petition simply because they become due post-petition. See, e.g., Trustees of Amalgamated Ins. Fund v. McFarlin’s, Inc., 789 F.2d 98, 101 (2d Cir. 1986); LTV Corp. v. PBGC (In re Chateaugay Corp.), 115 B.R. 760, 775 (Bankr. S.D.N.Y. 1990) (vacated) (“The PBGC’s right to payment upon termination was, on the petition date, a classic pre-petition contingent claim. The post-petition termination of the 12a pension plans did not transform the PBGC’s contingent pre-petition claims into post-petition claims.”); LTV Corp. v. PBGC (In re Chateaugay Corp.), 130 B.R. 690, 697 (S.D.N.Y. 1991) (“PBGC’s claims are pre-petition con- tingent claims because labor giving rise to the pension obligations was performed pre-petition.”); Jn re Sunar- hauserman, Inc., 126 F.3d at 819. In contrast, PBGC points to the Coal Industry Retiree Health Benefit Act of 1992, 22 U.S.C. §§ 9701-9722, (Coal Act), and cases in which courts under its provisions wrestled with bankruptcy priorities, most notable of which is LTV Co. v. Shalala (In re Chateaugay Corp.), 154 B.R. 416 (S.D.N.Y. 1993), aff'd, 53 F.3d 478 (2d Cir. 1995). [T]here is no doubt that the charges incurred by LTV Steel not only are a result of its association with previous collective bargaining agreements, but also are a direct consequence of its continued corpo- rate existence; the Coal Act only imposes obligations on signatories which are still “in business.” Thus, the charges stem from LTV Steel’s continued opera- tion in Chapter 11, and as such are costs of doing business best classified as “administrative expenses” within the Bankruptcy Code scheme. Id. at 422 (footnote omitted). We do not find the Coal Act cases helpful here. The nature of the Coal Act claims was fundamentally different from the claim presented in this case because the Coal Act claims are entitled to priority as a tax. In re Sunny- side Coal Co., No. 97-1276, 1998 WL 380966 at *4. Inasmuch as the contributions in this case are not taxes, we can draw no parallels from the Coal Act cases that would apply here.® 5 However, to the extent PBGC’s claims are based on the labor of the workers during the post-petition period until termination, they have a post-petition administrative claim. In fact, the bank- ruptcy court has already allowed that claim. Een ee Te aT Tet renee | l3a Pointedly, asserting a separate interest from that of the Debtors, Appellee United Steel Workers of America (USWA)® suggests when Congress wanted to give admin- istrative priority to claims, it did so by amending the Bankruptcy Code. In particular, USWA cites 11 U.S.C. § 1114, in which Congress provided that payment of retiree medical benefits due during bankruptcy “has the status of an allowed administrative expense.” In contrast, Congress has not amended the Bankruptcy Code to pro- vide administrative status for the PBGC’s minimum fund- ing contribution claim. We hold that claim is not entitled to administrative priority in this case. D. Valuation of the Unfunded Benefits Claim We now turn to the problem of valuing the claim for liabilities that accrued for plan benefits when PBGC termi- nated the plan. Inasmuch as those liabilities are for bene- ficiaries’ payments that extend into the future, the amount of the liability must be reduced to present value so the debt can be dealt with under the reorganization plan. While the parties agree to the necessity for such a valua- tion, they disagree over the methodology to be employed. The dispute is significant because the proffered methods produce marked differences of $222,866,000 if PBGC’s approach is utilized or $124,441,000 if CF&I prevails. The district court chose the latter, and PBGC claims the choice was erroneous. To insure the relative equality of payment between claims that mature in the future and claims that can be paid on the date of bankruptcy, the Bankruptcy Code mandates that all claims for future payment must be reduced to present value. 11 U.S.C. § 502(b) (“[T]he court . . . shall determine the amount of such claim in lawful currency of the United States as of the date of the 6A major portion of the Appeals Fund will accrue to interests represented by USWA if the judgment of the district court is affirmed. datsncimnenesinioncici 14a filing of the petition... .”). Accepting the need to dis- count the amount of the claim, the parties disagree only over the approach to valuation because of two ERISA provisions, The first, 29 U.S.C. § 1362(b)(1)(A), provides: [Liability to [PBGC] shall be the total amount of the unfunded benefit liabilities (as of the termination date) to all participants and beneficiaries under the Se The second, 29 U.S.C. § 1301(a)(18), defines the “amount of unfunded benefit liabilities” as: the excess (if any) of— (A) the value of the benefit liabilities under the plan (determined as of such date on the basis of assumptions prescribed by [PBGC] for purposes of section 1344 of this title), over (B) the current value (as of such date) of the assets of the plan. PBGC maintains this combination of statutes represents an express delegation of rule-making power to PBGC to determine the present value of its claims for terminated plans. PBGC argues, “Congress mandated that the as- sumptions used to determine the present value of benefit liabilities under terminated pension plans be the same assumptions used for purposes of valuing a plan’s benefits under 29 U.S.C. § 1344.”7 PBGC relies upon Batterton v. Francis, 432 U.S. 416 (1977), and Chevron v. NRDC, 467 U.S. 837 (1984), to remind us when Congress delegates rule-making power, 7 Because the liabilities of a terminating benefit plan are usually satisfied by the plan’s purchase of annuities from private insur- ance companies, PBGC’s methodology “produces a value of benefit liabilities in line with prices of insurance company annuity con- tracts issued to cover such benefits.” The PBGC adjusts the rates quarterly using data from insurance company annuity price quotes. 15a the rule enacted has the force of law. In addition, it maintains the district court should have applied ERISA as an “external law” to determine the validity and amount of the claim in bankruptcy. See Landsing Diversified Properties—lIlI v. First Nat'l Bank & Trust Co. (In re Western Real Estate Fund, Inc.), 922 F.2d 592, 595-97 (10th Cir. 1990). Although valid in other contexts, we do not believe these principles are applicable here. First, as noted by CF&I, 29 U.S.C. § 1301(a)(18) defines the amount of unfunded benefit liabilities “for purposes of this title [ERISA]” only. Therefore, its terms cannot extend to bankruptcy. Second, 29 U.S.C. § 1301(a)(18) conflicts with pro- visions of the Bankruptcy Code, and, as the district court held, this conflict must be controlled by the Bankruptcy Code. Indeed, the very action in which the claim arises is, after all, bankruptcy. Congress has provided very pre- cise contours of how claims that are administered in Chap- ter 11 are to be decided, and has pronounced as a cardinal rule that all claims within the same class must be treated alike. 11 U.S.C. § 1123(a)(4). That principle would be violated here if PBGC’s interpretation of § 1301(a)(18) were adopted because PBGC’s discount rate would apply only to it and not any other general unsecured creditor. Congress has made clear when ERISA conflicts with an- other provision of federal law, ERISA must be subordi- nated. 29 U.S.C. § 1144(d). Nothing in the ERISA sections relied upon by PBGC implies a carry-over into the realm of bankruptcy to allow PBGC to set its own valuation methodology. Even though that methodology was adopted in the exercise of PBGC’s administrative authority, we have no doubt of its inappli- cability in the world of bankruptcy. The district court did not err in requiring the bankruptcy court to employ the prudent-investor discount to reach the present value of PBGC’s unfunded benefiis liability claim. The judgment of the district court is AFFIRMED. l6a [Filed May 27, 1997] IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH CENTRAL DIVISION No. 93-C-744B IN RE: CF&I FABRICATORS OF UTAH, INC., et al., Reorganized Debtors. PENSION BENEFIT GUARANTY CORP., Appellant & Cross-A ppellee VS. REORGANIZED CF&I FABRICATORS OF UTAH, INC., et all. Appellees & Cross-Appellants b No. 2:96 CV 202B PENSION BENEFIT GUARANTY CORP., Appellant VS. REORGANIZED CF&I FABRICATORS OF UTAH, INC., ef al., Appellees. FINAL JUDGMENT The judgment of the Bankruptcy Court entered on May 21, 1993 is affirmed to the extent provided in this Court’s decision of November 18, 1994 in No. 93-C-744B, and 17a the judgment of the Bankruptcy Court entered on Janu- ary 29, 1996, is affirmed as provided in this Court’s April 1, 1997 memorandum in No. 2:96 CV 202B. DATED this 27th day of May, 1997. /s/ Dee V. Benson DEE V. BENSON United States District Judge 18a [Filed April 1, 1997] IN THE UNITED STATES DISTRICT COURT DISTRICT OF UTAH CENTRAL DIVISION District Court Case No. 2:96 CV 202 B PENSION BENEFIT GUARANTY CORPORATION int, oe Appellan REORGANIZED CF&I FABRICATORS OF UTAH, INC., ef al., Appellees. MEMORANDUM DECISION AND ORDER INTRODUCTION Appellant Pension Benefit Guaranty Corporation (“PBGC”) appeals the bankruptcy court’s decision that the discount rate to be applied in calculating the present value of unfunded future pension benefit liabilities is the rate of return a prudent investor would receive for invest- ing the funds. The sole issue on appeal is whether the bankruptcy court erred in applying the prudent investor rate as the appropriate discount rate. BACKGROUND On March 19, 1992, PBGC, pursuant to its ERISA statutory mandate, involuntarily terminated the pension plan of Appellee CF&I Steel Corporation (“CFI”). In terminating CFI’s pension plan, PBGC filed specific claims for the plan’s unfunded future benefit liabilities (“un- funded claims”). PBGC valued those claims at $222,866,- 000. The Debtors and Unsecured Creditors Committee objected to PBGC’s valuation of the unfunded claims on the ground that PBGC improperly inflated its claims by using an artificially low discount rate. ee er a kg la a i aa ial ca 19a After conducting a three-day evidentiary hearing, the bankruptcy court found that the 6.5% discount rate for- mulated and used by PBGC in assessing the present value of the unfunded claims was appropriate and should only be modified upon a finding that it was manifestly unfair or unreasonable. The bankruptcy court concluded the rate proffered by PBGC was entitled to deference despite the fact that the PBGC discount rate would negatively impact the distribution of funds to other similarly situated cred- itors . Consequently, the bankruptcy court allowed PBGC’s claims in the amount of $220,953,000. Both the reorganized debtors and PBGC appealed various portions of the bankruptcy court’s final order to this court. After reviewing the bankruptcy court’s final order, along with the parties’ briefs, this court ruled that the bankruptcy court erred in subordinating the Bank- ruptcy Code to ERISA which led the bankruptcy court to adopt the 6.5% discount rate formulated and used by PBGC in valuing its unfunded claims. Accordingly, this court remanded to the bankruptcy court the issue of the proper discount rate to be applied in valuing PBGC’s un- funded claims. This court specifically instructed the bank- ruptcy court to undertake an “independent evaluation” in ascertaining the appropriate discount rate while conform- ing to the Bankruptcy Code’s requirement that similarly situated creditors be treated equally. In re CF & I Fab- ricators of Utah, Inc., 179 B.R. 704, 710-711 (D. Utah 1994). On remand, the parties chose not to produce any addi- tional evidence. The bankruptcy court found that the 6.5% discount rate advocated by PBGC did not conform to this court’s mandate that the bankruptcy court apply an independent discount rate consistent with the Bank- ruptcy Code’s mandate of equality of treatment between similarly situated creditors. The bankruptcy court, there- fore, ruled that the only discount rate in evidence that satisfied the standard established by this court was the 20a 12.3% prudent investor rate. The bankruptcy court, therefore, revalued PBGC’s unfunded claims at $122,528,- 000 using the prudent investor rate of 12.3%. PBGC now appeals the bankruptcy court’s use and application of the 12.3%. PBGC now appeals the bankruptcy court’s use and application of the 12.3% prudent investor rate. STANDARD OF REVIEW On appeals from decisions of the Bankruptcy Court, the District Court sits as an appellate court. 