[Federal Register: October 11, 1996 (Volume 61, Number 199)]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
PENSION BENEFIT GUARANTY CORPORATION
Exemption From Bond/Escrow Requirement Relating to Sale of Assets by an Employer Who Contributes to a Multiemployer Plan; Tuscan Dairy Farms, Inc.
AGENCY: Pension Benefit Guaranty Corporation.
ACTION: Notice of exemption.
SUMMARY: The Pension Benefit Guaranty Corporation has granted a request from Tuscan Dairy Farms, Inc. for an exemption from the bond/escrow requirement of section 4204(a)(1)(B) of the Employee Retirement Income Security Act of 1974, as amended, with respect to the Local 584 Pension Trust Fund. A notice of the request for exemption from the requirement was published on July 24, 1996 (61 FR 38481). The effect of this notice is to advise the public of the decision on the exemption request.
ADDRESSES: The nonconfidential portions of the request for an exemption and the PBGC response to the request are available for public inspection at the PBGC Communications and Public Affairs Department, Suite 240, 1200 K Street, N.W., Washington, DC 20005-4026, between the hours of 9:00 a.m. and 4:00 p.m, Monday through Friday.
FOR FURTHER INFORMATION CONTACT: Karen L. Morris, Attorney, Office of General Counsel, Pension Benefit Guaranty Corporation, 1200 K Street, N.W., Washington, D.C. 20005; telephone 202-326-4127 (202-326-4179 for TTY and TDD). These are not toll-free numbers.
Section 4204 of the Employee Retirement Income Security Act of 1974, as amended by the Multiemployer Pension Plan Amendments Act of 1980, (``ERISA'' or ``the Act''), provides that a bona fide arm's- length sale of assets of a contributing employer to an unrelated party will not be considered to result in a withdrawal if three conditions are met. These conditions, enumerated in section 4204(a)(1)(A)-(C), are that--
(A) The purchaser has an obligation to contribute to the plan with respect to the operations for substantially the same number of contribution base units for which the seller was obligated to contribute;
(B) The purchaser obtains a bond or places an amount in escrow, for a period of five plan years after the sale, in an amount equal to the greater of the seller's average required annual contribution to the plan for the three plan years preceding the year in which the sale occurred or the seller's required annual contribution for the plan year preceding the year in which the sale occurred (the amount of the bond or escrow is doubled if the plan is in reorganization in the year in which the sale occurred); and
(C) The contract of sale provides that if the purchaser withdraws from the plan within the first five plan years beginning after the sale and fails to pay any of its liability to the plan, the seller shall be secondarily liable for the liability it (the seller) would have had but for section 4204.
The bond or escrow described above would be paid to the plan if the purchaser withdraws from the plan or fails to make any required contributions to the plan within the first five plan years beginning after the sale.
Additionally, section 4204(b)(1) provides that if a sale of assets is covered by section 4204, the purchaser assumes by operation of law the contribution record of the seller for the plan year in which the sale occurred and the preceding four plan years.
Section 4204(c) of ERISA authorizes the Pension Benefit Guaranty Corporation (``PBGC'') to grant individual or class variances or exemptions from the purchaser's bond/escrow requirement of section 4204(a)(1)(B) when warranted. The legislative history of section 4204 indicates a Congressional intent that the sales rules be administered in a manner that assures protection of the plan with the least practicable intrusion into normal business transactions. Senate Committee on Labor and Human Resources, 96th Cong., 2nd Sess., S. 1076, The Multiemployer Pension Plan Amendments Act of 1980: Summary and Analysis of Considerations 16 (Comm. Print, April 1980); 128 Cong. Rec. S10117 (July 29, 1980). The granting of an exemption or variance from the bond/escrow requirement does not constitute a finding by the PBGC that a particular transaction satisfies the other requirements of section 4204(a)(1). Such questions are to be decided by the plan sponsor in the first instance, and any disputes are to be resolved in arbitration. 29 U.S.C. 1382, 1399, 1401.
