United States Court of Appeals, Fourth Circuit
United States Court of Appeals, Fourth Circuit
2d 457
55 USLW 2691, 8 Employee Benefits Ca 1809
Appellants appeal from a judgment entered December 17, 1986 in the Southern
District of West Virginia, Elizabeth V. Hallanan, District Judge, 650 F. Supp.
578, which granted summary judgment in favor of appellees Bluefield and
others (collectively "appellees"), and denied summary judgment sought by
appellants. The cross motions for summary judgment involved appellants'
claim for breach of fiduciary duty under Sections 404 and 502 of the Employee
Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. Secs. 1104,
1132 (1982), and appellants' related breach of contract claim.
Bluefield established its pension Plan in 1951 ("the 1951 Plan" or "the Plan").
The Plan provided that Bluefield could amend it under certain conditions; it
also provided that the assets in the pension fund were for the exclusive benefit
of the employees and could not be withdrawn "either by the voluntary act of the
Company or ... otherwise". It did not provide expressly that Bluefield could
recover the Plan's "residual assets" in the event the Plan was terminated.
"Residual assets" are those assets remaining in a pension plan at the time of
termination after payment to the employees of all accrued benefits under the
plan.
In 1973, the Plan was amended to provide expressly that any residual assets
would be distributed to Bluefield if the Plan was terminated ("the residual
assets amendment"). The Plan was amended in other respects referred to below.
Bluefield terminated the Plan in 1985. After satisfaction of all accrued benefits,
the Plan had $14.5 million in residual assets.
Appellants and appellees filed cross motions for summary judgment. The
district court granted appellees' motion and denied appellants' motion in a well
reasoned opinion recognizing the narrow issue to be whether the residual assets
On appeal from the judgment entered on the opinion of the district court,
appellants claim, first, that the court erred in granting appellees' motion for
summary judgment and in denying their own motion for the same relief since
the Plan as it existed in 1951 unambiguously barred the residual assets
amendment; and, second, that the court erred in disposing of the action by
summary judgment since there was a genuine issue of material fact as to
whether the Plan as it existed in 1951 barred the residual assets amendment.
We hold, first, that the 1951 Plan, when read as a whole, did not bar the
residual assets amendment and therefore that Bluefield is entitled to the
residual assets; and, second, that the district court correctly disposed of the
action by summary judgment, since the 1951 Plan, read as a whole, was not
ambiguous and thus there was no genuine issue as to any material fact.
I.
10
11
12
13
Bluefield, including its affiliated companies, was the sole contributor to the
Plan; the participants made no contributions. The amount of Bluefield's annual
contribution to the Plan varied according to actuarial predictions. Those
predictions took into account assumptions by an actuary regarding such
variables as employee compensation, employee turnover, investment returns,
and mortality. The purpose of the actuarial predictions was to ensure that the
Plan had sufficient funding to satisfy benefit obligations as they became due.
14
Bluefield bore the risk of the Plan's "actual experience". For example, if the
investment yield of the Plan's assets in any particular year was less than the
yield assumed by the actuary when he calculated the amount of Bluefield's
contribution for that year, then Bluefield might have been required to make an
additional contribution or a larger contribution the following year. Conversely,
if the investment yield in a particular year exceeded the yield assumed or
predicted by the actuary, then Bluefield might have been permitted to make a
smaller contribution the following year. In either event, participants' benefits
would not have been affected.
15
Beginning in 1952, the Plan was amended several times. Some amendments
increased benefits to the participants. Some of the others reflected changes
either in the applicable tax laws and regulations or, later, in ERISA, which
Congress enacted in 1974. Pub.L. No. 93-406, 88 Stat. 832 (codified as
amended at 29 U.S.C. Secs. 1001 to 1461 (1982 & Supp. III 1985). None of the
amendments altered the Plan's status as a defined benefit plan. See 29 U.S.C.
Sec. 1002(35) (1982) (defining "defined benefit plan").
