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Pension Benefit Guaranty Corp. v. Idaho Hyperbarics, Inc.

United States District Court, D. Idaho

May 15, 2017

PENSION BENEFIT GUARANTY CORPORATION, Plaintiff,
v.
IDAHO HYPERBARICS, INC., as Plan Administrator of the Idaho Hyperbarics, Inc. Defined Benefit Plan, Defendant.

          MEMORANDUM DECISION AND ORDER

          Honorable Candy W. Dale United States Magistrate Judge

         INTRODUCTION

         Before the Court is Defendant Idaho Hyperbarics, Inc.'s motion to dismiss the amended complaint filed by Pension Benefit Guaranty Corporation on September 8, 2016. The motion contends PBGC's claims against IHI are barred by the statute of limitations, 29 U.S.C. § 1303(e)(6). The Court conducted a hearing on March 1, 2017. After carefully considering the parties' arguments and the record before it, as well as the authorities cited by the parties, the Court issues this Memorandum Decision and Order denying IHI's motion.

         BACKGROUND[1]

         1. Factual Background

         This action arises under Title IV of the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. §§ 1301-1461 (2012 & Supp. II 2014) (ERISA). PBGC brings this action under 29 U.S.C. § 1303(e)(1) to enforce the provisions of Title IV of ERISA, and to enforce a final agency determination that violations of Title IV occurred with respect to the IHI Defined Benefit Plan. This is an action for enforcement of PBGC's final agency determination based on a review of the agency's administrative record under 5 U.S.C. § 706.

         PBGC is a wholly owned United States government corporation established under 29 U.S.C. § 1302 to administer and enforce the provisions of the plan-termination insurance program under Title IV of ERISA. 29 U.S.C. § 1301-1461. In this case, PBGC filed its complaint under Section 1303(e)(1) following IHI's standard termination of its single-employer, defined benefit pension plan. PBGC alleges IHI violated Title IV of ERISA and applicable regulations by failing to distribute Plan assets in full satisfaction of the Plan's benefit liabilities.

         IHI's Plan was effective December 27, 2004, and established as an Internal Revenue Code (IRC) Section 412(i) plan, which is fully and solely funded through insurance companies. The insurance policy which funded the Plan was issued by MONY Life Insurance Company of America.

         On May 27, 2009, IHI filed a Form 500 with PBGC, with a proposed plan termination date of December 26, 2008. On November 15, 2010, IHI filed a Form 501 with PBGC, certifying all benefit liabilities under the Plan were satisfied, and that IHI paid a total of $575, 900 to 15 plan participants no later than March 19, 2009, which date was more than two months before IHI filed the Form 500. On April 28, 2011, PBGC notified IHI that the Plan's standard termination had been selected for audit because, in violation of Title IV of ERISA, the Plan assets were distributed to participants before IHI filed the Form 500.

         During the audit, IHI submitted documentation showing that a total of only $228, 884 was distributed to participants, far less than the $575, 900, reported on the Form 501 and the aggregate value of the cash surrender checks that MONY issued on March 29, 2009. During the audit, PBGC determined that, contrary to the information reported on the Form 501, two participants received no distribution, thirteen participants received their distributions between April 14, 2011, and May 5, 2011, two participants received their distributions on April 27, 2009, and one participant received her benefit on March 1, 2010. On July 15, 2014, upon completion of the Plan audit, PBGC issued its initial determination to IHI with respect to its audit (the “Initial Determination”). In the Initial Determination, PBGC found that IHI did not pay the Plan participants the full cash surrender value of their contracts, as required under the IRC.

         PBGC made several findings in its Initial Determination, and required IHI to (a) calculate the underpayments due to participants by determining the difference between the amount each participant actually received and the full cash surrender value of their annuity contract, adding a reasonable rate of interest to the additional amounts due; (b) submit such calculations for PBGC's review; and (c) pay participants the additional amounts due. On November 12, 2014, IHI requested reconsideration of PBGC's Initital Determination. On April 28, 2015, PBGC issued its Final Determination, which upheld its earlier findings. IHI has not, however, made any of the additional benefit payments to plan participants as required by the Initial Determination or Final Determination.

         PBGC filed its complaint on July 21, 2016, [2] and later filed an amended complaint on August 25, 2016. Its claim for relief alleges IHI violated Title IV of ERISA and applicable regulations, by failing to distribute Plan assets in full satisfaction of the Plan's benefit liabilities. It seeks enforcement of its determinations, as well as distribution of any additional amounts, including interest, owed to plan participants.

         2. ERISA Standards

         In a standard termination under ERISA, the plan administrator must allocate and distribute assets to participants and beneficiaries in accordance with Title IV of ERISA. 29 U.S.C. § 1341(a)(1). Benefits are determined under the plan provisions in effect on the plan's termination date. 29 U.S.C. § 1341(b)(1)(D); 29 C.F.R. § 4041.8. Before distributing any plan assets, the plan administrator must send PBGC a “Standard Termination Notice - PBGC Form 500” (“Form 500”) with information about plan assets and benefit liabilities. See 29 U.S.C. § 1341(b)(2)(A); 29 C.F.R. § 4041.25. PBGC then has 60 days to determine whether there is any reason to believe that the plan is not sufficient for benefit liabilities. See 29 U.S.C. § 1341(b)(2)(C); 29 C.F.R. § 4041.26. Absent a finding from PBGC that the plan is not sufficient for benefit liabilities, the plan administrator must distribute plan assets in accordance with Title IV of ERISA within a specified time period. See 29 U.S.C. §§ 1341(b)(2)(D), 1341(b)(3); 29 C.F.R. § 4041.28.

         In a standard termination, the plan administrator must distribute the plan's assets by (a) purchasing “irrevocable commitments” (i.e., annuities) from a private insurer to satisfy all benefit liabilities, or (b) making alternative forms of distribution (e.g., lump sum payments) “in accordance with the provisions of the plan and any applicable regulations.” 29 U.S.C. §§ 1341(b)(3)(A)(i), (ii). Participants in an Internal Revenue Code (“IRC”) Section 412(e)(3) plan, a plan which is fully and solely funded through insurance policies under 26 U.S.C. § 412(e), are entitled to the full cash surrender value of their insurance policies in a standard termination. A “majority owner” with respect to a corporate contributing sponsor ...


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