[Federal Register: February 3, 1998 (Volume 63, Number 22)]
[Notices]
[Page 5573-5577]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03fe98-102]
=======================================================================
-----------------------------------------------------------------------
PENSION BENEFIT GUARANTY CORPORATION
Pendency of Request for 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 pendency of request.
-----------------------------------------------------------------------
SUMMARY: This notice advises interested persons that the Pension
Benefit Guaranty Corporation (``PBGC'') has received a request from 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). Under section
4203(f) of the Employee Retirement Income Security Act of 1974, as
amended (``ERISA''), 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. PBGC
has prescribed such regulations at 29 CFR Part 4203. The regulations
provide that PBGC approval is required for a plan amendment
establishing special withdrawal liability rules, as well as any
subsequent modification of a previously approved plan amendment, other
than repeal of the amendment. The effect of this notice is to advise
interested persons of this request for approval of a modification to
special withdrawal liability rules and to invite interested persons to
submit written comments on it.
DATES: Comments must be submitted on or before March 20, 1998.
ADDRESSES: All written comments (at least three copies) should be
addressed to: Office of the General Counsel, Pension Benefit Guaranty
Corporation, 1200 K Street, N.W., Washington, DC 20005-4026, or hand-
delivered to Suite 340 at the above address. The complete request for
approval and any comments will be available for public inspection
between the hours of 9:00 a.m. and 4:00 p.m., Monday through Friday, at
PBGC's Communications and Public Affairs Department, Suite 240, at the
above address.
FOR FURTHER INFORMATION CONTACT: Gennice D. Brickhouse, Attorney,
Office of the General Counsel (22500), Pension Benefit Guaranty
Corporation, 1200 K Street, N.W., 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(a) of ERISA, a complete withdrawal from a
multiemployer plan occurs, generally, when an employer permanently
ceases to have an obligation to contribute under the plan or
permanently ceases all covered operations under the plan. Under section
4205 of ERISA, a partial withdrawal occurs, generally, when an
employer: (1) Reduces its contribution base units by seventy percent in
each of three consecutive years; or, (2) permanently ceases to have an
obligation to contribute under one or more but fewer than all
collective bargaining agreements under which the employer has been
obligated to contribute under the plan, while continuing to perform
work in the jurisdiction of the collective bargaining agreement of the
type for which contributions were previously required or transfers such
work to another location; or, (3) permanently ceases to have an
obligation to contribute under the plan for work performed at one or
more but fewer than all of its facilities, while continuing to perform
work at the facility of the type for which the obligation to contribute
ceased. Although the general rules on complete
[[Page 5574]]
and partial withdrawal identify events that normally result in a loss
to the plan's contribution base, Congress recognized that, in certain
industries and under certain circumstances, a complete or partial
cessation of the obligation to contribute does not normally weaken the
plan's contribution base. For that reason, Congress established special
withdrawal rules for the construction and entertainment industries.
For construction industry plans and employers, section 4203(b)(2)
of ERISA provides that a complete withdrawal occurs only if an employer
ceases to have an obligation to contribute under a plan, and the
employer either continues to perform previously covered work in the
jurisdiction of the collective bargaining agreement or resumes such
work within five years without renewing the obligation to contribute at
the time of resumption. Section 4203(c)(1) of ERISA applies the same
special definition of complete withdrawal to the entertainment
industry, except that the pertinent jurisdiction is the jurisdiction of
the plan rather than the jurisdiction of the collective bargaining
agreement. In contrast, the general definition of complete withdrawal
in section 4203(a) of ERISA defines a withdrawal to include permanent
cessation of the obligation to contribute regardless of the continued
activities of the withdrawn employer.
Congress also established special partial withdrawal liability
rules for the construction and entertainment industries. Under section
4208(d)(1) of ERISA, ``[a]n employer to whom section 4203(b) (relating
to the building and construction industry) applies is liable for a
partial withdrawal only if the employer's obligation to contribute
under the plan is continued for no more than an insubstantial portion
of its work in the craft and area jurisdiction of the collective
bargaining agreement of the type for which contributions are
required.'' Under section 4208(d)(2) of ERISA, ``[a]n employer to whom
section 4203(c) (relating to the entertainment industry) applies shall
have no liability for a partial withdrawal except under the conditions
and to the extent prescribed by the [PBGC] by regulation.''
Section 4203(f) of ERISA provides that 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 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 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 upon a finding by PBGC that the
adoption of such rules are consistent with the purposes of Title IV of
ERISA.
A PBGC 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 the 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.
(These characteristics include 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.)
29 CFR 4203.4(d)(7).
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
PBGC has received a request from 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. Pertinent
information provided by the Plan is summarized below.
Applicant
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.
Employer Association
The PMA is an employer association whose principal business is to
negotiate and administer maritime labor agreements with ILWU. The PMA
is composed of American and foreign flag vessel operators, and
stevedore and
[[Page 5575]]
terminal companies that operate in California, Oregon and Washington
ports.
Plan
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. 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. For the Plan year ending June 30, 1995, the Plan received
$99.7 million in contributions, and paid out $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.
Plan benefit levels are set in negotiations between the PMA and the
ILWU. Contribution rates to the Plan, which are on the basis of man-
hours, are determined annually, solely by the PMA. Only the stevedoring
firms, which are the direct employer of covered employees, contribute
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.
