[Federal Register Volume 62, Number 80 (Friday, April 25, 1997)]
[Notices]
[Pages 20226-20227]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-10709]


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PENSION BENEFIT GUARANTY CORPORATION


Pendency of Request for Exemption From the Bond/Escrow 
Requirement Relating to the Sale of Assets by an Employer Who 
Contributes to a Multiemployer Plan; Brylane, L.P.

AGENCY: Pension Benefit Guaranty Corporation.

ACTION: Notice of pendency of request.

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SUMMARY: This notice advises interested persons that the Pension 
Benefit Guaranty Corporation has received a request from Brylane, 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 ILGWU National Retirement Fund. Section 
4204(a)(1) provides that the sale of assets by an employer that 
contributes to a multiemployer pension plan will not constitute a 
complete or partial withdrawal from the plan if certain conditions are 
met. One of these conditions is that the purchaser post a bond or 
deposit money in escrow for the five-plan-year period beginning after 
the sale. The PBGC is authorized to grant individual and class 
exemptions from this requirement. Before granting an exemption the PBGC 
is required to give interested persons an opportunity to comment on the 
exemption request. The purpose of this notice is to advise interested 
persons of the exemption request and solicit their views on it.

DATES: Comments must be submitted on or before June 9, 1997.

ADDRESSES: All written comments (at least three copies) should be 
addressed to: Pension Benefit Guaranty Corporation, Office of the 
General Counsel, Suite 340, 1200 K Street, NW., Washington, DC 20005-
4026. The non-confidential portions of the request for an exemption and 
the comments received will be available for public inspection at the 
PBGC Communications and Public Affairs Department, Suite 240, at the 
above address, between the hours of 9 a.m. and 4 p.m.

FOR FURTHER INFORMATION CONTACT: Shaswat K. Das, Office of the General 
Counsel, Pension Benefit Guaranty Corporation, 1200 K Street, NW., 
Washington, DC 20005-4026; telephone (202) 326-4020, ext. 3022, (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 
contributions 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

[[Page 20227]]

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 4204), a request for a variance or waiver of the bond/escrow 
requirement under any of the tests established in the regulation 
(Secs. 4204.12-4204.13) 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 Sec. 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 Request

    The PBGC has received a request from Brylane, L.P. (the ``Buyer'') 
for an exemption from the bond/escrow requirement of section 
4204(a)(1)(B) with respect to the ILGWU National Retirement Fund (the 
``Fund'') in connection with its purchase of certain of the assets of 
Chadwick's, Inc. and CDM Corp., a wholly-owned subsidiary of 
Chadwick's, Inc. (collectively the ``Seller'') on December 2, 1996. In 
the request, the Buyer represents among other things that:
    1. Under the terms of the asset purchase agreement, the Buyer will 
pay the Seller $222.8 million in cash, and will issue to Seller a 
Convertible Subordinated Note in the principal amount of $20 million, 
which will mature in the year 2006, and which will be convertible at 
the Seller's option into partnership units of the Buyer.
    2. The Buyer is obligated to contribute to the Fund for the 
purchased operations for substantially the same number of contribution 
base units as the Seller.
    3. The Seller has agreed to be secondarily liable for any 
withdrawal liability it would have had with respect to the sold 
operations (if not for section 4204) should the Buyer withdraw from the 
Fund within the five plan years following the sale and fail to pay 
withdrawal liability.
    4. The estimated amount of the unfunded vested benefits allocable 
to the Seller with respect to the operations sold is about $800,000.
    5. The amount of the bond/escrow required under section 
4204(a)(1)(B) is $1,550,000.
    6. The Buyer's average net income for the three fiscal years 
preceding the sale is $25.3 million, and the average net income for the 
purchased operations over that period is $7.4 million. The interest 
expense incurred by the Buyer in connection with the sale is $44.1 
million per year. Thus, the average net income of the Buyer, reduced by 
the interest expense incurred in connection with the sale, would not 
exceed 150% of the amount of the bond/escrow, as required under 29 CFR 
4204.13(a)(1). However, according to the request, if the interest 
expense were adjusted by the income tax deduction to which the Buyer is 
entitled per year, the net interest expense would be approximately 
$28.7 million per year. Therefore, the average net income for the Buyer 
(including the purchased operations) for the three years preceding the 
sale ($32.7 million), reduced by the net interest expense ($28.7 
million), would be about $4 million ($32.7 million minus $28.7 
million), which is more than 150% of the bond/escrow amount.
    7. A complete copy of the request was sent to the Fund and to the 
collective bargaining representative of the Seller's employees.

Comments

    All interested persons are invited to submit written comments on 
the pending exemption request to the above address. All comments will 
be made a part of the record. Comments received, as well as the 
relevant non-confidential information submitted in support of the 
request, will be available for public inspection at the address set 
forth above.

    Issued at Washington, DC, on this 21st day of April 1997.
John Seal,
Acting Executive Director.
[FR Doc. 97-10709 Filed 4-24-97; 8:45 am]
BILLING CODE 7708-01-P