[Federal Register Volume 61, Number 199 (Friday, October 11, 1996)]
[Notices]
[Pages 53465-53466]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-26182]



[[Page 53465]]

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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.

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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.

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 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.

The Decision

    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.
Martin Slate,
Executive Director.
[FR Doc. 96-26182 Filed 10-10-96; 8:45 am]
BILLING CODE 7708-01-P