UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
SARA LEE CORPORATION,
Plaintiff,
v. Civil Action 06-00819 (HHK)
AMERICAN BAKERS ASSOCIATION
RETIREMENT PLAN, et al.,
Defendants.
MEMORANDUM OPINION
Sara Lee Corporation (“Sara Lee”) brings this action under the Employee Retirement
Income Security Act (“ERISA”), 29 U.S.C. §§ 1001 et seq., seeking reversal of a 2006
determination of the Pension Benefit Guaranty Corporation (“PBGC”) that the American Bakers
Association Retirement Plan (“ABA Plan” or “Plan”) is a multiple-employer pension plan. Sara
Lee is a participating employer in the ABA Plan; the Plan, its Board of Trustees, and other
participating employers are also parties to this suit. Before the Court is PBGC’s motion for
summary judgment [#46], which the Court held in abeyance pending an assessment of the
completeness of the administrative record and which is now ripe for decision. Upon
consideration of the motion, the opposition thereto, and the record of this case, the Court
concludes that the motion shall be granted.
I. BACKGROUND
A. Regulatory Background
PBGC is a federal agency and wholly-owned corporation of the U.S. Government that
administers the pension plan insurance program established by Title IV of ERISA. 29 U.S.C. §§
1301-1371. PBGC exists to ensure that retirees receive pension benefits they have earned even if
their employer has terminated its pension plan or is otherwise unwilling or unable to pay. Mead
Corp. v. Tilley, 490 U.S. 714, 717-18 (1989). When a pension plan covered by Title IV
terminates without sufficient assets to pay all of its promised benefits, PBGC typically becomes
trustee of the plan and pays participants their benefits, up to statutory limits. See 29 U.S.C. §§
1321-1322, 1361.
Under ERISA, groups of employers may form joint pension plans. There are two types of
joint plans for employees whose pensions are not maintained pursuant to collective bargaining
agreements. A “multiple[-]employer plan” is a plan “maintained by two or more contributing
[employers] . . . under which all plan assets are available to pay benefits to all plan participants
and beneficiaries.” 29 C.F.R. § 4001.2. An “aggregate of single-employer plans” is an
association of separate plans in which each employer’s contributions are maintained in separate
accounts or otherwise effectively restricted so that the funds of each employer are used only to
pay the benefits of that employer’s employees. See Pension Benefit Guar. Corp. v. Artra Grp.,
972 F.2d 771, 773 (7th Cir. 1992) (adopting PBGC’s definition of an aggregate of single-
employer plans); Pension Benefit Guar. Corp. v. Potash, 1986 WL 3809, at *2-3 (W.D.N.Y.
Mar. 26, 1986) (same).
2
The distinction is relevant, inter alia, to determining an employer’s liability when it
terminates a plan with insufficient funds to pay benefits due to retirees. Artra Grp., 972 F.2d at
772. In a multiple-employer plan, an employer is generally only liable for underfunding if it is a
“substantial employer” within the meaning of ERISA, 29 U.S.C. § 1301(a)(2), or has made
contributions to the plan within the five years preceding the termination of the plan as a whole,
id. §§ 1363, 1364. Otherwise, the obligation for that liability falls to the other contributors to the
fund. See id. § 1301(a)(2). In an aggregate plan, however, the employer must make up the
missing contributions or seek to qualify for a “distressed” or “involuntary” termination by PBGC,
in which case PBGC becomes liable for that plan’s obligations. See Artra Grp., 972 F.2d at 772-
73; 29 U.S.C. § 1322.
B. Factual Background
The ABA Plan is a defined-benefit pension plan to which seven employers, including
Sara Lee, currently contribute on behalf of their current and former employees. The Plan was
founded in 1961 and has been covered by ERISA since that statute’s enactment in 1974.
1. 1979 Determination
On June 21, 1979, PBGC sent a letter to the American Bakers Association (“1979
Letter”) stating that it had “concluded that the [ABA Plan] constitutes an aggregate of separate
pension plans.” Administrative Record (“AR”) 212. PBGC described the standard for making
such a determination:
Our determination as to the nature of an entity—whether it is a single plan
or an aggregate of single plans—is based on its structure and how it actually
operates on an ongoing basis. We look to the documents governing the entity and
to relevant evidence of how it has operated and continues to operate. Such
evidence may include the reasonable expectations and intent of the parties.
3
The availability of funds held by an entity to provide benefits is a central
factor in our analysis. Restrictions on the use of such funds indicate that the entity
may be an aggregate of single plans. For example, if separate accounts are
maintained for each contributing employer, it may be possible to restrict the use of
assets from each separate account to pay only the benefits of the employee-
participants of the employer maintaining the account. If the evidence shows that
payments are effectively restricted, by whatever means, so that there is a minimal
risk of funds attributable to the contributions of one employer being used to pay
the benefits of another employer’s employee-participants, then the entity is an
aggregate of single plans.