28 U.S.C. § 158 (a). This court conducts a de novo review of the Bank- ruptcy Court’s conclusions of law. SLC Ltd. v. Bradford Group West, 999 F.2d 464, 466 (10th Cir. 1993). Ques- tions of fact are reviewed for correctness and will not be disturbed unless there is no reasonable basis to support them. 7d. Whether the discount rate formulated and used by the Bankruptcy Court in determining the present value of the unfunded claims is compatible with the Bankruptcy Code’s direction that all similarly situated creditors be treated equally is a question of law. The only issue on appeal is whether the prudent investor rate used by the bankruptcy court in determining the present value of the unfunded claims comports with the principle of equality required by the Bankruptcy Code. We, therefore, review de novo the bankruptcy court’s determination that the prudent in- vestor approach rate is the only rate in evidence that satisfies the Bankruptcy Code’s requirement of equality. DISCUSSION I. PBGC’s Motion for Reconsideration PBGC first asks this court to reconsider its previous decision that “ERISA and the Bankruptcy Code conflict,” that “ERISA must be subordinated to the Bankruptcy Code,” and that “the present value calculations relating to pension termination liability must be determined accord- ing to bankruptcy law.” Jd. at 710. 2 ee eT me - —— wigs iia eas 21a Rule 59 of the Federal Rules of Civil Procedure pro- vides, “Any motion to alter or amend a judgment shall be filed no later than 10 days after entry of the judgment.” Fed. R. Civ. P. 59(e). Similarly, the Bankruptcy Code provides, “Unless the district court . . . by local rule or by court order otherwise provides, a motion of rehearing may be filed within ten days after entry of the judgment of the district court.” Bankr. R. 8015. This court entered its decision on November 18, 1994. PBGC has never, until now, moved this court to reconsider its November 18, 1994 decision. PBGC’s request that this court reconsider its previous ruling is untimely. Accordingly, this court declines to reconsider its November 18, 1994 decision. II. Propriety of the Prudent Investor Rate The bankruptcy court originally applied the 6.5% dis- count rate formulated and advanced by PBGC without analyzing any of the rates proffered by the debtors. On appeal, this court directed the bankruptcy court to apply an independent rate that “advance[d] the principle of equality of treatment between similarly situated creditors.” In re CF & I, 179 B.R. at 710. On remand, the bank- ruptcy court found that the 6.5% rate proffered by PBGC was creditor specific to PBGC and, therefore, was incon- sistent with fundamental principles of federal bankruptcy law. The bankruptcy court also found that the prudent investor rate was the only discount rate in evidence that satisfied the Bankruptcy Code’s requirement that all similarly-situated creditors be treated equally. Therefore, the bankruptcy court adopted and applied the 12.3% prudent investor rate in determining the present value of the unfunded claims. PBGC argues that the bankruptcy court erred in reject- ing its 6.5% discount rate and in applying the prudent investor rate. This court disagrees with PBGC’s conten- tion. The bankruptcy court was correct in concluding that the 6.5% rate advocated by PBGC is creditor specific. 22a The 6.5% discount rate advanced by PBGC is based upon PBGC’s efforts to replicate “the market price from an insurance company for the close-out annuities from a terminated pension plan.” In re CF & I, No. 90B-6721 at 4 (Bankr. D. Utah November 27, 1995). The bank- ruptcy court specifically found that “the price of a close- out annuity does not reflect the future earning power of money, but instead serves to promote the PBGC’s own institutional goal of making plan termination less attrac- tive than the purchase of close-out annuities.” In re CF & I, No. 90B-6721 at 9 (Bankr. D. Utah November 27, 1995). That goal is inconsistent with ascertaining the true present value of the unfunded claims. If the court were to apply PBGC’s proposed 6.5% discount rate, PBGC could obtain a windfall at the ex- pense of other similarly situated creditors. The unfunded claims could be discounted at the low 6.5% rate and then reinvested by PBGC in the market at the higher 12.3% prudent-investor rate. Such a result would unfairly benefit PBGC by inflating their claims while negatively impacting the distribution of funds to other similarly situ- ated creditors. If PBGC were allowed to value their claims at the 6.5% discount rate, creditors behind PBGC would only be allowed to collect after PBGC’s $212,286,- 000 claim was satisfied. If the claims were valued at the 12.3% rate those creditors would only have to wait until the debtors satisfied their $124,441,000 claim to PBGC. The prudent investor approach, on the other hand, is based upon the investor’s objective of earning “the high- est return On the invested capital consistent with preser- cation of the capital and minimizing of risk.” In re Chateaugay Corporation, 126 B.R. 165, 176 (S.D.N.Y. 1991). The objective of the prudent investor approach is to determine the amount of money a prudent investor needs today to fund future payments to participants in the terminated plans. Jd. The prudent investor approach is “used by financial analysts every day to determine the 4 med on Sah 23a present value of long term obligations” and is “realisti- cally likely to result in the determination of the full eco- nomic value of the claim.” Jd. at 175-76. Consequently, the Chaeaugay court held that the reasonable prudent investor approach was the most appropriate for valuing PBGC’s claims in that case. We agree with the bankruptcy court that the 12.3% prudent investor rate is the only rate in evidence com- patible with the Bankruptcy Code. It is based on com- mony accepted techniques and is readily and objectively verifiable. It is regularly used by financial analysts in determining the present value of long-term obligations. The 12.3% discount rate is more than fair considering the 16.6% average rate of return on CFI’s pension plan over the past seven years. Tr. of Craft’s Test. at 180. Finally, it satisfies this court’s prior holding that present value calculations must be determined according to bank- ruptcy law, including “the principle of equality of treat- ment between similarly situated creditors.” In re CF & I, 179 B.R. at 710. Appellant’s contention that the prudent investor ap- proach will not enable PBGC to account for immediate cash draws against the fund is without merit. The bank- ruptcy court specifically found that “cash needs” could be satisfied by a number of sources including cash on hand, cash earnings on the investment portfolio itself or liquidation of stocks and bonds held by the portfolio.” In re CF & I, No. 90B-6721 at 12 (Bankr. D. Utah 1995). The bankruptcy court was correct in determining that the 6.5% discount rate formulated and advanced as the proper rate by PBGC is creditor specific and fails to com- ply with this court’s mandate that the discount rate applied in determining the present value of the unfunded claims treat similarly situated creditors equally. The bank- ruptcy court's finding that the 12.3% prudent investor rate was the ony discount rate in evidence that satisfied 24a this court’s mandate of equality among creditors was cor- rect. Accordingly, the bankruptcy court’s determination that the 12.3% prudent investor rate was the appropriate rate to apply in determining the present value of the un- funded claims is AFFIRMED. DATED this Ist day of April, 1997. /s/ Dee Benson DEE BENSON United States District Judge 25a [Filed Jan. 26, 1996} IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF UTAH CENTRAL DIVISION Jointly Administered Under Case No. 9JOB-6721 [sic] IN RE: CF&I FABRICATORS OF UTAH, INC., et al., Reorganized Debtors Chapter 11 (Case No. 90B-6721) (CF&I Fabricators of Utah, Inc.) (Case No. 90B-6722) (Colorado & Utah Land Company) (Case No. 90B-6723) (Kansas Metals Company) (Case No.90B-6724 ) (Albuquerque Metals Company) (Case No. 90B-6725) (Pueblo Metals Company) (Case No. 90B-6726) (Denver Metals Company) (Case No. 90B-6727) (Pueblo Railroad Service Company) (Case No. 90B-6728 ) (CF&I Fabricators of Colorado, Inc.) (Case No. 90B-6729 ) (CF&I Steel Corporation ) (Case No. 90B-6730) (Colorado & Wyoming Railway Company) ORDER ON MOTION OF PENSION BENEFIT GUARANTY CORPORATION, DATED JANUARY 5, 1996, FOR ENTRY OF JUDGMENT 26a The Motion of Pension Benefit Guaranty Corporation dated January 5, 1996, for Entry of Judgment was heard by this Court on January 26, 1996. Appearances of coun- sel were made upon the Court record. Based upon this Court’s Memorandum Decision on Motions for Judgment filed By Pension Benefit Guaranty Corporation Dated 3/7/95, and Reorganized Debtors’ Dated 4/11/95, re- lated to Twenty Amended Proofs of Claim filed by Pen- sion Benefit Guaranty Corporation, and to resolve all issues of compliance with Rule 9021, Federal Rules of Bankruptcy Procedure, it is hereby ORDERED that Pension Benefit Guaranty Corpora- tion’s unfunded benefit claims are revalued, utilizing a 12.3% discount rate, at $124,441,000.00 (less recovery by Pension Benefit Guaranty Corporation on duplicative claims), resulting in general unsecured claims each in the sum of $122,528,000.00. Dated this 26th day of January, 1996. United States Bankruptcy Court /s/ Judith Boulden HONORABLE JUDITH BOULDEN United States Bankruptcy Judge 27a IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF UTAH CENTRAL DIVISION Bankruptcy Number 90B-6721 Chapter 11 IN RE: CF&l FABRICATORS OF UTAH, INC., et al., Reorganized Debtor(s). Case Number 90B-06721 CF&I Fabricators of Utah, Inc. Case Number 90B-06722 Colorado & Utah Land Co. Case Number 90B-06723 Kansas Metals Company Case Number 90B-06724 Albuquerque Metals Company Case Number 90B-06725 Pueblo Metals Company Case Number 90B-06726 Denver Metals Company Case Number 90B-06727 Pueblo Railroad Service Co. Case Number 90B-06728 CF&I Fabricators of Colorado, Inc. Case Number 90B-02769 CF&I Steel Corporation Case Number 90B-06730 The Colorado and Wyoming Railway Company 28a MEMORANDUM DECISION ON MOTIONS FOR JUDGMENT FILED BY PENSION BENEFIT GUARANTY CORPORATION DATED 3/7/95, AND REORGANIZED DEBTORS DATED 4/11/95, RELATED TO TWENTY AMENDED PROOFS OF CLAIM FILED BY PENSION BENEFIT GUARANTY CORPORATION This court previously ruled on certain issues related to the claims objections, brought by these now reorganized Chapter 11 debtors (Debtors) and the Official Unsecured Creditors Committee, to twenty amended proofs of claim filed by the Pension Benefit Guaranty Corporation (the PBGC). At the time these chapter 11 petitions were filed, the Debtors were sponsors, and CF&I Steel Cororation (CF&l) was the administator, of two pension plans that provided pension and pension-related benefits for employees and retirees. The two pension plans were The Pension Plan of CF&I Steel Corporation and Certain Sub- sidiaries (the Master Plan) and The Non-Contributory Pension Plan of CF&I Steel Corporation as Amended and Restated Effective January 1, 1989. Under these pension plans, CF&I was obligated to provide annual plan funding contributions based on the actuarial valuation of the bene- fits earned by its employees. CF&I failed to make the minimum funding payment that became due on the Master Plan on September 15, 1990, and filed the within chapter 11 cases on November 7, 1990. On March 1, 1992, the PBGC instituted proceedings to terminate the Master Plan and became the successor trustee and thus liable for guaranteed benefits to plan participants. The PBGC filed two proofs of claim against each of the Debtors. The claims