The 11th U.S. Circuit Court of Appeals has ruled in a “most unusual case” that a company that went bankrupt and dissolved in the 1990s was still liable for its pension’s obligations 20 years later.
The case centers on Chicago area-based Liberty Lighting Co. Inc, a unionized electrical supply manufacturing company and plan sponsor and administrator of the Liberty Lighting Co. Inc. Pension Plan for IBEW Employees. According to court documents, Liberty entered bankruptcy and surrendered its assets to a creditor in 1992, and it was dissolved under state law.
Joseph Wortley, Liberty’s sole owner, filed for personal bankruptcy in 1993 and, as part of the bankruptcy proceedings, all of his assets were surrendered to a trustee, including his stock in Liberty. However, Wortley continued to act as the plan’s administrator and signed papers on behalf of the plan at the request of its actuary for years after Liberty’s dissolution, which was necessary to continue payments to pensioners.
When the plan’s funds ran low in 2012, the bank administering the plan notified the Pension Benefit Guaranty Corporation (PBGC) about the plan’s impending insolvency. The PBGC, which acts as a lifeboat for financially struggling pensions, contacted Wortley to reach a settlement regarding the unfunded remaining liability of the plan. The settlement indicated Liberty dissolved in the 1990s and the agreement contained language that Wortley believed set a final cutoff date for his remaining liability.
However, in 2018, PBGC sued other companies owned by Wortley, arguing that federal law dictates that they may be held liable for the Liberty pension’s unfunded liability. PBGC said the other companies owned by Wortley were part of a “controlled group” with Liberty and were therefore still liable for Liberty’s unpaid pension benefits, premiums, interest, and penalties. PBGC argued that because Liberty wasn’t able to meet its Employee Retirement Income Security Act (ERISA) obligations to its former employees, Wortley’s other companies must foot the bill. The companies pushed back, saying that they can’t be considered owned in common with Liberty because Liberty closed down years earlier.
“We disagree,” the circuit court judges said in their ruling. “In the unusual circumstances of this case, Liberty still existed in 2012 sufficiently to act as the plan’s sponsor under ERISA.”
The court said that the companies’ view of ERISA held that “nobody was responsible for the pension plan,” which it added “cannot be squared with ERISA as a whole,” as the law “does not allow pension plans to exist in a state of limbo, devoid of any caretaker.”
The court also said Wortley’s actions on behalf of Liberty after its dissolution are “strong evidence” that Liberty continued to serve as the plan’s de facto sponsor. It said that for years after its dissolution, Liberty, through Wortley, continued to authorize payments out of the plan.
“Liberty played an active role in the plan years after its bankruptcy,” the court said, pointing out that Wortley filed ERISA forms that identified Liberty as the plan’s sponsor with the government and the bank that held the assets in 2002 and 2004. The court also noted that Wortley sent a letter to the plan’s actuary on Liberty letterhead inquiring about benefit entitlements.
“These steps—necessary to the plan’s continuing maintenance—can only have been undertaken by the plan’s sponsor,” the court ruled.