The opinion of the court was delivered by: Nickerson, District Judge.
Plaintiff, Pension Benefit Guaranty Corporation (Guaranty
Corp.), a wholly-owned United States government corporation
established pursuant to 29 U.S.C. § 1302, brought this action
under the Employee Retirement Income Security Act ("ERISA"),
29 U.S.C. § 1001 et seq.
Guaranty Corp., the successor trustee of the A & S Steel
Rule Die Corporation Pension Trust ("the Plan"), alleged that
defendant Solmsen, the former president and sole shareholder
of A & S Steel Rule Die Corporation ("A & S"), a now defunct
corporation, was personally liable under 29 U.S.C. § 1109(a)
for breaches of his fiduciary duties with respect to the Plan
because of his alleged failure to forward employee and employer
contributions to the Plan.
The magistrate conducted a hearing and issued her report
recommending that 1) the Guaranty Corp. be awarded $185,640,
the amount of the unpaid contributions when the Plan
terminated; 2) interest be allowed from October 18, 1981, the
date the Plan terminated to the date of judgment; 3) the
interest be at the 52-week Treasury bill rate; and 4)
defendant's guaranteed benefits be set off against the award.
Guaranty Corp. objected to the recommendation, arguing that
the magistrate had adopted an improper prejudgment interest
rate and that the defendant's total accrued benefits, not
just guaranteed benefits, should be set off against the
award. This court again referred the case to the magistrate.
In February 1990, the magistrate issued a Supplemental
Report and Recommendation, recommending that defendant's full
accrued benefit be set off against the damage award, and
adhering to the recommendation that the court adopt the
52-week Treasury bill rate.
Guaranty Corp. now objects to the use of the Treasury bill
rate as insufficient to compensate the Plan for losses
suffered by defendant's breach.
The Guaranty Corp. is, as noted, a wholly owned United
States Government Corporation, whose Board of Directors
consists of the Secretaries of the Treasury, Labor and
Commerce. 29 U.S.C. § 1302(d). Its function is to administer
and enforce ERISA's Title IV, which includes a mandatory
government insurance program protecting the pension benefits of
many millions of private sector workers.
When a Title IV plan terminates with insufficient assets to
satisfy its pension obligations to employees, the Guaranty
Corp. takes over the plan's assets and liabilities and uses
those assets to cover, to the extent possible and in
accordance with statutory priorities, the benefit
obligations. 29 U.S.C. § 1344. The Guaranty Corp. must then add
its own funds to ensure payment of some of the remaining
"nonforfeitable" benefits, that is, benefits to which
participants have earned entitlement as of the termination
Employers that maintain pension plans bear most of the cost
of the Guaranty Corp. insurance, paying annual premiums.
29 U.S.C. § 1306, 1307. Part of the cost is financed by the
statutory liability imposed on employers that terminate
underfunded pension plans. They become liable to Guaranty Corp.
for the benefits it will have to pay out. Historically the
Guaranty Corp. has recovered only a small part of the
employers' liability, and Congress has had to increase the
premiums repeatedly over the years. See Pension Benefit
Guaranty Corp. v. LTV Corp., ___ U.S. ___, 110 S.Ct. 2668, 110
L.Ed.2d 579 (1990).
In the present case, the plan was underfunded and Guaranty
Corp. was required to allocate the remaining plan assets and
its own funds in accordance with the categories of statutory
priorities set forth in 29 U.S.C. § 1344, and
29 C.F.R. § 2618-2618.16. Only three of those categories, namely, 2, 3, and
4, are pertinent here.
Category 2 consists of accrued benefits derived from
mandatory employee contributions. This Category is divided
into basic-type and non-basic-type benefits. Basic-type
benefits are the sum of the present values of the annuity
benefit and pre-retirement death benefit. Non-basic-type
benefits only apply to participants who have elected a lump
sum benefit, and consist of that ...