[Federal Register: November 29, 2005 (Volume 70, Number 228)]
[Notices]
[Page 71562-71564]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29no05-104]
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PENSION BENEFIT GUARANTY CORPORATION
Approval of Amendment to Special Withdrawal Liability Rules for
Service Employees International Union Local 25 and Participating
Employers Pension Trust
AGENCY: Pension Benefit Guaranty Corporation.
ACTION: Notice of approval.
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SUMMARY: The Service Employees International Union Local 25 and
Participating Employers Pension Trust requested the Pension Benefit
Guaranty Corporation (``PBGC'') to approve a plan amendment providing
for special withdrawal liability rules for employers that maintain the
Plan. PBGC published a Notice of Pendency of the Request for Approval
of the amendment on July 6, 2005 (70 FR 38983) (``Notice of
Pendency''). In accordance with the provisions of the Employee
Retirement Income Security Act of 1974, as amended (``ERISA''), PBGC is
now advising the public that the agency has approved the requested
amendment.
FOR FURTHER INFORMATION CONTACT: Frank Anderson, Attorney, Office of
the Chief Counsel, Pension Benefit Guaranty Corporation, 1200 K Street,
NW., Washington, DC 20005-4026; Telephone 202-326-4020 (For TTY/TDD
users, call the Federal Relay Service toll-free at 1-800-877-8339 and
ask to be connected to 202-326-4020).
SUPPLEMENTARY INFORMATION:
Background
Under section 4201 of ERISA, an employer who completely or
partially withdraws from a defined benefit multiemployer pension plan
becomes liable for a proportional share of the plan's unfunded vested
benefits. The statute specifies that a ``complete withdrawal'' occurs
whenever an employer either permanently (1) ceases to have an
obligation to contribute to the plan, or (2) ceases all operations
covered under the plan. See ERISA section 4203(a). Under the second
test, therefore, an employer who closes or sells its operations will
incur withdrawal liability. Under the first test, an employer who
remains in business but who no longer has an obligation to contribute
to the plan also is liable. The ``partial withdrawal'' provisions of
sections 4205 and 4206 impose a lesser measure of liability upon
employers who greatly reduce, but do not eliminate, the operations that
generate contributions to the plan. The withdrawal liability provisions
of ERISA are a critical factor in maintaining the solvency of these
pension plans and reducing claims made on the multiemployer plan
guaranty fund maintained by PBGC. Without withdrawal liability rules,
an employer who participates in an underfunded multiemployer plan would
have a powerful economic incentive to reduce expenses by withdrawing
from the plan.
Congress nevertheless allowed for the possibility that, in certain
industries, the fact that particular employers go out of business (or
cease operations in a specific geographic region) might not result in
permanent damage to the pension plan's contribution base. In the
construction industry, for example, the work must necessarily take
place at the construction site; if that work generates contributions to
the pension plan, it does not much matter which employer does the work.
Put another way, if a construction employer goes out of business, or
stops operations in a geographic area, pension plan contributions will
not diminish if a second employer who contributes to the plan fills the
void. The plan's contribution base is damaged, therefore, only if the
employer stops contributing to the plan but continues to perform
construction work in the jurisdiction of the collective bargaining
agreement.
This reasoning led Congress to adopt a special definition of the
term ``withdrawal'' for construction industry plans. 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, but the
employer nevertheless performs previously covered work in the
jurisdiction of the collective bargaining agreement anytime within five
years after the employer ceased its contributions.\1\ There is a
parallel rule
[[Page 71563]]
for partial withdrawals from construction plans. 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.''
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\1\ Section 4203(c)(1) of ERISA applies a similar 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. No plan has
ever requested PBGC to determine that it shares the characteristics
of an entertainment plan.
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Section 4203(f) of ERISA provides that PBGC may prescribe
regulations under which plans that are not in the construction industry
may be amended to use special withdrawal liability rules similar to
those that apply to construction plans. Under the statute, the
regulations ``shall permit the use of special withdrawal liability
rules * * * only in industries'' that PBGC determines share the
characteristics of the construction industry. In addition, each plan
application must show that the special rule ``will not pose a
significant risk to the [PBGC] insurance system.'' Section 4208(e)(3)
of ERISA provides for parallel treatment of partial withdrawal
liability rules.
The regulation on Extension of Special Withdrawal Liability Rules
(29 CFR part 4203), prescribes the procedures a multiemployer plan must
follow to request PBGC approval of a plan amendment that establishes
special complete or partial withdrawal liability rules. Under 29 CFR
4203.3(a), a complete withdrawal rule must be similar to the statutory
provision that applies to construction industry plans under section
4203(b) of ERISA. Any special rule for partial withdrawals must be
consistent with the construction industry partial withdrawal
provisions.
Each request for approval of a plan amendment establishing special
withdrawal liability rules must provide PBGC with detailed financial
and actuarial data about the plan. In addition, the applicant must
provide PBGC with information about the effects of withdrawals on the
plan's contribution base. As a practical matter, the plan must show
that the characteristics of employment and labor relations in its
industry are sufficiently similar to those in the construction industry
that use of the construction rule would be appropriate. Relevant
factors 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. PBGC will
approve a special withdrawal liability rule only if a review of the
record shows that:
(1) The industry has characteristics that would make use of the
special construction withdrawal rules appropriate; and
(2) The adoption of the special rule would not aversely affect the
plan. After review of the application and all public comments, PBGC may
approve the amendment in the form proposed by the plan, approve the
application subject to conditions or revisions, or deny the
application.
