[Federal Register Volume 68, Number 114 (Friday, June 13, 2003)]
[Notices]
[Pages 35462-35466]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-14969]


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PENSION BENEFIT GUARANTY CORPORATION


Pendency of Request for Approval of a Second Amendment to Special 
Withdrawal Liability Rules for International Longshoremen's and 
Warehousemen's Union-Pacific Maritime Association Pension Plan

AGENCY: Pension Benefit Guaranty Corporation.

ACTION: Notice of pendency of request.

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SUMMARY: The International Longshoremen's and Warehousemen's Union-
Pacific Maritime Association Pension Plan has asked the Pension Benefit 
Guaranty Corporation (``PBGC'') to review and approve a second 
amendment to a special withdrawal liability rule that PBGC approved in 
initial and amended form in 1984 and 1998. See Approval of Special 
Withdrawal Liability Rules (``Notice of Approval''), 49 FR 6043 
(February 16, 1984) and Notice of Approval at 63 FR 27774 (May 20, 
1998). Under section 4203(f) of the Employee Retirement Income Security 
Act of 1974, as amended (``ERISA''), PBGC may prescribe regulations 
under which plans in industries other than the construction or 
entertainment industries may be amended to provide for special 
withdrawal liability rules, and PBGC has prescribed such regulations at 
29 CFR Part 4203. The regulations provide that PBGC approval is 
required for a plan amendment establishing special withdrawal liability 
rules, as well any modification to a previously approved plan 
amendment. This notice describes the amendment and invites any 
interested person to submit written comments about it to PBGC.

DATES: Comments must be submitted on or before July 28, 2003.

ADDRESSES: Comments may be mailed to the Office of the General Counsel, 
Pension Benefit Guaranty Corporation, 1200 K Street, NW., Washington, 
DC 20005-4026, or delivered to Suite 340 at the same address. Comments 
also may be sent by Internet e-mail to [email protected]. The PBGC 
will make the comments received available on its Web site, http://www.pbgc.gov. Copies of the comments and the request for approval may 
be obtained by writing the PBGC's Communications and Public Affairs 
Department (CPAD) at Suite 240 at the above address or by visiting or 
calling CPAD during normal business hours (202-325-4040).

FOR FURTHER INFORMATION CONTACT: Gennice D. Brickhouse, Office of the 
General Counsel, Pension Benefit Guaranty Corporation, 1200 K Street, 
NW., Washington, DC 20005-4026; 202-326-4020. (For TTY/TDD users, 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 that withdraws from a 
multiemployer pension plan incurs liability for a share of the plan's 
unfunded vested benefits. Section 4203(a) of ERISA provides that a 
complete withdrawal from a multiemployer plan occurs if an employer 
either (1) Permanently ceases to have an obligation to contribute under 
the plan; or (2) permanently ceases all covered operations under the 
plan. Section 4205(a)(2) of ERISA states that a partial withdrawal 
occurs if an employer either: (1) Permanently ceases to have an 
obligation to contribute under one or more but fewer than all 
collective bargaining agreements under which the employer has been 
obligated to contribute under the plan, while continuing to perform 
work in the jurisdiction of the collective bargaining agreement of the 
type for which contributions were previously required or transfers such 
work to another location; or (2) permanently ceases to have an 
obligation to contribute under the plan for work performed at one or 
more but fewer than all of its facilities, while continuing to perform 
work at the facility of the type for which the obligation to contribute 
ceased. Under section 4205(a)(1), a partial withdrawal will also occur 
if the employer reduces its contribution base units--the factors

[[Page 35463]]

that determine plan contributions, such as hours worked by employees--
by seventy percent or more for three consecutive plan years.
    A complete or partial withdrawal of an employer from a pension plan 
reduces the plan's contribution base and shifts the burden of funding 
plan benefits to remaining employers. The increased costs of 
maintaining the plan will in turn encourage other employers to 
withdraw, and the cumulative damage to the contribution base may 
eventually cause the plan to fail. ``Withdrawal liability responds to 
these concerns by deterring withdrawals and by shoring up the 
contribution base of a * * * plan when withdrawals nevertheless occur 
[and] thus protects the interlocking interests of the PBGC, its premium 
payers, the non-withdrawn employers'' and workers and retirees with 
vested benefits. Peick v. PBGC, 539 F.Supp.1025, 1046-47 (N.D.Ill. 
1982), affd. 724 F.2d 1247 (7th Cir. 1983). Indeed, ``it would be 
analytically unsound to adopt an approach'' that allows a withdrawn 
employer to escape the costs of reparation to the plan's contribution 
base. Calvert & Youngblood Coal Co. v. UMWA 1950 Pension Trust, 6 
Employee Benefit Cas. (BNA) 1106, 1112 (N.D. Ala. 1985)(Pointer, C.J.).
    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 case 
of the construction industry, for example, the work must necessarily 
take place at the construction site; if that work generates 
contributions to the pension plan, it does not much matter which 
employer performs the work. Put another way, if a construction employer 
goes out of business, or stops operations in a geographic area, pension 
plan contributions will not diminish if a second employer who 
contributes to the plan fills the void. The plan's contribution base is 
damaged, therefore, only if the employer stops contributing to the plan 
but continues to perform construction work in the jurisdiction of the 
collective bargaining agreement.
    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 the 
employer nevertheless performs previously covered work in the 
jurisdiction of the collective bargaining agreement at any time within 
five years after the employer ceased its contributions.\1\ There is a 
parallel rule for partial withdrawals from construction plans. Under 
section 4208(d)(1) of ERISA, ``[a]n 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.''
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    \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.
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    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 share the 
characteristics of the construction industry. In addition, each plan 
application must demonstrate that the special rule ``will not pose a 
significant risk to the [PBGC] insurance system.'' Section 4208(e)(3) 
of ERISA provides for parallel treatment of partial withdrawal 
liability rules.
    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 
demonstrate 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 plan in question would not be aversely affected by the 
adoption of the special rule. 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 For Comments

