CONNOLLY ET AL., TRUSTEES OF THE OPERATING ENGINEERS PENSION TRUST v. PENSION BENEFIT GUARANTY CORPORATION ET AL.
No. 84-1555
Supreme Court of the United States
February 26, 1986
475 U.S. 211
Argued December 2, 1985
*Together with No. 84-1567, Woodward Sand Co., Inc. v. Pension Benefit Guaranty Corporation et al., also on appeal from the same court.
Wayne Jett argued the cause and filed briefs for appellants in No. 84-1555. Richard M. Freeman argued the cause for
Baruch A. Fellner argued the cause for appellees. With him on the brief were Edward R. Mackiewicz, Mitchell L. Strickler, J. Stephen Caflisch, Peter H. Gould, David F. Power, Nathan Lewin, and Seth P. Waxman.†
JUSTICE WHITE delivered the opinion of the Court.
In Pension Benefit Guaranty Corporation v. R. A. Gray & Co., 467 U. S. 717 (1984), the Court held that retroactive application of the withdrawal liability provisions of the Multiemployer Pension Plan Amendments Act of 1980 did not violate the Due Process Clause of the Fifth Amendment. In these cases, we address the question whether the withdrawal liability provisions of the Act are valid under the Clause of the Fifth Amendment that forbids the taking of private property for public use without just compensation.
I
A
The background and legislative history of both the Employee Retirement Income Security Act of 1974 (ERISA), 88 Stat. 829,
Congress enacted ERISA in 1974 to provide comprehensive regulation for private pension plans. In addition to prescribing standards for the funding, management, and benefit provisions of these plans, ERISA also established a system of pension benefit insurance. This “comprehensive and reticulated statute” was designed “to ensure that employees and their beneficiaries would not be deprived of anticipated retirement benefits by the termination of pension plans before sufficient funds have been accumulated in the plans. . . . Congress wanted to guarantee that ‘if a worker has been promised a defined pension benefit upon retirement—and if he has fulfilled whatever conditions are required to obtain a vested benefit—he will actually receive it.‘” 467 U. S., at 720, quoting Nachman Corp. v. Pension Benefit Guaranty Corporation, 446 U. S. 359, 361-362, 374-375 (1980) (citations omitted).
To achieve this goal of protecting “anticipated retirement benefits,” Congress created the Pension Benefit Guaranty Corporation (PBGC), a wholly owned Government corporation, to administer an insurance program for participants in both single-employer and multiemployer pension plans.
During the period between the enactment of ERISA and 1978, when mandatory multiemployer guarantees were due to go into effect, the PBGC extended coverage to numerous plans. “Congress became concerned that a significant number of plans were experiencing extreme financial hardship,” Gray, supra, at 721, and that implementation of mandatory guarantees for multiemployer plans might induce several large plans to terminate, thus subjecting the insurance system to liability beyond its means. As a result, Congress delayed the effective date for the mandatory guarantees for 18 months,
The PBGC‘s Report found, inter alia, that “ERISA did not adequately protect plans from the adverse consequences that resulted when individual employers terminate their participation in, or withdraw from, multiemployer plans.” Gray, supra, at 722. The “basic problem,” the Report found, was the threat to the solvency and stability of multiemployer plans caused by employer withdrawals, which existing law actually encouraged. Pension Benefit Guaranty Corporation, Multiemployer Study Required by P. L. 95-214, pp. 96-97 (1978) (PBGC Report).1 As the PBGC‘s Executive Director explained:
“A key problem of ongoing multiemployer plans, especially in declining industries, is the problem of employer withdrawal. Employer withdrawals reduce a plan‘s contribution base. This pushes the contribution rate for remaining employers to higher and higher levels in order to fund past service liabilities, including liabilities generated by employers no longer participating in the plan, so-called inherited liabilities. The rising costs may encourage—or force—further withdrawals, thereby increasing the inherited liabilities to be funded by an ever decreasing contribution base. This vicious downward spiral may continue until it is no longer reasonable or possible for the pension plan to continue.” Pension Plan Termination Insurance Issues: Hearings before the Subcommittee on Oversight of the House Committee on Ways and Means, 95th Cong., 2nd Sess., 22 (1978) (statement of Matthew M. Lind) (hereinafter 1978 Hearings).
