U.S. District Judge Henry Kennedy on Dec. 1 ruled that Downers Grove, IL-based Sara Lee Corp. must help pay back a $60 million retirement fund shortfall related to the bankruptcy of Interstate Bakeries Corp.  In his ruling, Mr. Kennedy upheld the decision reached by the Pension Benefit Guaranty Corp. (P.B.G.C.) in 2006 that six baking companies including Sara Lee, that had contributed to the American Bakers Association Retirement Plan were responsible for underfunded obligations to I.B.C. employees.  The P.B.G.C. is a federal agency founded by Congress in 1974.  The agency’s role is to ensure that retirees receive pension benefits they have earned even if their employer has terminated its pension plan or is otherwise unwilling or unable to pay.  At the heart of the court challenge was whether the joint plan was a “multiple-employer plan,” which is a plan maintained by two or more contributing employers under which all plan assets are available to pay benefits to all plan participants and beneficiaries, or was an “aggregate of single-employer plans,” which is an association of separate plans in which each employer’s contributions are maintained in separate accounts or otherwise restricted so that the funds of each employer are used only to pay the benefits of that employer’s employees.

UNMOVED BY INTENT OF GOVERNING DOCUMENTS.  Sara Lee had urged P.B.G.C. to look to the plan’s governing documents, “which express the intent to be an aggregate of single-employer plans, and no further,” the court filing said.  “P.B.G.C. acknowledges that the Plan documents are evidence of intent to create an aggregate of single-employer plans,” the filing continued.  “But it contends that the relevant provisions of those documents merely state that intent rather than implementing it.  The language itself does nothing to minimize the risk of cost shifting among contributing employers.’  Judge Kennedy was swayed by an alternative perspective offered by the P.B.G.C.  “Although its 2006 letter clearly concedes that the plan’s foundational documents present the plan as an aggregate of separate plans, AR1570, it was appropriate—probably even necessary—for P.B.G.C. to look beyond that language to assess whether the actual operation of the plan conformed to it,” the judge said.  “The standard articulated in the 1979 and 2006 letters calls for looking to the operation of a plan, and there is no reason why P.B.G.C. should not do so.”  In a June 21, 1979, letter sent to the A.B.A., the P.B.G.C. determined the joint plan was an “aggregate of single-employer plans,” but upon further review, the agency on Aug. 8, 2006, issued a determination letter stating that the A.B.A. plan “is, and indeed always has been, a multiple-employer plan.”  With the ruling, I.B.C.’s share of liabilities was cut to $40 million from $69 million.  Sara Lee, partly responsible for the $60 million shortfall, will be able to use $27 million currently held in the fund pending, the P.B.G.C.’s outcome, to pay the pensions of I.B.C. employees, the filing noted.