| 85-18 |
| July 24, 1985 |
| REFERENCE: |
| 4219(c)(3) Notice and Collection of Withdrawal Liability. Annual or Quarterly Payment Schedule |
| OPINION: |
| On January 4, 1985, we wrote to you expressing our opinion as to the correct interpretation of certain provisions of the |
| Employee Retirement Income Security Act of 1974 ("ERISA") about which you had raised questions. Our opinion was |
| published as Opinion Letter 85-1. We have decided that we should clarify some statements in our opinion because they |
| may be misleading. |
| One of the questions you raised concerned the meaning of the phrase "equal installments" in ERISA section 4219(c)(3). |
| We opined that withdrawal liability payments made more or less frequently than quarterly should have a present value |
| equal to the present value of the quarterly payments called for by the statute. To illustrate this concept, we gave an |
| example in which the annual withdrawal liability payments were $12,000 and the quarterly payments under section |
| 4219(c)(3) were accordingly $3,000. We then discussed a monthly payment schedule and made the following statements: |
| ". . . Since the payments would be more frequent than quarterly, the amount of each monthly payment would be reduced |
| by an appropriate interest factor. Instead of paying exactly $1,000 each month for three months to yield a quarterly |
| payment of $3,000, the employer would pay somewhat less than $1,000 each month so that the present value of the |
| stream of monthly payments is equal to the present value of a stream of quarterly payments of $3,000 each. |
| "Similarly, to the extent the employer made payments less frequently than on a quarterly basis, the amount of each |
| individual payment would be increased by an appropriate interest factor." |
| These statements assume that the quarterly payments would be made at the end of each quarter, and that the monthly |
| payments (made during the quarter) would thus result in the plan's receiving payment in advance. Similarly, they assume |
| that payments made less often than quarterly would be made in arrears. Typically, however, the situation is the reverse. |
| The first monthly payment will be made on the date when the first quarterly payment would have been due, and the plan |
| will thus receive payment in arrears. On the other hand, if payments are less frequent than quarterly, the first payment |
| will be more than the plan would have received on the same date under a quarterly schedule, so the plan will be getting |
| Whether payments to be made other than quarterly should be reduced or increased to make them actuarially equivalent to |
| the quarterly payments specified in the statute depends not on whether they are more or less frequent than quarterly but |
| on whether they result in the plan's receiving payment earlier or later than it would have on a quarterly schedule. |
| Accordingly, we are revising that portion of Opinion Letter 85-1 quoted above to read as follows: |
| ". . . If the first monthly payment in each quarter were to be made on the date when the quarterly payment for that quarter |
| would otherwise have been due, the plan would be receiving payment more slowly than under a quarterly schedule. |
| Instead of paying exactly $1,000 each month ($3,000 per quarter), the employer would pay somewhat more than $1,000 |
| each month so that the present value of the stream of monthly payments is equal to the present value of a stream of |
| quarterly payments of $3,000 each. |
| "Similarly, suppose that the plan rules called for semi-annual payments. If the payment for each six-month period were to |
| be made on the date when the first quarterly payment for that six-month period would otherwise have been due, the plan |
| would be receiving payment more quickly than under a quarterly schedule, and the employer would pay somewhat less |
| than $6,000 each six months." |
| I hope this makes our earlier opinion letter clearer. If you have any questions about this letter, please call or write * * * of |
| our Corporate Policy and Regulations Department. * * * telephone number is * * *. |
| Edward Mackiewicz |
| General Counsel |