16
In 1973, the Plan was amended to provide expressly for the first time that
Bluefield would receive any residual assets in the event that the Plan was
terminated. The Plan was amended again in 1976. As the result of the 1973 and
1976 amendments, the Plan expressly provided for Bluefield's right to recover
residual assets by virtue of the residual assets amendment:
19
At the time of the termination of the Plan, its assets totalled $31.5 million.
Through the trustee of the Plan, Bluefield purchased a group annuity contract
for $17 million to guaranty the payment to the Plan's participants of all vested
benefits. Since the purchase of the $17 million annuity contract satisfied all of
Bluefield's benefit obligations under the Plan, the remaining $14.5 million
constituted residual assets. They had accumulated as a result of conservative
actuarial predictions vis-a-vis the actual experience of the Plan.
20
After appellees made known their intention to distribute the residual assets to
Bluefield, appellants commenced the instant class action on April 25, 1986.
21
On November 3, 1986, after motions and rulings not relevant to this appeal,
appellants filed an amended class action complaint. The amended complaint
named as defendants, in addition to Bluefield, appellees B.W. Harvey, James E.
Gillenwater, Mirto A. Corte, C.I. Johnson, Jr., and Robert M. Richardson. The
individual defendants were or are officers or directors of Bluefield, or both;
they also were or are members of the Bluefield Pension and Retirement
Committee. The Flat Top National Bank ("Flat Top"), which was trustee of the
Plan at the time the amended complaint was filed, also was named as a
defendant, as was appellee A.A. Modena, who was or is an officer and director
of both Bluefield and Flat Top.
22
23
24
On December 10, 1986, the district court held a hearing on the motions for
summary judgment which had been filed by appellants, by Flat Top, and by
appellees. At the beginning of the hearing, counsel for appellants expressed
unequivocal approval of a statement by the court that "counsel [have] agreed
that there are no material issues of fact in this case. Am I correct in that
statement?"
25
In an opinion filed December 17, 1986, the court granted appellees' motion for
summary judgment and denied appellants' motion for the same relief. The court
held that the 1951 Plan did not bar the residual assets amendment. The court
granted Flat Top's motion for summary judgment on the ground that "all parties
agreed ... that Flat Top had not breached its fiduciary duty as of the time of oral
argument on motions for summary judgment".
26
Judgment was entered on the opinion of the court on the same day. Appellants
appeal from that part of the judgment which grants appellees' motion and denies
their motion; they do not appeal from that part of the judgment which grants
Flat Top's motion.
27
For the reasons set forth below, we affirm the judgment of the district court.
II.
28
Section 403 of ERISA sets forth the general rule regarding the uses and
purposes of assets in a pension plan:
29
30
29 U.S.C. Sec. 1103(c)(1) (1982). One of the exceptions to this general rule is
ERISA Section 4044, which provides in pertinent part:
(A) all liabilities of the plan to participants and their beneficiaries have been
satisfied,
33
(B) the distribution does not contravene any provision of law, and
34
35
36
Appellants do not dispute that the Plan is a "single-employer plan", that "all
liabilities of the plan to participants and their beneficiaries have been satisfied,"
and that "the distribution [to Bluefield of the residual assets] does not
contravene any provision of law". The dispute in the instant case is concerned
only with whether "the plan provides for such a distribution in these
circumstances." In short, the dispute here is concerned only with subdivision
(C) of 29 U.S.C. Sec. 1344(d)(1).
A.
37
Appellants base their argument that the Plan did not provide "for such a
distribution in these circumstances" on the language of the Plan as it existed in
1951. In the following "amendment provision", the 1951 Plan provided:
38 Company with the consent and approval of the [Pension and Retirement
"The
Committee, the members of which were appointed by Bluefield's Board of
Directors] may amend this agreement, provided no amendment shall be made which
operates to deprive any Participant of benefits already accrued to him as herein
provided."
39
40 part of the Fund or interest therein nor any item of property included therein
"No
shall be withdrawn, assigned or otherwise transferred in whole or in part, either by
the voluntary act of the Company [i.e., Bluefield] or by operation of law, or
otherwise, all right, title and interest of the Company in the Fund and all monies and
property therein having been absolutely transferred and assigned by this agreement
to the Trustee, to be held, managed and administered solely pursuant to this
agreement. None of the assets belonging to the Fund hereby created, or of the
income therefrom, shall be diverted or used for any purpose other than the exclusive
benefit of the Participants as contemplated and provided by this agreement."
