Pension Benefit Guaranty Corp. v. Kentucky Bancshares, Inc., 597 F. App'x 841

Kentucky Bancshares maintained a retirement plan and sought to terminate it effective December 31, 2008; distributions under the Plan at termination produced a funding deficiency under the Plan terms in effect on that date.
In 2008 the company began implementing changes required by the Pension Protection Act of 2006 (PPA) that would reduce minimum lump-sum payments; the formal Plan amendment adopting those changes was not adopted until February 2009 (after termination).
PBGC determined under 29 C.F.R. § 4041.8(a) that plan benefits are fixed by the plan provisions in effect on the termination date and therefore refused to give the post-termination amendment retroactive effect because it decreased benefits.
Kentucky Bancshares argued (1) the 2008 implementation amounted to a de facto amendment prior to termination and (2) the post-termination amendment was “necessary” to meet IRC § 401 qualification (under PPA § 1107) and thus allowable retroactively under § 4041.8(c)(1).
PBGC rejected both arguments; the district court upheld PBGC on administrative-review deference grounds, and the Sixth Circuit affirmed, finding PBGC’s interpretation not arbitrary or contrary to law.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the post-termination amendment can be given retroactive effect because the employer operated under PPA changes in 2008 (de facto amendment).	Kentucky Bancshares: operations in 2008 show a de facto amendment prior to termination, so benefits should be determined by amended terms.	PBGC: plan benefits are governed by plan provisions in effect on the termination date; de facto amendment claim was rejected.	Court: PBGC reasonably rejected de facto amendment; benefits are determined by provisions in effect on termination date.
Whether the post-termination decrease in benefits was "necessary" to maintain IRC § 401 qualification (so § 4041.8(c)(1) allows retroactivity).	Kentucky Bancshares: the amendment was necessary to meet PPA/IRC § 401 qualification (PPA § 1107), so the decrease should be allowed retroactively.	PBGC: although the amendment complied with PPA § 1107 and preserved tax qualification, the decrease in benefit value was not shown to be necessary to maintain qualification for purposes of § 4041.8(c)(1).	Court: PBGC’s reading was reasonable; compliance with § 1107 does not automatically make a benefit decrease "necessary" under § 4041.8(c)(1); agency decision upheld.

Pension Benefit Guaranty Corp. v. LTV Corp., 496 U.S. 633 (establishing PBGC actions reviewed under the arbitrary-and-capricious standard)
Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (standard for arbitrary-and-capricious review; rational connection required)
Nat’l Ass’n of Home Builders v. Defenders of Wildlife, 551 U.S. 644 (court may not overturn agency action unless it runs counter to evidence or is implausible)
Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73 (plan documents must specify benefit computation so participants can determine rights)