| 91-6 |
| August 19, 1991 |
| REFERENCE: |
| >4214> |
| >4214(b)> |
| 4219(c)(7) Notice & Collection of Withdrawal Liability - Alternate Payment |
| 4224 Alternate Method for Payment |
| OPINION: |
| I write in response to your letter requesting an opinion concerning the adoption of plan rules providing for terms and |
| conditions for the satisfaction of an employer's withdrawal liability in accordance with Sections 4219(c)(7) and 4224 of |
| Employee Retirement Income Security Act of 1974 ("ERISA"), as amended, 29 U.S.C. § § 1399(c)(7) and 1404. |
| Specifically, you seek the PBGC's opinion as to whether the trustees of a multiemployer pension plan can adopt plan rules |
| modifying an employer's withdrawal liability payment schedule to take into account the financial condition of a withdrawing |
| employer. You also request the PBGC's opinion as to what conditions or limitations should be imposed on withdrawing |
| employers seeking to have their payment schedules modified. |
| As we understand the facts, the * * * Pension Plan * * * is a multiemployer pension plan that has been terminated by |
| amendment pursuant to Section 4041A(a)(1) of ERISA, 29 U.S.C. § 1341A(a)(1). Several employers have requested to |
| have their withdrawal liability payment schedule modified because payment in accordance with Section 4219(c) of ERISA, |
| 29 U.S.C. § 1399(c), results in the employer being unable to continue in business. In such cases, the Trustees of the |
| Plan believe that it may be prudent to modify a financially troubled employer's withdrawal liability payment schedule in |
| order to allow the employer to continue in business and make additional withdrawal liability payments to the Plan. |
| Accordingly, the Trustees of the Plan seek to adopt plan rules in accordance with Sections 4219(c)(7) and 4224 of ERISA, |
| 29 U.S.C. § 1399(c)(7) and 1404, which will-allow them to modify a financially troubled employer's withdrawal liability |
| payment schedule in order to maximize the net amount of withdrawal liability payments received. |
| Sections 4219(c)(7) and 4224 of ERISA, which are virtually identical, permit plans certain latitude regarding the satisfaction |
| of an employer's withdrawal liability. Section 4224 of ERISA provides: |
| A multiemployer pension 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] and with such regulations as may be prescribed by |
| 29 U.S.C. § 1404. The PBGC has not promulgated regulations under this section. |
| The legislative history indicates that the purpose of the provision is to enable trustees to weigh the cost of collecting |
| withdrawal liability payments against the expected return in order to maximize recovery. |
| [Section 4224] authorizes plans . . . to provide an alternative method for payment of withdrawal liability. It is expected that |
| plan trustees will need to make practical collection decisions which are consistent with their fiduciary duties and |
| characteristic of a 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 an employer's other creditors in a contractual or court- |
| supervised renegotiation of the employer's indebtedness, or even to forego the assessment of further collection of liability |
| where it is apparent from the circumstances that the costs involved would exceed the amount of liability likely to be |
| 126 Cong. Rec. H7889 (daily ed., August 26, 1980) (statement of Rep. Thompson) (emphasis added). |
| The trustees' proposal to adopt plan rules which allow modification of a financially troubled employer's withdrawal liability |
| payments is unlike the examples cited in the legislative history. The proposal does not involve compromising a disputed |
| claim, cooperating with other creditors in a contractual or court supervised renegotiation of an employer's indebtedness, or |
| foregoing collection of withdrawal liability. Rather, the trustees seek a mechanism to deal with financially troubled |
| employers before informal or court supervised insolvency proceedings become necessary. |
|
We conclude that rules which allow the trustees of a multiemployer pension plan to modify and lower a financially troubled |
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employer's withdrawal liability payment schedule are consistent with ERISA and permissible under Sections 4219(c)(7) and |
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4224. In situations where payments in accordance with Section 4219(c) of ERISA will cause an employer to liquidate, plan |
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rules which authorize trustees to modify withdrawal liability payment schedules enable the trustees to collect a greater |
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portion of the employer's total withdrawal liability. The employer can pay a lesser amount over a longer period of time. |
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Such rules are consistent with Sections 4219(c)(7) and 4224 of ERISA because they recognize the discretion reserved for |
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plan fiduciaries to facilitate the collection of withdrawal liability on behalf of the plan and its participants. Plan rules which |
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provide alternative terms or conditions for satisfaction of withdrawal liability are allowable under Sections 4219(c)(7) and |
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4224 of ERISA if they are reasonable and maximize the net amount of withdrawal liability for the plan at supportable costs. |
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We note that the proposed modification is structured to yield the total payment of withdrawal liability, albeit over a longer |
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The decision to modify and lower an employer's withdrawal liability schedule pursuant to plan rules adopted in accordance |
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with Section 4219(c)(7) and 4224 of ERISA is subject to the fiduciary standards prescribed by Title I of ERISA. The |
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trustees must look to what is best for the plan and its participants in adopting rules allowing modification of withdrawal |
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liability payment schedules and in determining what terms and conditions should be imposed on a specific employer |
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seeking to have its payment schedule modified. n1 See 29 U.S.C. § 1104. The United States Department of Labor is |
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responsible for enforcing the fiduciary standards prescribed by Title I of ERISA. Any questions concerning the application |
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of the fiduciary standards in a specific case should be referred to them. |
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n1 The trustees' decision to modify an employer's withdrawal liability payment schedule pursuant to rules adopted in |
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accordance with Sections 4219(c)(7) and 4224 of ERISA possibly could be viewed as an extension of credit between the |
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plan and a party in interest which is prohibited by Section 406(a)(1)(C) of ERISA, 29 U.S.C. § 1106(a)(1)(C). However, |
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Section 4219(d) of ERISA provides that the prohibited transactions described by Section 406(a) of ERISA do not apply to |
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actions permitted under MPPAA. See also 29 U.S.C. § 1108(b)(10). |
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We note that under Section 4214(b) of ERISA, 29 U.S.C. § 1394(b), plan rules authorized under Title IV of ERISA must |
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operate and apply uniformly to all employers, although they may take into the employer's creditworthiness. Rules which |
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take into account the creditworthiness of an employer should state with particularity the categories of creditworthiness the |
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plan will use, the specific differences in treatment accorded employers in different categories, and the standards and |
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procedures for assigning an employer to a category. |
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I hope this letter is of assistance. If you have any additional questions, please contact D. Bruce Campbell of my staff at |
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the above address or at (202) 778-1918. |
|
Carol Connor Flowe |
|
General Counsel |