June 18, 1984 – The U.S. Supreme Court releases their opinion in Pension Benefit Guaranty Corp. v. R.A. Gray & Co., 467 U.S. 717 (1984), holding that the application of the withdrawal liability provisions of the Multiemployer Pension Plan Amendments Act of 1980 to employers withdrawing from pension plans during the 5-month period prior to the statute’s enactment did not violate the Due Process Clause of the 5th Amendment.
R.A. Gray was a building and construction firm doing business in Oregon with collectively-bargained employees who contributed to the Oregon-Washington Carpenters-Employers Pension Trust Fund, a multiemployer pension plan. During Feb. of 1980, Gray decided to terminate their collective bargaining agreement when it expired on June 1, 1980, which was deemed to be a complete withdrawal from the multiemployer pension plan.
When the PBGC was created by ERISA in 1974, it was given the task of paying guaranteed benefits for participants whose plans terminated with insufficient assets. This provision was originally to become mandatory for multiemployer plans on Jan. 1, 1978. The date was extended to July 1, 1979 over concerns that the PBGC would not have sufficient funds to pay the amount of claims which could arise by that date due to the number of plans experiencing extreme financial hardship. Congress eventually passed the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA), which President Carter signed into law on Sept. 26, 1980. Effective April 29, 1980 (5 month before it was signed into law), it required an employer withdrawing from a multiemployer pension plan to pay a withdrawal amount equal to the difference between the present value of the plan’s vested benefits and the current value of the plan’s assets.
After Gray was deemed to withdraw from the Oregon-Washington Carpenters-Employers Pension Trust Fund on June 1, 1980, Gray was presented with a withdrawal liability of $201,359. Gray filed a lawsuit in district court seeking relief from paying the withdrawal liability. The district court granted summary judgment in favor of the plan, and Gray appealed to the U.S. Court of Appeals for the 9th Circuit.
The 7th Circuit reversed the district court, finding that the retroactive application of the withdrawal liability violated the Due Process Clause of the 5th Amendment, and the plan and the PBGC appealed to the U.S. Supreme Court.
The Court stated that it was rational for Congress to conclude that the purposes of the MPPAA would be more effective if the withdrawal provisions were applied retroactively because it would prevent employers from attempting to avoid the withdrawal liability by terminating their participation in the plan during the lengthy legislative process, and reversed the 7th Circuit’s decision.
Earlier this year, on March 16, 2012, in Shelter Distribution, Inc. v. General Drivers, Warehousemen & Helpers Local Union No. 89, No. 11-5450 (6th Cir. 2012), the U.S. Court of Appeals for the 6th Circuit cited to Pension Benefit Guaranty Corp. v. R.A. Gray in holding, in a case of first impression, that it is not a violation of public policy for a union to indemnify an employer for any contingent liability incurred due to ERISA and the MPPAA.
Baruch A. Fellner argued before the U.S. Supreme Court on behalf of the plan and the PBGC, with Henry Rose, Mitchell L. Strickler, J. Stephen Caflisch, Peter H. Gould, David F. Power, Nathan Lewin, Seth P. Waxman, William B. Crow, James N. Westwood, William H. Walters, and David S. Paul joining him on the brief.
Thomas M. Triplett argued before the U.S. Supreme Court on behalf of R.A. Gray Co. and filed the brief.