AR 212-13.
PBGC’s letter then discussed certain aspects of the functioning of the Plan. Any
employer entering the Plan, or any employer changing its contribution rates, was required to sign
a participation agreement that set rates of coverage and “state[d] that the employer’s participation
in the Fund is only with respect to its own employees”; to be the subject of an actuarial
evaluation to determine whether a surcharge is necessary to “avoid any actuarial deficiency”; to
apply to the Internal Revenue Service for a determination that its plan met certain requirements;
and to be aware of the intent, expressed in a document titled “Summary Plan Description,” that
each employer provide the funds to pay its employees’ benefits. AR 213-14.
The 1979 Letter acknowledged that “all contributions are paid into and all distributions
are paid from the commingled trust” and “on an ongoing basis the [Plan] only maintains separate
accounting per employer for purposes of cost allocation.” AR 214. But it also noted that upon
termination of a participating employer’s plan, the Plan had the requisite information to
“historically re-create separate accounts” so that, pursuant to a 1976 amendment to the Plan, “any
amount attributable to [the employer’s] contributions that prove to be in excess of the accrued
pensions of its employees” could revert to that employer. AR 214-15. PBGC thus concluded
4
that “[i]n this case the separate actuarial valuations made with regard to each employer and the
system of surcharges . . . effectively minimize the risk that one employer’s contributions will be
used to fund the benefits of another employer’s employees.” AR 215.
2. 2006 determination
In 2005, an assessment of the Plan’s finances revealed that several participating
employers carried negative balances in the Plan, meaning that the benefits owed to the
employer’s retirees, along with administrative expenses, were greater than the contributions and
investment income in the Plan’s account attributable to that employer. Compl. ¶ 27.1 Sara Lee,
which had a positive balance in the Plan’s account, sought to withdraw its funds to establish an
independent pension plan exclusively for Sara Lee employees. See AR 287; Compl. ¶ 28.
Meanwhile, Interstate Brands Corporation (“IBC”),2 a participating employer in the ABA Plan
with a negative balance, had filed for bankruptcy. See AR 1572.
In June 2005, IBC asked PBGC to reconsider its 1979 determination that the ABA Plan
was an aggregate of single-employer plans rather than a multiple-employer plan. AR 339. As
noted, this distinction controls which entity is liable for IBC’s negative balance: if the Plan was
properly categorized as an aggregate of single-employer plans, PBGC would be largely
responsible for the deficit; if instead the Plan is multiple-employer plan, Sara Lee and other
1
All citations herein to the complaint refer to Sara Lee’s Second Amended
Complaint.
2
Several documents and filings refer to this party as Interstate Bakeries
Corporation. The party refers to itself, and is listed on the docket of this case, as Interstate
Brands Corporation.
5
participating employers would be obligated to cover the costs of paying benefits to IBC’s former
employees.3
In November 2005, PBGC notified the ABA Plan, as well as participating employers Sara
Lee, IBC, and Kettering Baking Company (“Kettering Baking”), that it intended to revisit its
1979 determination. AR 427-28. PBGC requested that these “interested parties” submit “any
written statement or documents that you would like PBGC to consider in its decision-making
process.” AR 427. PBGC received materials from the ABA Plan, Sara Lee, IBC, and Kettering
Baking.
On August 8, 2006, PBGC issued a seventeen-page determination letter (“2006 Letter”)
in which it concluded that the agency’s application of the relevant legal standard in its 1979
Letter was “simply wrong” and that the ABA Plan “is, and indeed always has been, a multiple-
employer plan.” AR 1563, 1570. The letter began by explaining the factual background related
here as well as Sara Lee’s and IBC’s financial interests in the outcomes they each supported. See
AR 1564-66. PBGC next recited the standard “consistently applied” for distinguishing between
multiple-employer plans and aggregates of single-employer plans: as stated in the 1979 Letter,
the analysis “is based on [a plan’s] structure and how it actually operates on an ongoing basis”
and includes “look[ing] to the documents governing the entity and to relevant evidence of how it
has operated and continues to operate.” AR 1566-67.
3
Because of the consequences of the determination on Sara Lee’s liability for
IBC’s negative balance, when Sara Lee sought to transfer assets from the ABA Plan to its new
pension plan, the Plan held $27 million of Sara Lee’s funds pending the PBGC’s outcome. AR
356-60, 1565 n.2. IBC also has an interest in the determination: apparently its share of Plan
liabilities would be reduced from $69 million to $40 million if the Plan is reclassified as a
multiple-employer plan. AR 1564-65. The cost to PBGC of assuming liability for the negative
balance is approximately $60 million. See Pl. Sara Lee’s Opp’n to Def.’s Mot. for Summ. J. at
17.
