| 76-31 |
| March 3, 1976 |
| REFERENCE: |
| 4044 Allocation of Assets |
| OPINION: |
| This is in response to our recent coversation in which you expressed the view that all * * * Plan participants currently |
| eligible to elect early retirement benefits should be put into pay status as of November 6, 1975, the date the * * * Pension |
| Plan terminated. In support of this view, you cited Article XIV, Section 4(c)(iv) of the Plan which provides: |
| (c) In the event that the Plan shall be terminated by an Employing Company, or there shall be a complete discontinuance |
| of Employing Company contributions, the assets then remaining in the Retirement Fund attributable to such Employing |
| Company shall be applied in the following order, among the Plan membership of such Employing Company, all persons in |
| each class being entitled to their respective proportionate shares: |
| (iv) Provision to Participants who shall at that time be entitled to retire early, and to vested Participants to the extent of |
| their vesting, and their respective cotingent annuitants and beneficiaries, of the remainder of the benefits to which they |
| shall be entitled or contingently entitled under the Plan; |
| The Plan section cited above provides for the allocation of Plan assets upon the termination of the * * * ension Plan. This |
| provision is superseded by section 4044 of the Employee Retirement Income Security Act of 1974 ("ERISA" or "Act"), |
| which prescribes the asset allocation priorities upon the termination of a defined benefit plan. As you may know, section |
| 4044 provides for the allocation of plan assets upon termination of a defined benefit plan; it does not, however, allocate |
| assets to individuals, per se. Thus, the present value of all benefits in each category is ascertained as of the date of the |
| plan termination. This, of course, includes benefits which are not being paid on the date of termination. The value of plan |
| assets as of the termination date is also determined. The necessary amount of plan assets are then allocated or |
| "reserved" to provide for the benefits in each category. Since a participant may have benefits in different priority |
| categories, it is possible that plan assets may prove insufficient to provide for all of an individual's benefit under the plan. |
| Of course, PBGC pays for all insured benefits in each category which are not covered by plan assets. |
| Basically, the allocation of a plan's assets upon termination is not synonymous with an individual's immediate entitlement |
| to receive the benefit that those assets have been allocated to provide. Thus, where a plan provides for deferred, vested |
| benefits, plan assets (where sufficient) will be allocated to provide those benefits. Participants, however, will not be |
| entitled to receive those benefits until a later date. Furthermore, different participants will be entitled to receive their |
| benefits on varying dates, as governed by the applicable plan and statutory provisions. |
| Under the * * * Plan, participants with early retirement benefits currently in pay status, will continue to receive their |
| benefits, to the extent that there are sufficient Plan funds and to the extent that such benefits are guaranteed by PBGC. |
| Those participants who are entitled to elect early retirement may do so upon application pursuant to Article XI, Section I of |
| the Plan. Those participants may also elect to avoid the benefit reduction attendant upon the commencement of early |
| * * * has asked me to respond to some of the questions that have been addressed to him by * * * According to information |
| provided by * * * there are Plan participants who have been on sick leave due to disability for a period of time of less |
| than two and one-half years prior to the termination of the Plan. Article III, Section 2 of the Plan provides that a participant |
| may earn Credited Service for any period of not "less than 21/2 years." Since the participants in question do not have the |
| requisite 21/2 years as required by the * * * Plan, there can be no crediting of the time for Credited Service purposes. * * |
| * has also asked if it is permissible to use the benefit formula contained in the prior * * * pension plan where that formula |
| would provide a larger benefit to the participant. A participant's benefit entitlement is governed by the terms of the * * * |
| Plan to which he belongs, except where limited by the Act. Thus, a participant's benefit is determined by the benefit |
| formula set forth in the current * * * Plan. Article V, Section 2 provides, inter alia, that "the benefits specified in Section |
| (1) above shall in no case be less than the benefit which would have been payable if the Pre-Existing Plan had been |
| continued without change." Since the pre-existing plan had no provision for either early retirement or deferred vested |
| benefits, benefits provided in the current Plan will be greater in such situations. Thus, the only time that the application of |
| the formula contained in the pre-existing plan could have any effect upon the amount of a participant's benefit is where a |
| participant takes a "Normal" retirement or where he retires under the "Nudge" provisions of the current Plan. |
| It also appears that there is still some question regarding the Nudge provisions of the Plan. Nudge benefit payments are |
| not guaranteed by PBGC. Such benefits will only be paid to the extent that there are Plan assets available. |
| I hope this explanation and these answers will prove helpful to you. Should you have any further questions please do not |
| hesitate to call me. * * * will continue as the Case Officer on this matter and participant and non-legal questions should, of |
| course, be directed to him. |
| It was pleasant speaking with you again and I apologize for the delay in sending a formal, written response to your |
| Staff Attorney |
|
Office of the General Counsel |