Special Characteristics of the Plan
Since 1938, the Pacific coast has been certified by the National
Labor Relations Board as a single bargaining unit, with the ILWU
certified as the exclusive bargaining representative. Every Pacific
coast port is under the jurisdiction of the ILWU-PMA Pension Agreement
requiring contributions to the Plan for covered work. The Plan states
in its request that, because of this characteristic, ``the [Plan] is
dependent on the vitality of the west coast shipping industry as a
whole, and not upon the continued existence of any given employer.''
According to the Plan's 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 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 manpower utilization. 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 man-hours 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 man-hours have increased from as few as
15.6 million in 1993 to over 18 million in 1996.
Industry Characteristics
Work covered under the Plan is dependent on the comings and goings
of ocean-going vessels at west coast ports. The work done by a covered
stevedoring company may fluctuate drastically from month to month as
well as from year to year. A particular company obtains its work force
through a dispatch hall system, which is jointly maintained by the ILWU
and the PMA, and in one week the employer may need a workforce large
enough to unload five ships, and then have no ships to unload the next
week. Under the dispatch hall system, employees may be shifted daily
from company to company based upon shifting work requirements. On the
average, a covered longshoreman worked for more than five stevedoring
companies in 1996.
Wages are paid to workers not by the individual employers directly,
but rather by the PMA, which maintains a coast-wide, computerized
payroll system. The stevedoring company remits wages and funds for
benefits to the PMA, which in turn issues weekly payroll checks to all
ILWU members and transmits contributions to the various benefit funds.
The work of loading and unloading ocean-going vessels must be
performed where they call. So long as west coast shipping continues,
the work covered by the Plan will continue to be performed.
The Plan stated in its summary that its situation is one where
neither the special rules nor the proposed modification imposes any
risk to the multiemployer insurance program. The Plan states in its
request that ``[Plan] contributions are made with respect to all west
coast cargo. The [Plan] is dependent, therefore, only on the continued
activity in the west coast shipping industry as a whole. This industry
has shown tremendous growth over the past decades, and the growth is
projected to continue. For those reasons, the [Plan's] contribution
base share is secure, and employers that go out of business on the west
coast will not pose a risk to the [Plan] or the PBGC.''
Actuarial Data
As part of its request, the Plan submitted copies of its six most
recent actuarial valuation reports. 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 rose
from $747.0 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 accrued liability by $49 million. The second increase,
effective July 1, 1993, increased the unfunded accrued liability by
$500 million. Finally, the third increase, effective July 1, 1996,
increased the unfunded accrued liability by $52 million. Specifically,
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.
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.
[[Page 5576]]
Summary of Actuarial Valuation Results \1\
----------------------------------------------------------------------------------------------------------------
Valuation date
-----------------------------------------------------------------------------
7/1/96 7/1/95 7/1/94 7/1/93 7/1/92 7/1/91
----------------------------------------------------------------------------------------------------------------
No. of active participants........ 8,185 7,896 7,682 8,141 8,339 8,469
No. 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
Max. 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 min. funding charges w/o
credit bal (000)................. 79,154 85,787 81,247 80,034 47,307 43,987
Normal cost (000)................. 20,527 19,176 18,441 19,162 12,821 12,334
Unfunded accrued liab. (000)...... 534,416 637,646 710,802 664,096 341,037 360,009
Unfunded liab.--vested benefits
(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
----------------------------------------------------------------------------------------------------------------
\1\ Taken from actuarial reports submitted with request.
Approved Special Rules
The complete text of the Plan provisions 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 proposed
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 the employer: (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, the
employer: (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 ILWU-PMA Pension Agreement (``Pension
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 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
[[Page 5577]]
costs and benefits to be paid by the Trustee during the Plan Year.''
Notice of Approval, 49 FR 6043, 6045 (1984).
Proposed Modification to Special Rules
On July 21, 1997, the Plan 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 to the Pension Agreement 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 Plan or the Pension Agreement, PBGC has
advised the Plan's representative that if PBGC should approve the
amendment modifying the Plan's special withdrawal liability rules such
approval will 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 has agreed to certify to these conditions
annually.
No other changes are proposed to the special withdrawal liabilities
rules as approved by the PBGC on January 30, 1984.
Reason for Modification
According to the Plan's request, the funded status of the Plan has
improved significantly since 1984, and, based on the Plan's improved
funded status, ``the potential has now arisen for unpredictable and
volatile contributions to the [Plan] under certain investment
scenarios'', and ``if the current contribution requirements were to be
continued, there is a significant risk that, under certain investment
scenarios the plan could potentially reach the tax deductible
contribution limit in the near future.'' Depending on fluctuations in
the investment market, annual contribution requirements under the Plan
could range from zero to over $100 million, depending on the tax
deductibility of each year's contributions. According to the Plan's
request, the proposed modification to the current contribution
requirement allows the Plan ``to better forecast contribution
assessments * * * by reducing the contribution volatility as the plan
nears the tax deductible limit on contributions.'' The request goes on
to state that: ``[r]educing contribution volatility is important in
maintaining a secure and soundly funded retirement program. These are
the same valid arguments that prompted Congress to enact legislation
this year to allow private plans greater contribution flexibility in
dealing with the full funding limit.''
Comments
All interested persons are invited to submit written comments
concerning the pending request to PBGC at the above address, on or
before March 20, 1998. All comments will be made a part of the record.
Comments received, as well as the application for approval of the plan
amendments, will be available for public inspection at the address set
forth above.
Issued at Washington, DC, on this 23rd day of January, 1998.
David Strauss,
Executive Director.
[FR Doc. 98-2730 Filed 2-2-98; 8:45 am]
BILLING CODE 7708-01-P