6
The 2006 Letter went on to describe the Plan’s historical functioning. PBGC noted that
from the Plan’s inception, “benefit costs were not segregated on an employer-by-employer basis,
so cost shifting could occur.” AR 1568. According to the 2006 Letter, when PBGC reviewed
the Plan’s practices in 1979, it relied on the Trustees’ representations of their intent to ensure that
each employer fully funded the benefits for its employees, but this reliance was misplaced. AR
1569-70. In particular, PBGC reasoned that the Plan’s requirement that a terminating employer
cover its liabilities at the time it exited the Plan signified that an employer could have a negative
balance, and “a negative balance was proof positive that cost shifting had occurred before the
employer had withdrawn from the Plan.” AR 1570. Turning to the operation of the Plan since
1979, PBGC wrote that although the Plan itself states that it is an aggregate of separate plans,
several factors suggest the opposite is true: the Plan is governed identically for all participating
employers; its “assets are pooled in a single trust and one custodial account”; “separate actuarial
valuations of the Plan assets and liabilities attributable to a particular employer were to be
performed only when an employer terminated participation in the Plan” or upon request; and an
accounting in 2004 revealed that several employers had negative balances. AR 1570-73.
In the final section of the 2006 Letter, labeled “Legal Analysis,” PBGC described
evidence submitted by IBC on which it relied to determine that the ABA Plan was a multiple-
employer plan. AR 1573. PBGC discussed five categories of evidence.
First, it noted that a box indicating status as a multiple-employer plan was checked on the
Plan’s Form 5500s, an ERISA reporting form submitted to the Internal Revenue Service and the
Department of Labor each year. AR 1574. PBGC rejected the Trustees’ explanation that the
forms do not have an alternative box for an aggregate of single-employer plans, reasoning that
the IRS requires separate Form 5500s for each single plan. Id.
7
Second, PBGC explained that the Schedule B attachments to the Form 5500s, signed by
an actuary, “stated that the Plan had one funding standard account and one pool of assets and
benefit liabilities,” meaning that the participating employers’ funds were “commingled and
identified as contributions to the [ABA] Plan, not to any individual [employer’s plan].” Id. The
letter stated that PBGC “regard[s] this unbroken chain of reports as persuasive evidence that the
Plan always operated [on an] ongoing basis as one, multiple-employer plan in which all plan
assets have been available to pay all plan benefits.” AR 1575.
Third, PBGC quoted two communications, one from the Plan’s attorney to James
Kettering, the president of Kettering Baking, and the other from the Plan’s actuary to Kettering,
as examples of statements describing the Plan’s operation in a manner consistent with the
functioning of a multiple-employer plan. The attorney rejected Kettering’s request to provide
benefits to former Kettering Baking employees at a different rate than that used by other
participating employers because “[t]o the extent the experience of each employer were separately
determined, the Plan would effectively be ‘deconstituted’ into a group of single employer plans.”
Id. The actuary described the Plan’s system of requiring surcharges for certain new participating
employers, noting that the system “was never intended to come up with the same contribution
rates that would have resulted from full actuarial valuations for each employer.” AR 1576.
Fourth, PBGC stated that the Plan’s required certified financial statements for the years
ending September 30, 2003 and September 30, 2004 “fail[] to account for any of the Plan assets
and liabilities on an employer-by-employer basis” or to “even mention the segregation of
employer assets and liabilities required for aggregate of single-employer plan status.” AR 1577.
8
Fifth, PBGC explained that the representations on which the 1979 Letter was based—that
employers might pay surcharges upon entering the Plan and would correct for any funding
deficiency or surplus upon exiting it—had in practice not been fully implemented, and “the
measures the Plan did take did not effectively prevent cost shifting among participating
employers on an ongoing basis.” AR 1577-78. The system of surcharges was “a perfunctory
calculation” rather than a method of tracking “employer-by-employer account balances on an
ongoing basis.” AR 1578. Furthermore, “the Plan has not consistently treated the withdrawal of
a participating employer as a plan termination or retroactively created a separate account for each
such employer and trued up any funding deficiency or surplus,” instead allowing “inactive”
employers to “abandon[] their attributable assets and allocable liabilities to the Plan.” Id.
In light of the “exigencies” of the matter, PBGC made its determination that the ABA
Plan was a multiple-employer plan effective immediately upon issuance, dispensing with the
obligation to exhaust administrative remedies prior to initiating a suit in federal court. AR 1579;
see also 29 C.F.R. § 4003.22(b).