    On March 28, 2003, the International Longshoremen's and 
Warehousemen's Union-Pacific Maritime Association Pension Plan 
(``Plan'') asked PBGC to approve a second modification to a previously 
approved plan amendment that adopted special withdrawal liability 
rules.\2\ The regulation on Extension of Special Withdrawal Liability 
Rules provides that any interested party may file comments with PBGC 
about the request. See 29 CFR 4203.5(b).
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    \2\ PBGC approved to the original plan amendment in 1984, and 
the agency approved a revised amendment in 1998. See 49 FR 6043 
(1984) and 63 FR 27774 (1998).
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    The remainder of this Notice contains a synopsis of the application 
and the various legal arguments and factual representations that were 
submitted in support of the application.

Applicant

    The Plan is a multiemployer plan whose headquarters are in San 
Francisco, California. The Plan was established in 1951 pursuant to 
collective bargaining agreements between the International 
Longshoremen's & Warehousemen's Union (``ILWU'') and the Pacific 
Maritime Association (``PMA'').

The PMA

    The PMA is an employer association whose principal business is to 
negotiate and administer maritime labor agreements with ILWU. The PMA 
is composed of American and foreign flag vessel operators, and 
stevedore and terminal companies that operate in

[[Page 35464]]

California, Oregon and Washington ports.

The ILWU

    In 1938, the National Labor Relations Board certified the ILWU as 
the exclusive bargaining representative for a bargaining unit that 
includes all longshore workers employed by PMA members on the Pacific 
Coast. See Shipowners' Association of the Pacific Coast, 7 NLRB 1002, 
1041 (1938), review dismissed, 103 F.2d 933 (D.C. Cir. 1939), affirmed, 
308 U.S. 401 (1940) (certifying the ILWU as the exclusive bargaining 
representative for ``all workers who do longshore work in the Pacific 
Coast ports of the United States''). Thus, the PMA-ILWU bargaining 
agreements cover all workers employed in the loading and unloading of 
all dry cargo for ocean-going vessels arriving at or departing from 
ports along the Pacific coast of the United States, including all ports 
in the states of California, Oregon and Washington.\3\
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    \3\ Vessel operators who are not PMA members must contract with 
a stevedoring company or terminal operator that belongs to PMA in 
order to unload cargo.
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The Plan

    The Plan was established in 1951. Plan benefits are established as 
part of the collective bargaining process. Plan contributions are 
determined under a system, established in 1983, that governs all fringe 
benefit costs under the PMA-ILWU agreement. The system allocates 
assessments between man-hours and tonnage based on a membership 
agreement filed with the Federal Maritime Commission. The system works 
as follows. A man-hour rate is established by dividing a divisor that 
is established by the agreement into the total annual projected cost 
for all ILWU-PMA benefits. The result is a man-hour rate that is then 
multiplied by the total hours expected to be worked during the year to 
determine the amount of the benefits and costs that will be funded by 
man-hours. The remaining funds are collected from tonnage. To the 
extent that man-hours are less than the divisor, assessments are 
collected on tonnage to fund the benefits in an order of priority 
established by the agreement. The pension benefits have the highest 
priority on man-hour contributions. Contributions on tonnage would not 
be used to fund pensions unless the annual assessments on man-hours 
were insufficient to meet the annual pension funding obligation 
required by the Internal Revenue Code.
    The total number of contributing employers, based on federal tax 
identification numbers, has remained stable over several decades. There 
were 100 contributors in 1972, 107 in 1979, 114 in 1996 and 114 in 
2002. The contributors in 1996 that remain contributors in 2002 
represent over 99% of the total contributions to the Plan.

