Court Dismisses Claim Against Solis for PPA Provision

A federal district court dismissed claims by defined benefit (DB) plan participants over the removal of an early retirement provision due to the plan’s critical status.

Two participants of the Washington-Idaho-Montana Carpenters-Employers Retirement Trust filed a complaint against U.S. Secretary of Labor Hilda Solis, alleging that the elimination of the subsidized early retirement option of their retirement plan violated the Due Process Clause of the Fifth Amendment and that the distinction between early retirees already in “pay status” and those not yet retired amounts to a violation of the equal protection component of the Due Process Clause.  

The U.S. District Court for the Eastern District of Washington said the participants failed to demonstrate any state action, which is a necessary predicate to a suit alleging due process and equal protection claims against the Secretary. “The  mere  existence  of  the  provisions  in  the  PPA  (Pension Protection Act) allowing  the elimination of adjustable benefits does not amount to state action necessary to sue the United States,” said the court.  

According to U.S. District Judge Lonny R. Suko’s opinion, after suffering  severe  economic  losses,  the  plan  sponsor  adopted  a Rehabilitation  Plan  designed  to  enable  the  plan  to  emerge  from  critical  status, pursuant to Employee Retirement Income Security Act (ERISA) § 305(e)(3)(A), 29 U.S.C. § 1085(e)(3)(A), which was added to ERISA by the PPA. Under the statutory scheme, the Secretary does not select or create a rehabilitation plan or a default plan for a plan sponsor. Instead, pursuant to ERISA § 305(e)(1)(B), 29 U.S.C. § 1085(e)(1)(B), the plan sponsor, here the Board of Trustees, must provide the bargaining parties with schedules showing revised benefit structures, and must designate one of those schedules as a default schedule should the bargaining parties fail to adopt a rehabilitation plan.   

Suko said there appears to be no role for, or involvement by, the Secretary of Labor in this statutorily mandated process of selecting or adopting a rehabilitation plan and there is no evidence the Secretary played any such role in the present case.

In addition, Suko found that the participants have not shown a fundamental, constitutionally protected  right  that early retirement  benefits  exist  for  them  to  have  suffered  a  “taking”  in violation of the Due Process Clause of the Fifth Amendment. Although ERISA does generally protect a participant's interest in a contractually provided early retirement benefit, Suko noted, Congress provided a limited exception  to  that  protection  when  it  enacted  the  PPA,  which  provides  that a pension plan in critical status may eliminate early retirement benefits for those who, like Plaintiffs, have not yet retired and entered pay status.

The court dismissed the claims, finding the U.S. has taken nothing for its own use and has only imposed an obligation, which is within its power to impose as part of ERISA's comprehensive regulation of employer-provided pension plans. Suko added that the PPA was an amendment to ERISA's comprehensive regulatory regime designed to protect normal retirement benefits from the problems caused by defaulting defined benefit pension plans.

The opinion in Arendt v. Solis is here.