WASHINGTON -- The Supreme Court agreed yesterday to clarify the authority of companies to take surplus funds out of an employee pension plan and use the money to finance an early retirement program for other workers.
The outcome of the case could affect the financial future of worker-contribution plans that cover millions of workers in health coverage, savings and thrift opportunities, retirement pensions and other benefits.
A case involving Hughes Aircraft Co. -- now part of General Motors Corp. -- puts back before the court a legal issue the justices thought they had settled just two years ago in a case involving another aircraft maker, Lockheed Corp., now Lockheed Martin.
In the Hughes case, the federal appeals court in San Francisco ruled that workers covered by an existing plan -- to which the workers themselves made contributions -- may sue the company to block it from diverting the plan's surplus to new uses that won't benefit those same workers.
The appeals court noted that the Supreme Court had allowed management to divert surpluses to other uses in the Lockheed case. But it said the Lockheed case involved a plan to which only the company, not workers, had contributed, and the diversion benefited workers already in the plan.
In Hughes' case, the appellate court said, the workers contributed half the money in the pension fund, so they were entitled to recover their share of the surplus if the diversion to a new plan has the legal effect of terminating the original plan. The court said the workers may be able to prove that creation of the new plan, plus Hughes' freezing of worker contributions to the first plan, actually meant the first had been shut down -- a suggestion that Hughes vigorously disputed.
The lower court ruling was based upon its interpretation of the Employee Retirement Income Security Act, a federal law that protects workers' benefit plans.
Hughes contends that the appeals court simply defied the Supreme Court's 1996 Lockheed decision and set up a "meaningless" distinction between contributory plans and other plans. That position is supported by the U.S. Chamber of Commerce and other business groups.
The case, Hughes says, has "far-flung implications," because contributory plans are common with more than 60 percent of all health plans, nearly all savings and thrift plans, and many defined-benefit plans requiring or allowing employee contributions.
If the ruling is confined solely to pension plans, Hughes said, it would cover more than 1 million workers and retirees in plans that have more than $60 billion in assets.
Five Hughes retirees, suing on behalf of 10,000 of the company's workers, challenged the Hughes surplus diversion arrangement, saying it was an illegal transfer of money that belongs, at least partly, to them.
The high court will hear arguments in the case this fall or winter, and a decision is expected next year.
Hughes' appeal was filed by Kenneth Starr, the Whitewater special prosecutor, who has maintained a private law practice.
Also yesterday, the justices cleared the way for service and repair companies to collect millions of dollars in antitrust damages from Eastman Kodak Co. for trying to shut them out of servicing, repairing and selling parts for copiers and microfilm machines made by Kodak.
A jury awarded the independent service firms more than $71.8 million after finding that Kodak illegally sought to monopolize the "aftermarket" repair and service business on its machines. While a federal appeals court upheld the finding of an antitrust violation, it ordered a trial court to reconsider the damages figure, perhaps to lower it.
Kodak contended in its appeal that the appellate court misinterpreted a 1992 Supreme Court ruling at an earlier stage of this same case, declaring that companies act illegally if they create monopolies in the "aftermarket" sales and service of their products.
The justices gave no reason for rejecting Kodak's appeal.
In a third order, the justices allowed New York Life Insurance Co. to pursue, in federal claims court, its lawsuit demanding that the PTC government return $32.9 million that the company paid to the Internal Revenue Service in a dispute over its 1984 tax re- turn.
The Justice Department tried to block that lawsuit, arguing that New York Life could try to get its money back only by suing the IRS for a refund and proving that the IRS erred when it assessed more in taxes.
Pub Date: 4/28/98