fell into two general categories: (1) claims for due and unpaid minimum contributions allegedly due and owing the Master Plan (the Minimum Contribution Claims) of $64,874,511 each, and (2) an eee find 29a claims for unfunded benefit liabilities under the Master Plan (the Unfunded Benefit Claims) of $212,286,000 each (collectively the PBGC’s Claims). The $212,286,000 figure allegedly represented the present value of liability on the date the Master Plan was terminated, less the value of plan assets on that same date, and less the value of the unpaid Minimum Contribution Claims. In a memorandum decision of November 9, 1992, this Court allowed the PBGC’s Claims against the Debtors on a joint and several basis, but ruled that certain portions of the PBGC’s Claims were not entitled to the status as- serted by the PBGC. The court reserved for an eviden- tiary hearing the allowed amount of the PBGC’s Claims, whether there existed any equitable grounds for the court to modify the present value of a portion of the PBGC’s Claims, and the extent to which the PBGC’s Claims were duplicative. After the evidentiary hearing on the remain- ing factual issues, by order of December 31, 1992, this Court ruled (among other things) that the Unfunded Benefit Claims would be calculated and allowed utilizing a 6.5% interest rate as one of several factors set forth in 29 C.F.R. § 2619 (1991) (Regulation) that was in effect as of the date of the termination of the Master Plan. The Regulation was supposed to determine the value of plan benefits under terminating pension plans by figuring the current value of projected benefits as of a specific date that was equal to the amount of money needed on that date to pay benefits over future years. The Regulation required the plan administrator to determine the present value of all plan benefits using the applicable formulas contained in the Regulation, together with prevailing PBGC factors, including interest expected retirement age, and mortality rates in effect on the valuation date. On May 21, 1993, after denying a motion for reconsideration filed by the PBGC, this Court allowed the PBGC’s re- calculated Unfunded Benefit Claims as general unsecured claims in the amount of $220,953,000, and incorporated 30a the prior orders of November 9, 1992 and December 31, 1992 by reference. The parties filed cross-appeals, with the PBGC challeng- ing this Court’s ruling on a number of issues unrelated to this opinion. The Reorganized Debtors and the United Steelworkers of America, AFL-CIO-CLC, (United Steel- workers) appealed portions of this Court’s rulings related (among other things) to whether this Court improperly gave deference to the PBGC’s method of discounting its Unfunded Benefit Claims to present value. By Opinion dated November 17, 1994, the United States District Court for the District of Utah affirmed all aspects of this Court’s prior decisions, except with respect to whether this Court gave undue deference to the PBGC’s determination of the method and discount rate to be ap- plied to the Unfunded Benefit Claims. The District Court found that where, as in this case, ERISA and another federal statute conflict, ERISA must be subordinated. The District Court determined that because the Bank- ruptcy Court has an additional mandate to advance the principle of equality of treatment between similarly situ- ated creditors, ERISA must be subordinated to the Bank- ruptcy Code, and the present value calculations relating to pension termination liability must be determined accord- ing to bankruptcy law.2, The matter was remanded with 1 ERISA states that “[nlothing in this title shall be construed to alter, amend, modify, invalidate, impair, or supersede any law of the United States ... or any rule or regulation issued under any such law.” 29 U.S.C. § 1144(d) (1985). 2 The District Court held this Court applied the wrong standard of review in giving deference to the PBGC’s interpretation, and the “application of an improper standard of review may have prevented the bankruptcy court from fulfilling its statutory obligation to in- dependently ascertain an appropriate discount rate. The bank- ruptey court’s legal conclusion that deference was due PBGC’s in- terpretation is reversed and remanded to the bankruptcy court to make an independent evaluation.” Opinion dated November 17, 1994 at 14 (emphasis added). 3la the instruction that this Court make an independent dis- count rate determination without any deference to the position of the PBGC. The PBGC then filed a Motion for Judgment in this Court requesting judgment in favor of the PBGC by allow- ing its Unfunded Benefit Claims as general unsecured. claims in the amount of $220,953,000. The PBGC as- serted that this Court’s prior findings that the PBGC’s Regulation replicated the market price from an insurance company for the close-out of annuities from a terminated pension plan was the correct test to apply in determining the appropriate discount rate. The PBGC also argued that the Reorganized Debtors’ prudent-investor approach, failed on its own terms because the hypothetical pension plan portfolio had no cash reserve, and there was no con- sideration of how that may affect yield. Based on the reiterative method for placing a value on the PBGC’s Separate claim for unpaid minimum funding contributions and additional evidence submitted on that discrete issue on January 11, 1993, the PBGC asserted this Court’s final order entered on May 21, 1993, that allowed the un- funded benefit liabilities claim in the amount of $220,- 953,000 waé correct. The Reorganized Debtors, supported by United Steel- workers, filed a cross-motion seeking judgment in favor of the Reorganized Debtors by revaluing the Unfunded Benefit Claims as general unsecured claims in the amount of $124,441,000 less any duplicate recovery by the PBGC. The Reorganized Debtors and United Steelwork- ers argued that the PBGC’s proposed discount rate as- sumption was intended to satisfy policy goals under ERISA and was inconsistent with the Bankruptcy Code, that use of the PBGC’s proposed discount rate would gen- erate profit for the PBGC at the expense of other unse- cured creditors, and, the only market-based discount rate consistent with the Bankruptcy Code established by com- petent evidence at trial was a 12.3% discount rate calcu- —— 32a lated utilizing a prudent-investor method presented by the Reorganized Debtors. The Court heard oral argument on both motions, whereupon the matter was taken under advisement. This Court has now reviewed the parties arguments and mem- oranda, the transcripts from and evidence received at the prior evidentiary hearing, and has made an independent review of applicable case law. In consideration of the District Court’s Opinion dated November 17, 1994, this Court now rules as follows: ISSUES This Court must determine the appropriate discount rate to be used to value the PBGC’s Unfunded Benefit Claims in today’s dollars, giving no deference to the PBGC’s methodology and treating similarly situated cred- itors equally. All parties appear to agree that an unse- cured claim for future payments must be discounted to present value to avoid over-compensation to a creditor resulting from the interest earning power of money. How- ever, the PBGC asserts that a creditor-specific method- Ology should be used to calculate present value, whereas the Reorganized Debtors and United Steelworkers assert the appropriate approach is one that is non creditor- specific. The PBGC argues, without supporting case law, for the cost of settlement approach. This approach is based on generally accepted accounting principles* and looks to the real-world cost of retiring actual pension fund li- abilities in the close-out annuity market. The PBGC ar- gues that no better source of valuation evidence exists than the active competitive market where insurers offer to take on unconditional and guaranteed obligations. 3 The PBGC specifically relies on a proncement [sic] promulgated by the Financial Accounting Standards Board as set forth in the Statement of Financial Accounting Standards No, 87 (FAS 87). ee ee 33a The Reorganized Debtors and United Steelworkers ask the Court to adopt the reasoning of Judge Lifland from the Southern District of New York, in a reported but va- cated and withdrawn decision. They argue that the Court should utilize a prudent investor approach that produces a discount rate based on the following three criteria: (1) the rate should yield the true economic value of the claim; (2) the rate should be established by market value; and (3) the rate should be consistent with the principle of equality of distribution to unsecured creditors, citing LTV Corp. v. Pension Benefit Guar. Corp. (In re Chateaugay Corp.) 126 B.R. 165, 174 (Bankr. S.D.N.Y. 1991), va- cated on consent of the parties, 17 Employee Benefits Cas. (BNA) 1102 (S.D.N.Y. 1993) (LTV IT).* The PBGC bears the ultimate burden of proof as to the validity and the amount of its claim. Jn re Harrison, 987 F.2d 677, 680 (10th Cir. 1993). It must prove its claims by a preponderance of the evidence. In re Lewis, 80 B.F 39, 41 (Bankr. E.D.Pa. 1987). Accordingly and in light of the District Court’s Opinion dated November 17, 1994, in order to prevail, the PBGC must present evi- dence of a discount rate that is both consistent with the Bankruptcy Code and one that will yield the present value of its Unfunded Benefit Claims in today’s dollars. The District Court instructed that the rate must be consistent with the Bankruptcy Code and its principle of equality of distribution among similarly situated creditors and that the policy objectives of ERISA must be subordinated to the Bankruptcy Code. —— - 4 Although not controlling, the Court finds instructive the opinion of Judge Lifland in Chateaugay, which is directly on point. The parties disagree, however, on the extent to which this Court should consider the criteria set forth in that opinion. The Reorganized Debtors and United Steelworkers urge its complete adoption by this Court while the PBGC asserts this Court should reject it whole heartedly in favor of the cost of settlement approach. 34a ANALYSIS The Court is unaware of any controlling authority setting a standard for discounting claims arising from the termination of a debtor’s pension fund to present value. Although in the context of bankruptcy, discounting a cred- itor’s claim of future damages to present value is not unusual,® few cases deal with discounting an unsecured Stream of future payments.* The concept is nonetheless essential to equitable distribution among creditors. In re O.P.M. Leasing Services, Inc. 79 B.R. 161, 165-67 (S.D.N.Y. 1987) (court measured creditor/lessee’s claim requesting reimbursement for percentage of lump sum termination payment based on deprivation of future bene- fits in accordance with accepted contract law principles and discounted to present worth): Jn re Winston Mills, Inc., 6 B.R. 587, 599-60 [sic] (Bankr. S.D.N.Y. 1980) (a reduction to present value of a stream of future payments has been accepted without question and is axiomatic in the determination of future payments of rent reserved in a lease). In contexts other than bankruptcy, federal courts often discount a future stream of payments to present value to prevent the injured party from obtaining an overpay- ment as a result of the prepayment of a claim. For ex- ample, federal courts routinely take into account. the 5 Historically, establishing damages for termination of real prop- erty leases at less than full payment of the lease over time has been found by the Supreme Court to be fundamental to the bank- ruptcy process designed to relieve reorganizing corporate debtors of continuing liability yet allow landlords to participate in distribn- tion. See Kuehner v. Irving Trust Co., 299 U.S. 445, 453-55 (1987) (limiting damages to three times the annual rent of rejected real property lease under Section 77B of the Bankruptcy Act held not to be a taking of property without due process). 