[Federal Register: May 20, 1998 (Volume 63, Number 97)]
[Notices]
[Page 27774-27779]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr20my98-101]
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PENSION BENEFIT GUARANTY CORPORATION
Approval of Special Withdrawal Liability Rules; International
Longshoremen's and Warehousemen's Union-Pacific Maritime Association
Pension Plan
AGENCY: Pension Benefit Guaranty Corporation.
ACTION: Notice of approval.
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SUMMARY: The Pension Benefit Guaranty Corporation (``PBGC''), pursuant
to section 4203(f) of the Employee Retirement Income Security Act of
1974, as amended, has granted a request on behalf of the International
Longshoremen's and Warehousemen's Union-Pacific Maritime Association
Pension Plan for approval of a plan amendment modifying special
withdrawal liability rules, which rules were approved by PBGC on
January 30, 1984 (See Approval of Special Withdrawal Liability Rules
(``Notice of Approval''), 49 FR 6043 (February 16, 1984)). A Notice of
Pendency of the Request for Approval was published on February 3, 1998
(63 FR 5573) (``Notice of Pendency''). The effect of this notice is to
advise the public of the decision on the request.
ADDRESSES: The request for approval and PBGC's response to the request
are available for public inspection between the hours of 9 a.m. and 4
p.m., Monday through Friday, at PBGC's Communications and Public
Affairs Department, Suite 240, 1200 K Street, NW., Washington, DC
20005-4026.
FOR FURTHER INFORMATION CONTACT: Gennice D. Brickhouse, Attorney,
Office of the General Counsel (22500), Pension Benefit Guaranty
Corporation, 1200 K Street, NW., Washington, DC 20005-4026; Telephone
202-326-4020 (For TTY and TDD, call the Federal relay service at 1-800-
877-8339 and ask to be connected to 202-326-4020).
SUPPLEMENTARY INFORMATION:
Background
Under section 4203(f) of the Employee Retirement Income Security
Act of 1974 (``ERISA'') as amended, PBGC may prescribe regulations
under which plans in industries other than the construction or
entertainment industries may be amended to provide for special
withdrawal liability rules similar to the
[[Page 27775]]
rules prescribed in section 4203 (b) and (c) of ERISA for the
construction and entertainment industries. Section 4203(f)(2) of ERISA
provides that such regulations shall permit the use of special
withdrawal liability rules only in industries (or portions thereof) in
which PBGC determines that the characteristics that would make use of
such rules appropriate are clearly shown, and that in each instance,
the use of such rules will not pose a significant risk to the insurance
system under Title IV of ERISA. Section 4208(e)(3) of ERISA provides
that PBGC shall prescribe by regulation a procedure by which a plan may
by amendment adopt special partial withdrawal liability rules upon a
finding by PBGC that the adoption of such rules are consistent with the
purposes of Title IV of ERISA.
PBGC's regulation, Extension of Special Withdrawal Liability Rules
(29 CFR part 4203), prescribes procedures whereby a multiemployer plan
may, pursuant to sections 4203(f) and 4208(e)(3) of ERISA, request PBGC
to approve a plan amendment that establishes special complete or
partial withdrawal liability rules. Under 29 CFR 4203.3(a), a complete
withdrawal rule adopted pursuant to part 4203 must be similar to the
rules for the construction and entertainment industries described in
section 4203 (b) and (c) of ERISA. A partial withdrawal liability rule
adopted pursuant to part 4203 must be consistent with the complete
withdrawal rule adopted by the plan. Pursuant to 29 CFR 4203.3(b), a
plan amendment adopted pursuant to part 4203 may cover an entire
industry or industries, or may be limited to a segment of an industry,
and may apply to cessations of the obligation to contribute that
occurred prior to the adoption of the amendment.
Each request for approval of a plan amendment establishing special
withdrawal liability rules must contain the information specified in 29
CFR 4203.4(d). In acting on such a request, 29 CFR 4203.5(a) provides
that PBGC shall approve a plan amendment establishing special
withdrawal liability rules if PBGC determines that the plan amendment--
(1) Will apply only to an industry that has characteristics that
would make use of the special withdrawal rules appropriate; and
(2) Will not pose a significant risk to the insurance system.
