Ely v. Bd. of Trs. of Pace Indus. Union - Mgmt. Pension Fund

DONNIE ELY, a Participant in the PACE IndustryUnion-Management Pension Fund, Plaintiff, v. BOARD OF TRUSTEES OF THE PACE INDUSTRYUNION - MANAGEMENT PENSION FUND, Defendant.

Case No. 3:18-cv-00315-CWD

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF IDAHO

November 30, 2020

MEMORANDUM DECISION AND ORDER

RE: Dkt. 84, 89, 92, 105

INTRODUCTION

Before the Court are the parties' motions for summary judgment and corresponding motions in limine to exclude the other's expert report and opinions. (Dkt. 84, 89, 92, 105.) The motions have been fully briefed and are ripe for the Court's consideration. The Court conducted a hearing by video on October 9, 2020. Thereafter, Plaintiff filed a motion to appoint a receiver, and Defendant filed a motion to strike Plaintiff's motion. (Dkt. 163, 165.)

After careful consideration of the parties' arguments, legal authorities, and the extensive record, the Court will deny the parties' respective motions in limine (Dkt. 89, 92), deny Plaintiff's motion for summary judgment (Dkt. 84), and grant Defendant's motion for summary judgment (Dkt. 105), for the reasons discussed below. Consequently, Plaintiff's motion to appoint receiver and Defendant's corresponding motion to strike will be deemed moot.

BACKGROUND¹

The Pace Industry Union-Management Pension Fund ("the Fund" or "PIUMPF") is an employee pension benefit plan as defined by the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1002(3)(2)(A), ERISA § 3(3)(2)(A), and a multiemployer pension plan within the meaning of 29 U.S.C. § 1002(37), ERISA § 3(37). PIUMPF is governed by its Trust Agreement, restated as of April 2, 2000, and as amended thereafter. The Board of Trustees is both the Fund's sponsor, meaning it is tasked with administering the Fund, and designated as the named fiduciary of the Trust and Plan. Trust Agreement, Ex. 1 (Dkt. 1-1); 29 U.S.C. § 1002(16)(B), ERISA § 3(16)(B) (defining plan sponsor).

Donnie Ely is a participant in the Fund. The Fund currently is in critical status (and has been since 2010), which means that it is in dire financial condition. See 29 U.S.C. § 1085(b)(2), ERISA § 305(b)(2) (defining critical status). Because of its criticalstatus, specific funding rules required the Board of Trustees to adopt a rehabilitation plan for the Fund. See 29 U.S.C. § 1085(a)(2), ERISA § 305(a) (requiring the plan sponsor of a plan in critical status to adopt and implement a rehabilitation plan in accordance with 29 U.S.C. § 1085(e), ERISA § 305(e)). A rehabilitation plan consists of actions, such as reductions in future benefit accruals, reductions in plan expenditures, or increases in contributions, designed to improve the Fund's financial outlook and enable it to either "cease to be in critical status by the end of the [ten-year] rehabilitation period," or "emerge from critical status at a later time or to forestall possible insolvency." 29 U.S.C. § 1085(e)(3)(A), ERISA § 305(e)(3)(A).²

The Board of Trustees adopted a rehabilitation plan, effective in 2010. By Resolution dated April 10, 2013, the Board of Trustees adopted retroactively, as of November 15, 2012, the 2012 Amended and Updated Rehabilitation Plan ("Amended Rehabilitation Plan"). Compl. Ex. 4. The Amended Rehabilitation Plan included a new provision imposing an additional fee upon employers withdrawing from PIUMPF, referred to as the AFD Exit Fee.

Although the Complaint and Amended Complaint assert several claims, the Court in its memorandum decision and order on Defendant's motion to dismiss, and again on reconsideration, determined the sole claim at issue is Ely's contention that the AFD ExitFee is not a "reasonable measure to emerge from critical status at a later time or to forestall possible insolvency." 29 U.S.C. § 1085(e)(3)(A)(ii), ERISA § 305(e)(3)(A)(ii). Ely contends that, rather than a reasonable measure, the AFD Exit Fee has caused employers to leave the Fund and hasten PIUMPF's decline in value, such that the Fund is projected to be insolvent sooner than projected by the Board of Trustees. Ely seeks a declaration that the AFD Exit Fee is unenforceable, and an injunction preventing the Board of Trustees from further enforcement of the AFD Exit Fee.

FACTS³

PIUMPF has been in existence since 1963 and was created to provide retirement annuities for workers in the paper industry represented by the PACE (Paper and Allied Craft Employees) Union.⁴ The PACE union merged with the United Steelworkers of America (USWA) in approximately 2005; after that point, the union-side trustees on the Board for PIUMPF were appointed by the USWA rather than by PACE.

