Johnson v. Georgia-Pacific Corp. Book Reviews

Johnson v. Georgia-Pacific Corp. by United States Court of Appeals for the Seventh Circuit Book Summary

EASTERBROOK, Circuit Judge. Great Northern Nekoosa Corporation (GNN) decided to resist a takeover bid by Georgia-Pacific 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.1 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. 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 benefits) than if GNN retained control, and an exodus of skilled employees might make the firm less productive in Georgia-Pacific's hands.

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