“To alleviate the problem of employer withdrawals, the PBGC suggested new rules under which a withdrawing employer would be required to pay whatever share of the plan‘s unfunded liabilities was attributable to that employer‘s participation.” Gray, 467 U. S., at 723, citing PBGC Report, at 97-114 (footnote omitted). Again, the PBGC Executive Director explained:
“To deal with this problem, our report considers an approach under which an employer withdrawing from a multiemployer plan would be required to complete funding its fair share of the plan‘s unfunded liabilities. In
other words, the plan would have a claim against the employer for the inherited liabilities which would otherwise fall upon the remaining employers as a result of the withdrawal. . . . “We think that such withdrawal liability would, first of all, discourage voluntary withdrawals and curtail the current incentives to flee the plan. Where such withdrawals nonetheless occur, we think that withdrawal liability would cushion the financial impact on the plan.” 1978 Hearings, at 23 (statement of Matthew M. Lind).
After 17 months of discussion, Congress agreed with the analysis put forward in the PBGC Report, and drafted legislation which implemented the Report‘s recommendations. “As enacted, the Act requires that an employer withdrawing from a multiemployer pension plan pay a fixed and certain debt to the pension plan. This withdrawal liability is the employer‘s proportionate share of the plan‘s ‘unfunded vested benefits,’ calculated as the difference between the present value of the vested benefits and the current value of the plan‘s assets.” Gray, supra, at 725, quoting
B
Appellant Trustees administer the Operating Engineers Pension Plan according to a written Agreement Establishing the Operating Engineers Pension Trust, executed in 1960, pursuant to
In 1975, the Trustees filed suit, seeking declaratory and injunctive relief, claiming that the Pension Plan is a “defined contribution plan” as defined by ERISA, and thus not subject to the jurisdiction of the PBGC.4 Alternatively, the Trustees argued that if the Plan was subject to the provisions of ERISA requiring premium payments and imposing contingent termination liability, the statute was unconstitutional, as it deprived the Trustees, the employers, and the plan participants of property without due process and without proper compensation.
The District Court granted summary judgment to the Trustees, finding that the Plan was a “defined contribution plan,” and enjoining the PBGC from treating it in any other manner. Connolly v. Pension Benefit Guaranty Corporation, 419 F. Supp. 737 (CD Cal. 1976). The Ninth Circuit reversed and remanded for consideration of the constitutional issues. Connolly v. Pension Benefit Guaranty Corporation, 581 F. 2d 729 (1978), cert. denied, 440 U. S. 935 (1979). On remand, the District Court denied the Trustees’ motion to convene a three-judge court on the ground that the Trustees’ constitutional challenges were insubstantial. App. 55-56. The Trustees sought a petition of mandamus on the issue, but their petition was denied by both the Ninth Circuit and this Court. Connolly v. Williams, No. 79-7580 (Jan. 14, 1980); Connolly v. United States District Court, 445 U. S. 959 (1980).
On the merits, the District Court granted summary judgment to the PBGC, but the Ninth Circuit reversed. 673 F. 2d 1110 (1982). The court could not agree with the District Court that the constitutional claims raised by the Trustees were so “insubstantial” that a three-judge panel could be summarily denied. Id., at 1114. The Ninth Circuit remanded the case with directions to convene a three-judge court.