C. Procedural History
Sara Lee filed this action against the ABA Plan and its Board of Trustees on May 3, 2006
and subsequently added PBGC as a defendant. Relevant to the motion before the Court are Sara
Lee’s requests for reversal of PBGC’s determination in the 2006 Letter that the ABA Plan is a
multiple-employer pension plan and to enjoin PBGC from enforcing the 2006 Letter or
rescinding the 1979 Letter.4 In November 2006, the ABA Plan and its Trustees filed a
4
Sara Lee makes these demands for relief in Count I of its complaint. The Court
previously dismissed Counts II and III of the complaint, which alleged that the ABA Plan and its
Board of Trustees violated its fiduciary duties and the terms of the Plan agreement by permitting
9
counterclaim against Sara Lee, a cross-claim against PBGC, and a third-party complaint against
the American Bakers Association and the other participants in the Plan—Kettering Baking, IBC,
Lewis Brothers Bakeries, Inc. (“Lewis Brothers”),5 Harris Baking Company, Inc., and Jenny Lee
Bakery, Inc.—seeking declaratory relief resolving the contradiction between the 1979 Letter and
2006 Letter.
PBGC moved for summary judgment in April 2007.6 The Court has already issued an
opinion resolving some of the issues raised by PBGC’s motion. Sara Lee Corp. v. Am. Bakers
Ass’n Retirement Plan, 512 F. Supp. 2d 32 (D.D.C. 2007). The Court rejected an argument by
Sara Lee that the appropriate standard of review of PBGC’s determination is de novo. Id. at 37-
38. Instead, the Court determined that application of the deferential standard of the
Administrative Procedure Act (“APA”)—considering whether an action was “arbitrary,
capricious, an abuse of discretion, or otherwise not in accordance with law,” 5 U.S.C. §
706(2)(a)—is appropriate. Id. In response to Sara Lee’s contention that discovery was necessary
to address inadequacies in PBGC’s record, the Court ruled that it could not determine whether
the administrative record before it was complete and would hold the motion for summary
judgment in abeyance pending resolution of that issue. Id. at 38-39.
employers to have negative balances in the Plan account. See Sara Lee Corp. v. Am. Bakers
Ass’n Retirement Plan, 512 F. Supp. 2d 39, 43 (D.D.C. 2007).
5
Lewis Brothers is the named party, although Chicago Baking Company—a
wholly-owned subsidiary of Lewis Brothers—is the participating employer.
6
The motion seeks summary judgment as to Counts I and II of Sara Lee’s Second
Amended Complaint, of which only Count I now remains, and as both of the two counts of the
ABA Plan’s Third-Party Complaint.
10
In accordance with the Court’s opinion and order, the parties turned to addressing the
question of whether materials should be added to the administrative record submitted to the
Court by PBGC. Sara Lee filed a motion for leave to serve discovery and supplement the
administrative record, which the Court referred to United States Magistrate Judge John M.
Facciola. Judge Facciola denied the motion but noted that there were three categories of
documents PBGC had already agreed to add to the record. As described by the parties, those
three categories were: (1) exhibits attached to the oppositions to PBGC’s motion for summary
judgment filed by Sara Lee, Lewis Brothers, and the ABA Plan and its Trustees; (2) filings
PBGC submitted in the IBC bankruptcy proceeding; and (3) documents PBGC provided to Sara
Lee in response to a FOIA request. These materials are now before the Court as part of the
administrative record.
With the issues of discovery and completeness of the record resolved, the Court can now
assess whether the PBGC’s 2006 determination was arbitrary and capricious.
II. LEGAL STANDARDS
A. APA Review
As noted, the Court has concluded that it must review Sara Lee’s claim according to the
APA’s deferential standard. In conducting its review, the Court must “hold unlawful and set
aside agency action, findings, and conclusions found to be . . . arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with the law.” 5 U.S.C. § 706(2). The Supreme Court
has written:
[A]n agency rule would be arbitrary and capricious if the agency has relied on
factors which Congress has not intended it to consider, entirely failed to consider
an important aspect of the problem, offered an explanation of its decision that
11
runs counter to the evidence before the agency, or is so implausible that it could
not be ascribed to a difference in view or the product of agency expertise.
Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983). In other
words, as long as an agency considers relevant factors and can articulate a “rational connection
between the facts found and the choice made,” then its decision will be upheld. See State Farm,
463 U.S. at 42-43 (quoting Burlington Truck Lines v. United States, 371 U.S. 156, 168 (1962))
(internal quotation marks omitted); Marsh v. Or. Natural Res. Council, 490 U.S. 360, 378 (1989)
(holding that agency action will not be reversed under the “arbitrary and capricious” standard of
review absent a clear error of judgment). An agency may alter or reverse its policies and
positions as long as it supplies a “reasoned analysis indicating that prior policies and standards
are being deliberately changed.” Greater Boston Television Corp. v. FCC, 444 F.2d 841, 852
(D.C. Cir. 1970).