Over the course of its history, approximately 735 separate employer groups have participated in the Fund and approximately 436 of those have current or former employees who have a vested benefit in the Fund. Employers generally participate in theFund through agreement with the United Steelworkers (USW), which is now the sponsoring union for PIUMPF. This agreement is typically memorialized in the collective bargaining agreement between the participating employer and the USWA local union, and the employer signs a Standard Form of Agreement (SFA) with PIUMPF to participate in the Fund.⁵

Participating employers contribute to the Fund based upon hours worked by the covered employees. Employees earn pension credit by virtue of their employment with a participating employer, and the employer contributions are held in common trust with other contributions received by the Fund and used for payment of the Fund's expenses and benefits owed to plan beneficiaries.

Until the Spring of 2019, Donnie Ely was the Plant Manager for the Clearwater Paper plant in Lewiston, Idaho. Clearwater is currently PIUMPF's largest participating employer, supplying approximately 40% of its total contributions in 2018. Ely is fully vested in PIUMPF, and is entitled to a benefit of approximately $412 per month from PIUMPF when he reaches age sixty-five in May of 2026.

According to publicly filed documents accessible from the Department of Labor, by the year 2000, the number of inactive vested participants and beneficiaries exceeded the number of actively employed participants in the Fund, and annual benefit paymentsexceeded what the Fund was receiving in employer contributions.⁶ These trends continued, and the Fund's unfunded liability increased from $129 million as of January 1, 2000, to over $572 million as of January 1, 2004.

Due to investment losses, as well as the Board of Trustees' concerns about the Fund's ability to recoup these losses through future investments or participant growth, the Board of Trustees voted, for any contract beginning after January 1, 2006, to give participating employers the choice of increasing contribution rates by 10% (with no benefit improvements), or cutting future benefit accruals for their employees by 25%. In the wake of this action to force employers to raise contribution rates or cut benefit accruals, approximately 20% of the Fund's participating employers withdrew from the Fund. Then, in 2008, the Fund lost more than $500 million in assets, a net return of -4.3% for the year.⁷

On March 5, 2009, the Board of Trustees held a special meeting to discuss the Plan's funding and the fact that the Fund would be certified to be in "critical" (also referred to as "red zone") status by March 31, 2009. At this meeting, the Fund's actuary, the Segal Company,⁸ presented preliminary projections to the Board of Trustees whichshowed that, due to the significant 24.3% investment loss, the Fund had a projected funding deficiency in 2013, and was projected to be insolvent in 2026. Segal's actuaries presented data indicating that, for the Fund to emerge from critical status by the end of the ten-year statutory rehabilitation period under the PPA, the Fund would need to raise contribution rates sharply, such as through an immediate increase of 2.6 to 2.8 times the collectively-bargained levels. Segal expected also that the Fund could emerge from critical, or red zone, status in 2030 if the Board of Trustees increased contributions by 10% per year for the next 17 years. (Dkt. 109-3 at 21.)

After discussion, the Board of Trustees voted to "freeze" the Fund's status in the "green zone" for one plan year, as permitted by Section 204 of the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA).⁹ This was one of the options set forth in Segal's report presented to the Board of Trustees at the March 5, 2009 meeting.

On March 31, 2009, Segal certified that the Fund was in "critical" status under the PPA as of January 1, 2009, due to the fact that there was a projected funding deficiency in the funding standard account during the plan year beginning January 1, 2013, which was within five years of the measuring period. Darrin Owens, Segal's benefits consultant, reported that the actuarial value of assets was approximately 73.5% of the total unit credit accrued liability as of January 1, 2009. (Dkt. 105-3 at 129.)

At the next regular meeting held May 5 - 7, 2009, Segal provided an additional presentation during which Segal illustrated the projected cost savings of each benefit cut permitted by law (known as "adjustable benefits"), and modeled the effects of several different possible designs for rehabilitation plans. Segal projected that, even if the Board of Trustees entirely eliminated the early retirement benefit and cut future benefit accruals in half, the Fund would still need ten annual contribution increases of 16% each to emerge from critical status within the ten-year statutory rehabilitation period.

On July 20 - 21, 2009, the Board of Trustees met again for a Special Funding meeting, at which Darrin Owens and Virginia McGinley of Segal presented live modeling of many different rehabilitation plan scenarios. (Dkt. 105-3 at 140.) Based upon various modeling assumptions, Segal demonstrated that, if future benefit accruals were reduced by 50%, the Plan would require 20% annual contribution increases for...