During the course of the litigation to convene the three-judge court, Congress enacted the MPPAA. The District Court permitted the Trustees to file an amended complaint to include a challenge to the constitutionality of the new Act. The court also permitted appellant Woodward Sand Co., an employer that had been assessed withdrawal liability by the Trustees, to intervene in the action. App. 82.5
After oral argument, the three-judge panel granted summary judgment in favor of the PBGC. The court rejected appellants’ argument that the Act violated the Taking Clause of the Fifth Amendment, holding that “the contractual right which insulates employers from further liability to the pension plans in which they participate is not ‘property’ within the meaning of the takings clause.” 631 F. Supp. 640, 645 (1984). Because the court resolved this issue “on the basis that no ‘property’ is affected by the MPPAA,” it did not discuss whether a “taking” had occurred, or whether the taking would have been for a “public purpose.” Ibid.6
II
Appellants challenge the District Court‘s conclusion that the Act does not effect a taking of “property” within the meaning of the Taking Clause of the Fifth Amendment. Rather than specifically asserting that the contractual limitation of liability is property, however, appellants argue that the imposition of noncontractual withdrawal liability violates the Taking Clause by requiring employers to transfer their assets for the private use of pension trusts and, in any event, by requiring an uncompensated transfer.7
We agree that an employer subject to withdrawal liability is permanently deprived of those assets necessary to satisfy its statutory obligation, not to the Government, but to a pension trust. If liability is assessed under the Act, it constitutes a real debt that the employer must satisfy, and it is not an obligation which can be considered insubstantial. In the present litigation, for example, appellant Woodward Sand Co.‘s withdrawal liability, after the Trustees’ assessment was reduced by an arbitrator, was approximately $200,000, or nearly 25% of the firm‘s net worth. Juris. Statement in No. 84-1567, p. 7, n. 7.
But appellants’ submission—that such a statutory liability to a private party always constitutes an uncompensated taking prohibited by the Fifth Amendment—if accepted, would
Relying on Turner Elkhorn, we also rejected a due process attack on the imposition, under the statute now before us, of withdrawal liability on employers who withdrew before the effective date of the 1978 amendments. We held that Congress had acted within its powers and for sound reasons. Pension Benefit Guaranty Corporation v. R. A. Gray & Co., 467 U. S. 717 (1984). Although both Gray and Turner Elkhorn were due process cases, it would be surprising indeed to discover now that in both cases Congress unconstitutionally had taken the assets of the employers there involved.
Appellants’ claim of an illegal taking gains nothing from the fact that the employer in the present litigation was protected by the terms of its contract from any liability beyond the specified contributions to which it had agreed. See nn. 2, 3, supra. “Contracts, however express, cannot fetter the constitutional authority of Congress. Contracts may create rights of property, but when contracts deal with a subject
If the regulatory statute is otherwise within the powers of Congress, therefore, its application may not be defeated by private contractual provisions. For the same reason, the fact that legislation disregards or destroys existing contractual rights does not always transform the regulation into an illegal taking. Bowles v. Willingham, 321 U. S. 503, 517 (1944); Omnia Commercial Co. v. United States, 261 U. S. 502, 508-510 (1923). This is not to say that contractual rights are never property rights or that the Government may always take them for its own benefit without compensation. But here, the United States has taken nothing for its own use, and only has nullified a contractual provision limiting liability by imposing an additional obligation that is otherwise within the power of Congress to impose. That the statutory withdrawal liability will operate in this manner and will redound to the benefit of pension trusts does not justify a holding that the provision violates the Taking Clause and is invalid on its face.
This conclusion is not inconsistent with our prior Taking Clause cases. See, e. g., Ruckelshaus v. Monsanto Co., 467 U. S. 986 (1984); Loretto v. Teleprompter Manhattan CATV Corp., 458 U. S. 419 (1982); Hodel v. Virginia Surface Mining & Reclamation Assn., 452 U. S. 264 (1981); Kaiser Aetna v. United States, 444 U. S. 164 (1979); Penn Central Transportation Co. v. New York City, 438 U. S. 104 (1978). In all of these cases, we have eschewed the development of any set formula for identifying a “taking” forbidden by the Fifth Amendment, and have relied instead on ad hoc, factual inquiries into the circumstances of each particular case. Monsanto Co., supra, at 1005; Kaiser Aetna, supra, at 175. To aid in this determination, however, we have identified
First, with respect to the nature of the governmental action, we already have noted that, under the Act, the Government does not physically invade or permanently appropriate any of the employer‘s assets for its own use. Instead, the Act safeguards the participants in multiemployer pension plans by requiring a withdrawing employer to fund its share of the plan obligations incurred during its association with the plan. This interference with the property rights of an employer arises from a public program that adjusts the benefits and burdens of economic life to promote the common good and, under our cases, does not constitute a taking requiring Government compensation. Penn Central Transportation Co., supra, at 124; Usery v. Turner Elkhorn Mining Co., supra, at 15, 16. See Andrus v. Allard, 444 U. S. 51, 65 (1979); Pennsylvania Coal Co. v. Mahon, 260 U. S. 393, 413 (1922).