6 Most cases determine the discount rate that should be applied to enable a claimant to receive deferred cash payments totaling at least the allowed amount of a claim in the context of a plan of reorganization under 11 U.S.C. § 1129(b)(2) and § 1325(a)(5). See e.g., In re Hardzog, 901 F.2d 858, 859-60 (10th Cir. 1990). hae Ee NR PEO ge anal hil ld bp 35a earning power of money when determining the award of damages necessary to compensate for lost future income. E.g., Chesapeake & Ohio Ry. Co. v. Kelly, 241 US. 485 (1916). Although these courts consider various factors in arriving at a discount rate, the primary consid- eration is what rate will yield a reasonably safe, long-term investment available to the average person.? The PBGC has failed to present any case law employ- ing a creditor-specific approach to determine the appro- priate discount rate. Therefore, this Court must determine if the approach advocated by the PBGC in attempting to meet its burden of proof is violative of Bankruptcy Code policy considerations to give equal treatment to all sim- ilarly situated unsecured creditors, or inconsistent with case law in this circuit. Upon due consideration, this Court finds the creditor-specific approach advocated by the PBGC is inconsistent with Bankruptcy Code_standards of equal creditor treatment. The PBGC’s proposed discount rate assumption is in- tended to satisfy policy goals under ERISA and is ee ne 7 St. Louis Southwestern Ry. Co. v. Dickerson, 470 U.S. 409, 412 (1985) (no single method for determining present value is man- dated by federal law and the method of calculating present value should take into account inflation and other sources of wage in- creases as well as the rate of interest); Hoskie v. U.S., 666 F.2d 1353, 1355 (10th Cir. 1981) (the court must calculate an amount of money that can be invested in a reasonably safe long-term in- vestment available to the average person, which ultimately will yield a sum equal to plaintiff’s lost income over the span of hig working life expectancy); Steckler v. U.S., 549 F.2d 1372, 1878 (10th Cir. 1977), cert. denied, 290 U.S. 657 (1933) (trier of fact should take into account estimated changes in the purchasing power of money, and at the same time discount the future income stream to its present value); Southern Pac. Co. v. Klinge, 65 F.2d 85, 87 (10th Cir. 1933) (the jury should determine from the evidence what in- terest could be fairly expected from safe investment which a person of ordinary prudence, but without particular financial experience or skill could make in that locality). a A ii a 36a inconsistent with the underlying principles of the Bank- ruptcy Code. This Court previously ruled that the PBGC had prop- erly calculated the Unfunded Benefit Claims according to the Regulation, including the utilization of the PBGC’s ex- pected retirement age. Upon review, this Court sees no basis to modify that portion of the ruling finding that the PBGC accurately calculated its claim according to its Regulation. However, as this Court previously ruled, the Regulation is designed to produce a price that would be charged by the private sector in issuing an annuity to a particular group of lives. Replication of a private annuity contract, however, is only relevant to the valuation of liabilities under ERISA. The evidence indicates the Regu- lation serves to minimize any incentive of an employer to close-out a terminating pension plan by transferring liabilities to the PBGC, rather than by purchasing a pri- vate insurance company annuity. The PBGC’s efforts to replicate the price of a close-out annuity does not reflect the future earning power of money, but instead serves to promote the PBGC’s own institutional goal of making plan terminations less attractive than the purchase of close- out annuities. This Court’s prior ruling also incidated that the rate used to determine the present value of the PBGC’s Claims should take into consideration, not a risk-free rate, but at least a rate that was consistent with the PBGC’s obliga- tions to ensure that payments will be made to pensioners. That ruling was in error because it considered a creditor- specific element to the detriment of other unsecured credi- tors. Since the District Court ruled that all similarly situ- ated creditors should be treated the same, such factors as the recognition of the PBGC’s obligation to guarantee performance on all defaulted pension plans, its obligation to provide conservative investment management, and the prior ruling that the PBGC’s rate should be disallowed only if there is manifest unfairness or unreasonableness, is incorrect. 37a The PBGC’s discount methodology does not yield a discount rate. This Court’s prior ruling found that the PBGC’s dis- count methodology yielded a discount factor, not an in- terest rate. The discount factor had significance only in conjunction with the PBGC’s other actuarial assumptions set forth in the Regulation. A review of the evidence indicates that the discount factor is not a rate with in- dependent economic significance, but only a mathematical by-product of the PBGC’s effort to replicate the price of private annuity contracts. It is created by the division of the mortality table values into the annuity purchase price that then equals the discount factor. Because the discount factor is “derived,” it has no economic significance inde- pendent of the PBGC’s survey of annuity prices and appli- cation of its mortality tables to the annuity pricing infor- mation. Since such an application serves only the unique characteristics of the claimant, it is not a reliable source to calculate the present value of the Unfunded Benefit Claims. In its prior ruling, this Court also ruled that use of the PBGC’s regulations to calculate its Unfunded Benefit Claims would have a significant adverse impact on the claims of other unsecured creditors. However, this Court ruled that the use of the Regulation would be disallowed only if the calculation of the PBGC’s Claims were un- justifiably inflated to the detriment of the balance of the creditors. Since the District Court has determined that no deference should be given to the PBGC’s determination of the appropriate discount rate, the rejection of that de- termination only if it unjustifiably inflates the PBGC's Claims, is incorrect. The only market-based discount rate consistent with the Bankruptcy Code estabilshed by competent evidence at trial was the rate presented by the Reorganized Debtors. The evidence indicated that the discount factor em- ployed by the PBGC was not representative of future 38a investment yields or any rate of return. The Regulation does not consider expected interest earnings of a prudent- investment portfolio, or a reasonably safe long-term in- vestment. The objective of the Reorganized Debtors’ prudent-investor approach was to determine the amount of money a prudent investor needed today to fund the required future payments to participants.’ The Court pre- viously found that the Reorganized Debtors’ prudent- investor approach was carefully developed analyzing gen- erally accepted source materials used in financial markets. It was presented by a witness who was a qualified expert on the present value of claims in bankruptcy cases. The prior ruling criticized the prudent-investor approach on several grounds. Included in that criticism was that the prudent-investor approach assumed a risk factor that was inconsistent with the PBGC’s statutory role as a guarantor of pension funds, and that it failed to provide adequate compensation to the PBGC for the assumption of additional risk. This Court finds those criticisms to be incorrect in light of the District Court’s ruling because they improperly focus on the unique characteristics of the PBGC as a special creditor, as opposed to merely one of a class of unsecured creditors. This Court also criticized the prudent-investor approach because it produced a dis- count rate that was generally higher than that projected by many large pension plans. Again, this comparison is invalid because it focuses on a methodology utilizing accounting principles unique to the calculation of pension expenses and obligations to determine pension costs. The most significant criticism of the prudent-investor approach was that the investment portfolio mix failed to include cash resources required to pay obligations due in ——e 8In its prior ruling, this Court rejected the “debtor-specific” approach for discounting the PBGC’s Claims to present value, Upon review, this Court finds no basis to modify that ruling. 39a the near future. This Court reasoned that either the hypo- thetical portfolio would have to be partially liquidated to meet current obligations, or that the PBGC would have to use its other assets to meet immediate cash obligations under CF&l’s terminated plan. A careful review of the evidence indicates that cash needs could be satisfied by a number of sources including cash on hand, cash earnings on the investment portfolio itself, or liquidation of stocks and bonds held by the portfolio. In addition, the hypo- thetical portfolio should have a zero balance at the con- clusion of payments to retirees. The Court previously found the lack of cash resources placed the prudent-investor approach in doubt. Upon reconsideration, there is insufficient evidence to indicate that the hypothetical portfolio generating a 12.3% dis- count rate could not meet future obligations. Although it appears the necessity to meet cash obligations in the near future could significantly impact the future earnings of the hypothetical portfolio, the extent of the impact is not before the court. The Court will not speculate, in the absence of specific evidence, that the lack of cash re- sources invalidates the prudent-investor approach. The prudent-investor approach, even if less than per- fect, is the only discount rate before the Court that comes close to meeting the standard articulated by the District Court. To accept the PBGC’s argument that the discount rate is inextricably bound to the actuarial assumptions used to calculate the aggregate future pension liabilities is to accept PBGC’s original position that ERISA’s policy objectives must be satisfied at the expense of the policy goals of the Bankruptcy Code. Since the Court now re- jects that argument, the PBGC’s assertion that the prudent- investor approach analyzed the wrong market is also re- jected, Because the PBGC has failed to carry its burden of proof by a preponderance of the evidence, it is hereby ORDERED, that the PBGC’s Unfunded Benefit Claims are revalued utilizing a 12.3% discount rate at $124,- 40a 441,000 (less any recovery by the PBGC on duplicative Claims). DATED this 27th day of November, 1995. /s/ Judith A. Boulden JubItH A. BOULDEN United States Bankruptcy Judge 4la [Filed Nov. 18, 1994] IN THE UNITED STATES DISTRICT COURT DISTRICT OF UTAH CENTRAL DIVISION Civil No. 93-C-744B IN RE: CF&I FABRICATORS OF UTAH, INC., et al., Reorganized Debtors. PENSION BENEFIT GUARANTY CORPORATION, Appellant and Cross-A ppellee, VS. REORGANIZED CF&I FABRICATORS OF UTAH, INC., et al.: and UNITED STEELWORKERS OF AMERICA, AFL-CIO-CLC, Appellees and Cross-A ppellants. OPINION This bankruptcy appeal came before the Court on Wednesday, October 26, 1994. Susan E. Birenbaum, Israel Goldowitz, Garth D. Wilson, Mare A. Tenenbaum, and William G. Fowler represented the appellant and cross-appellee, Pension Benefit Guaranty Corporation (“PBGC”). Frank Cummings, Scott A. Faust, Steven J. McCardell, and Steven J. Waterman represented appellees and cross-appellants Reorganized CF&I Fabricators of Utah, Inc., et al. (“Debtors” or “Reorganized Debtors”), Richard M. Seltzer and Richard Brook represented ap- 42a pellee and cross-appellant United Steelworkers of America, AFL-CIO-CLC (“United Steelworkers”). BACKGROUND This appeal and cross-appeal concern liabilities arising from the pension plan (“the Plan”) administered by the Reorganized Debtors prior to their filing of chapter 11 petitions. The Plan obligated the Reorganized Debtors to pay fixed pension benefits calculated according to the pay and years of service of each recipient former em- ployee. The Employee Retirement Income Security Act (“ERISA”) required the Reorganized Debtors to make annual funding contributions to PBGC based on the actu- arial valuation of the benefits the employees earned. PBGC is a corporation owned by the federal government that was established under ERISA to administer pension plan termination and to guarantee payment of certain benefits under terminated pension plans. 