| 93-2 |
| July 7, 1993 |
| REFERENCE: |
| 4205(a)(1) Partial Withdrawals. Contribution DeclinePartial Withdrawals. Contribution Decline |
| >4205(b)(1)> |
| >4206(a)(2)(A)> |
| OPINION: |
| I write in response to your letter requesting guidance on the calculation of partial withdrawal liability following a 70-percent |
| decline in contributions under Section 4206 of the Employee Retirement Income Security Act of 1974 ("ERISA"), as |
| amended, 29 U.S.C. § 1386 (1992). Specifically, you request our opinion on what plan year's contribution base units |
| make up the numerator of the fraction described at Section 4206(a)(2) of ERISA, 29 U.S.C. § 1386(a)(2). |
| Generally, a partial withdrawal occurs on the last day of a plan year in which an employer experiences a 70-percent |
| contribution decline. ERISA § 4205(a)(1), 29 U.S.C. § 1385(a)(1). A 70-percent contribution decline occurs whenever an |
| employer's contribution base units in each year of a "3-year testing period" do not exceed 30 percent of the employer's |
| contribution base units in the "high base year." ERISA § 4205(b)(1)(A), 29 U.S.C. § 1385(b)(1)(A). For these purposes, |
| the 3-year testing period includes the current plan year and the two immediately preceding plan years. ERISA § |
| 4205(b)(1)(B)(i), 29 U.S.C. § 1385(b)(1)(B)(i). The contribution base units in the high base year is an average of the two |
| highest yearly contribution base unit amounts in the 5 plan years immediately preceding the 3-year testing period. ERISA |
| § 4205(b)(1)(B)(ii), 29 U.S.C. § 1385(b)(1)(B)(ii). |
| An employer's liability for a partial withdrawal is determined pursuant to Section 4206 of ERISA, 29 U.S.C. § 1386. In the |
| case of a partial withdrawal occurring because of a 70-percent contribution decline, the first step is to calculate the amount |
| of unfunded vested benefits allocable to the employer for a hypothetical complete withdrawal under Section 4211 of |
| ERISA, 29 U.S.C. § 1391, determined "as if the employer had withdrawn in a complete withdrawal . . . on the last day of |
| the first plan year in the 3-year testing period." ERISA § 4206(a)(1)(B); 29 U.S.C. § 1386(a)(1)(B). This figure is then |
| adjusted by multiplying it by 1 minus a fraction the numerator of which is the employer's contribution base units for the |
| plan year following the plan year in which the partial withdrawal occurs, and the denominator of which is the average of the |
| employer's contribution base units for the 5 plan years immediately preceding the 3-year testing period. ERISA § |
| 4206(a)(2)(A) and (B); 29 U.S.C. § 1386(a)(2)(A) and (B). |
| You ask whether the numerator of the fraction is the contribution base units for the plan year following the hypothetical |
| complete withdrawal (i.e., the second plan year in the 3-year testing period), or the contribution base units for the plan year |
| following the third plan year in the 3-year testing period. Under Sections 4205(b)(1) and 4206(a)(2)(A) of ERISA, 29 |
| U.S.C. § § 1385(b)(1) and 1386(a)(2)(A), the answer is the latter. |
| As stated above, a partial withdrawal is deemed to occur on the last day of a plan year in which the employer's contribution |
| base units in each year of a 3-year testing period do not exceed 30 percent of the employer's contribution base units in |
| the high base year. ERISA § 4205(b)(1)(A), 29 U.S.C. § 1385(b)(1)(A). The three year test period includes the current |
| plan year and the two immediately preceding plan years. ERISA § 4205(b)(1)(B)(i), 29 U.S.C. § 1385(b)(1)(B)(i). The |
| "contribution base units for the plan year following the plan year in which the partial withdrawal occurs" referenced in |
| Section 4206(a)(2)(A) of ERISA, 29 U.S.C. § 1386(a)(2)(A) (emphasis added), thus refers to the plan year following the |
| last plan year in the 3-year testing period. |
| Using your example of a partial withdrawal occurring in 1992, an employer's liability is calculated using the amount of |
| unfunded vested benefits allocable to the employer under Section 4211 of ERISA, 29 U.S.C. § 1391, for a hypothetical |
| complete withdrawal occurring in 1990, the first plan year in the 3-year test period. This amount is then multiplied by 1 |
| minus a fraction the numerator of which is the employer's contribution base units for 1993, and the denominator of which is |
| the employer's average contribution base units for the years 1985 through 1989. |
| I hope this has been of assistance to you. If you have any further questions, please contact D. Bruce Campbell of my |
| staff at (202) 778-1918. |
| Carol Connor Flowe, General Counsel |