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Johnson v. Georgia-Pacific Corp.

United States Court of Appeals for the Seventh Circuit

December 10, 1993, Argued ; March 23, 1994, Decided

No. 93-2357


 [*1185]  EASTERBROOK, Circuit Judge. Great Northern Nekoosa Corporation (GNN) decided to resist a takeover bid by Georgia-Pacific [**2]  Corporation. Among the steps GNN took to make itself less attractive was an alteration in its pension plan. At the end of 1989 the plan's assets exceeded the value of all promised benefits (including those that had not vested) by some $ 80 million. Because employees had made contributions toward their pensions until 1988, the Employee Retirement Income Security Act (ERISA) prevented GNN from withdrawing the full surplus by terminating the plan and purchasing annuities to pay vested benefits. 29 U.S.C. §§ 1103(c), (d), 1344(d)(3)(A). Cf. Mead Corp. v. Tilley, 490 U.S. 714, 104 L. Ed. 2d 796, 109 S. Ct. 2156 (1989). Nonetheless, the surplus was of substantial benefit to the firm and its current employees. After 1987 all employee contributions ceased, increasing the workers' take-home pay. 2 GNN itself had not chipped into the fund for many years, exercising a privilege to suspend contributions that it had reserved in § 11.1 of the plan's governing document. If the surplus were exhausted, the firm or its employees, or both, would have to start contributing again.

 [**3]  GNN took advantage of this fact by amending the plan. An amendment adopted by GNN's board in November 1989 (and approved by the employees' union) provided that a change of control would cause an increase in benefits to current employees sufficient to exhaust the surplus; moreover, all pension benefits would vest whether or not the employees met the applicable time-of-service requirements. The upshots: (a) if Georgia-Pacific won control, it would have to make contributions to the pension plan, while if control did not change GNN would not need to make contributions for the foreseeable future; (b) GNN's employees would feel more free to quit if Georgia-Pacific won (for leaving would not diminish their newly vested  [*1186]  benefits) than if GNN retained control, and an exodus of skilled employees might make the firm less productive in Georgia-Pacific's hands.

Defensive tactics such as this often injure shareholders, depriving them of the premium the bidder offers for their stock. See Amanda Acquisition Corp. v. Universal Foods Corp., 877 F.2d 496, 500-02 (7th Cir. 1989) (collecting data). As things turned out, Georgia-Pacific obtained control in March 1990. Current [**4]  workers' benefits were increased by a factor of 1.789766 and immediately vested in full; the plan is no longer overfunded. Although the alteration of the pension plan may have reduced the price Georgia-Pacific paid for GNN's stock, GNN's former shareholders were sufficiently satisfied that they did not file suit against its managers. This suit was commenced by GNN's pensioners. The retirees contend that they are entitled to the same benefits increase as the current workers; after all, they submit, it was their contributions that produced the surplus. By increasing current employees' promised pension benefits without increasing the retirees' pensions, plaintiffs say, GNN and its successor Georgia-Pacific violated not only the terms of the pension trust but also the fiduciary standards established by ERISA. The district court dismissed the case on the pleadings, see Fed. R. Civ. P. 12(b)(6), ruling that both ERISA and the plan's governing documents permit an employer to increase the pension benefits promised to current workers without increasing payments to retirees. Because retirees receive no more than their contract promises, see Bidlack v. Wheelabrator Corp., 993 F.2d 603 (7th Cir. 1993) [**5]  (en banc), and the promised pensions have not been reduced, see 29 U.S.C. § 1054(g), the district court concluded that there was no point in developing the facts in detail.

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19 F.3d 1184 *; 1994 U.S. App. LEXIS 5416 **; 18 Employee Benefits Cas. (BNA) 1218

JOHN H. JOHNSON, et al., Plaintiffs-Appellants, v. GEORGIA-PACIFIC CORPORATION, et al., Defendants-Appellees.

Prior History:  [**1]  Appeal from the United States District Court for the Western District of Wisconsin. No. 92-C-840-S. John C. Shabaz, Judge.

Disposition: AFFIRMED


benefits, pension, employees, fiduciary, surplus, retirees, promised, pension plan, pension benefits, contributions, vested, current employee, defined-benefit, discretionary, make a contribution, deferred, retired

Pensions & Benefits Law, ERISA, Fiduciaries, General Overview, Governments, Fiduciaries, Estate, Gift & Trust Law, Trusts, Plan Amendments, Employee Benefit Plans, Welfare Benefit Plans, Fiduciary Responsibilities, Tax Law, Tax Accounting, Retirement Plans, Defined Benefit & Hybrid Plans, State & Local Taxes, Estate & Gift Taxes, Estate & Inheritance Tax, Civil Procedure, Pleadings, Amendment of Pleadings