In making these determinations, PBGC will conduct a comprehensive
analysis of the request, the actuarial data submitted and other
relevant information relating to the industry and the plan. 29 CFR
4203.4. Under 29 CFR 4203.4(d)(7), the plan must provide information on
the effects of withdrawals on the plan's contribution base, as well as
information sufficient to demonstrate the existence of industry
characteristics that would indicate that withdrawals in the industry do
not typically have an adverse effect on the plan's contribution base.
Finally, 29 CFR 4203.5(b) requires PBGC to publish a notice of the
pendency of a request for approval of a plan amendment containing all
the information required under 29 CFR 4203.4(d) in the Federal
Register, and to provide interested parties with an opportunity to
comment on the request.
Request
On February 3, 1998 (63 FR 5573), PBGC published a notice
soliciting public comment on a request on behalf of the International
Longshoremen's and Warehousemen's Union-Pacific Maritime Association
Pension Plan (``Plan'') for approval of a modification to a plan
amendment providing for special withdrawal liability rules, which rules
were approved by PBGC on January 30, 1984 (Notice of Approval, 49 FR
6043 (1984)), pursuant to section 4203(f) of ERISA and 29 CFR part
4203. The comment period ended on March 20, 1998. One comment was
received in opposition to the request. After the close of the comment
period, PBGC received a response to the comment and additional
information supporting the response.
The Plan is a multiemployer plan, with 114 employers contributing
in 1996, maintained pursuant to collective bargaining agreements
between the International Longshoremen's & Warehousemen's Union
(``ILWU'') and the Pacific Maritime Association (``PMA''). The Plan,
which is located in San Francisco, covers the loading and unloading of
all dry cargo for ocean-going vessels arriving at or departing from
ports along the Pacific coast of the United States, including all ports
in the states of California, Oregon and Washington. The only cargoes
not covered by the Plan are petroleum products and other liquid cargoes
and certain cargoes handled by inland boatmen.
The PMA is an employer association whose principal business is to
negotiate and administer maritime labor agreements with ILWU. The PMA
is composed of stevedore companies and terminal operators as well as
American and foreign flag vessel carriers who regularly operate from
Pacific coast ports.
As of June 30, 1996, the Plan covered 8,185 active workers, was
paying benefits to 9,049 pensioners and survivors, and had 87 inactive
participants (or survivors) with vested entitlements. For the Plan Year
ending June 30, 1996, the Plan received $99.7 million in contributions,
and paid $95 million in benefits and $1.9 million in operating
expenses. As of June 30, 1996, Plan assets were more than 13 times
total Plan disbursements during the July 1, 1995-June 30, 1996 Plan
Year. As of June 30, 1997, the market value of Plan assets was
approximately $1.631 billion and the present value of vested
liabilities was approximately $1.640 billion.
Plan benefit levels are set in negotiations between the PMA and the
ILWU. Contribution rates to the Plan, which are on the basis of either
hours worked, shipping tonnage or a combination of the two, are
determined annually, solely by the PMA. Since December 24, 1983, the
hours worked contribution rate has provided 100 percent of the
contributions to the Plan.
The total number of contributing employers has remained relatively
stable since 1971. There were 110 contributors in 1972, 107 in 1979,
and 114 in 1996. Forty-two percent of the 1996 contributors were not
contributors in 1979, and nearly 40 percent of the 1979 contributors
were no longer contributing by 1996.
According to the request, over the past four decades the west coast
shipping industry has grown steadily, and it looks forward to increased
growth in the future. Total dry cargo at all covered ports amounted to
29 million tons in calendar year 1960, 114 million tons in 1980, 182
millions tons in 1990 and 216 million tons in 1996. Because of dramatic
productivity gains, this increased shipping activity did not result in
increased hours worked. For a time, the industry did not require new
workers to replace those retiring from the work force. This accounts
for the current high ratio of retirees to active employees covered by
the Plan. However, the gains in productivity and the consequent drop in
unit labor costs did make it possible to increase wages, contribution
rates and total contributions during a period in which the utilization
of labor decreased.
It now appears that productively gains alone can no longer keep
pace with the increase in shipping activity. Covered hours worked have
remained relatively consistent with prior periods from less than 16
million in 1975 to more than 18 million in 1980. However, with the
recent growth in trade, covered hours worked have increased from fewer
than
[[Page 27776]]
15.6 million in 1993 to over 18 million in 1996.
