The U.S. Supreme Court has been asked to settle a 13-year-old dispute between the Pension Benefit Guaranty Corp. and participants in a terminated Delphi Corp. defined benefit plan who accuse the PBGC of shortchanging their benefits and violating ERISA and the U.S. Constitution.
At issue is the way the PBGC has been terminating underfunded pension plans through a process called "termination by agreement," which PBGC says it has used in thousands of cases during its 47-year history and has never been overturned by courts. The Supreme Court hasn't yet decided whether it will take the case.
The pensioners have lost every legal challenge to the PBGC: New York federal bankruptcy court in 2009; U.S. District Court in Detroit in 2019; and the 6th Circuit Court of Appeals in Detroit in 2020. They accused the PBGC of bypassing a judicial review of the termination of Delphi's underfunded pension plan, relying instead on a "termination by agreement" with Delphi to close an underfunded DB plan for 20,000 salaried employees. Delphi filed for Chapter 11 bankruptcy protection in 2005.
"As PBGC reasons, termination by agreement is expeditious," said the petition to the Supreme Court in the case of Black et al. vs. Pension Benefit Guaranty Corp. "But here's the initial rub: ERISA does not allow for terminations by agreement," the petition said. "Here's the second rub: the Constitution does not allow for terminations by agreement, either."
In their petition, the pensioners argued that "when PBGC and a plan administrator terminate a plan by agreement, they seize for themselves the authority that ERISA gives to a court."
As for their due process claim, they cited a 1980 Supreme Court ruling in which the PBGC was a defendant. "This Court held that participants' vested benefits are nonforfeitable, even when a plan is terminated due to underfunding," the pensioners wrote. "Because of the participants' rights to their vested benefits, they have property interests that the government cannot — consistent with the Due Process Clause of the Fifth Amendment — strip away without a pre-deprivation hearing, and no hearing occurs where a plan is terminated by agreement."