Despite this deferential standard, a court must conduct a “searching and careful” review
of the record to establish that the agency’s decision is rational and based on consideration of all
relevant factors. Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 416 (1971). A
court’s review is limited to the administrative record and the grounds for decision invoked by the
agency. See Camp v. Pitts, 411 U.S. 138, 142 (1973); SEC v. Chenery Corp., 332 U.S. 194, 196
(1947).
B. Summary Judgment
Summary judgment is the proper mechanism for deciding, as a matter of law, whether an
agency action is supported by the administrative record and consistent with the APA standard of
review. Stuttering Found. of Am. v. Springer, 498 F. Supp. 2d 203, 207 (D.D.C. 2007) (citing
12
Richards v. INS, 554 F.2d 1173, 1177 & n.28 (D.C. Cir.1977)). Courts are not to apply typical
summary judgment standards, however, when reviewing a final action of an administrative
agency under the APA:
Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is
appropriate when the pleadings and the evidence demonstrate that “there is no
genuine issue as to any material fact and that the moving party is entitled to
judgment as a matter of law.” Fed. R. Civ. P. 56(c). In a case involving review of
a final agency action under the [APA], however, the standard set forth in Rule
56(c) does not apply because of the limited role of a court in reviewing the
administrative record. See Sierra Club v. Mainella, 459 F.Supp.2d 76, 89-90
(D.D.C. 2006). Under the APA, it is the role of the agency to resolve factual
issues to arrive at a decision that is supported by the administrative record,
whereas “the function of the district court is to determine whether or not as a
matter of law the evidence in the administrative record permitted the agency to
make the decision it did.” See Occidental Eng’g Co. v. INS, 753 F.2d 766, 769-70
(9th Cir.1985); see also Nw. Motorcycle Ass’n v. U.S. Dep’t of Agric., 18 F.3d
1468, 1472 (9th Cir.1994) ( “[T]his case involves review of a final agency
determination under the [APA]; therefore, resolution of th[e] matter does not
require fact finding on behalf of this court. Rather, the court’s review is limited to
the administrative record.”).
Stuttering Foundation, 498 F. Supp. 2d at 207. Accordingly, in reviewing PBGC’s motion, the
Court evaluates whether the evidence in the administrative record permitted PBGC to determine
that the ABA Plan is a multiple-employer plan rather than an aggregate of single-employer plans.
III. ANALYSIS
PBGC argues that it is entitled to summary judgment because its 2006 Letter constitutes a
detailed, thoroughly reasoned analysis of the appropriate classification of the ABA Plan. The
agency asserts that it correctly stated the relevant legal issue and its outcome is supported by
evidence in the administrative record. PBGC reiterates that the “central factor” in determinating
whether a plan is a multiple-employer plan or an aggregate of single-employer plans “is the
availability of all plan assets to pay benefits to any participant or beneficiary,” and that “the way
13
that the plan is structured and actually operates on an ongoing basis is dispositive.” Def.’s Mot.
for Summ. J. at 13-14. PBGC therefore argues that it was appropriate to conclude that because
the Plan has not prevented cost-shifting between employers—in other words, because the Plan
holds all employers’ assets in one account and has no mechanism for ensuring that each employer
funds only the benefits of its own employees—it “cannot be an aggregate of single-employer
plans, regardless of what the parties intended, what the plan documents state, or how the plan has
been treated in the past.” Def.’s Reply at 19.
Sara Lee, the ABA Plan, and Lewis Brothers have all filed oppositions to PBGC’s
motion. Each argues that PBGC’s 2006 determination was arbitrary and capricious.7 None of
7
Each also argues that PBGC’s procedures in making the 2006 determination
violated due process and other procedural rights. Because these arguments largely rely on the
need for, and seek as redress, discovery and supplementation of the record, they have been
resolved by Judge Facciola’s order denying discovery and the parties’ agreement to add certain
documents to the record. Insofar as the arguments focus on PBGC’s method of requesting input
before issuing the 2006 Letter, they also fail. No party has explained what procedure was
necessary, but not provided, to comply with constitutional due process requirements. Nor has
any party disputed PBGC’s contention that the letter was an informal adjudication subject to the
minimal procedural requirements of 5 U.S.C. § 555 or argued that PBGC’s process failed to meet
those requirements. Therefore there is no basis for the Court to conclude that any procedural
violations occurred. See Pension Benefit Guar. Corp. v. LTV Corp., 496 U.S. 633, 655-56
(1990) (noting that informal adjudication does not call for the procedures, such as notice and the
opportunity to submit facts, arguments, and proposed findings, necessary for formal
adjudications and holding that “failure to provide [such procedures] where the Due Process
Clause itself does not require them (which has not been asserted here) is therefore not
unlawful”); see also 5 U.S.C. § 555 (requiring only that “[p]rompt notice shall be given of the
denial in whole or in part of a written application, petition, or other request of an interested
person made in connection with any agency proceeding” and “the notice shall be accompanied by
a brief statement of the grounds for denial”); Zotos Int’l, Inc. v. Young, 830 F.2d 350, 353 (D.C.
