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SIKORSKI v. SIKORSKI

July 5, 1996

CHARLES M. SIKORSKI, Plaintiff,
v.
HENRY V. SIKORSKI and EDWARD SIKORSKI as trustees of Sikorski Engineering Associates, Inc. Pension Plan and Trust; SIKORSKI ENGINEERING ASSOCIATES, INC. PENSION PLAN AND TRUST and SIKORSKI ENGINEERING ASSOCIATES, INC., Defendants.



The opinion of the court was delivered by: SPATT

 SPATT, District Judge:

 This lawsuit arises from an unfortunate family dispute between three brothers. The plaintiff, Charles M. Sikorski ("Charles" or the "plaintiff"), brings this action against his older brother Henry V. Sikorski ("Henry") and his younger brother Edward Sikorski ("Edward") under the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et seq., to obtain a lump sum payment of benefits allegedly due under the defined benefit pension plan, the Sikorski Engineering Associates, Inc. Pension Plan (the "Plan") of his former employer, Sikorski Engineering Associates, Inc. ("Sikorski Engineering" or the "Company," collectively the "defendants"). Presently before the Court are the defendants' motion and the plaintiff's cross motion for summary judgment pursuant to Fed. R. Civ. P. 56.

 I. Background

 At the outset the Court recognizes that this litigation is only a small part of a greater family feud between the Sikorski brothers with Charles and the one side and Henry and Edward on the other. At one time the parties were apparently a close family engaged in numerous business ventures, too lengthy and elaborate to address fully here. Suffice it to say that resolution of this matter will not end this intra-family dispute.

 Sikorski Engineering is an "international engineering firm," which, according to Henry has maintained a "deserved reputation for excellence." In 1982, as part of its compensation package, the Company began offering its employees participation in a defined pension benefit plan. The parties agree that Charles served as the Vice President of Sikorski Engineering from January 1, 1970 through September 17, 1992. The Court notes that the parties agree that Charles stopped working for the Company on either September 17, 1992 or August 31, 1993. The Court will use the September 17, 1992 date throughout its opinion recognizing that the choice of date is irrelevant with regard to these determinations.

 During the relevant period, Charles also served as a trustee of the Plan until his separation from the Company in 1992. Henry and Edward served as the Plan's other two trustees since the Plan's inception and continue to act in this capacity. Further, all three brothers were plan participants since 1982, their benefits are vested, and they are all "highly compensated employees" as that term is applied under the provisions of the Internal Revenue Code ("IRC") and ERISA.

 The pertinent portions of the Plan as it is presently constituted, the implications of which are not in dispute, are as follows:

 
Section 1.3(a) Each contribution made hereunder shall be conditioned upon the deductibility thereof under the Code;
 
* * *
 
Section 4.2 The Company shall contribute each Fiscal Year during which the Plan is in effect such amounts as are actuarially required to fund the benefits provided in this Agreement and to pay the estimated administration expenses, if any, including all fees, charges and other administrative costs of the Trust, provided such expenses are not paid for by the Company itself. No contribution shall be required to be made by any Participant. The right is reserved by the Company at any time to reduce, suspend or discontinue its contributions hereunder; provided, however, that any contributions missed during such reduction or suspension and the earnings thereon shall be made up by the Company as actuarially determined unless the Plan shall be terminated. In the event that the Board is of the opinion that the financial circumstances of the Company will not warrant a full contribution to meet the requirements of the Plan, it shall pass a resolution to that effect and furnish a copy thereof to the Trustees.
 
* * *
 
Section 7.1. . . a funding standard account shall be established and maintained, and such an account shall be credited and charged solely as provided under the applicable provisions of the Code . . . .
 
* * *
 
Section 16.4 It is the expectation of the Company that it will continue the Plan in force indefinitely, but continuance of the Plan is completely voluntary and is not assumed as a contractual obligation of the Company.
 
* * *
 
Section 16.5 The Company shall not be liable in any manner to any Participant or Beneficiary if the Trust Fund shall be insufficient to provide for the payment of all benefits. Such benefits shall be payable only from the Trust Fund and only to the extent of the assets of such Trust Fund. Any person having any claim under the Plan shall look solely to the Trust Fund for payment or satisfaction thereof.

