[Congressional Record Volume 149, Number 164 (Wednesday, November 12, 2003)]
[Senate]
[Pages S14808-S14810]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. LOTT (for himself and Mr. Smith):
  S. 1857. A bill to amend the internal revenue Code of 1986 to provide 
procedural fairness in the application of the controlled group 
provisions to employers who contribute to multiemployer pension plans 
and who engage in bona fide corporate transactions; to the Committee on 
Finance.
  Mr. LOTT. Mr. President, I rise to day to introduce, along with my 
colleagues Senator Smith from Oregon,

[[Page S14809]]

the multiemployer Pension Plan Procedural Fairness Act of 2003. The 
purpose of this legislation is to provide a modest amount of procedural 
fairness with respect to claims filed against former employers under 
the multiemployer pension plan (MEPPA) rules.
  By way of background, MEPPA makes an employer that completely or 
partially withdraws from participation in a multiemployer pension fund 
liable for the employer's share of the plans' unfunded vested benefits. 
That liability is referred to as ``withdrawal liability'' and can be 
collected from any member of the controlled group of employers that 
included the withdrawing employer. The process of collecting withdrawal 
liability can become quite unfair when the pension fund attempts to 
assert liability against a former employer or a former member of a 
controlled group of employers that, as a result of a legitimate 
business separation, such as a sale or spin-off transaction, ceased to 
be associated with the withdrawing employer several years before the 
compete or partial withdrawal occurred.
  MEPPA provides that a former employer or former member of a 
controlled group can still be liable if ``a principal purpose'' of the 
business separation transaction was ``to evade or avoid'' withdrawal 
liability. The legislative history indicates that the ``evade or 
avoid'' provision was designed to prevent unscrupulous employers from 
dumping a distressed subsidiary in order to evade or avoid withdrawal 
liability. I firmly believe that unscrupulous companies that attempt to 
evade withdrawal liability should be held liable. However, companies 
that engage in legitimate transactions should be able to defend against 
withdrawal liability claims that arose from events which occurred many 
years after the business separation.
  The simplest way to understand the issue is with an illustration. 
Assume that a parent company operates a subsidiary that makes 
contributions to a multiemployer plan. Assume further that, for valid 
business reasons, the parent company disposes of the subsidiary via a 
bona fide ``spin-off'' transaction. At the time of the spin-off, the 
subsidiary was current on all of its required contributions to the 
multiemployer pension fund, and the subsidiary continues to make 
contributions to the multiemployer plan after the spin-off. To complete 
the example, assume that several years after the spin-off, the spun-off 
subsidiary goes out of business and ceases to make contributions to the 
multiemployer pension fund. Under this scenario, the MEPPA rules allow 
the pension fund to claim that a principal purpose of the transaction 
was to evade or avoid withdrawal liability. Because the MEPPA rules do 
not provide any time restrictions for making these claims, a former 
parent company may be forced to defend against such a claim years, if 
not decades after the transaction in question. By contrast, the single-
employer plan rules provide a 5-year safe harbor rule that protects 
employers against such claims.
  While multiemployer plans should certainly be able to pursue claims 
against unscrupulous employers, there are two procedural rules in MEPPA 
that severely and unfairly hinder an employer's ability to defend 
itself against a claim for withdrawal liability under the evade 
or avoid standard when the transaction in question occurred several 
years before the date of a complete or partial withdrawal. The first 
rule is referred to as the ``pay to play'' rule, and the second rule 
involves the burden of proof borne by the employer.

