The Pension Protection Act Blog

That hotbed of ERISA litigation, the U.S. Court of Appeals for the 6th Circuit, released another ERISA opinion on Oct. 23, 2014, which brings to mind that line by the Eagles:

“You can check-out any time you like,
But you can never leave!”
– Hotel California, The Eagles

According to the 6th Circuit, in Girl Scouts of Middle Tennessee v. Girl Scouts of the U.S.A., No. 13-6347 (6th Cir., Oct. 23, 2014), the Girl Scouts of the United States of America (GSUSA) sponsor a multiple employer defined benefit plan which any of the regional Girl Scout independent councils can join by signing a Voluntary Participation Agreement.

In 1974, the Girl Scouts of Middle Tennessee, Inc. signed the agreement and joined the GSUSA’s multiple employer plan (or “MEP”).

In 2005, GSUSA reorganized their 312 regional councils, merging and combining regional councils until there were 112 councils remaining. For plan purposes, this reorganization resulted in GSUSA merging councils who were not part of the plan into councils who had joined the plan, making approx. 1,850 nonparticipating employees eligible to receive a lifetime pension annuity benefit under the plan without having previously contributed into the plan.

In 2006, GSUSA amended the plan to add an early retirement benefits.

According to the Girl Scouts of Middle Tennessee, the GSUSA plan started 2007 with a surplus of $150 million in assets, but due to these amendments, by the end of 2011, the GSUSA plan was underfunded by $340 million, resulting in a net decrease in plan assets of approx. $500 million in less than 5 years.

In 2009, GSUSA amended the plan to require the regional councils to arbitrate any disputes over nonpayment or withdrawing from the plan.

In Feb. of 2011, the Girl Scouts of Middle Tennessee notified the GSUSA that they were invoking the language in the plan document which allowed adopting councils to withdraw from the plan by: (1) forming a spin-off plan; (2) transferring the assets and liabilities attributable to that council’s employees to another qualified plan; (3) obtaining the express consent of GSUSA to leave the GSUSA plan; and (4) arbitrate before withdrawing (the Girl Scouts of Middle Tennessee dispute whether GSUSA’s amendment in 2009 which required adopting employers to arbitrate before withdrawing from the plan was a valid amendment).

The reason the Girl Scouts of Middle Tennessee wanted to leave the GSUSA MEP was a classic one – at the end of 2010, the Girl Scouts of Middle Tennessee were one of only 18 councils in the plan with a positive balance, and GSUSA was planning on increasing plan contribution rates for the regional councils from 3% in 2009 to 10% in 2012 to cover the shortfall, with the possibility of a 16% contribution rate by 2023.

When the GSUSA told the Girl Scouts of Middle Tennessee that they could not withdraw from the plan, the Girl Scouts of Middle Tennessee filed a lawsuit in 2012 against GSUSA, requesting:

1. a declaratory judgment that the Girl Scouts of Middle Tennessee are not obligated to continue to participate in the GSUSA plan in perpetuity, and may withdraw from the plan;

2. a declaratory judgment that GSUSA is required to spin-off the assets and liabilities attributable to the Girl Scouts of Middle Tennessee’s employees;

3. a declaratory judgment that GSUSA’s unauthorized amendments to the Plan are not binding on the Girl Scouts of Middle Tennessee; and

4. a declaratory judgment that GSUSA is required to indemnify the Girl Scouts of Middle Tennessee for any liability resulting from a distressed termination of the GSUSA plan.

The Girl Scouts of Middle Tennessee also asked for an accounting of the financial condition of the plan and for injunctive relief restraining GSUSA from collecting or seeking to enforce contributions from the Girl Scouts of Middle Tennessee which would be used for new participants in the plan or to provide early retirement benefits granted by the 2006 amendment to the plan.

The GSUSA filed a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim for relief, which the district court granted, and the 6th Circuit agreed.

The 6th Circuit said that, as an employer in a multiple employer plan, the Girl Scouts of Middle Tennessee concede that they have no valid cause of action under ERISA, and therefore the Court said that there is no jurisdiction for the Girl Scouts of Middle Tennessee to pursue claims under ERISA. Thus, while the Girl Scouts of Middle Tennessee may want to check out of the GSUSA multiple employer plan, they can never actually leave the plan as an additional adopting employer.