29 U.S.C. § 1302 (1985 & Supp. 1994). PBGC obtains funding for its administrative expenses and benefit payments by collect- ing minimum funding contributions from pension plans, generating investment income, allocating the assets of terminated plans, and recovering on its claims against the administrators of terminated plans. PBGC does not re- ceive general federal revenue. The claims under which PBGC can recover include those for (1) unpaid minimum funding contributions and (2) the amount by which PBGC’s benefit payments exceed the value of the Plan’s assets at termination (known as “unfunded benefit lia- bilities”). The Reorganized Debtors failed to make the minimum funding contribution due on September 15, 1990. The Reorganized Debtors filed petitions for reorganization under chapter 11 on November 7, 1990. At the time of filing, the Plan was underfunded by about $200 million. The Reorganized Debtors maintained control ow ~ the Plan for about another year but failed to make the mini- 43a mum funding contributions. On March 19, 1992, PBGC terminated the Plan, and PBGC became the Plan’s trustee. PBGC began making payments to beneficiaries of the Plan, PBGC asserted claims in the bankruptcy court for ap- proximately $71 million in unpaid minimum funding con- tributions and for approximately $222 million for un- funded benefit liabilities. PBGC argued that its claims were entitled to priority under ERISA and the Internal Revenue Code (“I.R.C.”). In decisions dated November 9, 1992 and December 31, 1992, the bankruptcy court denied PBGC’s claim of tax priority on all but a small portion of the amount it sought. Specifically, the decisions included the follow- ing holdings that are relevant to this appeal: * PBGC’s claims for unpaid mandatory contributions are not entitled to administrative expense priority under 11 U.S.C. § 503(b)(1)(B) or tax priority pursuant to 11 U.S.C. § 507(a)(7) because the automatic stay pre- cluded the imposition of a lien. * PBGC’s claims for minimum funding contributions arose pre-petition because the acts giving rise to the Debtors’ liability to make those contributions occurred pre-petition. * PBGC’s claims for minimum funding contributions are not entitled to post-petition interest as administrative claims because those contributions were not actual and necessary expenses of preserving the Debtors’ estates. * PBGC’s claim for a $3 million portion of the un- funded benefit liabilities is not entitled to tax priority because the termination of the Plan occurred post-petition, and the automatic stay precluded the imposition of the lien provided for by ERISA section 4068(c)(2), 29 U.S.C. § 1368(c)(2). * PBGC is not entitled to interest on its claims for minimum funding contributions because those contribu- 44a tions are not post-petition taxes and because administra- tive expenses are not entitled to interest. The bankruptcy court’s decisions also included the fol- lowing holdings that are relevant to the cross-appeal: * PBGC’s determination of the valuation of its claims is entitled to deference, and that determination is entitled to “substantial weight” when the court determines whether to allow claims. * PBGC’s claim for minimum funding contributions is disallowed to the extent that it duplicates PBGC’s claim for unfunded benefit liabilities. * Each of the Debtors is jointly and severally liable under ERISA § 4062(a), 29 U.S.C. § 1362(A) [sic]. Following the bankruptcy court’s decision, the Debtors emerged from bankruptcy pursuant to a consensual re- organization plan. That plan established reserve funds for the purpose of funding PBGC’s recovery in the event it prevails on this appeal. Only those reserve funds will be affected by the outcome of this appeal. PBGC estimates that its losses resulting from the termination of the Plan will be approximately $250 million. ISSUES ON APPEAL I. Tax Priority Status of Claim for Minimum Funding Contributions PBGC argues that the bankruptcy court erred in con- cluding that its claims for unpaid mandatory contributions are not entitled to administrative expense priority under 11 U.S.C. § 503(b)(1)(B) or tax priority pursuant to 11 U.S.C. §507(a)(7). The bankruptcy court found that, although ERISA and the I.R.C. provide for a lien to be automatically imposed 60 days after the amount of unpaid contributions exceeds $1,000,000, the operation of the Bankruptcy Code’s automatic stay precluded the imposition of such a lien in this case. ical ) 45a PBGC asserts that I.R.C. §412(n) does not require perfection of a lien before the amount thereof is entitled to tax priority. According to PBGC, Congress intended to give first priority not to perfected liens (which are entitled to priority under the Bankruptcy Code), but rather to the amount of liens that could arise. PBGC further argues that the lien at issue was imposed by operation of statute when the pension plan was estab- lished and therefore existed pre-petition. The Reorganized Debtors and the United Steelworkers, on the other hand, argue that the bankruptcy court followed the clear lan- guage of I.R.C. § 412(n), that priority is given to the “amount with respect to which a lien is imposed,” when it held that the imposition of the lien was blocked by the automatic stay. ERISA and the I.R.C. provide for a lien that arises on the 60th day after an employer falls more than $1 million behind in making its minimum funding contributions. IL.R.C. §412(n); 29 U.S.C. § 1082(f) (Supp. 1994). ERISA and the I.R.C. further provide that the “amount with respect to which a lien is imposed . . . shall be treated as taxes due and owing the United States.” ERISA § 302(f), 29 U.S.C. § 1082(f)(4)(C) (Supp. 1994); LR.C. §412(n)(4)(C), 29 U.S.C. § 412(n)(4)(C) (1985). The Bankruptcy Code gives first priority to cer- tain taxes as administrative expenses under 11 U.S.C. § 503(b)(1)(B), and seventh priority to certain other taxes pursuant to 11 U.S.C. § 507(a)(7). The priority provided by these statutes, as the bank- ruptcy court held, never arose in this case due to the operation of the automatic stay. The automatic stay pre- cludes “any act to create, perfect, or enforce any lien against property of the estate” and “any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title.” 11 U.S.C. § 362(a) (4), (5) (1993). The bankruptcy court 46a followed the clear language of ILR.C. § 412(n) and 29 U.S.C. § 1082(f) when ruling that liens arise 60 days after the day that the unpaid contributions amount to $1 million and when determining that tax priority is given only to liens, not to the amount of claims that never be- come liens. Il. Timing of Minimum Funding Contributions PBGC argues that the bankruptcy court erred in hold- ing that PBGC’s claims for minimum funding contribu- tions arose pre-petition rather than when the quarterly pay- ments became due. The bankruptcy court held that the transaction giving rise to the Debtors’ liability for con- tributions was the pre-petition labor of the Debtors’ em- ployees. PBGC argues that the unpaid contributions that came due post-petition should be given first priority as post-petition taxes, and that the contributions Debtors failed to make pre-petition are entitled to seventh priority as pre-petition taxes. The bankruptcy court correctly analyzed the Reorga- nized Debtors’ liability by examining the time at which the consideration for that liability occurred. In this case, the acts that gave rise to the Debtors’ liability to pay mandatory contributions to PBGC is the performance of labor by the Debtors’ employees. LTV Corp. v. Pension Benefit Guaranty Corp. (In re Chateaugay Corp.), 115 B.R. 760, 772-78 (Bankr. S.D.N.Y. 1990). Because the performance of labor occurred pre-petition, the liability to PBGC arose pre-petition. Ill. Administrative Expense Priority Status for Minimum Funding Contribution Claims PBGC asserts, as an alternative to the argument that its claims for minimum funding contributions are entitled to tax priority, that $37,680,574 of those unpaid contribu- tions are entitled to administrative expense priority. The Reorganized Debtors and the United Steelworkers argue 47a that the bankruptcy court correctly determined that those claims were not administrative because minimum funding contributions did not benefit the Reorganized Debtors. On appeal, PBGC argues that contributions to pension plans qualify as administrative expenses because they are a “cost of doing business” during a reorganization. PBGC relies on Section 507(a)(1) of the Bankruptcy Code, which defines administrative expenses as “including wages, salaries, or commissions for services rendered after the commencement of the case.” 11 U.S.C. § 507(a)(1) (1993). According to PBGC, the list in Section 507(a)(1) is not exclusive due to the word “including.” PBGC also contends that the costs of compliance with regulatory schemes qualify as administrative expenses. The Tenth Circuit has established the following two- part test for determining which claims qualify as adminis- trative expenses: an expense is administrative only if it arises out of a transaction between the creditor and the bankrupt’s trustee or debtor in possession and only to the extent that the consideration supporting the claimant's right to payment was both supplied to and beneficial to the debtor-in-possession in the operation of the business. In re Amarex, Inc., 853 F.2d 1526, 1530 (10th Cir. 1988). This is the test the bankruptcy court applied below. The bankruptcy court correctly ruled on the basis of this test that the claims arising from the Reorganized Debtors’ failure to pay pre-petition mandatory contribu- tions are not entitled to priority as administrative ex- penses. Although the payment of minimum funding con- tributions may create some good will among employees, making those payments is not “beneficial to the debtor-in- possession in the operation of the business” as that lan- guage has been interpreted in the relevant case law. Fur- thermore, the payments arise out of a transaction between 48a the employees and the Reorganized Debtors rather than a “transaction between the creditor and the bankrupt’s trustee or debtor in possession.” IV. Post-Petition Interest on Minimum Funding Con- tribution Claims PBGC argued below that, because its claim for unpaid mandatory contributions is entitled to tax priority, PBGC is also entitled to interest on the amount of that claim. The bankruptcy court denied post-petition interest on those claims. On appeal, PBGC asserts that it is “well settled” that interest on post-petition taxes is entitled to administrative priority. The Reorganized Debtors and the United Steel- workers argue that PBGC is not entitled to interest on its mandatory contributions claim because (1) those claims do not qualify for tax priority; (2) administrative expense claims are not entitled to interest; and (3) unsecured cred- itors are not entitled to interest unless the debtors are solvent. This issue is related to the question whether PBGC’s claims for minimum funding contributions are entitled to tax or administrative expense pricrity. Consistent with this Court’s denial of PBGC’s claim for tax or administrative priority, this Court also upholds the bankruptcy court’s denial of interest on those claims. V. Tax Priority Claim for Unfunded Benefit Liabilities PBGC contends that the bankruptcy court erroneously denied tax-priority status to its $3 million claim for un- funded benefit liabilities. The tax-priority status of that claim, according to PBGC, derives from a statutory lien that attaches to all property rights held by the Debtors. The amount of that lien cannot exceed one-third of the Debtors’ collective net worth. PBGC asserts that the unfunded benefit liabilities in this case amount to $222,- 866,000 Due to the statutory limitations, PBGC seeks a 49a priority claim of only $3 million, or about one-third of the Debtors’ estimated collective net worth of about $10 million.? The bankruptcy court held that PBGC’s $3 million claim is not entitled to tax priority because the termina- tion of the Plan occurred post-petition, and the automatic stay precluded the imposition of the lien provided for by ERISA section 4068(c)(2), 29 U.S.C. § 1368(c)(2). According to PBGC, the bankruptcy court erroneously failed to follow the proposition that “the portion of the liability . . . to which the lien pertained was itself a tax, entitled to priority in bankruptcy.” Tax priority is not preconditioned on the attachment or perfection of a lien, according to PBGC. PBGC asserts that Congress’ capping of the lien at 30 percent of the Debtors’ net worth shows that Congress took into consideration the burden that creating a priority in favor of PBGC would have on other creditors. The bankruptcy court was correct, as the Reorganized Debtors and the United Steelworkers urge, in holding that tax priority arises only as to those unfunded benefit liabili- ties to which a lien is imposed, and that the automatic stay precluded the creation of the statutory lien. Like claims for minimum funding contributions, claims for unfunded benefit liabilities are entitled to tax priority only to the extent that a lien for the amount of those claims arises. As to PBGC’s congressional intent argument, the better reasoned position is that Congress exhibited its in- tent to deny tax-priority status to those liabilities to which no liens are imposed by specifically providing tax-priority status to unfunded benefit liabilities to which liens are imposed. 