The pensioners said PBGC used "termination by agreement" to bypass a judicial review of the termination of Delphi's underfunded pension plan, relying 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.
The participants asked for a Supreme Court review in July 2021. The PBGC filed a response in December, writing that ERISA does allow for a court review for a pension plan's termination but adding that "termination by agreement" also is permitted by law.
The PBGC cited an ERISA passage that says the PBGC and a plan administrator may "agree that a plan should be terminated and agree to the appointment of a trustee without proceeding in accordance with" a federal District Court's review.
"No court has ever held or even suggested that these terminations violate ERISA or the Due Process Clause" of the U.S. Constitution, wrote the PBGC, asking that the Supreme Court decline to hear the complaint.
Delphi, a supplier of automotive parts supplier and former subsidiary of General Motors Corp., filed for Chapter 11 bankruptcy protection in October 2005.
While Delphi remained in bankruptcy, "it suffered significant financial losses as auto sales collapsed in late 2008 and 2009," the PBGC wrote in its response to the Supreme Court. "And in the face of the 2008 economic crisis and recession, Delphi's efforts to emerge as a reorganized company with its pension plans intact failed, as did its attempts to have another entity assume the Salaried Plan."
The salaried workers pension plan "had to be terminated and PBGC appointed as statutory trustee to avoid an unreasonable increase in the liability of the PBGC insurance fund," said the PBGC's response to the Supreme Court. "Based on those determinations, PBGC initiated an action against Delphi in the district court seeking a decree for the termination" of the plan.
Participants filed objections to PBGC's action, but a New York bankruptcy court ruled July 30, 2009, that the Delphi bankruptcy could proceed. The bankruptcy court also ruled that "PBGC and the plan administrator could agree to termination of a plan without adjudication," said the PBGC petition to the Supreme Court.
The participants sued the PBGC in September 2009. Over the next few years, the plaintiffs filed two amended complaints and the U.S. Treasury Department filed a petition to dismiss one of the complaints, which was granted by Senior U.S. District Judge Arthur J. Tarnow in Detroit. The parties then engaged in seven years of discovery, according to court records.
In March 2019, Mr. Tarnow granted summary judgment in favor of the PBGC. "Plaintiffs fail to meet their heavy burden of establishing that PBGC's conduct — which was authorized by statute — deprived them of due process," he wrote "Based on the record, this court cannot conclude that PBGC acted arbitrarily and capriciously in terminating the Salaried Plan."
The participants appealed to the 6th U.S. Circuit Court of Appeals, which upheld the ruling in September 2020. ERISA "permits termination of distressed pension plans by agreement between PBGC and the plan administrator without court adjudication," according to the unanimous ruling by a three-judge panel. "PBGC's decision to terminate the Salaried Plan was not arbitrary and capricious."
