WASHINGTON, D.C. (June 12, 2007) — Today, the U.S. Supreme Court issued a unanimous decision in favor of McDermott Will & Emery client Jeffrey H. Beck in Beck v. PACE International Union (No. 05-1448). The Court's opinion clarifies the scope of ERISA's standard termination and fiduciary duty provisions.
McDermott argued on behalf of petitioner Beck, who was the liquidating trustee of the Crown Vantage entities in the case. The issue in the case is whether Crown Vantage had a fiduciary duty under ERISA to consider a union's proposal to merge the company's pension plan into the union's pension plan after the company made a decision to terminate its pension plan.
Crown served as the sponsor and administrator of a series of pension plans covering its employees. After filing for bankruptcy, Crown began investigating the possibility of voluntarily terminating these pension plans through ERISA's statutory "standard termination" process. During Crown's investigation, the PACE International Union proposed that Crown merge its plans into a multiemployer fund managed by PACE. Crown instead chose to terminate its pension plans through the purchase of an annuity that fully satisfied its obligations to its plan participants and beneficiaries while creating a sizable reversion of surplus assets for the benefit of Crown's creditors. PACE filed an adversary proceeding in the Crown bankruptcy suit, alleging that Crown had violated its fiduciary duties to plan participants by failing to adequately consider PACE's merger proposal, which PACE characterized as an alternative method of terminating the pension plans. The Bankruptcy Court for the Northern District of California ruled in favor of PACE, and the district court and the Ninth Circuit affirmed the Bankruptcy Court. The Court of Appeals ruling created a new fiduciary duty to consider a union multi-employer plan as an alternative to providing annuities for participants.
The Supreme Court, in an opinion written by Justice Scalia, reversed the Ninth Circuit, holding that "merger is not a permissible method of terminating a single-employer defined-benefit pension plan." The Court based its conclusion on an analysis of ERISA's text and structure, which treat merger and termination as fundamentally different processes, as well as consideration of the supporting views of the Pension Benefit Guaranty Corporation and the Department of Labor. Given that merger cannot serve as a method of implementing the standard termination of a pension plans, Crown had no fiduciary duty to consider PACE's merger proposal.
M. Miller Baker, a trial partner in the Firm’s Washington, D.C. office, argued before the Court on behalf of Beck. Also present at counsel table was McDermott employee benefits partner David Rogers. Assisting on the briefing and preparation were Bill Boies (Chicago) Michael Graham (Chicago), Michael Nadel (Washington, D.C.), Jeff Mikoni (Washington, D.C.), Joanna Enstice (Washington, D.C.) and Jeremy Medovoy (Washington, D.C.).