Next, as to the severity of the economic impact of the MPPAA, there is no doubt that the Act completely deprives an employer of whatever amount of money it is obligated to pay to fulfill its statutory liability. The assessment of withdrawal liability is not made in a vacuum, however, but directly depends on the relationship between the employer and the plan to which it had made contributions. Moreover, there are a significant number of provisions in the Act that moderate and mitigate the economic impact of an individual
The final inquiry suggested for determining whether the Act constitutes a “taking” under the Fifth Amendment is whether the MPPAA has interfered with reasonable investment-backed expectations. Appellants argue that the only monetary obligations incurred by each employer involved in the Operating Engineers Pension Plan arose from the specific terms of the Plan and Trust Agreement between the employers and the union, and that the imposition of withdrawal liability upsets those reasonable expectations. Pension plans, however, were the objects of legislative concern long before the passage of ERISA in 1974, and
The purpose of forbidding uncompensated takings of private property for public use is “to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.” Armstrong v. United States, 364 U. S. 40, 49 (1960). We are far from persuaded that fairness and justice require the public, rather than the withdrawing employers and other parties to pension plan agreements, to shoulder the responsibility for rescuing plans that are in financial trouble. The employers in the present litigation voluntarily negotiated and maintained a pension plan which was determined to be within the strictures of ERISA. We do not know, as a fact, whether this plan was underfunded, but Congress determined that unregulated withdrawals from multiemployer plans could endanger their financial vitality and deprive workers of the vested rights they were entitled to anticipate would be theirs upon retirement. For this reason, Congress
The judgment of the three-judge court is
Affirmed.
JUSTICE O‘CONNOR, with whom JUSTICE POWELL joins, concurring.
Today the Court upholds the withdrawal liability provisions of the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA) against a facial challenge to their validity based on the Taking Clause of the Fifth Amendment. I join the Court‘s opinion and agree with its reasoning and its result, but I write separately to emphasize some of the issues the Court does not decide today. Specifically, the Court does not decide today, and has left open in previous cases, whether the imposition of withdrawal liability under the MPPAA and of plan termination liability under the Employee Retirement Income Security Act of 1974 (ERISA) may in some circumstances be so arbitrary and irrational as to violate the Due Process Clause of the Fifth Amendment. See Pension Benefit Guaranty Corporation v. R. A. Gray & Co., 467 U. S. 717, 728, n. 7 (1984); Nachman Corp. v. Pension Benefit Guaranty Corporation, 446 U. S. 359, 367-368 (1980). The Court also has no occasion to decide whether the MPPAA may violate the Taking Clause as applied in particular cases, or whether the pension plan in this case is a defined benefit plan rather than a defined contribution plan within the meaning of ERISA.
As the Court indicates, the mere fact that “legislation requires one person to use his or her assets for the benefit of another,” ante, at 223, will not establish either a violation of the Taking Clause or the Due Process Clause. With regard to the latter provision, it is settled that in the field of economic legislation “the burden is on one complaining of a due
Insofar as the application of the provisions of the MPPAA and of ERISA to pension benefits that accrue in the future is concerned, there can be little doubt of Congress’ power to override contractual provisions limiting employer liability for unfunded benefits promised to employees under the plan. But both statutes impose liability under certain circumstances on contributing employers for unfunded benefits that accrued in the past under a pension plan whether or not the employers had agreed to ensure that benefits would be fully funded. In my view, imposition of this type of retroactive liability on employers, to be constitutional, must rest on some basis in the employer‘s conduct that would make it rational to treat the employees’ expectations of benefits under the plan as the employer‘s responsibility.