(emphasis added).
41
In advancing the above argument, appellants rely on two cases. Audio Fidelity,
supra, 624 F.2d 513; Bryant v. International Fruit Products Co., 793 F.2d 118
(6th Cir.), cert. denied, 107 S.Ct. 576 (1986). Mindful that "[e]ach case of this
kind is controlled by the language of the documents creating the particular plan
involved", Bryant, supra, 793 F.2d at 123, we hold, for the reasons set forth
below, that appellants' reliance on both cases is misplaced.
44
45
After the employer terminated the plan, it discovered that the plan contained
residual assets. Seven months after termination, the employer amended the plan
to provide for distribution to it of those assets.
46
We held that Audio was not entitled to the residual assets for two reasons. First,
we held that the limitation in the amendment provision quoted above expressly
prohibited Audio from amending the plan to add the residual assets
amendment. Second, we held that "ERISA afforded Audio no basis for altering
the substantive terms of the plan after its termination." 624 F.2d at 517.
47
49 no event and under no circumstances shall any contributions to this Trust by the
"In
Employer, nor any of the Trust Estate or the income therefrom, revert to or be repaid
to the Employer; and all amounts paid by the Employer to the Trustees shall be used
and applied for the sole and exclusive benefit of the participants under this Trust or
their beneficiaries or estates."
50
51
52 Employer expressly reserves the right to amend this Trust from time to time ...;
"The
provided, however, that no such amendment shall cause or permit any part of the
Trust Estate to revert to or be repaid to the Employer or be diverted to any purpose
other than the exclusive benefit of the participants or their beneficiaries or estates...."
53
54
The Sixth Circuit held that the employer was without power to make the
residual assets amendment:
55
"Unlike any other plan referred to in this record or in the cited cases, this
pension plan assured the participating employees that, once contributed, no
money paid into the fund could ever be reclaimed by the company. The
company responds that the limitation on amendments referred only to diverting
the trust estate, and there was no prohibition against an amendment deleting the
reference to contributions. This argument overlooks the absolute language of
[the nonreversion provision]: 'In no event and under no circumstances....' This
language in itself precludes an amendment that would allow money once
contributed to be reclaimed. An agreement that provides that an act can occur
in no event and under no circumstances cannot be converted into one that
permits the act by a series of amendments that first deletes the reference to the
prohibition and then adds a provision permitting the forbidden act...."
56
C.
57
58
59
60
61
"contributions".
62
65
The Bryant court distinguished Moyer on the ground that, "[w]hile the
language in Moyer limiting the power of the employer to amend the plan was
similar to that in the present case, the Moyer agreement made no reference to
the return of contributions." Bryant, supra, 793 F.2d at 123. The Sixth Circuit
observed that "[e]ven if a surplus from actuarial error might properly be
considered not to be a part of the trust estate, nevertheless, the surplus assets did
originate as 'contributions' to the trust." Id.
66
As in Moyer, the nondiversion provision in the 1951 Plan made "no reference
to the return of contributions", but rather barred withdrawals from "the Fund".