Cir. 1987) (noting that informal adjudication is “a category for which no procedures are
specified”). Consequently, the Court agrees with PBGC’s assertion that PBGC is entitled to
summary judgment as to Count II of the Plan’s Third-Party Complaint, which alleges a due
process violation.
14
these parties refutes PBGC’s statement of the applicable standard; instead, they take issue with
PBGC’s interpretation of the facts before it.
The Court concludes, upon consideration of the 2006 Letter as a whole, that PBGC’s
decision was “based on a consideration of the relevant factors,” does not reflect “a clear error of
judgment,” and is therefore not arbitrary or capricious. Marsh, 490 U.S. at 378. The letter
reflects consideration of the history of the Plan and the 1979 determination as well as evidence of
the Plan’s operation over time. PBGC places most emphasis on the absence of restrictions on the
use of employers’ funds, and the Court believes the logic of that focus stands up to the
deferential standard of review it is bound to apply. For the reasons explained below, the
opposing parties’ arguments fail to persuade the Court otherwise.
A. PBGC’s Consideration of Evidence Beyond the Plan Documents Does Not Render
the 2006 Determination Arbitrary and Capricious
Sara Lee argues that PBGC should have looked to the Plan’s governing documents,
which express the intent to be an aggregate of single-employer plans,8 and no further. The ABA
Plan and its Trustees also argue that PBGC should not have considered evidence beyond the
Plan’s governing documents “where as here the plan on its face is an ‘aggregate.’” Cross-
Claimant ABA Plan’s Opp’n to Def.’s Mot. for Summ. J. at 26 (“Plan Opp’n”).
PBGC acknowledges that the Plan documents are evidence of intent to create an
aggregate of single-employer plans. But it contends that the relevant provisions of those
8
Specifically, Article XIII of the Plan states that “[t]his Plan constitutes an
association of single employer plans” and that “it is the fundamental concept and intent of this
Plan that the contributions of each separate employer will be used only to provide benefits for
Participants (and Beneficiaries thereof) by reason of such Participants’ employment by such
employers; and only contributions by such employer will be used to provide benefits for such
Participants (and Beneficiaries).” AR 1378.
15
documents merely state that intent rather than implementing it; the language itself “do[es]
nothing to minimize the risk of cost shifting among contributing employers.” Def.’s Reply at 23.
Furthermore, PBGC argues, plan documents are not controlling when there is contradictory
evidence of a plan’s actual operation.
PBGC has the better argument. Although its 2006 Letter clearly concedes that the Plan’s
foundational documents present the Plan as an aggregate of separate plans, AR 1570, it was
appropriate—probably even necessary—for PBGC to look beyond that language to assess
whether the actual operation of the Plan conformed to it. The standard articulated in the 1979
and 2006 Letters calls for looking to the operation of a plan, and there is no reason why PBGC
should not do so. The few cases which shed light on this issue, including cases Sara Lee cites to
support its argument, do not provide support for the proposition that looking at evidence beyond
plan documents is improper. See Pension Benefit Guar. Corp. v. Artra Group, Inc., 1993 WL
225370, at *2 (N.D. Ill. June 23, 1993) (affirming the conclusion of the PBGC Board of Appeals
that a plan was an aggregate of single-employer plans and conducting the review by asking, after
accepting the Board’s conclusion that the plan documents “ensure that the contributions of each
employer will go to its employees and to no one else,” “whether the [plan] was actually operated
in such a manner as to indicate a different result”); Nowell v. Cent. Serv. Assoc., 106 F. Supp. 2d
888, 894-95 (S.D. Miss. 2000) (concluding that a plan was a multiple-employer plan where the
plan documents described it as such and “[t]here is nothing in the record to indicate that the Plan
[was] administered other than as recited therein”). Therefore, the Court will not reverse the 2006
determination on this basis.
16
B. The Reasoning in the 2006 Letter Does Not Lead to the Conclusion that the
Determination Was Arbitrary and Capricious
The parties opposing PBGC’s motion for summary judgment make a variety of arguments
disputing PBGC’s analysis of evidence beyond the Plan documents. Several of these arguments
are beside the point; disagreements between PBGC and the other parties regarding how the Plan
has presented itself to governmental agencies9 are not relevant to a determination of how the Plan
has operated.10 Like the Plan documents, evidence of how the Plan presented itself in tax filings
and the like is not as meaningful as evidence of management of the Plan’s account where the
“central factor” in distinguishing between types of plans is “the availability of funds held by an
entity to provide benefits.” Two arguments related to the Plan’s operation merit more discussion.
