| 95-3 |
| December 22, 1995 |
| REFERENCE: |
| 4206(b)(1) Adjustment for Partial Withdrawal. Reduction of Liability for Subsequent Withdrawal |
| >4206(b)(2)> |
| >4211(c)(2)> |
| >29 CFR 2649> |
| >29 CFR 2649.4> |
| >29 CFR 2649.8> |
| OPINION: |
| I am writing in response to your request for the Pension Benefit Guaranty Corporation's ("PBGC") views with regard to the |
| application of section 4206(b) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), 29 |
| U.S.C. § 1386(b), and the regulations thereunder, 29 C.F.R. pt. 2649, to a multiemployer pension plan that uses a |
| variation of the "modified presumptive method" for computing withdrawal liability. Section 4206(b) governs computation of |
| withdrawal liability where an employer has previously incurred a partial withdrawal. You requested PBGC's concurrence that |
| the plan's method of calculating the amount of employers' withdrawal liability where section 4206(b) applies "is not per se |
| permissible, but that, just as with all other variations from the methods set forth in the regulation, it will be permissible if its |
| results in application 'properly reflect the employer's share of liability with respect to a plan,'" quoting ERISA section |
| The methods for computing an employer's allocable share of unfunded vested benefits for purposes of determining |
| withdrawal liability are set forth generally in ERISA section 4211, 29 U.S.C. § 1391. The "modified presumptive method" is |
| set forth in ERISA section 4211(c)(2). Simplifying somewhat, that method calls for the calculation, under ERISA section |
| 4211(c)(2)(B), of the employer's share of unfunded vested benefits for the plan year preceding the 1980 amendments to |
| ERISA, amortized over 15 years, and, under ERISA section 4211(c)(2)(C), of the employer's share of unfunded vested |
| benefits for the plan year before the withdrawal. In each case, the employer's share is based on the ratio of its required |
| contributions to all contributions for the preceding 5 plan years. The employer's allocable share of unfunded vested |
| benefits for determining withdrawal liability is the sum of these amounts. |
| Pursuant to section 4211(c)(5)(C), unless PBGC regulations provide otherwise, "a plan may be amended to provide that a |
| period of more than 5 but not more than 10 plan years may be used" for any fraction in a computation "method authorized |
| under this section for determining an employer's allocable share of unfunded vested benefits under this section." Your |
| letter states that the plan has adopted the modified presumptive method, but uses a 10-year period rather than a 5-year |
| period in the fraction set forth in ERISA section 4211(c)(2)(C) to determine the employer's allocable share of unfunded |
| ERISA section 4206(b)(1) provides generally that when an employer has incurred liability for a partial withdrawal, any |
| withdrawal liability of that employer for a partial or complete withdrawal from that plan in a subsequent plan year shall be |
| reduced by the amount of the partial withdrawal liability for the earlier year. The reduction may be referred to as the |
| "Credit." ERISA section 4206(b)(2) provides that PBGC "shall prescribe such regulations as may be necessary to provide |
| for proper adjustments" in the Credit for changes in unfunded vested benefits, changes in contribution base units, and |
| "any other factors for which [PBGC] determines adjustment to be appropriate," so that the liability for a withdrawal in a later |
| year, after application of the Credit, "properly reflects the employer's share of liability with respect to the plan." |
| The amount of the Credit for plans using the modified presumptive method is set forth in 29 C.F.R. § 2649.4. In general, |
| it provides that the employer's share of unfunded vested benefits for the plan year preceding the 1980 amendments to |
| ERISA is amortized over 15 years, and that the employer's share of unfunded vested benefits for the plan year before the |
| withdrawal is reduced as if amortized in level annual installments over 5 years, beginning with the plan year in which the |
| prior partial withdrawal occurred. The sum of these numbers is then multiplied by a defined fraction in order to determine |
| the amount of the Credit. Pursuant to PBGC regulations: |
| [a] plan that has adopted an alternative method of allocating unfunded vested benefits pursuant to section 4211(c)(5) of |
| [ERISA] and part 2642 of this subchapter shall adopt, by plan amendment, a method of calculating the [Credit] that is |
| consistent with the rules in § § 2649.3-2649.7 for plans using the statutory allocation method most similar to the plan's |
| alternative allocation method. |
| 29 C.F.R. § 2649.8. |
|
Your letter states that the plan has adopted a variation of the Credit calculation method in § 2649.4, "but substituting the |
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number '10' in every place where the number '5' appears in the Regulation." PBGC recognizes, and its regulation is |
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designed to implement, the congressional mandate that the computation of the Credit should bring about a liability amount |
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that "properly reflects the employer's share of liability with respect to the plan." The "proper" result of a calculation method, |
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and the employer's "proper" share of liabilities, however, is not a mathematical absolute; it varies as a plan's situation and |
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that of the employer change over time. That application of an objectively reasonable calculation method may seem harsh |
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to a particular employer under its particular facts and circumstances, therefore, does not invalidate the method. |
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We recognize that it may be possible to create some alternative method for calculating withdrawal liability, or for |
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calculating the Credit, that would, in some applications, yield results that would not "properly reflect the employer's share |
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of liability with respect to the plan" as meant by ERISA section 4206(b)(2). In the multiemployer plan system created by |
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Congress, such disputes over a plan's methodology are properly raised first in the plan sponsor review under ERISA. |
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section 4219(b)(2) and later, if necessary, before an arbitrator and/or a reviewing court under ERISA section 4221. |
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I hope this information is of help to you. If you have any additional questions, please contact attorney Deborah Bisco, |
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who is handling this matter. Her telephone number is (202) 326-4025. |
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James J. Keightley |
|
General Counsel |