1 PBGC concedes that is [sic] has only an unsecured claim for the balance of the unfunded benefit liabilities. 50a ISSUES ON CROSS-APPEAL I. Discount Rate On cross-appeal, the Reorganized Debtors and the United Steelworkers contest the bankruptcy court’s defer- ence to PBGC’s determination of the method and dis- count rate to be applied to the unfunded benefit liabilities claim. The cross-appellees claim that the bankruptcy court not only is statutorily required to determine the applicable discount rate in this instance, but also had no need to defer to the agency’s expertise because the bank- ruptcy court often makes such determinations. Further- more, the cross-appellees maintain that allowing PBGC to self-select an artificially low discount rate unjustifiably inflates PBGC’s recovery to the detriment of other un- secured creditors. The Reorganized Debtors and the United Steelworkers assert that the bankruptcy court should not have based its decision on ERISA’s policy goals, but should have employed fundamental bankruptcy principles and adopted a prudent investor method. PBGC maintains that the unfunded benefit liabilities claim should be calculated according to PBGC’s valua- tion as authorized by ERISA in 29 U.S.C. § 1301(a)(18). PBGC asserts that, because Congress did not expressly define the actuarial present value of the guaranteed bene- fits, Congress defers to agency interpretation unless that interpretation is arbitrary and capricious based on the Supreme Court’s ruling in Chevron, U.S.A., Inc. v. Natu- ral Resources Defense Council, 467 U.S. 837 (1984). PBGC proposed a method of valuation which replicates the market price for insurance company close-out annui- ties for terminated pension plans, and the bankruptcy court accorded PBGC’s determination of the method and discount rate “due deference” and “substantial weight” and found that no unfair or unreasonable advantage existed in favor of PBGC. Neither bankruptcy law nor ERISA expressly states whether the bankruptcy court or PBGC has ultimate a Sla responsibility to determine the actuarial present value of guaranteed benefits in the reorganization context. Never- theless, principles of statutory interpretation place that responsibility on the bankruptcy court. It is undisputed that both ERISA and the Bankruptcy Code authorize PBGC and the bankruptcy court to determine the dis- count rate related to pension termination liability. 29 U.S.C. § 1301(a)(18) (Supp. 1994); 11 U.S.C. § 502(b) (1993); see also In re Chateaugay Corp., 115 B.R. 760, 766 (Bankr. S.D.N.Y. 1990), vacated by consent of the parties, 17 Employee Benefits Cas. (BNA) 1102 (S.D.N.Y. 1993). PBGC asserts that because Congress has not spoken to the precise issue, the court must give defer- ence to the agency’s interpretation based on agency ex- pertise. However, the bankruptcy court also has vast experience in determining the present value of future pay- ments, if_not the precise valuation issue presented here. See, e.g., In re Hardzog, 901 F.2d 858 (10th Cir. 1990) (determining present value of future cash flows in Bank- ruptcy Chapter 12 context); Jn re Camino Real Land- scape Maintenance Contractors, Inc., 818 F.2d 1503 (9th Cir. 1987) (fixing present value of federal tax claims in Chapter 11 reorganization). It is well established that where ERISA conflicts with another provision of federal law, ERISA must be sub- ordinated. ERISA explicitly states that “[njothing in this subchapter shall be construed to alter, amend, modify, invalidate, impair or supersede any law of the United States . . . or any rule or regulation issued under any such law.” 29 U.S.C. § 1144(d) (1985). In the instant case, ERISA and the Bankruptcy Code conflict. Both PBGC and the bankruptcy court are authorized to make valuations of the claims. However, the bankruptcy court has an additional mandate to advance the principle of equality of treatment between similarly situated creditors. 11 U.S.C. § 1123(a)(4) (1993). Thus, ERISA must be subordinated to the Bankruptcy Code, and the present value calculations relating to pension termination liability — ee 52a must be determined according to bankruptcy law. The bankruptcy court applied the wrong standard of review in giving deference to PBGC’s interpretation. The bankruptcy court concluded that the method pro- posed by PBGC is appropriate in this instance only after holding an evidentiary hearing at which expert witnesses testified as to various methods for calculating discount rates, as well as acknowledging its obligation to deter- mine the present value of PBGC’s claims in accordance with the overriding policy goals embodied in the Bank- ruptcy Code. Nevertheless, the bankruptcy court’s appli- cation of an improper standard of review may have pre- vented the bankruptcy court from fulfilling its statutory obligation to independently ascertain an appropriate dis- count rate. The bankruptcy court’s legal conclusion that deference was due PBGC’s interpretation is reversed and remanded to the bankruptcy court to make an independent evaluation. II. Duplication of Claims The Reorganized Debtors and the United Steelworkers challenge the bankruptcy court’s order giving PBGC credit for the probable value, rather than the face value, of the minimum contribution claims. However, parties may not invoke the judicial power of the court unless the challenge raises an actual case or controversy. Memphis Light, Gas & Water Division v. Craft, 436 U.S. 1, 98 S.Ct. 1554, 1559, 56 L.Ed.2d 30 (1978). If a claim is “so insub- stantial or so clearly foreclosed by prior decisions,” then the claim may not proceed. 98 S.Ct. at 1560. Because the bankruptcy court entirely disallowed the pre-petition portion of PBGC’s minimum contribution claim, the under- lying economic result is the same as if the cross-appellees prevail upon the duplication issue. Therefore, the dupli- cation issue is foreclosed by the bankruptcy court’s prior order and is moot. 53a III. Joint and Several Liability The Reorganized Debtors contend that the bankruptcy court erred by applying joint and several liability. Ac- cording to the Reorganized Debtors, requiring each of the Debtors to bear full responsibility for liability translates into a tenfold recovery for PBGC, while other unsecured creditors realize a single recovery. The Reorganized Debt- ors contend this violates bankruptcy principles of equal distribution among creditors and allows PBGC to unfairly inflate its claims. Furthermore, the Reorganized Debtors claim that joint and several liability is incongruous with ERISA’s principles of controlled group liability, which treats commonly controlled businesses as one employer for liability purposes. The Reorganized Debtors also argue that the Congress expressly provides that ERISA is sub- ordinate to bankruptcy law under 29 U.S.C. § 1144(d). PBGC maintains that the Debtors are properly obli- gated for joint and several liability under ERISA, which governs the validity and amount of these claims. PBGC asserts that the plain language of ERISA clearly imposes joint and several liability. PBGC denies that it is similarly situated to other creditors, conversely, it has a statutory claim against each of the ten debtors, not just one. “As in any case of statutory interpretation, we begin with the plain language of the law.” Federal Deposit In- surance Corp. v. Canfield, 957 F.2d 786, 787 (10th Cir. 1992) (citing United States v. Morgan, 922 F.2d 1495, 1496 (10th Cir.), cert. denied, US. , 111 S.Ct. 2803, 115 L.Ed.2d 976 (1921)). Under ERISA, Con. gress expressly provides: In any case in which a single-employer plan is termi- nated in a distress termination under section 1341(c) of this title or a termination otherwise instituted by the corporation under section 1342 of this title, any person who is, on the termination date, a contributing sponsor of the plan or a member of such a contribut- ing sponsor’s controlled group shall incur liability 54a under this section. The liability under this section of all such persons shall be joint and several. 29 U.S.C. § 1362(a) (Supp. 1994); accord I.R.C. § 412 (c)(11)(B) (1988 & Supp. 1994); 29 U.S.C. § 1082 (c)(11)(B) (Supp. 1994). Next, “‘[a]bsent a clearly ex- pressed legislative intention to the contrary, that language must ordinarily be regarded as conclusive.’” Federal De- posit Insurance Corp., 957 F.2d at 787 citing Kaiser Aluminum & Chem. Corp. v. Bonjorno, 494 U.S. 827, 110 S.Ct. 1570, 1575, 108 L.Ed.2d 842 (1990 (cita- tion omitted) ). Here, Congress has clearly provided for the imposition of joint and several liability against the Reorganized Debt- ors, and it has not expressed any explicit, contrary legisla- tive intent. Furthermore, PBGC’s position is consistent with the case law. See Tavery v. United States, 897 F.2d 1032 (10th Cir. 1990) (regarding claims against joint obligors as distinct and separate, including application to joint income tax returns). The bankruptcy court aptly stated that ERISA’s express mandate of joint and several liability “may well impact adversely on other creditors, but the principles of equal distribution to creditors are not so offended as to override the direct intent of Congress under ERISA.” (Bankr. Ct.’s Mem. Decision & Order, dated 10/2/92 at 9.) This Court affirms the bankruptcy court’s order allowing joint and several liability. CONCLUSION On PBGC’s appeal, all aspects of the bankruptcy court’s decisions are AFFIRMED except that portion concerning the duplication of claims, which is moot. As to the cross- appeal, all decisions of the bankruptcy court are AF- FIRMED with the exception of the bankruptcy court’s determination of the appropriate discount rate. To the extent the bankruptcy court deferred to PBGC in arriving at the appropriate discount rate, such deference was im- proper. As to that issue only, the case is REMANDED 55a for an independent discount rate determination without any deference to the position of PBGC. Dated this 17th day of November, 1994. /s/ Dee Benson DEE BENSON United States District Judge 56a [Filed May 21, 1993] IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF UTAH CENTRAL DIVISION Jointly Administered Under Case No. 90B-6721 Chapter 11 IN RE: CF&I FABRICATORS OF UTAH, INC., ef al., Debtors. (Case No. 90B-6721 ) (CF&I Fabricators of Utah, Inc.) (Case No. 90B-6722) (Colorado & Utah Land Company) (Case No. 90B-6723 ) (Kansas Metals Company) (Case No. 90B-6724) (Albuquerque