RPA that the new interest rates are to be immediately effective. This court concludes that no conflict exists between section 4044(d)(2)(A) and the RPA. Section 4044(d)(2)(A) applies when an overfunded plan confers a reversion to an employer. Under the RPA, plan administrators may immediately amend their plans to adopt the new interest rate. If the plan is underfunded (the primary target of the RPA), no surplus money reverts to the employer, the amendment will therefore not increase the employer's reversion, and will not implicate section 4044(d)(2)(A). If, however, the plan is overfunded, the chief beneficiary of the interest rate amendment is the holder of the reversionary interest rather than the plan participants. Where the employer holds all or part of that reversionary interest, section 4044(d)(2)(A) does apply. The RPA applies differently between under- and overfunded plans. Such a distinction is reasonable in light of the purposes of the RPA.
Plaintiffs admit that the RPA expressly allows plan administrators of non-terminating plans to use the new actuarial assumptions when calculating benefits, such as those paid to a retiring employee. Northbrook contends that this creates an unwarranted distinction between terminating and non-terminating plans. But this is reasonable, because only a terminating plan can have a "reversion" that implicates section 4044(d)(2)(A). This distinction could lead to some seemingly inconsistent results. For example, an overfunded, non-terminating plan can distribute benefits under the RPA interest rates to a retiring participant, but the participant may be entitled to a recalculation of benefits if the plan terminates within five years of adopting the new rates. (See Reply Mem. of Pts. & Auth. in Supp. of Def.'s Motion for Summ. Judgment at 7.) The language of the five year rule, however, indicates that when Congress passed section 4044(d)(2), it was less concerned with regulating the benefits paid to individual plan participants than with regulating the employer's ability to acquire a large reversion interest. The examples to which Northbrook cites to undermine plaintiffs' interpretation demonstrate only that the PPA is not focused on guaranteeing a certain level of benefits, but on preventing overreaching by employers and plan administrators.
This court can find no principled basis to agree with Northbrook's assertion that Congress enacted section 4044(d)(2)(A) to regulate only those amendments that create new rights of reversion in an employer or increase the employer's percentage of reversion, rather than to regulate amendments that have the effect of increasing "the amount which may be distributed to an employer." The court therefore adopts plaintiffs' interpretation of section 4044(d)(2)(A) and its relationship to the RPA.
E. Requirement that Plan Assets Inure to Benefit of Employees under ERISA section 403(c)(1)
The second argument is founded on ERISA section 403(c)(1), which provides that "the assets of a plan shall never inure to the benefit of any employer and shall be held for the exclusive purposes of providing benefits to participants in the plan and their beneficiaries and defraying reasonable expenses of administering the plan." 29 U.S.C. § 1103(c)(1). The section provides an exception for distributions made in accordance with ERISA section 4044, but plaintiffs argue that the distributions at issue in this case violate both section 4044(d)(2)(A), as discussed above, and section 4044(d)(1)(B).
Section 4044(d)(1)(B) provides that any residual assets of a single-employer plan may be distributed to the employer if, among other things, "the distribution does not contravene any provision of law." 29 U.S.C. § 1344(d)(1)(B). Plaintiffs contend that the distributions here violated two separate provisions of law. First, as discussed above, they assert that Northbrook violated section 4044(d)(2)(A) by calculating the distributions based on the RPA interest rates less than five years after the plan amendment. Second, plaintiffs assert that the distributions violated the exclusive benefit rule of IRC section 401(a)(2), which requires that the trust instrument make it "impossible, at any time prior to the satisfaction of all liabilities . . . for any part of the corpus or income to be . . . used for, or diverted to, purposes other than for the exclusive benefit of the employees or their beneficiaries." 26 U.S.C. § 401(a)(2).