Under the PBGC's regulation on variances for sales of assets (29 CFR Part 4204, available at 61 FR 34002, 34084 (July 1, 1996)), a request for a variance or waiver of the bond/escrow requirement under any of the tests established in the regulation (29 CFR 4204.12-4204.14) is to be made to the plan in question. The PBGC will consider waiver requests only when the request is not based on satisfaction of one of the four regulatory tests or when the parties assert that the financial information necessary to show satisfaction of one of the regulatory tests is privileged or confidential financial information within the meaning of 5 U.S.C. 552(b)(4) (the Freedom of Information Act). Under Sec. 4204.22 of the regulation, the PBGC shall approve a request for a variance or exemption if it determines that approval of the request is warranted, in that it--
(1) Would more effectively or equitably carry out the purposes of Title IV of the Act; and
(2) Would not significantly increase the risk of financial loss to the plan.
Section 4204(c) of ERISA and section 4204.22(b) of the regulation require the PBGC to publish a notice of the pendency of a request for a variance or exemption in the Federal Register, and to provide interested parties with an opportunity to comment on the proposed variance or exemption.
On July 24, 1996 (61 FR 38481), the PBGC published a request from Tuscan Dairy Farms, Inc. (the ``Purchaser'') for an exemption from the bond/escrow requirement of section 4204(a)(1)(B) with respect to its August 18, 1995, purchase of certain assets of American Farms, Inc., Progressive Milk Co., Ltd., and 339 Milk, Inc. (the ``Sellers''). No comments were received in response to the notice.
According to the request, on August 18, 1995, the Purchaser acquired certain assets of the Sellers. The Sellers were obligated to contribute to the Local 584 Pension Trust Fund (the ``Plan'') for certain employees at operations subject to the sale. The Purchaser is required to contribute to the Plan for substantially the same number of contribution base units with respect to employees of the Sellers who work at operations subject to the sale. The Sellers have agreed to be secondarily liable for any withdrawal liability they would have had with respect to the sold operations (if not for section 4204) should the Purchaser withdraw from the Plan within five years of the sale and fail to pay its withdrawal liability.
The estimated amount of the unfunded vested benefits allocable to the Sellers with respect to the operations subject to the sale is $177,657. The Purchaser does not have an estimate of the unfunded vested benefits allocable to it for its other operations covered under the Plan. The amount of the bond/escrow that would be required under section 4204 (a)(1)(B) of ERISA is approximately $123,905. [[Page 53466]]
The Purchaser submitted a financial statement showing the amount of its net tangible assets. The Purchaser asserted that even though it does not have an estimate of the unfunded vested benefits allocable to its other operations, even if the total unfunded vested benefits of the Plan were allocated to those other operations, Purchaser's net tangible assets exceed the sum of the unfunded vested benefits allocable to the Sellers and the maximum amount that could be allocable to its other operations. The Purchaser has requested confidential treatment of its financial statements on the ground that they are confidential within the meaning of 5 U.S.C. 552.
Based on the facts of this case and the representations and statements made in connection with the request for an exemption, the PBGC has determined that an exemption from the bond/escrow requirement is warranted, in that it would more effectively carry out the purposes of Title IV of ERISA and would not significantly increase the risk of financial loss to the Plan. Moreover, the PBGC has determined that the Buyer satisfies the net tangible assets test contained in section 4204.13(a)(2) of the regulation, and would be entitled to a variance of the bond/escrow requirement from the Plan under section 4204.11 of the regulation. Therefore, the PBGC hereby grants the request for an exemption from the bond/escrow requirement. The granting of an exemption or variance from the bond/escrow requirement of section 4204(a)(1)(B) does not constitute a finding by the PBGC that the transaction satisfies the other requirements of section 4204(a)(1). The determination of whether the transaction satisfies such other requirements is a determination to be made by the Plan sponsor. Issued at Washington, D.C., on this 7th day of October, 1996.
[FR Doc. 96-26182 Filed 10-10-96; 8:45 am]
BILLING CODE 7708-01-P