[Federal Register Volume 74, Number 180 (Friday, September 18, 2009)]
[Notices]
[Pages 47979-47981]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-22537]
=======================================================================
-----------------------------------------------------------------------
PENSION BENEFIT GUARANTY CORPORATION
Approval of Amendment to Special Withdrawal Liability Rules for
Service Employees International Union Local 1 Pension Trust Fund
AGENCY: Pension Benefit Guaranty Corporation.
ACTION: Notice of approval.
-----------------------------------------------------------------------
SUMMARY: The Service Employees International Union Local 1 Pension
Trust Fund requested the Pension Benefit Guaranty Corporation
(``PBGC'') to approve a plan amendment providing for special withdrawal
liability rules for employers that maintain the Plan. PBGC published a
Notice of Pendency of the Request for Approval of the amendment on
March 2, 2009 (74 FR 9114) (``Notice of Pendency''). In accordance with
the provisions of the Employee Retirement Income Security Act of 1974,
as amended (``ERISA''), PBGC is now advising the public that the agency
has approved the requested amendment.
FOR FURTHER INFORMATION CONTACT: Eric Field, Attorney, Office of the
Chief Counsel, Pension Benefit Guaranty Corporation, 1200 K Street,
NW., Washington, DC 20005-4026; telephone 202-326-4020. (TTY and TDD
users may call the Federal relay service toll-free at 1-800-877-8339
and ask to be connected to 202-326-4020).
SUPPLEMENTARY INFORMATION:
Background
Under section 4201 of ERISA, an employer who completely or
partially withdraws from a defined benefit multiemployer pension plan
becomes liable for a proportional share of the plan's unfunded vested
benefits. The statute specifies that a ``complete withdrawal'' occurs
whenever an employer either permanently (1) ceases to have an
obligation to contribute to the plan, or (2) ceases all operations
covered under the plan. See ERISA section 4203(a). Under the first
test, an employer who remains in business but no longer has an
obligation to contribute to the plan will incur withdrawal liability.
Under the second test, an employer who closes or sells its operations
will also incur withdrawal liability. The ``partial withdrawal''
provisions of sections 4205 and 4206 impose a lesser measure of
liability upon employers who reduce, but do not eliminate, the
obligations or operations that generate contributions to the plan. The
withdrawal liability provisions of ERISA are a critical factor in
maintaining the solvency of these pension plans and reducing claims
made on the multiemployer plan insurance fund maintained by PBGC.
Without withdrawal liability rules, an employer who participates in an
underfunded multiemployer plan would have a powerful economic incentive
to reduce expenses by withdrawing from the plan.
Congress nevertheless allowed for the possibility that, in certain
industries, the fact that particular employers go out of business (or
cease operations in a specific geographic region) might not result in
permanent damage to the pension plan's contribution base. In the
construction industry, for example, the funding base of a pension plan
is the construction projects in the area covered by the collective
bargaining agreements under which a pension plan is maintained. Even if
the amount of work performed by a particular employer fluctuates
markedly in any given year, individual employees will typically
continue to work for other contributing employers in the same
geographic area. Consequently, the withdrawal of an employer does not
remove jobs from or damage the pension plan's contribution base unless
the employer continues to work in the geographic area covered by
collective bargaining agreement without contributing to the plan.
This reasoning led Congress to adopt a special definition of the
term ``withdrawal'' for construction industry plans. Section 4203(b)(2)
of ERISA provides that a complete withdrawal occurs only if an employer
ceases to have an obligation to contribute under a plan, but
nevertheless continues to perform previously covered work in the
jurisdiction of the collective bargaining agreement or resumes such
work within five years after the date on which the obligations to
contribute ceased.\1\ There
[[Page 47980]]
is a parallel rule for partial withdrawals from construction plans.
Under section 4208(d)(1) of ERISA, an employer to whom section 4203(b)
(relating to the building and construction industry) applies is liable
for a partial withdrawal ``only if the employer's obligation to
contribute under the plan is continued for no more than an
insubstantial portion of its work in the craft and area jurisdiction of
the collective bargaining agreement of the type for which contributions
are required.
---------------------------------------------------------------------------
\1\ Section 4203(c)(1) of ERISA applies a similar definition of
complete withdrawal to the entertainment industry, except that the
pertinent jurisdiction is the jurisdiction of the plan rather than
the jurisdiction of the collective bargaining agreement. No plan has
ever requested PBGC to determine that it shares the characteristics
of an entertainment plan.
