Syllabus

PENSION BENEFIT GUARANTY CORPORATION v. THE LTV CORP. ET AL.

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

No. 89-390. Argued February 27, 1990-Decided June 18, 1990 Title IV of the Employee Retirement Income Security Act of 1974 (ERISA) includes a mandatory Government insurance program that protects private-sector workers participating in covered pension plans against the termination of their plans before sufficient funds have been accumulated to pay anticipated benefits. The program is administered by petitioner Pension Benefit Guaranty Corporation (PBGC), which is responsible for paying terminated plans' unfunded liabilities out of the proceeds of annual premiums collected from employers maintaining ongoing plans. Respondent The LTV Corporation and many of its subsidiaries (collectively LTV) filed reorganization petitions under the Bankruptcy Code for the purpose, inter alia, of restructuring the pension obligations of one of the subsidiaries under three ERISA-covered, chronically underfunded pension plans (Plans), two of which could not be voluntarily terminated by LTV under ERISA's terms because they resulted from collective-bargaining negotiations with the United Steelworkers of America. In light of LTV's statement that it could no longer provide complete funding, the PBGC sought involuntary termination of the Plans to protect the insurance program from the risk of large losses. After the District Court terminated the Plans, LTV and the Steelworkers negotiated new pension arrangements, which the PBGC characterized as "follow-on" plans; i. e., arrangements designed to wrap around PBGC insurance benefits to provide substantially the same benefits as would have been received had no termination occurred. Pursuant to its anti-follow-on policy, which considers such plans to be "abusive” of the insurance program, and in light of its perception that LTV's financial circumstances had dramatically improved, the PBGC issued a notice of restoration of the terminated Plans under § 4047 of ERISA, which authorizes the PBGC to undo a termination "in any . . . case in which [it] determines such action to be appropriate and consistent with its duties under [Title IV]." When LTV refused to comply with the restoration decision, the PBGC filed an enforcement action, but the District Court vacated the decision upon finding, among other things, that the PBGC had exceeded its § 4047 authority. The Court of Appeals affirmed, holding that the restoration decision was, in various respects, "arbitrary and

capricious" or contrary to law under the Administrative Procedure Act (APA), 5 U. S. C. § 706(2)(A).

Held: The PBGC's restoration decision was not arbitrary and capricious or contrary to law under § 706(2)(A). Pp. 645-656.

(a) The PBGC's failure to consider and discuss the "policies and goals" underlying federal bankruptcy and labor law did not, as the Court of Appeals held, render the restoration decision arbitrary and capricious. That holding cannot be reconciled with the plain language of § 4047, which does not direct that the decision further the "public interest" generally, but, rather, specifically and unambiguously requires the PBGC to focus on ERISA. Moreover, if agency action could be disturbed whenever a reviewing court was able to pinpoint an arguably relevant statutory policy that was not explicitly considered, a very large number of agency decisions might be open to judicial invalidation in light of numerous federal statutes that could be said to embody countless goals. Also, because the PBGC can claim no expertise in the labor and bankruptcy areas, it may be ill equipped to undertake the difficult task of discerning and applying the "policies and goals" of those fields. Pp. 645-647.

(b) The PBGC's anti-follow-on policy is not contrary to law. A clear congressional intent to avoid restoration decisions based on the existence of follow-on plans is not evinced by the text of § 4047, which embodies a broad grant of authority to the PBGC, or by the legislative history of ERISA or its 1987 amendments. Moreover, the policy is based on a "permissible" construction that is rational and consistent with § 4047 and is therefore entitled to deference. The policy is premised on the eminently reasonable belief that employees will object more strenuously to a company's original termination decision if a follow-on plan cannot be used to put them in the same position after termination as they were in before. The availability of such a plan thus would remove employee resistance as a significant check against termination, and may therefore tend to frustrate one of ERISA's objectives that the PBGC is supposed to accomplish-the continuation and maintenance of voluntary private plans. In addition, such plans have a tendency to increase the PBGC's deficit and employers' insurance premiums, thereby frustrating a related ERISA objective-the maintenance of low premiums. Although the employer's financial improvement may be relevant to the restoration decision, it is not, as respondents contend, the only permissible consideration. It is rational for the PBGC to disfavor follow-on plans where, as here, there is no suggestion that immediate retermination will be rendered necessary by the employers' financial situation. Pp. 647-652.

(c) The restoration decision in this case was not rendered arbitrary and capricious by the use of inadequate procedures. Since the Court of Appeals did not point to any APA or ERISA provision giving LTV the

procedural rights identified by the court-an apprisal of material on which the decision was to be based, an adequate opportunity to offer contrary evidence, proceedings in accordance with ascertainable standards, and a statement showing the PBGC's reasoning in applying those standards-the court's holding ran afoul of Vermont Yankee Nuclear Power Corp. v. Natural Resources Defense Council, Inc., 435 U. S. 519, 524. Moreover, since there was no suggestion that the administrative record was inadequate to enable the court to fulfill its § 706 duties, its holding finds no support in Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U. S. 402, 419. Nor is LTV aided by the dictum of Bowman Transportation, Inc. v. Arkansas-Best Freight System, Inc., 419 U. S. 281, 288, n. 4, that a “party is entitled . . . to know the issues on which decision will turn and to be apprised of the factual material on which the agency relies for decision so that he may rebut it." That statement was made in the context of a formal agency adjudication under the trial-type procedures of the APA, 5 U. S. C. §§ 554, 556-557, which require notice of the factual and legal matters asserted, an opportunity for the submission and consideration of facts and arguments, and an opportunity to submit proposed findings and conclusions or exceptions. The determination here, however, was lawfully made by informal adjudication under § 555, which does not require such elements. Pp. 653-656.