As part of the request, copies of six of the Plan's most recent
actuarial valuation reports were submitted. Plan costs for funding
purposes are determined on the entry age normal, level dollar method.
Benefits are subject to collective bargaining, and contributions are
allocated among contributing employers on the basis of the ERISA
minimum funding requirements.
The reports show that during the 6-year period spanned by the
reports (7/1/91-6/30/97), the Plan population was relatively
stable. During that period, the number of retirees decreased 1.8
percent, while the number of active participants decreased 3.4 percent.
However, during this same period, tonnage handled increased nearly 20
percent. And, as of the end of the June 30, 1996 Plan Year, annual
contributions had increased from $71.1 million to $99.7 million, and
Plan assets had risen from $747 million to $1.329 billion.
There were three benefit increases under the Plan during the period
covered by the reports. The first, effective July 1, 1992, increased
the unfunded actuarial accrued liability by $49 million. The second
increase, effective July 1, 1993, increased the unfunded actuarial
accrued liability by $501 million. Finally, the third increase,
effective July 1, 1996, increased the unfunded actuarial accrued
liability by $52 million to approximately $534 million. The Plan's
monthly accrual rate for each year of service went from $37 to $70.
PBGC notes that the Plan's benefit level exceeds the maximum benefit
guaranteed by PBGC under section 4022A(c) of ERISA, which is $16.25 per
month per year of service. The monthly maximum benefit payable under
the Plan increased from $1,295 to $2,450.
From 1991-1995, contributions increased at a faster rate than
benefit payouts. In 1991, benefit payouts were 97% of contributions,
and in 1995, they were 95% of contributions.
A summary of the six actuarial valuations is set forth below.
Summary of Actuarial Valuation Results \1\
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Valuation date
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7/1/96 7/1/95 7/1/94 7/1/93 7/1/92 7/1/91
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Number of active participants........................... 8,185 7,856 7,682 8,141 8,339 8,469
Number of retired participants.......................... 9,049 9,236 9,244 8,979 9,132 9,214
Monthly benefit accrual rate............................ 70 69 69 69 39 37
Maximum monthly benefit................................. 2,450 2,415 2,415 2,415 1,365 1,295
Contributions (000)..................................... N/A 99,696 99,023 87,316 74,139 71,074
Benefits (000).......................................... N/A 94,963 92,437 85,293 71,321 68,848
Market value assets (000)............................... 1,329,082 1,143,335 957,661 950,030 835,063 746,993
Net minimum funding charges w/o credit balance (000).... 79,154 85,787 81,247 80,034 47,307 43,987
Normal cost, including operating expenses (000)......... 20,527 19,180 17,831 18,529 12,821 12,334
Unfunded accrued liability (assets at market value)
(000).................................................. 534,416 637,646 710,802 664,096 341,037 360,009
Unfunded liability--vested benefits (assets at market
value) (000)........................................... 354,821 462,132 530,092 476,168 N/A N/A
Valuation interest rate................................. 6.5 6.5 6.5 6.5 6.5 6.5
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\1\ Taken from actuarial reports submitted with request.
Approved Special Rules
The complete text of the relevant provisions of the Plan document,
the ILWU-PMA Pension Agreement (``Pension Agreement''), containing the
approved special withdrawal liability rules is set forth in the Notice
of Approval, 49 FR 6043 (1984). Interested persons may obtain a copy of
that notice by contacting PBGC. Following is a summary of the special
withdrawal liability rules in effect and the text of the approved
modification to those rules.