---------------------------------------------------------------------------
Section 4203(f) of ERISA provides that PBGC may prescribe
regulations under which plans that are not in the construction industry
may be amended to use special withdrawal liability rules similar to
those that apply to construction plans. Under the statute, the
regulations shall permit the use of special withdrawal liability rules
only in industries that PBGC determines have characteristics that would
make use of the special withdrawal liability rules appropriate. ERISA
Sec. 4203(f)(2)(A). In addition, each plan application must show that
the special rule will not pose a significant risk to the PBGC. ERISA
Sec. 4203(f)(2)(B). Section 4208(e)(3) of ERISA provides that a plan
may adopt rules for the reduction or elimination of partial withdrawal
liability--under regulations prescribed by PBGC--subject to PBGC's
determination that such rules are consistent with the purpose of ERISA.
The regulation on Extension of Special Withdrawal Liability Rules
(29 CFR Part 4203) prescribes the procedures a multiemployer plan must
follow to request PBGC approval of a plan amendment that establishes
special complete or partial withdrawal liability rules. Under 29 CFR
4203.3(a), a complete withdrawal rule must be similar to the statutory
provision that applies to construction industry plans under section
4203(b) of ERISA. Any special rule for partial withdrawals must be
consistent with the construction industry partial withdrawal
provisions. Each request for approval of a plan amendment establishing
special withdrawal liability rules must provide PBGC with detailed
financial and actuarial data about the plan. In addition, the applicant
must provide PBGC with information about the effects of withdrawals on
the plan's contribution base. As a practical matter, the plan must show
that the characteristics of employment and labor relations in its
industry are sufficiently similar to those in the construction industry
that use of the construction rule would be appropriate. Relevant
factors include the mobility of the employees, the intermittent nature
of the employment, the project-by-project nature of the work, extreme
fluctuations in the level of an employer's covered work under the plan,
the existence of a consistent pattern of entry and withdrawal by
employers, and the local nature of the work performed. PBGC will
approve a special withdrawal liability rule only if a review of the
record shows that:
(1) The industry has characteristics that would make use of the
special construction withdrawal rules appropriate; and
(2) The adoption of the special rule will note pose a significant
risk to the PBGC.
After review of the application and all public comments, PBGC may
approve the amendment in the form proposed by the plan, approve the
application subject to conditions or revisions, or deny the
application.
Request
On March 3, 2009, PBGC published a notice soliciting public comment
on a request on behalf of the Service Employees International Union
Local 1 Pension Trust Fund (``Local 1 Plan'') for approval of an
amendment prescribing special withdrawal liability rules that, if
approved by PBGC, would be effective as of July 1, 2005. PBGC received
no comments on the notice.
The Local 1 Plan is a multiemployer plan covering the residential
building cleaning industry in Chicago, Illinois. It is maintained
pursuant to collective bargaining agreements with the Apartment
Building Owners and Managers Association of Chicago (``ABOMA'') and
independent cleaning contractors. As of July 1, 2006, it had
approximately 3,800 active participants and was paying approximately
$5.8 million in benefits to 1,400 pensioners and survivors.
The Local 1 Plan submitted collective bargaining agreements
expiring in 2008, indicating that ABOMA had over 200 contributing
employer members. Total contributions for the 2006 plan year were $7.08
million. The contributing employers are owners of residential
apartments in the Chicago area and the number of apartments is unlikely
to decrease. Between 2002 and 2006, the number of active participants
remained stable.
Contributions have increased at a faster rate than benefit payments
for the last three years in the submission, and as of 2006 were running
nearly 20 percent higher than payouts. For full-time employees, the
weekly contribution rate to the Local 1 Plan was $136.67 for the twelve
months starting December 1, 2005, $156.00 for the following twelve
months, and $182 for the twelve months starting December 1, 2007.\2\
---------------------------------------------------------------------------
\2\ According to the 2007 Form 5500, obtained after the notice
of pendency, the monthly benefit accrual rate has held steady for
several years at $21.50, although it was increased January 1, 2008
to $23.33.