875 F. 2d 1008, reversed and remanded.

BLACKMUN, J., delivered the opinion of the Court, in which REHNQUIST, C. J., and BRENNAN, MARSHALL, SCALIA, and KENNEDY, JJ., joined, and in which WHITE and O'CONNOR, JJ., joined except as to the statement of judgment and n. 11. WHITE, J., filed an opinion concurring in part and dissenting in part, in which O'CONNOR, J., joined, post, p. 656. STEVENS, J., filed a dissenting opinion, post, p. 657.

Carol Connor Flowe argued the cause for petitioner. With her on the briefs were James J. Armbruster, Raymond Morgan Forster, Thomas S. Martin, Richard K. Willard, and Charles G. Cole.

With

Lewis B. Kaden argued the cause for respondents. him on the brief for respondents The LTV Corporation et al. were Karen E. Wagner, Michael J. Crames, Marc Abrams, and Frank Cummings. Robin E. Phelan and Kathryn C. Mallory filed a brief for respondent Banctexas Dallas, N. A. Joel B. Zweibel, Geoffrey M. Kalmus, Michael J. Dell, and Peter V. Pantaleo filed a brief for respondent LTV Bank

Group. R. A. King and Kenneth R. Bruce filed a brief for respondents David H. Miller et al. Edgar H. Booth, Richard H. Kuh, and Mary S. Zitwer filed a brief for respondent Official Committee of Equity Security Holders. Leonard M. Rosen, Lawrence P. King, Theodore Gewertz, Harold S. Novikoff, Brian M. Cogan, and Mark A. Speiser filed a brief for respondent Official Committee of Unsecured Creditors of LTV Steel Company, Inc. William H. Roberts, Raymond L. Shapiro, Thomas E. Biron, William E. Taylor III, and Ann B. Laupheimer filed a brief for respondent Official Parent Creditors' Committee of The LTV Corporation.*

JUSTICE BLACKMUN delivered the opinion of the Court. In this case we must determine whether the decision of the Pension Benefit Guaranty Corporation (PBGC) to restore certain pension plans under § 4047 of the Employee Retirement Income Security Act of 1974 (ERISA), 88 Stat. 1028, as amended, 100 Stat. 237, 29 U. S. C. § 1347, was, as the Court of Appeals concluded, arbitrary and capricious or contrary to law, within the meaning of the Administrative Procedure Act (APA), 5 U. S. C. § 706.

I

Petitioner PBGC is a wholly owned United States Government corporation, see 29 U. S. C. § 1302, modeled after the

*Briefs of amici curiae urging reversal were filed for the United States by Solicitor General Starr, Deputy Solicitor General Shapiro, and Christopher J. Wright; for the American Society of Pension Actuaries by Chester J. Salkind; for Armco et al. by Benjamin R. Civiletti and W. Warren Hamel; and for the Retired Employees Benefits Coalition, Inc., by Bruce E. Davis.

Briefs of amici curiae urging affirmance were filed for the State of Ohio by Anthony J. Celebrezze, Jr., Attorney General, and Loren L. Braverman; and for the American Federation of Labor and Congress of Industrial Organizations et al. by Robert M. Weinberg, Jeremiah A. Collins, Peter O. Shinevar, Laurence Gold, Bernard Kleiman, Carl B. Frankel, Paul Whitehead, and Karin S. Feldman.

William J. Kilberg and Baruch A. Fellner filed a brief for WheelingPittsburgh Steel Corp. as amicus curiae.

Federal Deposit Insurance Corporation. See 120 Cong. Rec. 29950 (1974) (statement of Sen. Bentsen). The Board of Directors of the PBGC consists of the Secretaries of the Treasury, Labor, and Commerce. 29 U. S. C. § 1302(d). The PBGC administers and enforces Title IV of ERISA. Title IV includes a mandatory Government insurance program that protects the pension benefits of over 30 million private-sector American workers who participate in plans covered by the Title. In enacting Title IV, Congress sought to ensure that employees and their beneficiaries would not be completely "deprived of anticipated retirement benefits by the termination of pension plans before sufficient funds have been accumulated in the plans." Pension Benefit Guaranty Corporation v. R. A. Gray & Co., 467 U. S. 717, 720 (1984). See also Nachman Corp. v. Pension Benefit Guaranty Corporation, 446 U. S. 359, 361-362, 374-375 (1980).

When a plan covered under Title IV terminates with insufficient assets to satisfy its pension obligations to the employees, the PBGC becomes trustee of the plan, taking over the plan's assets and liabilities. The PBGC then uses the plan's assets to cover what it can of the benefit obligations. See 29 U. S. C. § 1344 (1982 ed. and Supp. IV). The PBGC then must add its own funds to ensure payment of most of the remaining "nonforfeitable" benefits, i. e., those benefits to

1Title IV covers virtually all "defined benefit" pension plans sponsored by private employers. A defined benefit plan is one that promises to pay employees, upon retirement, a fixed benefit under a formula that takes into account factors such as final salary and years of service with the employer. See 29 U. S. C. § 1321. It is distinguished from a "defined contribution" plan (also known as an "individual account" plan), under which the employer typically contributes a percentage of an employee's compensation to an account, and the employee is entitled to the account upon retirement. See 29 U. S. C. §§ 1002(34) and (35). ERISA insurance does not cover defined contribution plans because employees are not promised any particular level of benefits; instead, they are promised only that they will receive the balances in their individual accounts.