Is it reasonable for Congress to demand that pension plans give participants an iron-clad promise of coverage once they have been on the job for a decade, and then to turn around and deny some of those same workers benefits?
The Pension Benefit Guaranty Corp. thinks so, but the U.S. Court of Appeals here has serious doubts about that interpretation of the 1974 Employee Retirement Income Security Act.
A ruling on the issue on Sept. 11 shows how judges can, while deferring to the expertise of specialized government agencies, nonetheless give a real shove to the regulators.
One of the abuses that led to ERISA was the not uncommon practice among companies of not allowing pension vesting until a worker actually retired. That meant that after decades of work, the employe could be fired -- or the company could cease operations -- and there would be no pension rights at all. The lawmakers decided that there had to be some national standard of a minimum vesting policy, and offered companies three options; the most common was simply to require vesting of pension rights after 10 years.
The same piece of legislation set up PBGC, a federal insurance scheme that guaranteed that vested pension rights would be honored: if a company could not meet its obligations, the PBGC would. But to protect the insurance plan from sudden, huge obligations, the statute limits the obligation so that generous benefit increases written into a plan shortly before a company goes into bankruptcy will not be honored by the agency.
Problems arose when the two provisions came into conflict. In the case before the court, a small New York button importer, which previously had vested pensions only at retirement, amended its plan to conform with the ERISA demand. Less than a year later, the company shut down, without leaving enough assets to cover its pension obligations. When longtime employes turned to PBGC to collect, they were turned down. The vesting amendment was too recent for the changes to be guaranteed, the agency said.
That's being far too rigid, the appellate court ruled in Rettig v. PBGC; plan changes mandated by Congress must be treated differently than those intended merely to balloon payments to workers already vested.
The judges admitted that they had to defer to the PBGC where it was not clear what Congress meant, but insisted the agency had to be reasonable in its explanations. The main PBGC point -- that it had to be strict to prevent abuses -- didn't make sense when applied to situations where all the pension plan amendments did was meet a national minimum. That could hardly be an abuse, the appeals court's opinion said.
That doesn't yet mean that the PBGC has lost and the button importer's former workers get their pensions. The corporation complained that to have to cover all plans that went to a 10-year vesting shortly before terminating might drain its resources, but it provided no real evidence to support that worry. The judges have given the agency a chance, now, to muster such evidence.
In other cases, courts ruled that:
* Victims of lung cancer can sue tobacco companies for their injuries. The ruling, from the U.S. District Court in Trenton, N.J., doesn't mean that the plaintiffs will collect. But it does open state courts to routine tort suits based on a theory that those making and marketing cigarettes should have to pay for the harm they cause. The manufacturers insist that there is no role for state courts, because the federal government, in ordering warnings on cigarette packs, took over the entire regulation of health hazards associated with smoking. But Judge H. Lee Sarokin, while admitting that some members of Congress thought that the cigarette labeling bill preempted all state actions in the area, reads the statute as banning only state advertising or packaging regulations. A private damage suit, he says, can go to trial.(Cipollone v. Liggett Group, Sept. 20)
* A business executive's private financial trouble may be fair game for news reports. The test, the U.S. Court of Appeals in Cincinnati ruled (Bichler v. Union Bank, Sept. 17) is whether there is some connection between those private matters and the condition of the business, which is a matter of legitimate public interest. With such a connection, reporters can poke into private affairs even if the underlying story is not yet one that has come to public attention. The ruling does not mean that an executive subjected to such attention cannot sue for invasion of privacy, only that such a suit will be very tough to win. The plaintiff would have to prove that the press was reckless in handling facts.