Tuesday, April 24, 2007
The Supreme Court this morning heard oral arguments in the ERISA fiduciary case of Beck v. Pace International Union. The transcript can be found here.
As you may recall from our previous post on this case, at issue is whether a company, Crown Vantage, violated its ERISA fiduciary duties to its pension plan participants to act in their best interests when it decided to terminate a number of its pension plans and purchase annuities for the participants of the plans. As an alternative, the employees' union, Pace, offered to merge the plans into its multi-employer plan. Without investigating this alternative, the company refused. Although most seem to agree that the company did not engage in a fiduciary action when it decided to terminate the plan, the real issue is whether the company had a fiduciary duty to act in the plan participants' best interests before deciding to go the annuity, rather than, the merger route.
Justices Ginsburg and Souter's questions appear to clearly indicate that they believe that the choice between the annuity and merger options was a fiduciary decision concerning plan administration. In this regard, Justice Souter commented and asked:
If the, if the plan sponsor decides to purchase an annuity, it's accepted I think by you and by everybody that there are two decisions being made. Decision one is terminate the plan. Decision two, distribute the assets by purchasing an annuity that gives the beneficiaries what they should get. And so on.
But when we come to the question of merger, you're saying there's only one decision, and I think that's where I'm having trouble with your argument. When we come to the question of merger, it seems to me there are two decisions again. The first decision is we're going to terminate the plan that we've got. What do we do with our assets. We have decided to merge -one possible decision as an alternative to annuities is to merge the plan with, with another one. Why aren't there two decisions in the merger case just as there are two decisions in the annuity case?
Justice Scalia, coming to the aid of the company's attorney, puts forward the counter-argument to this view that instead a merger should be viewed as a separate type of non-fiduciary decision akin to plan termination:
Mr. Baker, I thought your position in your briefs, and I don't know why you do not make this reply to this exchange, is that the merger with another plan is not a termination, isn't that your basic position? . . . .Because if it were a termination, in a termination, you must distribute the assets to the participants. And here when you merge with somebody else, the assets are not distributed to the participants, but they are thrown into a pot with other people.
Justice Breyer's sympathies appear to be with Souter and Ginsburg, but he asks an additional question which may cut against the union's position and which Chief Justice Roberts appears sympathetic to. It is not clear, however, whether the company waived this argument by not raising it below:
And now there is a third question. Does what happened in terminating mean that although you have a fiduciary duty, you couldn't consider a merger, because that's just not consistent with the basic plan of terminating.
Justices Kennedy and Alito both seem open to the view that it is not necessarily in the best interests of the plan participants to have their pension funds go to a large pension pool where in the end they may receive less benefit than in an annuity form. Of course, this assumes that the company engaged in a fiduciary action, but did not breach their fiduciary duty.
Justice Thomas, as is his practice, makes no comment, but would appear, based on his previous ERISA decisions, to be more likely to favor the employer. And Justice Stevens may have summed up everyone's feeling when he started a question with: "I'm puzzled. Can I just get myself straightened out a little bit?" His puzzlement aside, Justice Stevens' few comments seem to favor the union.
After reading this transcript, I think the Court is likely to favor the company, with perhaps Justice Kennedy and Justice Alito holding the deciding votes. No guts, no glory: I predict a 5-4 decision for the employer that its decision not to consider the merger proposal was not a fiduciary one.