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Pension Benefit Guaranty Corporation v. Idaho Hyperbarics, Inc.

United States District Court, D. Idaho

May 4, 2018

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

          MEMORANDUM DECISION AND ORDER

          HONORABLE CANDY W. DALE, UNITED STATES MAGISTRATE JUDGE

         INTRODUCTION

         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). Pension Benefit Guaranty Corporation (PBGC) brings the 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 Idaho Hyperbarics, Inc. Defined Benefit Pension Plan (the “Plan”) based on a review of the agency's administrative record under 5 U.S.C. § 706.

         Before the Court is PBGC's motion for summary judgment, requesting that the Court uphold PBGC's administrative determination that Idaho Hyperbarics, Inc. (IHI) failed to complete the standard termination of the Plan in accordance with the Plan's provisions and under ERISA. PBGC contends the Administrative Record (AR) supports its determination that IHI improperly reduced the benefits of approximately 17 Plan participants by: (1) failing to pay Plan participants the full cash surrender value of their Plan insurance contracts upon Plan termination as required under 26 U.S.C. § 411(b)(1)(F); (2) failing to pay the full amount of benefits elected by one of the participants; (3) failing to vest certain Plan participants upon the Plan's termination as required under 26 U.S.C. § 11(d)(3); and (4) improperly reducing of the benefits of Plan participants who were not majority owners eligible to waive their benefits under 29 C.F.R. § 4041.2. PBGC contends over $370, 000 in additional benefits are owed to Plan participants.

         IHI argues that a third party bears responsibility for any improper administration of the Plan and its assets, and that if the Court finds in favor of PBGC, IHI likely will file for bankruptcy, which is not in the plan participants' best interests.[1]

         The Court conducted a hearing on May 1, 2018, at which the parties appeared.[2]Having considered the record, the pleadings, relevant authority, and being fully advised, the Court concludes PBGC's Final Determination was neither arbitrary nor capricious. Accordingly, the Court will grant PBGC's motion for summary judgment.

         FACTS[3]

         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. § 1302. IHI is a wound care and hyperbaric treatment provider incorporated in the State of Idaho. Am. Compl. ¶ 9; Ans. ¶ 9. IHI's primary place of business is in Pocatello, Idaho. Id.; Ans. ¶ 9. IHI adopted the Plan effective December 27, 2004. AR 39-67, 623-25, 684-757.

         The Plan was a single-employer, defined benefit pension plan covered under Title IV of ERISA. AR 36-67, 74, 470-72, 291-92, 623-25, 697-794. The Plan was established as an IRC Section 412(i) plan, which is fully and solely funded through insurance policies. AR 181, 255-60, 1090-2052. The insurance policy which funded the Plan was issued by MONY Life Insurance Company of America (“MONY”). AR 181, 255-60, 1090-2052; Am. Compl. ¶ 23; Ans. ¶ 23. IHI was the Plan's contributing sponsor, within the meaning of 29 U.S.C. § 1301(a)(13), and the Plan administrator, within the meaning of 29 U.S.C. §§ 1002(16) and 1301(a)(1). AR 36-67, 74, 470-72, 291-92, 623-25, 697-794.

         On May 27, 2009, IHI filed a Form 500 with PBGC, with a proposed termination date of December 26, 2008. AR 1-5, 162-65. On November 15, 2010, IHI filed a Form 501 with PBGC, certifying that all benefit liabilities under the Plan were satisfied. AR 13-14. On the Form 501, IHI stated that it paid a total of $575, 900 to fifteen Plan participants no later than March 19, 2009, more than two months before IHI filed the Form 500. Id.

         On January 4, 2011, PBGC notified IHI that the Plan would be audited. AR 14. On April 28, 2011, PBGC issued an audit initiation letter to IHI, stating that the Plan's standard termination had been selected for audit because, in violation of Title IV of ERISA, Plan assets were distributed to participants before filing the Form 500. The letter also requested certain information for the audit. AR 15-16.

         During the audit, PBGC determined that, contrary to the information reported on the Form 501, there were seventeen (rather than fifteen) Plan participants. AR 390-406, 474-490, 731-47, 981-82. Of those participants, two received no distribution, twelve received their distributions between April 14, 2011, and May 5, 2011; two received their distributions on April 27, 2009; and one received her benefit on March 1, 2010. AR 842-45, 963-67, 2054-60, 2063-81, 2175-76. All distributions were tendered after the date of proposed termination and March 19, 2009, the last date of distribution reported on the Form 501. AR 842-45, 963-67, 2054-60, 2080-81.

         During the audit, IHI submitted documentation showing that, pursuant to its insurance policy surrender requests to MONY, IHI received $575, 900 in insurance policy surrender checks from MONY on or about March 29, 2009. AR 321-34, 523-42, 2221- 50. Also, IHI submitted documentation showing that only a total of $228, 884 was paid to the fifteen participants who did receive a distribution, less than the $575, 900 aggregate value of the cash surrender checks from MONY and the total distribution amount reported on the Form 501. AR 826-45, 962-67, 2054-2060, 2080-81, 2175-76, 2221-50, 2263-78.

         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”). AR 2203-06. 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 IRC Section 411(b)(1)(F), because the total distribution amount to participants was only $228, 884 - not the $575, 900 that IHI certified that they distributed and less than the full cash surrender value of the participants' insurance contracts (“Finding 1”). AR 13, 826-45, 842- 45, 962-67, 2054-2060, 2080-81, 2175-76, 2203-06, 2221-35, 2263-78.

         In the Initial Determination, PBGC found that, in addition to not receiving the full cash surrender value of his insurance contract, Participant A did not receive the full amount reported on his benefit election form and Form 1099-R (“Finding 2”). AR 2203-06. Participant A received only $6, 346.62 when his insurance contract's full cash surrender value was $29, 252.04, and the benefit amount that was reported on that participant's benefit election and Form 1099-R was $10, 433.27. AR 820, 832, 962, 966, 971, 2203-06.

         In the Initial Determination, PBGC found that two participants who terminated employment before Plan termination, Participant B and Participant C (who IHI failed to account for on the Form 501), were not vested 100% in their benefits upon Plan termination as required by law (“Finding 3”). AR 288-90, 292-93, 495, 509, 656, 962, 1004-11, 1039-41, 2058-59, 2203-06.

         In the Initial Determination, PBGC found that the benefits for non-majority owners had been incorrectly waived because IHI failed to submit evidence that the participants were majority owners eligible to waive benefits (“Finding 4”). AR 897, 2203-06.

         Regarding Finding 1, Finding 2, and Finding 3, the Initial Determination 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 and 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. AR 2203-06.

         Regarding Finding 4, the Initial Determination requested proof of majority ownership for participants that reportedly waived their benefit. Id. By letter dated November 12, 2014, IHI, through counsel, requested reconsideration of PBGC's Initial Determination and supplemented the request for reconsideration by an email dated ...


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