We hold that, based on a reading of the 1951 Plan as a whole, the residual
assets in Bluefield's Plan, which resulted from actuarial error, were not part of
the "Fund". The 1951 Plan defined "Fund" as follows:
67 monies paid to the Trustee hereunder and all securities or other property in
"All
which the same or any part thereof is invested, together with all income arising
therefrom including any profit resulting from the sale of assets therein shall be held
by the Trustee in trust for the uses and purposes herein provided and may be
referred to herein as the 'Fund'. There shall be deducted from the Fund all taxes,
charges and expenses necessarily incurred in the management and administration of
the same including compensation to be paid to the Trustee as hereinafter provided
and including any losses that may be sustained in the investment or conversion of
assets in the Fund and the Fund shall be disbursed by the Trustee as herein
At first blush some of the language in this definition of the "Fund" arguably
might be said to encompass residual assets. The italicized phrases establish,
however, that, at the time the Plan came into existence, the word "Fund" was
intended to include only the assets under the Plan "as were necessary to insure
full payment of the [P]lan's obligations to the participants." Moyer, supra, 441
F.Supp. at 1132. This is so because the Fund's only "uses and purposes" set
forth in the Plan were the payments of defined benefits to participants. Those
defined benefits were calculated according to a formula set forth in the Plan and
constituted the maximum amount of money guaranteed to each participant
under the Plan. Residual assets, by definition, are assets in excess of those
necessary to satisfy defined benefit obligations and therefore do not qualify for
the Fund's "uses and purposes".
69
Appellants argue that "Fund" must be read to include residual assets since the
Plan made no reference to those assets or to "surplus". Appellants go so far as to
suggest that "surplus" is a term made up by appellees during the course of this
litigation. This argument is without merit. It fails to consider the common law
roots of 29 U.S.C. Sec. 1344(d)(1)(C). "Surplus" is the term used in the
common law of trusts to describe any remaining assets in a trust after its
purpose has been fulfilled. Under such circumstances, a "resulting trust" for the
benefit of the creator of the original trust arises by operation of law, unless he
manifested a contrary intent. Restatement (Second) of Trusts Sec. 430 (1959);
IV Scott, The Law of Trusts Sec. 430, at 2985-86 (2d ed. 1956); see
Washington-Baltimore Newspaper Guild Local 35 v. Washington Star
Company, 555 F.Supp. 257, 260 (D.D.C.1983), aff'd mem., 729 F.2d 863
(D.C.Cir.1984); Pollock v. Castrovinci, 476 F.Supp. 606, 616 (S.D.N.Y.1979),
aff'd mem., 622 F.2d 575 (2d Cir.1980). Since the resulting trust arises by
operation of law, it is irrelevant that the original trust instrument--in this case,
the Plan--made no reference to "surplus"--or, under the subsequently enacted
ERISA, to "residual assets".
70
Appellants' argument also fails because it ignores the tax laws and Treasury
Regulations in effect in 1951. Soon after Bluefield established the Plan, the
Internal Revenue Service determined that the Plan was a "qualified" defined
benefit plan. As such, it was entitled to favorable tax treatment. Under Section
165(a) of the Internal Revenue Code of 1938, a plan could be "qualified" only--
71 under the trust instrument it is impossible, at any time prior to the satisfaction of
"if
all liabilities with respect to employees and their beneficiaries under the trust, for any
part of the corpus or income to be ... used for, or diverted to, purposes other than for
73
74
Treas.Reg. Sec. 29.165-2(a) (emphasis added). By its use of the phrases "by
operation" and "or by any other means", this Regulation supports our
conclusion that the similar language in the nondiversion provision on which
appellants rely ("either by the voluntary act of the Company or by operation of
law, or otherwise" (emphasis added)) was not intended as a limitation on
Bluefield's power to amend the Plan to provide for distribution of the residual
assets. Rather, the Plan's limitation on the power to amend, if any, applied only
to amendments resulting in "the nonexempt diversion" (i.e., diversion other
than that "prior to the satisfaction of all liabilities"). The Regulation also
establishes that Bluefield had the right under the tax laws to recover residual
assets even without an express reservation of that right in the Plan. Id. Sec.
29.165-2(b) (employer can recover surplus in trust resulting from actuarial
error; no requirement that employer expressly reserve that right). See Pollock,
supra, 476 F.Supp. at 612-13 ("An employer is foreclosed only from recovering
surpluses which arise from prohibited amendments, such as changes in benefit
provisions or eligibility requirements.... The plan, therefore, did not explicitly
reserve a right to recover residual assets since, under IRS Rules, none should
have been intentionally created.").
75
D.