 From mid 1986 until August 1994, the Plan provided for the payment of benefits in the form of a qualified joint survivor annuity. See Charles Aff., Exh. P. P 10.3(a). The Plan however, also contained an option for payment of benefits in the form of a lump sum in the discretion of the Plan Administrator. See id., P 10.3(i)(i).

 In the early 1990's, Sikorski Engineering began experiencing financial difficulties. As a result of these problems, the Company's Board of Directors adopted a resolution on March 11, 1994 under which the Plan would be frozen as of March 31, 1994, with no benefits accruing after that date, and terminated on May 31, 1994. Pursuant to the resolution, the Company's officers were authorized to execute any amendments needed to meet the requirements of the IRC and any rules and regulations promulgated thereunder. According to the moving papers, on this same day, March 11, 1994, Henry wrote to Charles concerning two types of possible termination: (1) a standard termination, which would permit distribution to all except highly compensated employees; or (2) a distress termination, which would require that all assets be transferred to the Pension Benefit Guarantee Corporation ("PBGC") and the PBGC would pay all participants a monthly pension commencing on the participant's normal retirement date as a qualified joint and survivor annuity. Henry explained that under ERISA and the IRC, a lump sum benefit could not be paid to highly and former highly compensated employees. Henry then suggested that he, Charles and Edward as highly compensated employees "waive or cut back" a portion of their benefits pro rata to the extent that the Plan lacked sufficient assets to meet the ERISA requirements.

 Nevertheless, pursuant to the then existing provisions of the Plan, on April 21, 1994, in writing, Charles requested to have his benefits, an estimated $ 374,345 at that time, paid "in the form of a lump sum distribution." In support of this request, the plaintiff notes that until this time many of the Company's employees had requested and received lump sun distributions under the Plan. The defendants respond that none of those employees who received lump sum distributions qualified as highly compensated employees in violation of the Plan's terms or applicable law.

 Four months later however, on August 30, 1994, the defendants amended Section 13.6 of the Plan to provide:

 
Section 13.6 In the event of Plan termination, the benefit of any highly compensated active or former employee is limited to a benefit that is nondiscriminatory under Code Section 401(a)(4). For Plan years beginning on or after January 1, 1992, benefits distributed to any of the 25 most highly compensated active and former highly compensated employees are restricted such that the annual payments are no greater than an amount equal to the payment that would be made on behalf of the Employee under a single life annuity that is the actuarial equivalent of the sum of the Employee's Accrued Benefit and Employee's other benefits under the plan.
 
The preceding paragraph shall not apply if: (a) after payment of the benefit to an Employee described in the preceding paragraph, the value of Plan assets equals or exceeds 110 percent of the value of current liabilities, as defined in Code Section 412(l) (7), or (b) the value of the benefits for an Employee described above is less than 1 percent of the value of current liabilities.

 These amendments were drafted to comply with federal regulations governing qualified pension plans as discussed more fully below. Of particular significance to this lawsuit, is the language retroactively amending the applicability of the lump sum option back to January 1, 1992.

 Applying the amended section 13.6, the defendants have refused to honor the plaintiff's request for a lump sum distribution. In support of their decision, they rely on the calculation of an outside pension consultant, E.C.P. Design & Service Group, Ltd. ("ECP"), retained by the defendants. According to ECP, as of September 30, 1994, plan assets were insufficient to pay out the lump sum benefits sought on a termination basis under the Plan section 13.6. The plaintiff does not dispute these calculations. Rather, Charles argues that the amendment itself is invalid under the federal regulations and prior case law.

 II. The complaint

 According to the Amended Complaint, filed pursuant to stipulation of the parties on August 21, 1995, Charles claims (1) that he is entitled to a lump sum distribution in the amount of at least $ 374,345 plus interest under the plan; (2) that he was unlawfully discriminated against because he was refused a lump sum payment while other participants received such payments; (3) breach of fiduciary duty (4) that the defendants intentionally created the alleged "shortfall" so that paying Charles a lump sum distribution would violate the Plan's 110 percent requirements under section 13.6.; and (5) attorneys' fees.

 In the Amended Answer, also filed pursuant to the stipulation discussed above, the defendants deny all material allegations contained in the Amended Complaint and interpose an affirmative defense alleging that the ...


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