Request
On July 6, 2005, PBGC published a notice soliciting public comment
on a request on behalf of the Service Employees International Union
Local 25 and Participating Employers Pension Trust (``Plan'') for
approval of an amendment prescribing special withdrawal liability rules
that, if approved by PBGC, would be effective as of September 30, 2002.
PBGC received no comments on the notice.
The plan is a multiemployer plan covering the commercial building
cleaning and security industry in Chicago, Illinois. It is maintained
pursuant to collective bargaining agreements with the Building Owners
and Managers Association of Chicago and independent cleaning
contractors. As of October 1, 2003, it had approximately 10,000 active
participants and was paying approximately $14.4 million in benefits to
4,157 pensioners and survivors.
The plan had 173 contributing employers as of October 1, 2002, and
contributions for the year ending September 30, 2003, were $10.7
million. The number of contributing employers has remained stable from
1996-2002, with a small increase in 2001 when employees of independent
contractors who clean Chicago public school and police stations became
participants in the plan. Between 1996 and 2002, the number of active
participants increased by almost 67%.
Contributions have increased at a faster rate than benefit
payments, with increases occurring as new groups were added to the
plan; in 1997, benefits were 248% of contributions and in 2003 they
were 134% of contributions. The contribution rate was $12 per employee
per week from 1981 until 2003, when it was increased to $18 per
employee per week.
Since October 1, 2001, the monthly benefit has been $27 for each
year of credited service after December 1, 1968, plus $10 per year of
credited service before December 1, 1968. Total service is limited to
25 years. (In 1999, the rate was $25 and in 2000, it was $26.) In
addition, the plan has increased the pensions of retirees by 4.87% in
1998 and by 1.00% in 2000.
Summary of Actuarial Valuation Results, 2000-2003
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Valuation Date (October 1)
Item ---------------------------------------------------
2003 2002 2001 2000
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Active participants......................................... 10,297 10,061 7,995 7,182
Retirees.................................................... 4,157 4,088 4,146 4,070
Monthly benefit accrual rate................................ 27 27 27 26
Max. monthly benefit........................................ 675 675 675 650
Contributions............................................... 10,739 7,804 6,579 5,340
Benefits (000).............................................. 14,424 13,786 13,258 12,839
Accrued liability (000)..................................... 229,508 217,770 210,172 196,940
Market value of assets (000)................................ 195,336 174,021 189,389 219,731
Net min. funding charge w/o credit bal. (000)............... 14,039 12,822 9,338 6,974
Normal cost (000)........................................... 8,888 8,674 6,719 5,585
Unfunded accrued liability* (000)........................... 34,172 43,749 20,783 (22,791)
Present value of vested benefits (000)...................... 206,284 198,020 192,041 183,588
[[Page 71564]]
Unfunded liability, vested benefits* (000).................. 10,948 23,999 2,652 (36,143)
Valuation interest rate (%)................................. 7.5 7.5 7.5 7.5
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* Using market value of assets
Decision on the Proposed Amendment
The statute and the implementing regulation state that PBGC must
make two factual determinations before it approves a request for an
amendment that adopts a special withdrawal liability rule. ERISA
section 4203(f); 29 CFR 4203.4(a). First, on the basis of a 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. After review of the record
submitted by the Plan, and having received no public comments, PBGC has
entered the following determinations.
1. What Is the Nature of the Industry?
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 Plan's contribution base
resembles that found in the construction industry. This threshold
question requires consideration of the effect of employer withdrawals
on the Plan's contribution base.
Work covered by this plan must be performed at the office building
located in Chicago. Thus, the work is local in nature; it generally
will continue to be covered by the Plan. An employer ceases
contributing when work is outsourced, the contractor loses a cleaning
or security contract with a building owner, bankruptcy, closeout of a
business as a result of retirement, or business relocation. Over the
past ten years, cessation of contributions by any individual employer
has not had an adverse impact on the Plan's contribution base. Most
employers that have ceased to contribute have been replaced by another
employer who begins contributing for the same work.
2. What Is the Exposure and Risk of Loss to PBGC and Participants?
Exposure. The bargaining parties have increased benefits for active
workers by just over 25% since 1999. For a participant who retires with
25 years of service (the maximum) the monthly benefit has risen from
$538 to $675. Thus, benefit liabilities will rise because recent
retirees will have higher benefits.
Risk of loss. The record shows that the Plan presented a low risk
of loss to PBGC guaranty funds. The Plan's active participant
population is increasing. Plan assets increased from 1997 to 2000, and
dipped slightly after that. While no longer fully funded for accrued or
vested benefits, underfunding decreased in 2003. 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 Chicago commercial office buildings.
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 number of buildings covered
does not decline.
Conclusion
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. Should the Plan wish to amend these rules
at any time, PBGC approval of the amendment will be required.
Issued at Washington, DC, on this 17th day of November, 2005.
Bradley D. Belt,
Executive Director, Pension Benefit Guaranty Corporation.
[FR Doc. E5-6625 Filed 11-28-05; 8:45 am]
BILLING CODE 7708-01-P