Nachman Corp. v. Pension Benefit Guaranty Corporation

1980-06-30

Headline: Court affirmed that employer liability limits in a pension plan do not block PBGC insurance, allowing underfunded vested workers to receive benefits and permitting PBGC reimbursement from the employer.

Holding: The Court held that a plan clause limiting the employer’s direct liability does not make vested retirement benefits forfeitable, so those benefits are nonforfeitable under Title IV, insured by the PBGC, and employer reimbursement may be required.

Real World Impact:

Allows PBGC to pay underfunded vested pension benefits and recover costs from employers.
Subjects solvent employers to reimbursement liability up to the deficiency or 30% of net worth.
Protects workers with vested benefits when plans terminate shortly before vesting-rule changes.

Topics: pension insurance, employer liability, retirement benefits, ERISA vesting

Summary

Background

A company set up a pension plan in 1960 covering union employees at its Chicago plant. The plan said retirees would get benefits computed by age and years of service and included a clause that benefits would be limited to whatever the fund’s assets could pay. The company closed the plant and terminated the plan on December 31, 1975; 135 employees had vested benefits averaging about $77 per month but the fund could pay only roughly 35% of those benefits. The company sued the Pension Benefit Guaranty Corporation (PBGC) saying it had no liability under ERISA.

Reasoning

The main question was whether the plan’s asset-limit language made the workers’ vested rights “forfeitable” and therefore uninsured. The Court held that the disputed clause was an employer liability disclaimer, not a condition that destroyed the employees’ legal claim against the plan. The majority relied on the text and structure of ERISA, the PBGC’s consistent regulatory definition, and Congress’ clear intent to insure vested benefits and to allow the PBGC to recover payments from employers (subject to statutory limits like the 30% net-worth cap). The Court concluded that treating such disclaimer clauses as defeating insurance would frustrate the phased-in structure Congress designed.

Real world impact

As a result, employees with vested benefits in underfunded plans like this one can receive PBGC insurance payments, and the PBGC may seek reimbursement from the former employer under ERISA’s rules (with statutory limitations). The decision resolves the statutory question for plans terminated before January 1, 1976, including those closed in late 1975.

Dissents or concurrances

Justice Stewart (joined by three others) dissented, arguing the plan’s asset-sufficiency provisions made the benefits conditional and therefore not "nonforfeitable" under ERISA; Justice Powell joined that dissent and emphasized contract terms and limited practical effect to similar 1975 terminations.