Under the special rules, a complete withdrawal occurs if an
employer who makes contributions to the Plan for longshore work
permanently ceases to have an obligation to make contributions to the
Plan, and: (1) Continues to perform work of the type for which
contributions to the Plan are currently or were previously required at
any Pacific Coast port in the United States, (2) resumes such work at
any time during the Plan Year in which the contribution obligation
ceased through the end of the fifth succeeding Plan Year without
renewing the contribution obligation, (3) sells or otherwise transfers
a substantial portion of its business or assets to another person that
performs longshore work without having an obligation to make
contributions to the Plan under the collective bargaining agreements
under which the Plan is maintained, or (4) ceases to have an obligation
to contribute in connection with the withdrawal of every employer from
the Plan or substantially all of the employers within the meaning of
section 4219(c)(1)(D) of ERISA. A partial withdrawal occurs if an
employer incurs a partial withdrawal within the meaning of section 4205
of ERISA and, in addition, at any time from the date of the partial
withdrawal through the succeeding five Plan Years: (1) Performs work of
the type for which contributions to the Plan are currently or were
previously required at any Pacific Coast port in the United States
without having an obligation to contribute to the Plan for such work,
or (2) sells or otherwise transfers a substantial portion of its
business or assets to another person that performs longshore work
without having an obligation to make contributions to the Plan under
the collective bargaining agreements under which the Plan is
maintained.
The amendment adopting the special withdrawal liability rules also
added funding requirements to the Agreement. Paragraph 4.042(c) of the
Pension Agreement requires a ``Special Contribution Amount'' and
specifies the funding goals that the Plan must meet for Plan Years
beginning July 1, 1984:
``(i) The `Special Contribution Amount' shall be the level
annual amount which, on the basis of a Certified Actuarial
Projection, the Plan Actuary certifies will, when added to the
amounts otherwise required by law (determined without regard to any
credit
[[Page 27777]]
balance in the funding standard account) * * *, be sufficient to
make the Funding Percentage as of the Applicable Funding Goal Date
at least equal to the Applicable Funding Goal.''
``(ii) The term `Funding Percentage' shall mean for any Plan
Year, the percentage derived by dividing the market value of the
assets of the Pension Fund by the present value of the
nonforfeitable benefits within the meaning of ERISA section
4213(c)(A), both values to be as determined in the Certified
Actuarial Projection as of the end of such Plan Year.''
``(iii) For the first through the fifth Plan Years commencing on
or after July 1, 1984, the term `Applicable Funding Goal' for each
such Plan Year shall mean 50 percent (50%), and the ``Applicable
Funding Goal Date'' for each such Plan Year shall mean the last day
of the tenth such Plan Year; for each succeeding Plan Year, the term
`Applicable Funding Goal' shall mean the percentage set forth in the
Accelerated Funding Schedule for the Plan Year commencing four years
after the end of the Plan Year in question, and the ``Applicable
Funding Goal Date'' for each such Plan Year shall mean the last day
of the Plan Year commencing four years after the end of the Plan
Year in question.''
``(iv) The `Accelerated Funding Schedule' shall be the following
schedule:
------------------------------------------------------------------------
Plan year Percent
------------------------------------------------------------------------
10......................................................... 50
11......................................................... 53
12......................................................... 56
13......................................................... 59
14......................................................... 62
15......................................................... 65
16......................................................... 68
17......................................................... 71
18......................................................... 74
19......................................................... 77
20 and over................................................ 80
------------------------------------------------------------------------
``(v) The `Certified Actuarial Projection' shall be a
projection, which is prepared as of each actuarial valuation date so
as to derive the Funding Percentage on the Applicable Funding Goal
Date, by using the actuarial assumptions and methods utilized in the
December 31, 1982 Actuarial Valuation of the Plan and the then
current assets and census data, which projection shall be certified
to in each Plan Year by the Plan actuary. This projection shall be
on the basis of (1) the benefit levels in effect during the Plan
Year for which the projection is made and (2) the Contributions
required for such Plan Year * * * together with any Special
Contribution Amounts. When the Applicable Funding Goal is met for
the twentieth or subsequent Plan Year, the Special Contribution
Amount may be limited to the amount necessary to maintain such
Applicable Funding Goal for each subsequent Plan Year.''
Notice of Approval, 49 FR 6043, 6046 (1984).
An additional funding requirement is contained in paragraph 4.011
of the Pension Agreement. That provision requires that:
``Notwithstanding any other provision of this Plan, the Contributions
for each Plan Year shall be not less than the total administrative
costs and benefits to be paid by the Trustee during the Plan Year.''
Notice of Approval, 49 FR 6043, 6045 (1984).