Metals Company) (Case No. 90B-6725) (Pueblo Metals Company) (Case No. 90B-6726) (Denver Metals Company) (Case No. 90B-6727) (Pueblo Railroad Service Company) (Case No. 90B-6728 ) (CF&I Fabricators of Colorado, Inc.) (Case No. 90B-6729) (CF&I Steel Corporation) (Case No. 90B-6730) (The Colorado and Wyoming Railway Company) 57a ORDER ON MOTION OF PENSION BENEFIT GUARANTY CORPORATION, DATED 1/11/93, FOR RECONSIDERATION AND ALLOWANCE OF RECALCULATED CLAIMS The Motion of Pension Benefit Guaranty Corporation (“PBGC”), Dated 1/11/93, for Reconsideration and Allowance of Recalculated Claims (the “Motion for Re- consideration”) came on for hearing on February 25, 1993 at 10:00 a.m. Appearing on behalf of PBGC were Robert D. Merrill, John R. Labovitz and Frank H. Mc- Culloch II. Appearing on behalf of the Debtors were Edward A. Scallet and Lon A. Jenkins. Appearing on behalf of the Unsecured Creditors’ Committee was Steven T. Waterman. The Court’s findings were stated on the record and are incorporated herein by reference. Based upon the pleadings filed, the prior Orders of this Court dated November 9, 1992 and December 31, 1992, and the argument of counsel and the evidence presented at the hearing with respect to the calculation of PBGC’s Un- funded Benefit Liability Claim, IT IS HEREBY ORDERED that Motion for Recon- sideration is denied; and IT IS FURTHER ORDERED that PBGC’s recalcu- lated Unfunded Benefit Liability Claim is allowed as a general unsecured claim in the amount of $220,953,000 and; IT IS FURTHER ORDERED that the prior Orders of this Court dated November 9, 1992 and December 31, 1992 are incorporated into this final Order by reference. DATED this 20 day of May, 1993. By THE CourT: /s/ Judith A. Bolden HONORABLE JupDITH A. BOULDEN United States Bankruptcy Judge 58a Approved as to form: /s/ Lon A. Jenkins EDWARD A. SCALLET Lon A. JENKINS Counsel for the Debtors /s/ Robert D. Merrill ROBERT D. MERRILL Counsel for the Pension Guaranty Corp. /s/ Steven T. Waterman STEVEN T. WATERMAN Counsel for the Unsecured Creditors’ Committee 59a [Filed Dec. 31, 1992] IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF UTAH CENTRAL DIVISION Jointly Administered Under [sic] Under Case No. 90B-6721 [Chapter 11] IN RE: CF&I FABRICATORS OF UTAH, INC., et al., Debtor. (Case No. 90B-6721 ) (CF&I Fabricators of Utah, Inc.) (Case No. 90B-6722) (Colorado & Utah Land Co.) (Case No. 90B-6723) (Kansas Metals Company) (Case No. 90B-6724) (Albuquerque Metals Company) (Case No. 90B-6725 ) (Pueblo Metals Company) (Case No. 90B-6726) (Denver Metals Company) (Case No. 90B-6727) (Pueblo Railroad Service Company) (Case No. 90B-6728) (CF&I Fabricators of Colorado, Inc.) (Case No. 90B-6729) (CF&I Steel Corporation) (Case No. 90B-6730) (The Colorado and Wyoming Railway Company) 60a MEMORANDUM DECISION AND ORDER FROM EVIDENTIARL HEARING RELATING TO DEBTORS’ OBJECTIONS, DATED 10/02/92, TO TWENTY AMENDED PROOFS OF CLAIM FILED BY PENSION BENEFIT GUARANTY CORPORATION On November 9, 1992, this court ruled on certain legal issues related to the objections raised by these debtors-in- possession (Debtors’)* and the Official Unsecured Credi- tors Committee (Committee) to twenty amended proofs of claim filed by the Pension Benefit Guaranty Corpora- tion (the PBGC)?. The court allowed the PBGC’s claims against these Debtors on a joint and several basis, but ruled that certain portions of the PBGC’s claims were not entitled to priority status as taxes due and owing to the United States. The court denied the PBGC’s claims pre- petition priority or post-petition administrative status ex- cept to the extent such claims represented “normal pen- sion costs.” The court reserved for an evidentiary hearing the allowed amount of the claims, whether there existed any equitable grounds for the court to modify the present value of a portion of the PBGC’s claims, and the extent to which the PBGC’s claims were duplicative. If the court found that grounds existed for modification of the PBGC’s claims, the parties were to present evidence regarding the appropriate interest rate or other applicable adjustments. An evidentiary hearing was held on the remaining factual issues on November 10, 12 and 30, 1992. The court has weighed the evidence adduced at the hearing, considered the arguments of counsel, and has made an independent review of applicable case law. Now being fully informed, the court determines that the PBGC has 1 The Debtors in these jointly administered Chapter 11 cases are related steel production companies. 2 The PBGC is a wholly-owned United States government corpora- tion required to guarantee payment of non-forfeitable or vested benefits under terminated pension plans. SOS eee ae ike Fate ee HRS 6la met its burden of proving the substance of portions of its claims according to applicable non-bankruptcy law, and that the claims are allowed in part, subject to the modifi- cations set forth below. JURISDICTION This court has jurisdiction over this proceeding pursu- ant to 28 U.S.C. § 1334. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (B) and (O) as a matter involving the administration of the estate, the allowance and priority of claims and the adjustment of the debtor- creditor relationship. The matter is before the court under Rule 404(a) of the United States District Court for the District of Utah. Rule 404(a) automatically refers bank- ruptcy cases and proceedings to this court for hearing and determination. BURDEN OF PROOF The PBGC’s claims are allowed pursuant to 11 U.S.C. § 502(a) unless a party in interest objects. Upon objec- tion, the court shall determine the amount of the claim pursuant to 11 U.S.C. § 502(b). The Debtors have pro- duced evidence indicating that the PBGC may have calcu- lated its claims in amounts that are excessive. The Debt- ors’ evidence is equal in probative force to that underlying the PBGC’s claims, thus shifting the burden to the PBGC to prove its claims generally. Fullmer v. United States (In re Fullmer), 962 F.2d 1463, 1466 (10th Cir. 1992), citing In re Wells, 51 B.R. 563, 566 (D. Colo. 1985). Substantive federal law determines the validity of the PBGC’s claims. Grogan v. Garner, 498 US. 279, 111 S.Ct. 654, 657-8 (1991). The PBGC must prove its claims by a preponderance of the evidence. Wells, 51 B.R. at 567. HISTORY OF THE CASE 3 At the time of filing, the Debtors were sponsors and CF&I Steel Corporation ( CF&I) was the administrator of 3 The facts of the case are more fully set forth in the prior opin- ion of the court dated November 9, 1992. 62a two pension plans. CF&I promised to provide fixed pen- sion benefits under these plans that would be calculated with reference to each employee’s pay and years of service. CF&I was obligated to provide annual plan funding con- tributions based on the actuarial valuation of the benefits earned by its employees. CF&I failed to make the mini- mum funding payment that became due on one of the plans (Master Plan) on September 15, 1990. On Novem- ber 7, 1990, the Debtors filed petitions for reorganization under chapter 11 of the United States Bankruptcy Code. On March 19, 1992, the PBGC instituted proceedings to terminate the Master Plan. CF&I consented to the termination on behalf of the Master Plan, and entered into a trusteeship agreement with the PBGC effective March 19, 1992. Pursuant to this agreement, the PBGC became the successor trustee of the Master Plan. The PBGC also became liable for guaranteed benefits to plan participants. The PBGC filed two proofs of claim against each of the Debtors in connection with the Master Plan. These claims fall into two general categories: (1) claims for due and unpaid minimum funding contributions allegedly due and owing the Master Plan pursuant to 29 U.S.C. § 1082 (ERISA § 302), and 26 U.S.C. § 412 (LR.C. § 412) (the Minimum Contribution Claims); and (2) claims on behalf of the PBGC for unfunded benefit labilities [sic] under the Master Plan pursuant to 29 U.S.C. § 1362 (the Unfunded Benefit Claims) designed to reimburse the PBGC for at least a portion of the amounts that it must pay to pensioners (collectively the Claims). On July 31, 1992, after termination of the Master Plan, the PBGC amended its proofs of claim. The amendments increased the amount of each of the ten Minimum Contribution Claims to an estimated amount of $64.874.511, and the amount of each of the ten Unfunded Benefit Claims to an estimated amount of 63a $263,200,000. At closing argument, the PBGC asserted that the evidence supported allowance of the followin claims: 1) pre-petition normal pension costs of $429,232 pursuant to 11 U.S.C. § 507(a)(4); 2) post-petition nor- mal pension cost for the period from November 7, 1990 to March 19, 1992, of $1,565,198 pursuant to 11 U.S.C. § 507(a)(1); 3) general unsecured claims for the bal- ance of the unpaid Minimum Contribution Claims of $69,228,372; and 4) general unsecured claims for the Unfunded Benefit Claims of $212,286,000. The $212.- 286,000 figure represented the present value of Master Plan liabilities on the date of plan termination, less the value of plan assets on that same date, and less the value of the unpaid Minimum Contributions Claims to be paid through the Debtors’ proposed plan. MINIMUM CONTRIBUTION CLAIMS i. Total Minimum Contribution Claims. The unpaid Minimum Contribution Claims were com- puted as of the March 19, 1992, termination date of the Master Plan. They reflect the differenec between the minimum funding requirements that the enrolled actuary for the plan certified CF&I must contribute to the Master Plan, and the amounts actually contributed. The PBGC, through its independent contract actuary, relied upon the work and assumptions of the enrolled actuary for the Master Plan contained in Schedules B of the 1988, 1989, and 1990 actuarial reports to make the calculations for the Claims. The PBGC also received from the Master Plan’s enrolled actuary, and relied upon, cost pages from a draft of the 1992 actuarial valuation report and a 199] draft actuarial report. Based upon that updated infor- mation the PBGC recalculated the total due and unpaid Miniumum Contribution Claims at $71,222.802. Although the updated 1991 and 1992 information was in draft form, there was no contradictory evidence to indicate that the data was erroneous or unreliable. To the extent 64a that the data supplied by the draft report was the basis for calculation of portions of the Minimum Contribution Claims, it is credible evidence of the amount of the claims unless refuted or impeached. 2. Calculation of normal pension costs for purposes of determining 11 U.S.C. § 507(a)(4) priority claim. The court previously determined that a portion of the Minimum Contribution Claims representing normal pen- sion costs * would be allowed 11 U.S.C. section 507(a)(4) priority status. The parties stipulated that the normal pension costs, for the 180 days prior to filing bankruptcy, were $429,232. The parties disagree regarding the method of calculating what portion of the normal pension costs should be allowed priority status under 11 U.S.C. § 507(a) (4). The first component of the equation provided by 11 U.S.C. § 507(a)(4) is the calculation of the maximum amount of allowed unsecured claims for contributions to employee benefit plans; in this case the normal pension costs. This maximum amount is then reduced by the amount of the second component, the actual distribution under 11 U.S.C. § 507(a)(3). The Debtors’ method of calculation based on pension plan contributions attributa- ble to each employee on an individual basis reduces the PBGC’s entire pre-petition normal pension costs claims by $9,457.03. This amount equals the total amount of pension plan contributions attributable to individual em- ployees in excess of a $2,000 limit for each employee. The PBGC argues that the statute should be interpreted to provide a maximum allowable contribution claim calcu- lated by multiplying 1856 (number of employees)* by $2,000. That amount is $3,712,000. The PBGC argues 4 Normal pension cost is an actuarial term that consists of the present value of the benefits paid in the future allocated in today’s dollars to a particular year under the employers funding method. 