  Under MEPPA, if the pension fund makes a claim for withdrawal 
liability against the former parent company under the ``evade or 
avoid'' standard, the claim is sent to arbitration. However, the parent 
company must begin making payments to the multiemployer pension plan 
within 60 days after receiving a demand solely based upon the plan's 
unilateral decision to assert a withdrawal liability claim and long 
before any neutral third party finds that ``a principal purpose'' of 
the challenged transaction was to ``evade or avoid'' withdrawal 
liability. As a result, a company that engaged in a bona fide business 
transaction many years before the withdrawal occurred is forced to 
begin paying on the claim based on nothing more than the plan's demand.
  According to the legislative history, this unique ``pay to play'' 
rule was enacted in response to what Congress perceived to be 
inefficient, cumbersome and costly procedures for collecting delinquent 
contributions from employers. Simple collection actions were converted 
into complex litigation through defenses that were unrelated to the 
multiemployer plan's entitlement to the contribution. However, the 
relevant MEPPA language is not limited to collection actions. While it 
may be appropriate to require a contesting employer to commence 
payments while the claim is being litigated, it is not fair to require 
prepayment in the case of an ``evade or avoid'' claim when the 
transaction in question occurred many years before the complete or 
partial withdrawal occurred.
  The second procedural unfairness involves the burden of proof that an 
employer faces in rebutting a claim under the ``evade or avoid'' 
standard. MEPPA provides that a plan sponsor's determination is 
presumed correct, unless the contesting party shows by a preponderance 
of evidence that the determination is incorrect. The impetus behind 
Congress's decision to include such a presumption was the need to avoid 
a perceived potential for conflict and delay over the soundness of 
actuarial determinations of liability. Specifically, the presumption 
was crafted in order to prevent ``the likelihood of dispute and delay 
over technical actuarial matters with respect to which there are often 
several equally `correct' approaches. Without such a presumption, a 
plan would be helpless to resist dilatory tactics by a withdrawing 
employer--tactics that could, and could be intended to, result in 
prohibitive collection costs to the plan.'' However, the MEPPA 
presumption language is not limited to actuarial determinations, but 
reaches liability determinations as well.
  Even if this presumption is appropriate when withdrawal liability is 
triggered shortly after a transaction occurs, it is unfair to apply the 
presumption when the transaction in question occurred several years 
before the withdrawal took place. In this situation, a company that 
engages in a bona fide transaction may be forced to prove a negative--
namely that a principal purpose of a transaction that occurred many 
years ago was not to evade or avoid withdrawal liability.
  To summarize, under the MEPPA rules, an employer may find itself in a 
position where it has to respond to claims regarding a legitimate 
business transaction that occurred many years earlier. Furthermore, in 
defending against the claim, the employer must 1. prove that a 
principal purpose of the transaction was not to evade or avoid 
withdrawal liability, and 2. prepay the contested amount of the 
liability well in advance of any final determination of liability. This 
is patently unfair. Our legislation is a modest attempt to inject some 
notions of procedural fairness in this situation.
  Our bill does not change the present-law rules regarding the 
determination of liability with respect to a complete or partial 
withdrawal from a multiemployer pension plan. However, it does change 
the procedural rules applicable to such a determination, but only with 
respect to a transaction that occurred five years or more before the 
date of the complete or partial withdrawal.
  Under our bill, when a determination of an employer's withdrawal 
liability is based on a finding by the plan sponsor that a principal 
purpose of a transaction was to evade or avoid liability, and the 
transaction in question occurred five years or more before the date of 
the complete or partial withdrawal, the following rules would apply: 1. 
the determination by the plan sponsor is not presumed to be correct, 
and the plan sponsor has the burden to establish, by a preponderance of 
the evidence, each and every element of the claim for withdrawal 
liability, and 2. if an employer contests the plan sponsor's 
determination either through arbitration or through a claim brought in 
court, the employer is not obligated to make any withdrawal liability 
payments until a final decision in the arbitration, or in court, 
upholds the plan sponsor's determination. Our bill would apply to any 
employer that receives a notification after October 31, 2003.
  I ask unanimous consent that the text of the bill be printed in the 
Record.

[[Page S14810]]

  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 1857

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Multiemployer Pension Plan 
     Procedural Fairness Act of 2003''.

     SEC. 2. AMENDMENT TO THE INTERNAL REVENUE CODE OF 1986.

       (a) In General.--Section 414(f) of the Internal Revenue 
     Code of 1986 is amended--
       (1) by striking paragraph (2) and inserting the following:
       ``(2) Common control.--
       ``(A) In general.--For purposes of this subsection and 
     subtitle E of title IV of the Employee Retirement Income 
     Security Act of 1974 (29 U.S.C. 1381 et seq.), all trades or 
     businesses (whether or not incorporated) which are under 
     common control within the meaning of subsection (c) are 
     considered a single employer.
       ``(B) Principal purpose test.--If a principal purpose of 
     any transaction is to evade or avoid liability under subtitle 
     E of title IV of the Employee Retirement Income Security Act 
     of 1974 (29 U.S.C. 1381 et seq.), then, subject to paragraph 
     (6), the determination of whether one or more trades or 
     businesses are under common control for purposes of such 
     subtitle shall be made without regard to such transaction.'', 
     and
       (2) by adding at the end the following:
       ``(6) Determination of common control more than 5 years 
     following a transaction.--
       ``(A) In general.--If--
       ``(i) a plan sponsor of a plan determines that--

       ``(I) a complete or partial withdrawal of an employer has 
     occurred, or
       ``(II) an employer is liable for withdrawal liability 
     payments with respect to the complete or partial withdrawal 
     of an employer from the plan,

       ``(ii) such determination is based in whole or in part on a 
     finding by the plan sponsor that a principal purpose of any 
     transaction was to evade or avoid liability under subtitle E 
     of title IV of the Employee Retirement Income Security Act of 
     1974 (29 U.S.C. 1381 et seq.), and
       ``(iii) such transaction occurred at least 5 years before 
     the date of the complete or partial withdrawal,

     then the special rules under subparagraph (B) shall be used 
     in applying section 4219(c) and section 4221(a) of the 
     Employee Retirement Income Security Act of 1974 (29 U.S.C. 
     1399(c) and 1401(a)) to the employer.
       ``(B) Special rules.--
       ``(i) Determination.--Notwithstanding section 4221(a)(3) of 
     the Employee Retirement Income Security Act of 1974 (29 
     U.S.C. 1401(a)(3))--

       ``(I) a determination by the plan sponsor under 
     subparagraph (A)(i) shall not be presumed to be correct, and
       ``(II) the plan sponsor shall have the burden to establish, 
     by a preponderance of the evidence, each and every element of 
     the claim for withdrawal liability.

       ``(ii) Procedure.--Notwithstanding section 4219(c) and 
     section 4221(d) of the Employee Retirement Income Security 
     Act of 1974 (29 U.S.C. 1399(c) and 1401(d)), if an employer 
     contests the plan sponsor's determination under subparagraph 
     (A)(i) through an arbitration proceeding pursuant to section 
     4221(a) of such Act (29 U.S.C. 1401(a)), or through a claim 
     brought in a court of competent jurisdiction, the employer 
     shall not be obligated to make any withdrawal liability 
     payments until a final decision in the arbitration, or in 
     court, upholds the plan sponsor's determination.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to any employer that receives a notification 
     under section 4219(b)(1) of the Employee Retirement Income 
     Security Act of 1974 (29 U.S.C. 1399(b)(1)) after October 31, 
     2003.
                                 ______