1. The ABA Plan’s single account
First, Sara Lee takes issue with PBGC’s focus on the ABA Plan’s practice of keeping all
employers’ funds in a single account. Sara Lee argues that the Plan made clear to PBGC prior to
its 1979 determination that it did not have separate accounts “and the PBGC determined that the
ABA Plan qualified as an aggregate of single-employer pension plans anyway.” Sara Lee Opp’n
9
In particular, the Court refers to arguments regarding representations on Form
5500s submitted to the IRS and in the two letters, written by a Plan attorney and actuary,
respectively, referenced in the 2006 Letter. The same reasoning applies to Sara Lee’s argument
that language in employers’ Participation Agreements is significant.
10
Although the Court acknowledges that PBGC discussed these factors in the 2006
Letter, it does not appear that the PBGC rested its conclusion on them. Courts do not require
perfection in agency decisionmaking. See Motor Vehicle Mfrs. Ass’n, 463 U.S. at 43 (“‘We may
not supply a reasoned basis for the agency’s action that the agency itself has not given.’ We will,
however, ‘uphold a decision of less than ideal clarity if the agency’s path may reasonably be
discerned.’” (quoting Chenery Corp., 332 U.S. at 196; Bowman Transp. Inc. v. Arkansas-Best
Freight System, 419 U.S. 281, 286 (1974))). Accordingly, the Court does not believe that
mention of factors other than those most significant to an agency determination requires
reversing an otherwise reasonable decision.
17
at 39.11 The ABA Plan and its Trustees make a similar argument, reasoning that it is arbitrary
and capricious for PBGC to reach a different conclusion in 2006 than in 1979 based on the same
information regarding the Plan’s commingled account.
PBGC replies that it has “never said” that “a plan’s lack of separate accounts is . . . alone
dispositive” of the proper categorization of a plan. Def.’s Reply at 19. Instead it contends that
the 2006 Letter relies not on the same information available in 1979 but on new evidence of
“ongoing plan operation,” revealing that employers’ funds have been used to pay benefits to
other employers’ employees, that informed its decision. Id. at 20-22.
PBGC’s position is not unreasonable and the Court will therefore defer to it. According
to PBGC’s standard for distinguishing between multiple-employer plans and aggregates of
single-employer plans, because the Plan’s funds were held in a single account, “[r]estrictions on
the use of such funds indicate that the entity may be an aggregate of single plans.” AR 1567.
Sara Lee and the ABA Plan have not pointed to any evidence demonstrating that such restrictions
exist.12 On the other hand, PBGC has pointed to evidence of a lack of restrictions. This evidence
11
Sara Lee asserts in this section of its filing, as elsewhere, that PBGC’s concern
about its own liability motivated PBGC’s determination and constitutes a conflict of interest.
Other than requesting discovery—which, as explained above, is no longer a pending issue before
the Court—Sara Lee requests no particular relief to remedy its concern. The Court sees no
reason, or appropriate manner, to act upon Sara Lee’s contention. Cf. Doolin Sec. Sav. Bank,
F.S.B. v. Fed. Deposit Ins. Corp., 53 F.3d 1395, 1407 (4th Cir. 1995) (holding, in response to an
argument the Federal Deposit Insurance Corporation was biased in making a particular
assessment because of its pecuniary interest in the outcome, that “finding [the agency] biased in
this case would seriously undermine the ability of agencies in general to adjudicate disputes that
affect their official policies”).
12
Lewis Brothers contends that “annual actuarial adjustments[] effectively
minimized or eliminated the risk of funds attributable to the contributions of one employer being
used to pay the benefits of another employer’s employee-participants.” Third-Party Def. Lewis
Bros.’ Opp’n to Def.’s Mot. for Summ. J. at 12. But Lewis Brothers points to no evidence that
18
includes a statement by the Plan’s actuary that the Plan does not calculate individual employers’
assets and liabilities on an ongoing basis, AR 773; see also AR 487,13 and a calculation that
several employers had negative balances in the Plan account in 2004, AR 662. In light of this
evidence, the Court cannot conclude that there is no “rational connection between the facts found
and the choice made.” State Farm, 463 U.S. at 43 (quoting Burlington Truck Lines, 371 U.S. at
168) (internal quotation marks omitted).14
2. Employer terminations
Sara Lee also asserts that the manner in which terminations of participating employers
have occurred demonstrates the Plan’s status as an aggregate of single-employer plans. In
particular, Sara Lee notes that terminating employers submitted termination documents to PBGC,
the Plan intended to have no liability for the employees of that employer, and, most significantly,
PBGC treated the terminations as single-employer terminations.15 The Plan and its Trustees
make a related argument focused on the requirement that a terminating employer correct any
annual adjustments occurred, nor does it dispute the validity of PBGC’s evidence that they did
not.