65a that because the pre-petition normal pension costs are $429,232, an amount much smaller than $3,712,000, the entire $429,232 claim for normal pension costs is well within the maximum amount allowed by 11 U.S.C. § 507(a) (4). The court agrees with the PBGC’s interpretation. The wording of the statute is quite specific and should be afforded its plain narrow meaning. In re Pittston Steve- doring Corp., 40 B.R. 424, 428 (Bankr. $.D.N.Y. 1984). The statute provides an aggregate figure for the maximum amount of contribution claims arising from services per- formed within 180 days before the petition date for each plan. The maximum allowable claim is not based on an employee specific calculation. The second component of the equation provided by 11 U.S.C. § 507(a)(4) is determined by subtracting the aggregate distribution to employees under 11 U.S.C. § 507(a)(3) from the normal pension costs. The amount of allowed unsecured claims for contributions to employee benefit plans entitled to administrative priority is tied directly to the 11 U.S.C. §507(a)(3) wage priority claims. In re Unimet Corp., 100 B.R. 881, 886 (Bankr. N.D. Ohio 1988). The Debtors paid current wages due and owing to their employees by issuing cashier’s check on November 6, 1990, the day prior to filing, in order to avert a strike or other labor disturbance. If the Debtors had not paid the wages current on November 6, 1990, the wage claims up to the amount of $2,000 per employee would have had priority wage status pursuant to 11 U.S.C. § 507(a)(3). 5 Debtors’ Exhibit 1 provded the number of employees included in the calculation. The Debtors prepared an exhaustive accounting of the accrued wage claims paid pre-petition, allocation of normal pension costs and amount of 11 U.S.C. § 507(a)(3) priority claim available to each employee. 66a The effect of the payment of all wage claims prior to filing was to eliminate any offset under 11 U.S.C. § 507(a)(3) against the maximum allowable pension plan contributions payable under 11 U.S.C. § 507(a)(4). As of the date of filing, there were no unsecured and unpaid 11 U.S.C. § 507(a)(3) priority wage claims against the Debtors’ estate. The Debtors argue that they could bring preference actions against their employees to recover the wages paid pre-petition and then seek court approval for priority pay- ment of the wage claims. By extension, the same argu- ment could be applied to recover all wages to the extent of $2,000 paid to employees within the 90 day period prior to the petition date. There is no logical reason this argu- ment should be limited only to the amounts paid by the Debtors on November 6, 1990. Alternatively, the Debtors argue that the cashier’s checks would not have been pre- sented for payment until November 7, 1990, at the earliest, and extending the holding of Barnhill v. Johnson (In re Antweil), 112 S.Ct. 1386 (1992), the cashier’s checks represented post-petition 11 U.S.C. § 507(a)(3)_ pay- ments. In Barnhill, the Supreme Court held that for pur- poses of establishing a voidable preference under 11 U.S.C. § 547(b), the transfer of a check occurs when the check is honored by the drawee bank. The evidence indicated that the cashier’s checks were issued and mailed on November 6, 1990, but there was no credible evidence as to the date of delivery. A cashier’s check, unlike the check at issue in Barnhill, is the legal equivalent of currency. In re Kimball, 16 B.R. 201, 203 (Bankr. S.D. Fla. 1981). A certified check constitutes an immediate assignment of funds, and, therefore. is pay- ment of the underlying debt. Jn re Midwest Boiler & Erectors, Inc., 54 B.R. 793, 795 (Bankr. E.D. Mo. 1985). Because there is no significant difference between c2shier’s 67a checks and currency, payment occurs upon delivery. Kim- ball, 16 B.R. at 203. ) : The court will not accept the Debtors’ rationalization ) because it flies in the face of the facts, defeats the clear language of the statute and advances alternatively incon- sistent positions. Payment of unpaid wage claims by : cashier’s check one day prior to the petition date either : eliminated all priority wage claims under 11 U.S.C. § 507(a)(3) or, as a logical extension of the Debtor’s : alternative argument, it represented an unauthorized post- petition distribution of estate assets to pre-petition cred- ) itors. The evidence does not adequately establish a post- petition delivery date for the cashier’s checks. Further- ) more, the testimony does establish that the Debtors’ made a calculated business decision to issue wage payments prior : to the petition date. Because no allowed unsecured wage claims existed on the date of filing, there could be no distribution under 11 U.S.C. § 507(a)(3), and the Claims cannot be re- duced by the $85,019.28 pre-petition distribution to em- ployees. Based on the testimony and evidence before the court, the PBGC’s total priority claim under 11 U.S.C. § 507(a) (4) is $429,232. 3. Normal pension costs as post-petition administrative claims pursuant to 11 U.S.C. § 507(a) (1). Evidence indicates that the normal pension costs that accrued post-petition are as follows: for 1990 a pro-rated figure for the post-filing period of $119,653 °: for 1991 a total of $1,150,902; and for 1992 the amount of $294,643 up to the date of plan termination. The post- petition normal pension costs total $1,565,198. The Debtors argued that these figures are based upon draft ero 6 $808,767 representing the normal costs for the entire vear of 1990, divided by .147945 representing 54/365, the number of days left in the year after the date of filing. a nr ae Saas 68a actuarial reports that were not signed by the enrolled actuary for the plan. They failed, however, to present evidence that the figures were incorrect or to present credi- ble evidence that the PBGC’s calculations of the post- petition normal pension costs were erroneous. The evi- dence presented by the PBGC preponderates. Based on the testimony and evidence before the court, the PBGC’s total administrative claim under 11 U.S.C. §§ 503(b) (1) (A) and 507(a)(1) is $1,565,198. 4. Interest on the Unsecured Portion of the Minimum Contribution Claims. The evidence indicated that $69,228,372 of the Mini- mum Contribution Claims not attributable to normal pen- sion costs was calculated according to 26 U.S.C. § 412 (I.R.C. § 412) using an interest factor to both discount the amount and to “get us to an appropriate place in time.” (Dezube, transcript November 10, 1992, p. 41.) To the extent an interest factor is used to discount the claim to present value, it reflects the appropriate methodol- ogy provided by substantive law to calculate the PBGC’s claim. However, the evidence indicates that interest was also used to bring the claim forward in time and that the claim includes interest that allegedly accrued as a result of the Debtors’ failure to make contributions to the Master Plan after the filing date. The PBGC’s exhibit 8 (Exhibit) purported to itemize the components of its $71,222,802 Minium Contributions Claims.?. The Exhibit summarized the dates and amount of each contribution due to the Master Plan, as well as a summary of contributions actually made by the Debtors from the beginning of 1989 and forward through 1993. The Exhibit then purported to total the amount of the Minimum Contribution Claims. The Exhibit includes 7 Amounts due and credits reflected in the Exhibit do not total the Minimum Contribution Claim of $71,222,802 illustrated by the Exhibit. ET BS yg nH 69a amounts after the date of the filing of the chapter 11 petitions, as well as amounts after termination of the Master Plan. It also includes contributions due and credits for contributions made through 1993. The testimony regarding the calculation described by the Exhibit indicated that over $5,000,000 of the $71,222,802 claim itemized in the Exhibit included in- terest attributable to contributions due after termination of the plan. It is impossible to determine from the evi- dence what specific portions of the Minimum Contribution Claims are attributable to post-petition interest. The PBGC argues that the Internal Revenue Code requires it to include interest in the calculation of its Minimum Con- tribution Claims. Although the substantive law may con- trol calculation of the PBGC’s claim, it does not allow accrual of interest in derogation of the rights of other unsecured creditors. Post-petition interest on the pre- petition portion of the Minimum Contribution Claims will not be allowed. United States v. Fullmer (In re F ullmer), 962 F.2d 1463, 1467 (10th Cir. 1992) (unmatured in- terest is disallowed against estate pursuant to 11 U.S.C. § 502(b)(2)); see also, In re Kentucky Lumber Co., 860 F.2d 674, 676-79 (6th Cir. 1988); In re Burgess Whole- sale Mfg. Opticians, Inc., 721 F.2d 1146, 1147 n.1 (7th Cir. 1983). The Exhibit also appears to include amounts for mini- mum funding contributions that came due after the PBGC terminated the Master Plan. All of the testimony and argument referred to the Debtors’ liability to the PBGC and the Master Plan as of the March 19, 1992, termina- tion date. The PBGC offered no explanation nor evidence why post-termination funding requirements were included in the calculation contained in the Exhibit. The PBGC’s claims should have been calculated as of the date of plan termination after which the Debtors were no longer liable to make contributions to the Master Plan. The PBGC’s apparent inclusion of post-termination minimum funding 70a payments in the Exhibit is inexplicable and without evi- dentiary support. Neither the testimony, the Exhibit, nor reference to any other specific exhibit, clarified the source of the figures set forth on the Exhibit or precisely how the $69,228,372 was calculated. The evidence only indicated that the figures contained post-petition interest, post-termination charges, and charges attributable to amounts due in the future. The PBGC argues that it is not possible, nor is it required, to allocate its Claims. To the contrary, the burden has shifted to the PBGC to prove the validity of all aspects of its proofs of claim rather than the Debtors having the burden of proving the Claims’ invalidity. Jn re Lewis, 80 B.R. 39, 43 (Bankr. E.D. Pa. 1987) (mort- gagee’s claim for late charges would be disallowed absent showing of how charges were computed). The PBGC is required to prove all elements of its Claims or those portions not proven by the creditor must be disallowed. The Exhibit is generally of no probative value and the evidence is insufficient to establish the correct amount of the Minimum Contributions Claims. The PBGC has not met its burden to prove the Minimum Contrbutions Claims by a preponderance of the evidence. Based upon the lack of credible evidence regarding the components of the $69,228,372 portion of the Minimum Contribution Claims, $69,228,372 of the claim will be disallowed. UNFUNDED BENEFIT CLAIMS The Unfunded Benefit Claims are equal to the excess of the benefits promised to the Debtors’ current and former employees in today’s dollars over the current value of funds in the trust fund at plan termination. The factual issues regarding the amounts of these claims relate to the method used by the PBGC to compute the value of its claims, and whether there is an improper duplication be- tween the Unfunded Benefit Claims and the Minimum Contribution Claims. Tla 1. Applicable rate and retirement age assumptions. The PBGC, through its contract actuary, calculated the Unfunded Benefit Claims by using figures provided by the Master Plan’s enrolled actuary. The Master Plan’s en- rolled actuary computed the figures using one set of as- sumptions. The PBGC actuary converted the figures to a different amount using a different set of assumptions. Those revised assumptions were calculated according to the provisions of 29 C.F.R. § 2619 (1991) (Regulation) applicable at the time of plan termination. The purpose of the Regulation is to establish a method of [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386018_1396%3A2. Public record. Not legal advice.