76
When read together, Audio, Bryant, and Moyer demonstrate that Bluefield is
76
When read together, Audio, Bryant, and Moyer demonstrate that Bluefield is
entitled to the residual assets. Bluefield has cleared both hurdles set forth in
Audio: at the time of its termination, the Plan provided for distribution of the
residual assets to Bluefield; and the 1951 amendment provision did not limit
Bluefield's power to adopt the residual assets amendment. The limitation on the
power to amend in the nonreversion provision of Bryant is not present in the
instant case: the nondiversion provision in the 1951 Plan, if it barred
amendments, barred only those amendments resulting in withdrawal or transfer
of the "Fund". As in Moyer, the term "Fund", when considered in light of the
1951 Plan as a whole, must be interpreted not to include residual assets.
77
Accordingly, we hold that the district court correctly held that Bluefield is
entitled to the residual assets.
III.
78
Appellants' second claim on the instant appeal need not detain us long.
79
Appellants claim that, since their interpretation of the 1951 Plan at least is
reasonable, the 1951 Plan is ambiguous and therefore the district court erred in
disposing of the action by summary judgment. Bear Brand Hosiery Co. v.
Tights, Inc., 605 F.2d 723, 726 (4th Cir.1979) ("Only an unambiguous writing
justified summary judgment, and no writing is unambiguous if 'susceptible of
two reasonable interpretations.' ") (quoting American Fidelity and Casualty Co.
v. London and Edinburgh Insurance Company, 354 F.2d 214, 216 (4th
Cir.1965)).
80
81
For the reasons stated above in Part II of this opinion, we hold that appellants'
interpretation of the Plan is not a reasonable one in light of the Plan as a whole.
Since the 1951 Plan was not ambiguous, appellants' claim is without merit.
82
Accordingly, we hold that the district court correctly disposed of the action by
summary judgment.
IV.
To summarize:
83
84
Further, since the 1951 Plan considered as a whole was not ambiguous, we hold
that the district court correctly disposed of the action by summary judgment.
85
We affirm the judgment of the district court granting appellees' motion for
summary judgment and denying appellants' motion for summary judgment.
86
AFFIRMED.
K.K. HALL, Circuit Judge, dissenting:
87
88
89 part of the Fund or interest therein nor any item of property included therein
"No
shall be withdrawn, assigned or otherwise transferred in whole or in part, either by
Recently, the Sixth Circuit in Bryant v. International Fruit Products Co., Inc.,
793 F.2d 118 (6th Cir.1986), found that a similar provision in a pension plan
precluded the adoption of a residual assets amendment by the company. That
provision, which the majority seeks to distinguish as a "nonreversion
provision," provided that:
91 no event and under no circumstances shall any contributions to this Trust by the
In
Employer, nor any of the Trust Estate or the income therefrom, revert to or be repaid
to the Employer; and all amounts paid by the Employer to the Trustees shall be used
and applied for the sole and exclusive benefit of the participants under this Trust or
their beneficiaries or estates."
92
The court in Bryant concluded that "[a]n agreement that provides that an act
can occur in no event and under no circumstances cannot be converted into one
that permits the act by amendment...." Bryant, 793 F.2d at 123.
93
Obviously the language in the Bluefield plan is not identical to the provision at
issue in Bryant. I believe it is clear, however, that both provisions contemplate
that assets assigned to a pension plan are, thereby, placed forever beyond the
possibility of recapture by the donating company. Indeed, the language in the
Bluefield plan is arguably stricter since it prohibits any withdrawal, assignment
or transfer while the Bryant provision bars only direct reversion to the
employer.