13
AR 487 is a page from a document titled Summary Plan Description, apparently
distributed by the Plan to employees who will receive benefits from the Plan, see AR 468, which
contains the statement that “there is . . . no separate annual valuation for each Employer’s
contributions.”
14
Furthermore, insofar as this new information is consistent with the Plan’s
representations of how it would operate going forward from 1979, PBGC is permitted to correct
a prior, erroneous conclusion. See Good Samaritan Hosp. v. Shalala, 508 U.S. 402, 417 (1993)
(“[A]n administrative agency is not disqualified from changing its mind.” (quoting NLRB v. Iron
Workers, 434 U.S. 335, 351 (1978))).
15
Sara Lee sought to supplement the administrative record with documents relating
to several of these terminations. The record now includes these additional materials.
19
shortfall caused by a negative balance at the time of termination, arguing that this rule “assure[s]
that only assets attributable to each terminating employer may be used to pay benefits for that
employer’s employees.” Plan Opp’n at 31.
PBGC responds, regarding Sara Lee’s argument, that its “routine processing [of employer
terminations] in accordance with the now-revoked 1979 Letter . . . is not evidence of the Plan’s
status.” Def.’s Reply at 24-25. As to the ABA Plan’s assertion, PBGC argues that the
significance of calculations of terminating employers’ assets and liabilities lies in the resulting
demonstrations that various participating employers had negative balances in the Plan account at
the time of their terminations.16
Again, PBGC’s reasoning passes muster under the deferential standard of review the
Court must apply. First, it is consistent with PBGC’s 1979 determination that the Plan,
participating employers, and PBGC treated terminations as single-employer terminations. The
1979 Letter itself indicates that as a result of the conclusion it announces, “an employer’s
cessation of participation constitutes a plan termination.” AR 212. It is not error for PBGC to
reason that adherence to its original determination is not determinative of the appropriate
categorization of the Plan. Second, the Court finds reasonable PBGC’s view that calculations
revealing some employers’ negative balances are relevant to a determination of whether
employer funds were available to pay benefits to other employers’ employees. Because the Plan
does not regularly calculate the balances of individual employers, it is far from clear error to treat
16
The 2006 Letter does not cite to the evidence in the record demonstrating that
terminating employers had negative balances, but the ABA Plan itself has stated that “in several
cases terminating employers have been called upon to contribute additional assets in order to
make the Plan sufficient for termination purposes.” AR 880.
20
information gathered when terminations occurred as evidence of the Plan’s operation.
Furthermore, at least one other court has held that the opposite conclusion was erroneous. In
Pension Benefit Guaranty Corp. v. Potash, 1986 WL 3809 (W.D.N.Y. Mar. 26, 1986), the court
rejected PBGC’s reliance on a plan’s “reconstruction of . . . financial statements . . . to include
allocation of assets by employer” to support a conclusion that a plan was an aggregation of
single-employer plans:
[T]he reconstruction of separate asset accounts . . . cannot demonstrate a
restriction upon the availability of assets on an ongoing basis at the time of [a
participating employer’s] withdrawal. The need for such retroactive measures is
in fact an admission that assets had not been segregated, allocated or restricted per
employer during the relevant period. Indeed the record contains evidence that
actual asset allocations had been performed prior to [the date of the
reconstruction] only upon the withdrawal of an employer, further indicating that,
on an ongoing basis, assets had been generally available.
Id. at *6. The 2006 determination is consistent with this logic. The Court does not believe that
PBGC’s reasoning in the 2006 Letter regarding terminations reflects a reversible “clear error of
judgment.” Marsh, 490 U.S. at 378.
Because the Court concludes that the 2006 determination is not arbitrary and capricious,
PBGC is entitled to summary judgment as to claims that the determination should be reversed.17
17
Sara Lee and the ABA Plan also make arguments regarding harm that will arise
from the retroactive nature of the 2006 Letter. PBGC responds that the 2006 Letter does not
address the retroactive application of its conclusion, making the opposing parties’ arguments
“completely speculative.” Def.’s Reply at 25. Because the 2006 Letter states that it is “effective
immediately,” not that it is retroactive, the Court need not address these arguments.
21
IV. CONCLUSION
For the foregoing reasons, the Court concludes that PBGC’s motion for summary
judgment [#46] shall be granted as to all remaining counts of Sara Lee’s Second Amended
Complaint and the ABA Plan’s Third-Party Complaint. An appropriate order accompanies this
memorandum opinion.
Henry H. Kennedy, Jr.
United States District Judge
22