92
Opinion of the Court
Hancock, to the Liabilities of the Fund.3 In the event that the added liability caused GAC 50's "Minimum Operating Level"—the Liabilities of the Fund plus a contingency cushion of five percent—to exceed the amount accumulated in the Pension Administration Fund, the "active" or "accumulation" phase of the contract would terminate automatically. In that event, Hancock would purchase annuities at rates stated in the contract to cover all benefits previously guaranteed by Hancock under GAC 50, and the contract itself would convert back to a simple deferred annuity contract. Agreed Statement of Facts ¶¶ 33, 36-37, 42, id., at 89-91.
As GAC 50 was administered, amounts recorded in the Pension Administration Fund were used to provide retirement benefits to Sperry employees in other ways. In this connection, the parties use the term "free funds" to describe the excess in the Pension Administration Fund over the Minimum Operating Level (105 percent of the amount needed to provide guaranteed benefits). In 1977, Sperry Plan trustee Harris obtained the right to direct Hancock to use the free funds to pay "nonguaranteed benefits" to retirees. These benefits were provided monthly on a pay-as-you-go basis; they were nonguaranteed in the sense that Hancock was obligated to make payments only out of free funds, i. e., only when the balance in the Pension Administration Fund exceeded the Minimum Operating Level.
Additionally, in 1979 and again in 1981, Hancock permitted Harris to transfer portions of the free funds pursuant to "rollover" procedures. Agreed Statement of Facts ¶ 78, id., at 96. Finally, in 1988, a contract amendment allowed Harris to transfer over $50 million from the Pension Administration Fund without triggering the contract's "asset liquidation
3 This liability calculation established, in effect, the price for Hancock's guarantee of a specified benefit stream. The liability associated with a given benefit entitlement was to be calculated using rates that, since 1972, could be altered by Hancock. Agreed Statement of Facts ¶ 39, App. 90.
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