| | 88-7 |
| | May 2, 1988 |
| | REFERENCE: |
| | 4204(d) - "Unrelated Party" |
| | OPINION: |
| | We write in response to your letter requesting the assistance of the Pension Benefit Guaranty Corporation ("PBGC") in |
| | connection with an assessment of partial withdrawal liability by the * * * (the "Trust") against the * * * Corporation * * *. |
| | The Trust asserts that * * * owes the Trust $ 71,131.69 in partial withdrawal liability pursuant to Section 4205 of the |
| | Employee Retirement Income Security Act of 1974, as amended ("ERISA"). |
| | Based on your letter and telephone conversations between members of my staff and yourself, it appears that the |
| | imposition of partial withdrawal liability results from X's sale of certain assets to Y's Corporation * * *. X and Y are |
| | considered to be related parties under section 267(b) of the Internal Revenue Code (the "Code"), but are not so closely |
| | related as to constitute a controlled group of corporations. You acknowledge that there was a partial withdrawal by X under |
| | section 4205 of ERISA, and state that X could have avoided the imposition of withdrawal liability under section 4204 of |
| | ERISA but for that section's requirement that the sale be made to an "unrelated party." |
| | You conclude your letter by arguing that: |
| | X is the unwitting and innocent victim of an unfair provision of the law. On the one hand, X and Y are not closely enough |
| | related to constitute a controlled group of corporations, in which event no withdrawal liability would have been asserted. On |
| | the other hand, the two corporations are too closely related to permit a less onerous alternative than withdrawal liability. |
| | You first request that the PBGC find that X's sale to Y satisfied the requirements of section 4204 of ERISA. |
| | Section 4204 provides that, where certain other conditions are met, a complete or partial withdrawal does not occur solely |
| | because, "as a result of a bona fide, arm's-length sale of assets to an unrelated party," the seller ceases covered |
| | operations or ceases to have an obligation to contribute. Section 4204(d) provides that, for the purposes of section 4204, |
| | "unrelated party" is defined either according to the provisions of section 267(b) of the Code or according to regulations |
| | promulgated by the PBGC using principles similar to section 267(b) of the Code. The PBGC has not yet promulgated such |
| | regulations. Therefore, the definition of "unrelated party" contained in section 267(b) of the Code is controlling. You state |
| | that X and Y are not "unrelated parties" within the meaning of section 267(b) of the Code. Thus, X's sale to Y does not |
| | The PBGC has the authority to vary by regulation two requirements of section 4204, namely, the purchaser's bond or |
| | escrow required by section 4204(a)(1)(B), and the sale-contract provision required by section 4204(a)(1)(C). ERISA § |
| | 4204(c). The PBGC has promulgated such a regulation. 29 C.F.R. § § 2643.1-2643.15 (1987). Prior to the promulgation |
| | of this regulation, the PBGC had the authority to grant individual variances of these two requirements of section 4204. |
| | ERISA § 4204(c). Congress, however, did not authorize the PBGC to grant an individual variance with regard to the |
| | "unrelated party" requirement. Accordingly, the PBGC may not grant a variance of the unrelated party requirement to X for |
| | You also request that the PBGC issue an advisory opinion that the Trust may waive the "unrelated party" requirement, and |
| | you request that PBGC specifically authorize the Trust to do so in this case. The plan sponsor, however, has the |
| | responsibility for determining the amount of withdrawal liability owed by an employer and for collecting this liability. ERISA |
| | § 4202. A plan may adopt rules providing for other terms and conditions for the satisfaction of an employer's withdrawal |
| | liability, if such rules are consistent with ERISA. ERISA § 4224. Plan fiduciaries also have general authority to |
| | compromise disputed claims, abandon worthless claims, and otherwise conduct the plan's affairs so as to best serve the |
| | interests of participants and beneficiaries. As stated by Senator Williams, for himself and and Senator Javits, during |
| | consideration of the Multiemployer Pension Plan Amendments Act of 1980 (which added sections 4201-4225 to ERISA) on |
| | We do not intend to restrict plan sponsors' prudent exercise of judgment in administering the withdrawal liability provisions |
| | generally. It is expected that plan trustees will need to make practical collection decisions which are consistent with their |
| | fiduciary duties and characteristic of any responsible creditor concerned with maximizing the total ultimate recovery at |
| | supportable costs. Thus, for example, where it is prudent and in the participants' interest, plan trustees may decide to |
| | settle a withdrawal liability dispute for less than the full amount claimed, to cooperate with the employer's other creditors in |
| | a contractual or court-supervised renegotiation of the employer's indebtedness, or even to forego the assessment or |
| | further collection of liability where it is apparent from the circumstances that the costs involved would exceed the amount |
| | likely to be recovered. |
| | 126 Cong. Rec. 23288 (1980) (emphasis added). No provision of ERISA, however, expressly provides for a plan |
| | sponsor's waiver of withdrawal liability in circumstances such as X's withdrawal from the Trust. Nor does ERISA otherwise |
| | authorize a plan sponsor to waive withdrawal liability imposed by ERISA merely because it appears "fair" to do so. Rather, |
| | the plan sponsor must "maximiz[e] the total ultimate recovery at supportable costs." Id. |
| | Should you have any further questions on this matter, please contact John Sutter of my office at the above address or |
| | (202) 778-8820. |
| |
Gary M. Ford |
| |
General Counsel |