[Federal Register Volume 59, Number 138 (Wednesday, July 20, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-17641]


[[Page Unknown]]

[Federal Register: July 20, 1994]


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PENSION BENEFIT GUARANTY CORPORATION
 

Exemption From the Bond/Escrow Requirement Relating to the Sale 
of Assets by an Employer That Contributes to a Multiemployer Plan; San 
Francisco Baseball Associates, L.P.

AGENCY: Pension Benefit Guaranty Corporation.

ACTION: Notice of exemption.

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SUMMARY: The Pension Benefit Guaranty Corporation has granted a request 
from the San Francisco Baseball Associates, L.P. 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 
Major League Baseball Players Benefit Plan. A notice of the request of 
exemption from the requirement was published on April 14, 1994 (59 FR 
17803). The effect of this notice is to advise the public of the 
decision on the exemption request.

ADDRESSES: The non-confidential portions of the request for an 
exemption, public comments, 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, NW., Washington, DC 
20005-4026, between the hours of 9:00 a.m. and 4:00 p.m., Monday 
through Friday.

FOR FURTHER INFORMATION CONTACT:
D. Bruce Campbell, Office of the General Counsel, Pension Benefit 
Guaranty Corporation, 1200 K Street NW., Washington, DC 20005-4026; 
telephone 202-326-4125 (202-326-4179 for TTY and TDD). These are not 
toll-free numbers.

SUPPLEMENTARY INFORMATION: 

Background

    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 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).
    Under the PBGC's regulation on variances for sales of assets (29 
CFR Part 2643), a request for a variance or waiver of the bond/escrow 
requirement under any of the tests established in the regulation 
(Secs. 2643.12-2643.14) 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. 2643.3 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 2643.3(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. The PBGC received one comment on the request for 
exemption.

The Decision

    On April 14, 1994 (59 FR 17803), the PBGC published a notice of the 
pendency of a request by the San Francisco Baseball Associates, L.P. 
(the ``Buyer'') for an exemption from the bond/escrow requirement of 
section 4204(a)(1)(B) with respect to its purchase of the San Francisco 
Giants (the ``Seller''). According to the request, the Major League 
Baseball Players Benefit Plan (the ``Plan'') was established and is 
maintained pursuant to a collective bargaining agreement between the 
professional major league baseball teams (the ``Clubs'') and the Major 
League Baseball Players Association (the ``Players Association'').
    The Clubs have established the Major Leagues Central Fund (the 
``Central Fund'') pursuant to the ``Major League Agreement in re Major 
Leagues Central Fund.'' Under this agreement, contributions to the Plan 
for all participating employers are paid by the Office of the 
Commissioner of Baseball from the Central Fund on behalf of each 
participating employer in satisfaction of the employer's pension 
liability under the Plan's funding agreement. The monies in the Central 
Fund are derived directly from (i) gate receipts from All-Star games, 
(ii) radio and television revenues from World Series, League 
Championships, intradivision play-offs and All-Star games, and (iii) 
certain other radio and television revenues, including revenues from 
foreign broadcasts, of regular and exhibition games. During the 1992 
Plan year, approximately $34.1 million was paid into the Plan on behalf 
of all major league clubs. In that year revenues to the Central Fund 
exceeded expenses, including contribution to the Plan, by approximately 
$354 million.
    Effective November 20, 1992, the Buyer and Seller entered into an 
Asset Sale and Contribution agreement under which the Buyer agreed to 
purchase substantially all of the assets and assume substantially all 
of the liabilities of the seller relating to the business of employing 
employees under the Plan. The contract of sale provides that the Buyer 
agrees ``to contribute to the Plan substantially the same number of 
contribution base units which the Seller had an obligation to 
contribute to the Plan.'' The contract of sale further provides that 
``[i]f the Buyer thereafter, but prior to the end of the fifth plan 
year commencing after the closing, partially or completely withdraws 
from the Plan, the Seller will be secondarily liable for any withdrawal 
liability it would have had to the Plan * * *.'' the final closing of 
the transaction occurred on January 14, 1993. The amount of the bond/
escrow that would be required under section 4204 (a)(1)(B) of ERISA is 
$1,412,077. The estimated amount of the withdrawal liability that the 
Seller would incur if not for Section 4204 is $4,796,483.
    The Comment received by the PBGC suggested that the request for 
exemption be denied based on the possibility that revenues payable to 
the Central Fund may not be sufficient to provide contributions to the 
Plan in the future. In support, the commenter cited an expected 
decrease in revenues under the terms of a new network television 
contract, the primary source of revenue for the Central Fund; the 
possibility of a work stoppage during negotiations to implement a 
salary cap as part of a new collective bargaining agreement; and 
diminished fan loyalty and attendance due to high player salaries, 
inflated ticket prices, poor management, and other factors.
    The PBGC notes that the bond/escrow requirement is intended to 
assure the payment of the Buyer's withdrawal liability if the Buyer 
withdraws from the Plan in the five plan years following the sale of 
assets, and the Buyer is unable to pay withdrawal liability that would 
otherwise have been paid by the Seller had section 4204 not applied to 
the transaction. The factors cited by the commenter do not 
substantially affect the Plan's ability to collect withdrawal liability 
from the Buyer, as compared with the Plan's ability to collect 
withdrawal liability from the Seller had section 4204 not applied to 
the transaction. We also note that the Seller remains secondarily 
liable under section 4204(a)(2) for withdrawal liability, regardless of 
whether the Buyer receives an exemption from the bond/escrow 
requirement.
    In addition, the Plan's public filings indicate that the Plan is 
financially sound. The Plan's most recent annual return/report (Form 
5500) states that the Plan had approximately $708 million in assets as 
of the close of the plan year on March 31, 1993. While the plan 
incurred approximately $63 million in expenses for that plan year, the 
Plan's investment earnings were nearly $100 million.
    Accordingly, 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. Therefore, the PBGC 
hereby grants the request for an exemption for 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, DC, on this 14th day of July, 1994.
Martin Slate,
Executive Director.
[FR Doc. 94-17641 Filed 7-19-94; 8:45 am]
BILLING CODE 7708-01-M