94
The majority, however, suggests that when Bryant is read in conjunction with
In re C.D. Moyer Company Trust Fund, 441 F.Supp. 1128 (E.D.Pa.1977), aff'd
mem., 582 F.2d 1273 (3d Cir.1978), the resulting synthesis supports Bluefield's
right to add its residual assets amendment. In Moyer, the court approved a
residual assets amendment although the original plan barred any amendment
that would cause the "trust corpus ... to be diverted to or revert to either of the
employers." Moyer, 441 F.Supp. at 1131. The court concluded that the parties
to the agreement intended "trust corpus" to include only those funds necessary
to satisfy the specific pension benefits stated in the plan. The majority agrees
with the district court that a similar interpretation should be applied to the word
As an initial matter, I believe that the effort to reconcile Bryant and Moyer
represents a questionable attempt to mix oil and water. Although both cases
purport to turn on the contract language used in the pension plans, a careful
reading demonstrates that each represents a competing view of desirable public
policy with regard to pension plan surpluses. The court in Moyer was clearly
convinced that employers should not be "penalized" for overfunding pension
plans and that employees should not receive "windfalls due to the employer's
mistake." Moyer, 441 F.Supp. at 1132-33. The Bryant court, however, believed
that any benefit attendant a company's effort to recapture its contributions
would constitute a windfall to the employer, at least to the extent that the
employer had previously obtained tax advantages from the contributions.
Bryant, 793 F.2d at 123.
96
Neither Moyer nor Bryant are controlling authority and the majority could have
elected to follow either. In light of the clear philosophical split presented by
those decisions, I question the majority's effort to apply both. Moreover, to the
extent that this Circuit has taken any position on the policy implications raised
by pension fund surpluses, we have arguably leaned toward the rationale later
embodied in Bryant. See Audio Fidelity Corp. v. Pension Benefit Guaranty
Corp., 624 F.2d 513 (4th Cir.1980).2
97
98
The majority maintains, as did the district court, that this expansive definition is
limited by requirements that the trustee hold the fund "for the uses and
purposes herein provided." Although it would appear to me that the language
relied on by the majority deals with the Trustee's duties during the operation of
the pension plan rather than the actual composition of the "Fund," I do not
contend that the majority's view is totally unreasonable. The question before us,
however, is not whether the interpretation of the plan advanced by the company
and accepted by both the district court and the majority is unreasonable. The
issue is whether the company's interpretation is so unquestionably correct as to
render summary judgment appropriate. I think it is not.
99
The majority concedes that "[a]t first blush," the definition of "Fund" arguably
includes residual assets. In my view the existence of a reasonable alternative
interpretation of the plan, at the very least, indicates that the language of the
plan is ambiguous. For purposes of summary judgment, therefore, the district
court was required to either resolve the ambiguity against Bluefield as both the
moving party and the drafter of the contract language or alternatively, to allow
the case to proceed to the trier of fact for a determination of the intent of the
parties with regard to the residual assets. Under either approach, the grant of
summary judgment in favor of Bluefield was improper.
100 Accordingly, I would reverse the grant of summary judgment and remand for
further proceedings. I, therefore, respectfully dissent.
Appellants argue that the 1951 Plan in fact did provide for distribution of any
residual assets to the participants since the exclusive benefit provision stated
that, on termination of the Plan, the Fund and "all income arising therefrom"
would be held "for the benefit of all Participants in proportion to their
respective periods of service to the Company up to that time." We find this
argument to be without merit. Another provision of the 1951 Plan--the
provision which set forth the formula for calculating benefits--stated that in no
event shall "the amount awarded and paid hereunder to any Participant ... be
more than Five Thousand ($5,000.00) a year." If the exclusive benefit provision
were read to apply to residual assets, then it would conflict with the cap on
benefits. The only reasonable interpretation of the exclusive benefit provision,
therefore, is that the Fund on termination would be distributed "in proportion to
[the participants'] respective periods of service" only if the Plan was
underfunded at the time of termination
The majority opinion focuses upon the propriety of the 1973 residual assets
amendment rather than the terminating agreement adopted by the company on
August 19, 1985. Although I believe it is clear that the district court relied on
the later provision, it is of no particular significance with regard to the
substance of either the majority's position or my own. Both amendments called
for a reversion of surplus funds to the company. The issue of whether the plan
allowed either amendment is subject to the same analysis
I do not suggest that Audio Fidelity is dispositive of the instant appeal. There
are clear differences between the pension plan in that case and the Bluefield
plan. Clearly Audio Fidelity may be factually distinguished on that basis alone.
Nevertheless, this Court therein plainly rejected any contention that allowing
surplus pension assets beyond those needed for specific benefits to be paid to