Modification to Special Rules
On July 21, 1997, the bargaining parties (ILWU and PMA) adopted an
amendment to the approved special withdrawal liability rules, which
amendment eliminates the requirement under paragraph 4.011 of the
Pension Agreement that contributions for each Plan Year shall be at
least equal to benefits and administrative costs paid in the year. In
lieu of that requirement, the parties signed a Letter of Understanding
on July 21, 1997, whereby the parties agree that:
[S]hould the Funding Percentage for the ILWU-PMA Pension Plan
(as defined in paragraph 4.042(c)(ii) of the Plan) fall below
eighty-five percent (85%) as of the beginning of a particular Plan
Year, the Contributions in the following Plan Year shall not be less
than the lesser of (a) the total administrative costs and benefits
to be paid by the Trustees during said following Plan Year or (b)
the amount required to increase the Funding Percentage for said
following Plan Year to eighty-five percent (85%).
Because the requirement that contributions be no less than
administrative costs and benefits paid in a given year is no longer
specifically set out in the Pension Agreement, PBGC indicated in the
February 3, 1998 Notice of Pendency that if PBGC should approve the
amendment modifying the Plan's special withdrawal liability rules such
approval would be under the following condition:
The Plan's special withdrawal liability rules will be void as of
the first day of the Plan Year following a Plan Year for which the
Plan is not at least eighty-five percent (85%) funded, and during
said following Plan Year the Contributions are less than the least
of (a) total administrative cost and benefits for said following
Plan Year or (b) the amount required to increase the Funding
Percentage to eighty-five percent (85%) for said following Plan Year
or (c) the maximum tax-deductible contribution to the Plan.
The Plan agreed that it would certify to this condition annually.
No other changes were proposed to the Plan's special withdrawal
liability rules.
Decision
To approve a request for an amendment modifying special withdrawal
liability rules, PBGC must make two independent determinations, as
provided in section 4203(f) of ERISA and 29 CFR 4203.4(a). First, on
the basis of a clear showing by the plan, PBGC must determine that the
amendment will apply to an industry that has characteristics that would
make use of the special rules appropriate. Second, PBGC must determine
that the plan amendment will not pose a significant risk to the
insurance system. PBGC's discussion on each of those issues follows.
a. Appropriateness
The basic consideration in determining the appropriateness of
special withdrawal liability rules is the effect of cessations of
contributions by employers on the plan's contribution base. Various
characteristics may be indicative of an industry in which cessations
typically do not weaken the contribution base. In determining whether
an industry has the characteristics that would make an amendment to
special rules appropriate, an important line of inquiry is the extent
to which the particular industry possesses those characteristics that
led Congress to adopt special rules for the construction and
entertainment industries. An industry that is similar in terms of those
characteristics is generally appropriate for rules similar to the
construction and entertainment rules.
The appropriate characteristics include, but are not necessarily
limited to, the mobility of the employees, the intermittent nature of
the employment, the project-by-project nature of the work, extreme
fluctuations in the level of an employer's covered work under the plan,
the existence of a consistent pattern of entry and withdrawal by
employers, and the local nature of the work performed.
In approving the Plan's request for an amendment providing for
special withdrawal liability rules on February 16, 1984, PBGC
determined that the industry covered by the Plan clearly evidenced
characteristics similar to those of the construction industry, the most
important of which was the local nature of the work. The
characteristics of the west coast longshore industry that supported
approval of special withdrawal liability rules in 1984 continue to
apply to the industry today. Specifically, work covered under the Plan
is dependent on the comings and goings of ocean-going vessels at west
coast ports. Workers are employed by a covered stevedoring company,
generally on a daily basis through a dispatch hall system, to work
pursuant to contracts with vessel operators. The work must be performed
at the port of embarkation or debarkation. Thus, so long as west coast
shipping continues, the work performed will continue to be covered by
the Plan.
[[Page 27778]]
In addition, an employer in this industry cannot withdraw from the
Plan while continuing to perform longshore work at Pacific ports,
because longshore work along the entire west coast for all ocean-going
dry cargo work is covered under collective bargaining agreements that
require contributions to the Plan. Because the entire coast is one
bargaining unit, and all ports through which ocean-going dry cargo is
shipped are completely organized by the ILWU, it is not possible for
such cargo to be loaded or unloaded at any point on the coast without
contributions being paid to the Plan. Thus, as a practical matter, it
is not realistic to expect noncontributory, covered work. Nonetheless,
if a former contributing employer were to compete against the Plan's
other employers in this way, thereby diminishing the Plan's
contribution base, withdrawal liability would be imposed.
