The Pension Benefit Guaranty Corp. can go after the owner of a company that took more than two decades to shut down its pension plan, a U.S. District Court judge in West Palm Beach, Fla., ruled.
"This is a case about delay," Judge Robin L. Rosenberg said Nov. 22 in the order granting the PBGC's motion for summary judgment.
The PBGC filed the case July 31, 2018, to collect unfunded benefit liabilities owed to the agency when the Liberty Lighting Co. Inc. Pension Plan for IBEW Employees was terminated and taken over and for premiums owed to PBGC because of the termination. The lawsuit also sought to recover any property fraudulently transferred while the companies were winding down.
Liberty Lighting began liquidating in 1991 but never informed the PBGC. Following the company's dissolution, owner Joseph Wortley filed for personal bankruptcy.
Pension benefits were paid until plan assets were depleted, and the plan was terminated in July 2012 when the PBGC became aware of the situation.
According to court documents, the pension plan has assets of $4.56 million and accrued liabilities of $3.54 million as of Jan. 1, 2002, the last 5500 filed.
Liberty Lighting became sponsor and administrator of the plan in 1989. By 1991 it was forced into bankruptcy and in 1992 it was administratively dissolved by the state of Illinois.
The PBGC sued Mr. Wortley and various companies in which he held an ownership interest on the date of plan termination. Denying the defendants' motion to dismiss the case, a magistrate concluded that because ERISA was silent on the impact of corporate dissolution, federal courts had the responsibility to create common law, which in this case meant that Liberty Lighting remained the sponsor of the pension plan, a recommendation that Ms. Rosenberg agreed with and adopted.
According to the PBGC, Liberty Lighting never notified the agency that the plan was at risk for termination, while the defendant companies said in court documents that "nobody ... knows if this is actually true; too much time has passed."
While that issue remains unclear, "someone must bear the cost of the delay of plaintiff's takeover of the pension. If defendants prevail, the costs associated with the delayed windup of the Liberty pension will be borne by active companies in the marketplace that pay pension insurance premiums to plaintiff. If plaintiff prevails, the costs associated with the delayed windup will be borne by non-parties who had very little, if any, connection to Liberty Lighting, as well as Mr. Wortley who, from his perspective, attempted to put Liberty Lighting behind him via bankruptcy many years ago," Ms. Rosenberg said in the order, describing it as "a difficult case."
The defendants named in the lawsuit argued that it was unfair to be held liable in 2012 for events that occurred in the early 1990s when they had no connection to Liberty Lighting, but Ms. Rosenberg ruled that "ERISA affixes the date of liability to the date of termination. … Had Liberty Lighting taken the steps necessary to terminate the plan in parallel with state dissolution proceedings, its ERISA-based liability could have been resolved far, far earlier than 2012."
She also noted that ERISA affixes liability for common ownership at 80% and imposes liability on controlled group members, even minority-owner third parties "for a good reason. Controlled group liability ensures that employers 'keep up their end of the deal' by preventing them from fractionalizing their assets and isolating them from the plaintiff's reach," she said.
"ERISA chose the date to affix liability and ERISA chose the ownership threshold necessary to impact third parties. Defendants' policy-based arguments, therefore, are tantamount to an argument against the plain terms of ERISA itself," Ms. Rosenberg wrote.
PBGC officials declined to comment on the decision.