In enacting ERISA, Congress distinguished between two types of employee retirement benefit plans: “defined benefit plan[s]” and “defined contribution plan[s],” also known as “individual account plan[s].” See
By contrast, whenever a plan defines the benefits payable thereunder, the possibility exists that at a given time plan assets will fall short of the present value of vested plan benefits. Congress therefore subjected defined benefit plans to ERISA‘s plan termination insurance program, and did so by broadly defining a defined benefit plan as “a pension plan other than an individual account plan.”
ERISA‘s broad definition of defined benefit plan may well mean that Congress imposed contingent liability on contributing employers without regard to the extent of a particular employer‘s actual responsibility for the existence of a plan‘s promise of fixed benefits to employees and without regard to the extent to which any such promise was conditioned—and
The same doubts arise with respect to the imposition of withdrawal liability under the MPPAA, which is properly seen as a prophylactic extension of the liability initially imposed by ERISA. Withdrawal liability is intended to ensure that “‘an employer withdrawing from a multiemployer plan w[ill] . . . complete funding its fair share of the plan‘s unfunded liabilities,‘” R. A. Gray & Co., 467 U. S., at 723, n. 3 (quoting Pension Plan Termination Insurance Issues: Hearings before the Subcommittee on Oversight of the House Committee on Ways and Means, 95th Cong., 2d Sess., 23 (1978) (statement of Matthew M. Lind, Executive Director of PBGC)), and thus presupposes that employers can be made liable for those unfunded liabilities in the first instance. Although the MPPAA substitutes liability to the plan for liability to PBGC, the withdrawal liability it imposes on employers who contribute to multiemployer plans reflects the same apparent determination to treat all definite benefits as promises for which the employer can be held liable that underlies termination liability under ERISA. PBGC coverage of a multiemployer plan continues to turn on whether it is a defined benefit plan, and the MPPAA defines the withdrawing employer‘s liability to the plan in terms of “unfunded vested benefits,”
The degree to which an employer can be said to be responsible for the promise of benefits made by a plan varies dramatically across the spectrum of plans. Where a single employer has unilaterally adopted and maintained a pension plan for its employees, the employer‘s responsibility for the presence of a promise to pay defined benefits is direct and substantial. The employer can nominate all the plan‘s trustees and enjoys wide discretion in designing the plan and determining the level of benefits. Where such a plan holds out to employees a promise of definite benefits, and where employees have rendered the years of service required for benefits to accrue and vest, it seems entirely rational to hold the employer liable for any shortfall in the plan‘s assets, even if the plan‘s provisions purport to limit the employer‘s liability in the event of underfunding upon plan termination.
Where a pension plan is established through collective bargaining between one or more employers and a union, matters may be different. Such plans, commonly known as “Taft-Hartley” plans, were authorized by
“Employers participating in multiemployer plans are generally required to contribute at a fixed rate, specified
in the collective bargaining agreement. . . . Traditionally, the multiemployer plan or the bargaining agreement have limited the employer‘s contractual obligation to contribute at the fixed rate, whether or not the contributions were sufficient to provide the benefits established by the joint board or the collectively bargained agreement.” Pension Benefit Guaranty Corporation, Multiemployer Study Required by P. L. 95-214, p. 22 (1978) (hereinafter Multiemployer Study).
See also Melone 50; Goetz, Developing Federal Labor Law of Welfare and Pension Plans, 55 Cornell L. Rev. 911, 931 (1970).