Because of the local nature of the work and the requirement that
contributions be made to the Plan for all longshore work done on the
Pacific coast, the comings and goings of employers do not have an
adverse effect on the Plan's contribution base, which is dependent upon
the vitality of the west coast shipping industry as a whole, and not
upon the continued existence of any particular employers. For these
reasons, the covered industry evidences characteristics that indicate
that cessations by employers typically do not have a weakening effect
on the Plan's contribution base. Thus, PBGC has concluded that the
Pacific coast longshore industry continues to evidence characteristics
that make the use of special withdrawal liability rules appropriate.
The only comment received in response to the notice questioned the
validity of the Plan amendment that is the subject of the request
(``Amendment''). Specifically, since the Amendment was not executed and
submitted by the Plan's Board of Trustees, the comment questioned
whether the Amendment was properly executed and submitted to PBGC. The
response to the comment asserts that the process of adopting the
Amendment is a settlor function left to the collective bargaining
parties, ILWU and PMA. Section 7.02 of the Pension Agreement provides
that ``[t]he (ILWU) and (PMA) by their mutual agreement in writing may
at any time amend, modify, or delete any provisions of the [ILWU-PMA
Pension] Agreement.'' Nothing in the Pension Agreement or the
collective bargaining agreement between ILWU and PMA indicates that the
Plan's Board of Trustees has the authority to amend the Pension
Agreement. The document effecting the Amendment clearly shows that
representatives of ILWU and PMA executed it. Thus, based on the Pension
Agreement and the executed Amendment, PBGC agrees that the Amendment
was properly executed by the appropriate parties, ILWU and PMA.
The comment also questioned whether the Plan's request for approval
of the Amendment was properly submitted to PBGC pursuant to PBGC
regulation. Pursuant to 29 CFR 4203.4(b), a request for PBGC's approval
of a plan amendment must be submitted by the plan sponsor or a duly
authorized representative acting on behalf of the plan sponsor. The
comment asserts that any request should have been submitted by the Plan
sponsor, the Board of Trustees, not PMA or a representative of PMA.
Further, the comment asserts that the current Board of Trustees did not
approve the request or give PMA the authority to engage a
representative to act on behalf of the Board of Trustees in preparing
and submitting the request to PBGC. The response to the comment asserts
that the Plan's previous Board of Trustees authorized PMA to engage a
representative to submit the request on behalf of the Plan. Also, a
Plan fiduciary submitted information in support of the position that
PMA had the previous Board of Trustees' authorization to proceed with
the submission of the request. No information was provided supporting
the position that the Plan's previous Board of Trustees failed to
authorize PMA to prepare and submit the request. Consequently, PBGC
disagrees with the comment and believes that the request was properly
submitted for approval by a duly authorized representative of the Plan
sponsor.
b. Risk to the Insurance System
In addition to determining that the special withdrawal liability
rules are appropriate to this case, PBGC must find that their use will
not pose a significant risk to the insurance program.
Copies of the Plan's actuarial reports for the 6-year period (7/1/
91-6/30/97) were submitted with the request. The most recent of those
reports indicates an unfunded actuarial accrued liability of $534
million, an unfunded liability for vested benefits of $355 million, and
assets of $1.329 billion. In the 6-year period, the Plan's unfunded
accrued liability increased from $360 million to $534 million, and the
monthly accrual rate went from $37 to $70 per month per year of
service. These changes increased the monthly maximum benefit from
$1,295 to $2,450. The $70 monthly accrual rate exceeds the maximum
monthly accrual rate guaranteed by PBGC under section 4022A of ERISA,
which is $16.25, or 23.2 percent of the Plan's accrual rate. On the
other hand, from 1991-1995, contributions increased at a faster rate
than benefit payouts. In 1991, benefit payouts were 97% of
contributions, and in 1995, they were 95% of contributions.