The Treasury regulations interpret the exclusive benefit rule to allow distribution of surplus assets to an employer only if the surplus results from "erroneous actuarial computation." T.R. 1.401-2. A hypothetical in the regulations explains that if a surplus accumulates "as a result of a change in the benefit provisions or in the eligibility requirements of the plan, the [surplus] could not revert to the employer because such surplus would not be the result of erroneous actuarial computation." T.R. 1.401-2(b)(1). Plaintiffs argue that Northbrook's adoption of the RPA amendment was not erroneous actuarial computation and that Northbrook has therefore violated section 401(a)(2) by adopting the RPA amendment and distributing the disputed plan assets to itself.
In support of their position, plaintiffs cite an internal IRS memorandum that says:
Any increase in the reversion of plan assets to the employer that is attributable to a plan amendment applying the new GATT interest and mortality assumptions is not considered to be the result of erroneous actuarial computation within the meaning of § 1.401-2 of the [IRS] regulations. Therefore, a plan amendment causing such an increase could violate section 401(a)(2).
(IRS Memo., June 23, 1995, Ex. C to Pl.'s Mem. of Pts. & Auth. in Opp. at 3.)
Northbrook argues that I.R.S. Revenue Rulings are "merely persuasive authority," Costantino v. TRW, Inc., 13 F.3d 969, 981 (6th Cir. 1994), and that internal I.R.S. memoranda do not reflect final or even proposed regulations and therefore deserve even less deference from this court. Further, the I.R.S. memorandum does not describe the conditions under which an amendment "could" violate section 401(a)(2). Although the memorandum directly supports plaintiffs' contentions, it does not provide sufficient authority for this court to hold that Northbrook has violated section 401(a)(2).
F. Satisfaction of all liabilities
Once all liabilities of a plan have been satisfied, ERISA section 4044(d)(1) entitles an employer to recoup any excess assets remaining in the plan, as long as the plan provides for the reversion and the reversion does not otherwise violate any federal law. 29 U.S.C. § 1344(d)(1).
Northbrook contends that it had satisfied all plan liabilities before recouping the surplus and therefore it had a right to recover any surplus under the terms of the plan. Plaintiffs correctly argue that the RPA amendment should not have taken effect as to this plan until 1999, and that any distributions under the plan should have occurred subject to the previous interest rates. Northbrook was therefore obligated to base distributions to the plan participants on the old rates, at least until the RPA amendment became effective as to this plan. Because Northbrook made payments according to the RPA interest rates, it did not satisfy all of its liabilities under the plan before recouping the resulting surplus assets. The amount in dispute in Count I is a liability of the plan to the plan participants, not a surplus due to overfunding. Northbrook has not satisfied all of its liabilities under the plan.
Congress has provided little guidance to help resolve the parties' conflicting interpretations. In the absence of any indication that, despite section 4044(d)(2)(A), Congress intended that an employer should be permitted to amend its plan to increase the amount of its reversion without waiting five years for such an amendment to take effect, this court must accept plaintiffs' interpretation of the interplay between the RPA and ERISA section 4044(d)(2)(A). This court finds that Northbrook has violated ERISA section 4044(d)(2)(A). Accordingly, the court GRANTS plaintiffs' motion for judgment on the pleadings on Count I and DENIES Northbrook's motion for summary judgment on Count I.
Plaintiffs request a judgment jointly and severally against all defendants requiring payment to the GATT class of an amount equal to the increase in the reversion resulting from the amendment. Plaintiffs also request reasonable attorneys' fees under ERISA section 502(g), 29 U.S.C. § 1132(g), costs, and interest. Northbrook argues that the proper remedy is a proportional allocation of any improper reversion among all of the participants and beneficiaries of the plan, including those who did not receive a lump sum distribution.
This court will address the appropriate remedy for a violation of section 4044(d)(2)(A), including the appropriateness of interest, costs, attorneys' fees, and joint and several liability, in supplemental proceedings. At that time, the court will also address Count II of plaintiffs' complaint. A status conference will be held on April 11, 1997, at 11:00 A.M., to schedule those further proceedings.
IT IS SO ORDERED.
Dated: March 12, 1997.
CHARLES A. LEGGE
United States District Judge