Under these hybrid Taft-Hartley plans it is the plans’ trustees, not the employers and the union, who are “usually responsible for determining the types of benefits to be provided . . . and the level of benefits, although in some cases these are set in the collective bargaining agreement.” Multiemployer Study 22 (footnote omitted). See also GAO/HRD-85-58, Comptroller General‘s Report to the Congress, Effects of the Multiemployer Pension Plan Amendments Act on Plan Participants’ Benefits, 37, App. I, Table 3 (June 14, 1985) (95% of 139 multiemployer plans surveyed provided that trustees set benefits) (hereinafter Report to the Congress). This delegation of responsibility to the trustees may well stem from an understanding on the part of employers and unions that under the fixed-contribution approach the plan rather than the employers would bear the risks of adverse experience and the benefits of favorable experience in the first instance. See Pension Plans Under Collective Bargaining: A Reference Guide for Trade Unions 64 (American Federation of Labor 1953). If the actuary‘s earnings assumptions proved too conservative, the plan would have excess assets that could be used to support an increase in benefits by the trustees, and if asset growth was lower than anticipated, benefits could be reduced. It now appears that Taft-Hartley plan employers will be liable for such experi-
It is also noteworthy that, as this Court held in NLRB v. Amax Coal Co., 453 U. S. 322 (1981), “the duty of the management-appointed trustee of an employee benefit fund under § 302(c)(5) is directly antithetical to that of an agent of the appointing party.” Id., at 331-332. ERISA conclusively established that “an employee benefit fund trustee is a fiduciary whose duty to the trust beneficiaries must overcome any loyalty to the interest of the party that appointed him.” Id., at 334. In light of these fiduciary duties, it seems remarkable to impute responsibility to employers for the level of benefits promised by the plan and set by the joint board of trustees, notwithstanding the express limits on employer liability contained in the plan and agreed to in collective bargaining.
Yet that would appear to be what Congress may have done to the extent a Taft-Hartley plan such as the pension plan in this case is treated as a pure defined benefit plan in which the employer promised to make contributions to the extent necessary to fund the fixed benefits provided in the plan. As Representative Erlenborn put it in the hearings on the MPPAA:
“[W]e have taken something that neither looked like a duck, or walked like a duck, or quacked like a duck, and we passed a law [ERISA] and said, ‘It is a duck.’ If it is that easy, I suppose we can repeal the law of gravity and solve our energy problem. It is treating the multiemployer plans where you negotiate a contribution as having put a legal obligation on the employer to reach a level of benefits that has caused the problem.” Hearings on The Multiemployer Pension Plan Amendments Act of 1979 before the Task Force on Welfare and Pension Plans of the Subcommittee on Labor-Management
Relations of the House Committee on Education and Labor, 96th Cong., 391 (1980) (emphasis added).
The foregoing observations suggest to me that whatever promises a collectively bargained plan makes with respect to benefits may not always be rationally traceable to the employer‘s conduct and that it may sometimes be quite fictitious to speak of such plans as “promising” benefits at a specified level, since to do so ignores express and bargained-for conditions on those promises. Where the plan‘s fixed-contribution aspects were agreed to by employees through their exclusive bargaining representatives, and where employers had no control over the level of benefits promised, employer responsibility for the benefits specified by the plan is very much attenuated, and employee expectations that those benefits will in all events be paid, in the face of plan language to the contrary, are not easily traceable to the employer‘s conduct.
The possible arbitrariness of imposing termination and withdrawal liability on some employers contributing to fixed-cost Taft-Hartley plans may be heightened in particular cases. For example, an employer who agrees to participate in a multiemployer plan long after the plan‘s benefit structure has been determined may have had no say whatever in establishing critical features of the plan that determine the level of benefits and the value of those benefits. Similarly, if a plan had regularly undergone increases and reductions in accrued benefits prior to ERISA, any contention that employers caused employees to rely on a promise of fixed benefits might carry even less weight.
Beyond that, the withdrawal provisions of the MPPAA are structured in a manner that may lead to extremely harsh results. For example, it appears that even if the trustees raised benefits for both retired and current employees during the period immediately prior to an employer‘s withdrawal, the withdrawing employer can be held liable for the resulting underfunding. Such benefit increases are not uncommon.
To be sure, the Court does not address these questions today. Since this case involves only a facial challenge under the Taking Clause to the MPPAA‘s withdrawal liability provisions, the Court properly refuses to look into the possibility that harsh results such as those I have noted may affect its analysis, let alone a due process inquiry, when the MPPAA is applied in particular cases. I write only to emphasize some of the issues the Court does not decide today, and to express the view that termination liability under ERISA, and withdrawal liability under the MPPAA, impose substantial retroactive burdens on employers in a manner that may drastically disrupt longstanding expectations, and do so on the basis of a questionable rationale that remains open to review in appropriate cases.