In addition to the information already mentioned, the actuarial
reports show a stable Plan population, an increase in annual
contributions ($71.1 million to $99.7 million), and an increase in Plan
assets ($747 million to $1.329 billion). Plan income has also
consistently exceeded benefit payouts. The Plan and the covered
industry have unique characteristics that suggest that the Plan's
contribution base is likely to remain stable. Contributions to the Plan
are made with respect to all west coast dry cargo. The industry has had
significant growth over the past decades and that growth is expected to
continue. The Plan's continuation is dependent only on the continued
activity in the west coast shipping industry as a whole. Consequently,
the Plan's contribution base is secure and the departure of one
employer from the Plan is not likely to have an adverse effect on the
contribution base so long as the level of shipping does not decline.
The request states that the main reason that the Plan requests an
amendment modifying its special withdrawal liability rules is that the
Plan is approaching the point where contributions would no longer be
deductible due to ERISA's full funding limit. This has occurred because
the Plan's funded status has significantly improved since approval of
the amendment establishing special withdrawal liability rules in 1984.
The 1984 amendment required that the Plan meet specific funding
objectives that were designed to improve the Plan's financial
condition. In order for the special rules to apply, the Plan had to
meet the objectives each year. At the time that PBGC approved the 1984
amendment establishing the rules, PBGC believed that ``meeting these
objectives (would) place the Plan on a sound long-term financial
basis.'' The 1984 amendment established a funding objective of fifty
percent (50%) in 1984, increasing to eighty percent (80%) in 2004.
Every year since the 1984 amendment, the Plan has more than met the
funding objectives. Under the proposed Amendment, the Plan's funding
goal objective is increased from a projected eighty percent (80%) in
2004 to eighty-five percent (85%) henceforth. If the Amendment is
approved, the Plan has agreed that in any Plan Year in
[[Page 27779]]
which the Plan's modified funding objectives are not met, the special
withdrawal liability rules will be void.
The comment raised concerns relating to the potential for increased
risk to the insurance system if the proposed Amendment is approved.
According to the comment, ``[b]y eliminating the requirement that
contributions for each Plan Year be at least equal to benefits and
administrative costs, the proposed Plan Amendment would slow the Plan's
progress towards a fully funded status while increasing the insurance
risk on the (PBGC).'' The comment states that the Plan's actuarial
projections show that the Plan's full funding limit will not be reached
for at least another two years and possibly longer, and that the
projections show a gradual decline in contributions, not a sudden drop.
In addressing the comment PBGC has considered the actuarial
information provided with the request and the response to the comment.
The evidence indicates that the west coast shipping industry covered by
the Plan has shown steady growth over the past decades, and the growth
is projected to continue. The evidence also indicates that as a result
of the steady growth in the industry, the Plan's contribution base has
been stable and secure. Due to the nature of the industry, departures
of individual employers would not pose a risk to the Plan or the PBGC
insurance system. In approving the Plan's special withdrawal liability
rules in 1984, PBGC found that meeting the associated funding
objectives would place the Plan on a ``sound long-term financial
basis.'' Those objectives have been met earlier than projected. The
proposed modification to the Plan's special withdrawal liability rules
is conditioned on the Plan meeting at least the same funding
objectives. Therefore, PBGC has concluded that the proposed
modification will not pose a significant risk to the insurance system.
Based on the facts of this case and the representations and
statements made in connection with the request for approval, PBGC has
determined that the Plan Amendment modifying special withdrawal
liability rules (1) will apply only to an industry that has
characteristics that would make the use of special withdrawal liability
rules appropriate, and (2) will not pose a significant risk to the
insurance system. Therefore, PBGC hereby grants the Plan's request for
approval of a plan amendment modifying special withdrawal liability
rules, as set forth herein. PBGC grants approval under the condition
that such approval will expire, and the Plan's special withdrawal
liability rules will be void as of the first day of the Plan Year
following a Plan Year for which the Plan is not at least eighty-five
percent (85%) funded, and during said following Plan Year the
Contributions are less than the least of (a) total administrative cost
and benefits for said following Plan Year or (b) the amount required to
increase the Funding Percentage to eighty-five percent (85%) for said
following Plan Year or (c) the maximum tax-deductible contribution to
the Plan. The Plan has agreed to certify to these conditions annually.
Should the Plan wish to again amend these rules at any time, PBGC
approval of the amendment will be required.
Issued at Washington, DC, on this 14th day of May 1998.
David Strauss,
Executive Director.
[FR Doc. 98-13435 Filed 5-19-98; 8:45 am]
BILLING CODE 7708-01-P