Resolution Trust Corp. v. Financial Institutions Retirement Fund

Citations: 71 F.3d 1553; 19 Employee Benefits Cas. (BNA) 2387; 1995 U.S. App. LEXIS 36987; 1995 WL 763326Docket: No. 95-5016

Court: Court of Appeals for the Tenth Circuit; December 27, 1995; Federal Appellate Court

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Resolution Trust Corporation (RTC), as the receiver for a failed thrift institution, sought to recover approximately $4.1 million in Future Employer Contribution Offsets (FECO) from the Financial Institutions Retirement Fund (FIRF), a multiple-employer pension benefit plan under ERISA. The district court awarded RTC the FECO under a common law unjust enrichment theory, but this ruling was appealed. FIRF argued that ERISA's 'exclusive benefit' rule prohibits the distribution of FECO credits for non-pension purposes, a contention the appellate court agreed with, citing precedents such as Patterson v. Shumate and Guidry v. Sheet Metal Workers National Pension Fund. These cases support the interpretation that pension assets must be preserved for the benefit of employees and their dependents. FIRF maintained that the district court's distinction between the exclusive benefit rule and the anti-alienation rule was irrelevant, as both rules aim to protect pension assets. The appellate court reversed the district court's decision, concluding that awarding the FECO credits to RTC violated ERISA's exclusive benefit rule.

RTC argues that federal common law permits equitable actions in ERISA cases, extending beyond merely enforcing ERISA rights to include remedies for unjust enrichment when a strong statutory policy is at stake. It contends that the FECO credits, contributing to the U.S. Treasury and mitigating taxpayer losses, align with RTC's mandate under FIRREA, thus supporting an important statutory policy. RTC relies on cases like Van Orman v. American Ins. Co. to assert that equitable principles of restitution and unjust enrichment favor its recovery of these credits. It cites Chait v. Bernstein to claim that equity supports returning surplus funds to employers. RTC posits that the exclusive benefit rule does not impede its recovery, especially for receivers of insolvent employers.

The court must weigh the ERISA aim of protecting plan participants against RTC’s goal of asset recovery for the public good. The court finds that preserving fund assets, in line with ERISA's tenets, should take precedence over RTC’s interests, concluding that the district court mistakenly established a federal common law remedy for unjust enrichment. It emphasizes that while federal common law can apply to ERISA disputes, courts cannot alter ERISA’s framework to suit their preferences but must uphold its policies. The analysis references multiple cases to support these positions, asserting that the ERISA provisions cannot be overridden by common law.

The district court referenced multiple cases where federal common law allowed employers to recover pension plan contributions, primarily involving mistaken contributions under ERISA § 403(c)(2). This case differs as it pertains to an actuarial surplus rather than erroneous payments, highlighting a crucial distinction between actual errors and recoverable actuarial credits. RTC does not qualify for any exceptions under § 403(c)(2) of ERISA, and the court's reliance on cases like Outzen and Chait is flawed because those involved single-employer plans, while FIRF is a multiple-employer plan that remains operational.

ERISA outlines methods for withdrawing surplus from multiple-employer plans, notably through a qualified successor plan (QSP), which RTC did not pursue. The district court incorrectly determined that RTC's recovery of FECO balances would not jeopardize employees, misunderstanding the nature of FECO credits as a tangible asset rather than an accounting entry. The FECO surplus is not a fixed cash amount; it is an actuarial construct linked to future contributions and thus cannot be withdrawn by participating employers. The court's assertion that FECO assets are not hypothetical was based on FIRF's calculation of employer shares, but RTC's claims regarding the FECO's tangibility and necessity for defined benefits are misplaced. The need for FECO credits to fulfill benefits obligations can only be assessed after plan termination.

FIRF must prepare for potential significant changes in its financial situation, recognizing that a current surplus could swiftly become a deficit. Under ERISA, pension plan assets are required to be used solely for the benefit of participants and their beneficiaries. The court reiterates that the exclusive benefit rule is breached if plan assets are utilized for the sponsor's advantage. In this case, regardless of whether RTC or FIRF receives the FECO credits, the employees do not directly benefit, thus violating the exclusive benefit rule. RTC contends that awarding FECO to FIRF benefits employers rather than employees; however, retaining the FECO credits supports the stability of the plan and protects the fund's corpus against economic downturns. Allowing employers to withdraw FECO based on current market conditions ignores the risks of future asset devaluation, potentially leading to increased funding needs. The potential destabilization from such withdrawals is intolerable under the exclusive benefit rule. Moreover, the redistribution of credits among remaining employers aligns with the nature of a multiple-employer plan. The court concludes that RTC’s claim to remove the FECO credits could destabilize FIRF and encourages further withdrawals, undermining the plan's corpus. The decision to award FECO credits to RTC is inconsistent with ERISA's objectives, leading to the reversal of the district court's judgment.

The 'exclusive benefit' rule mandates that plan assets must solely be used for providing benefits to participants and their beneficiaries, and for reasonable administrative costs, prohibiting any benefit to employers unless specified exceptions apply. This rule is outlined in ERISA § 403(c)(1), 29 U.S.C. § 1103(c)(1). The Supreme Court has highlighted that a primary goal of ERISA is to safeguard employees from losing vested benefits due to pension plan terminations, recognizing that inadequate standards may jeopardize the financial stability of these plans. This concern is articulated in Nachman Corp. v. Pension Benefit Guar. Corp., where Congress acknowledged that employees and their beneficiaries might be deprived of expected benefits if plans are terminated before sufficient funds are secured. The law permits employers to reclaim contributions only under three specific conditions that are not applicable in this context.