Summary of Actuarial Valuation Results, 2003-2006
----------------------------------------------------------------------------------------------------------------
Valuation date (July 1)
Item ---------------------------------------------------
2006 2005 2004 2003
----------------------------------------------------------------------------------------------------------------
Active participants......................................... 4,063 4,157 4,233 4,259
Retirees.................................................... 1,761 1,749 1,705 1,694
Monthly benefit accrual rate ($)............................ 22 22 22 22
Max. monthly benefit ($).................................... 645 645 645 645
Contributions ($000)........................................ 7,081 6,525 5,864 4,689
Benefits ($000)............................................. 5,812 5,606 5,501 5,391
Accrued liability ($000).................................... 97,335 93,606 92,923 90,274
Market value of assets ($000)............................... 83,630 77,743 72,138 64,582
Net min. funding charge w/o credit bal. ($000).............. 6,269 5,982 6,026 6,284
Normal cost ($000).......................................... 2,138 2,251 2,279 2,302
Unfunded accrued liability* ($000).......................... 13,705 15,863 20,785 25,692
Present value of vested benefits ($000)..................... 103,744 98,711 100,736 92,276
[[Page 47981]]
Unfunded liability, vested benefits * ($000)................ 20,114 20,968 28,598 27,694
Valuation interest rate (%)................................. 7.5 7.5 7.5 7.5
----------------------------------------------------------------------------------------------------------------
* Using market value of assets.
Decision on the Proposed Amendment
The statute and the implementing regulation state that PBGC must
make two factual determinations before it approves a request for an
amendment that adopts a special withdrawal liability rule. ERISA Sec.
4203(f); 29 CFR Sec. 4203.5(a). First, on the basis of a showing by
the plan, PBGC must determine that the amendment will apply to an
industry that has characteristics that would make use of the special
rules appropriate. Second, PBGC must determine that the plan amendment
will not pose a significant risk to the insurance system. PBGC's
discussion on each of those issues follows. After review of the record
submitted by the Local 1 Plan, and having received no public comments,
PBGC has entered the following determinations.
1. What Is the Nature of the Industry?
In determining whether an industry has the characteristics that
would make an amendment to special rules appropriate, an important line
of inquiry is the extent to which the Local 1 Plan's contribution base
resembles that found in the construction industry. This threshold
question requires consideration of the effect of employer withdrawals
on the Local 1 Plan's contribution base.
As the Local 1 Plan has asserted, covered work must be performed at
a residential building located in Chicago. The work is local in nature
and generally continues to be covered by the Local 1 Plan regardless of
the employer retained to do those services. An employer ceases to have
an obligation to contribute when it loses a cleaning or security
contract because the building owner outsources the work or retains a
different service provider, or when the employer closes its business
due to bankruptcy, retirement, or business relocation. Over the past 10
years, cessation of contributions by any individual employer has not
had an adverse impact on the Local 1 Plan's contribution base. Most of
the employers that have ceased to contribute have been replaced by
another employer who begins contributions for the same employees at the
same location for the same work.
2. What Is the Exposure and Risk of Loss to PBGC and Participants?
Exposure. The bargaining parties had maintained the same benefit
accrual rate for several years. The benefit liabilities have grown by
11 percent from 2002 to 2006. However, over the same time period,
contributions nearly tripled and assets grew by 28 percent. Thus, the
parties have worked to preserve an adequate cushion against market
downturns.
Risk of loss. The record shows that the Local 1 Plan presents a low
risk of loss to PBGC insurance funds. The Local 1 Plan's active
participant population has been stable, hovering around 4,000 actives
for several years. Additionally, the Local 1 Plan and the covered
industry have unique characteristics that suggest that the Local 1
Plan's contribution base is likely to remain stable. Contributions to
the Local 1 Plan are made with respect to Chicago residential
buildings. This contribution base is secure and the departure of one
employer from the Local 1 Plan is not likely to have an adverse effect
on the contribution base so long as the number of buildings covered
does not decline.
Conclusion
Based on the Plan's submissions and the representations and
statements made in connection with the request for approval, PBGC has
determined that the plan amendment adopting the special withdrawal
liability rules (1) will apply only to an industry that has
characteristics that would make the use of special withdrawal liability
rules appropriate, and (2) will not pose a significant risk to the
insurance system. Therefore, PBGC hereby grants the Local 1 Plan's
request for approval of a plan amendment modifying special withdrawal
liability rules, as set forth herein. Should the Local 1 Plan wish to
amend these rules at any time, PBGC approval of the amendment will be
required.
Issued at Washington, DC, on this 11th day of September 2009.
Vincent K. Snowbarger,
Acting Director, Pension Benefit Guaranty Corporation.
[FR Doc. E9-22537 Filed 9-17-09; 8:45 am]
BILLING CODE 7708-01-P