Current Financial Status of the Plan

    The Plan operates on a July-June fiscal year. The Form 5500 filed 
for the 2001-02 plan year reports the Plan covered 10,526 active 
workers, paid benefits to 4547 pensioners and 3759 survivors, and had 
only 9 inactive participants (or survivors) with vested entitlements. 
The Plan received $23.9 million in contributions, and paid out $134 
million in benefits, as well as $7.8 million in administrative 
expenses. At year end, plan assets were approximately $1.943 billion.
    Under the current version of the special rule, the Plan actuary 
must provide the PBGC with annual certifications that at least 85% of 
the Plan's liabilities for vested benefits (determined using specified 
set actuarial assumptions) are covered by Plan assets. The 
certification must also show other information about plan contributions 
and benefit payments. The following table presents this data for the 
plan years since the PBGC last considered the withdrawal liability 
exemption.

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                                   Plan year ending    Plan year ending    Plan year ending    Plan year ending    Plan year ending    Plan year ending
                                     June 30, 1997       June 30, 1998       June 30, 1999       June 30, 2000       June 30, 2001       June 30, 2002
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Assets..........................  $1.63 billion.....  $1.91 billion.....  $2.16 billion.....  $2.40 billion.....  $2.22 billion.....  $1.93 billion
Vested Benefits.................  $1.69 billion.....  $1.66 billion.....  $1.63 billion.....  $1.83 billion.....  $1.99 billion.....  $1.84 billion
Active Participants.............  8,315.............  8,859.............  9,572.............  9,395.............  10,070............  10,113
Contributions...................  $104 million......  $35.0 million.....  $28.8 million.....  $32.5 million.....  $26.9 million.....  $23.5 million
Benefit Payments................  $101.5 million....  $108.0 million....  $110.6 million....  $126.4 million....  $132.9 million....  $154 million
Plan Assets As Multiple of        16.1..............  17.7..............  19.6..............  19.0..............  16.6..............  12.5
 Benefits.
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Future Industry Prospects

    The application lays great emphasis upon the fact that PMA members 
handled ``virtually all of the over 263 million revenue tons of dry 
cargo that went through West Coast ports in 2002. It is estimated that 
this cargo had a value of $320 billion and generated ocean shipping 
revenues of approximately $14.7 billion.'' The application asserts that 
the financial health of the Plan ``is not tied to the fortunes of any 
one member. Rather, Plan contributions are dependent only on the amount 
of cargo shipped through West Coast ports. The Plan is thus not at risk 
even if some of its largest employers both cease operations and are not 
replaced by another contributing employer (which * * * is highly 
unlikely in any event).
    The application reported that ``the West Coast shipping industry 
has grown steadily over the past five decades. Total dry cargo at all 
covered ports amounted to 29 million revenue tons in 1960, 114 million 
revenue tons in 1980, 182 million revenue tons in 1990 and 263 million 
revenue tons in 2002. This change is reflected in the number of covered 
hours by ILWU-represented employees. Such hours increased from 15.6 
million in 1992 to more than 24 million in 2002.'' Thus, the 
application contends that the PMA-ILWU ``lock'' on all shipping imports 
resembles the geographic coverage that is said to typify the 
construction industry.
    The application asserts that ``the mobility of longshore workers is 
quite similar to that of many construction industry workers. Many West 
Coast longshore workers do not typically work for the same employer on 
a regular basis.'' The application uses the payroll system to 
illustrate the extent of employment mobility. ``[W]ithin a single 
week,'' the application states, ``a longshore worker often has more 
than one employer.'' For this reason, ``PMA acts as the payroll agent 
for all of its members. The employers remit cash wages and collectively 
bargained-for employee benefit contributions to PMA, which in turn 
issues weekly payroll checks to ILWU members and transmits 
contributions to various benefit funds. Because of this system, a 
worker tends

[[Page 35465]]

to regard PMA as his or her employer, and may have little awareness of 
who is his or her actual employer.''

Special Withdrawal Liability Rules

    When approving the amended special withdrawal liability rule, PBGC 
gave the following synopsis of the original special rule.
    Under the special rules, a complete withdrawal occurs if an 
employer who makes contributions to the Plan for longshore work 
permanently ceases to have an obligation to make contributions to the 
Plan, and: (1) Continues to perform work of the type for which 
contributions to the Plan are currently or were previously required at 
any Pacific Coast port in the United States, (2) resumes such work at 
any time during the Plan Year in which the contribution obligation 
ceased through the end of the fifth succeeding Plan Year without 
renewing the contribution obligation, (3) sells or otherwise transfers 
a substantial portion of its business or assets to another person that 
performs longshore work without having an obligation to make 
contributions to the Plan under the collective bargaining agreements 
under which the Plan is maintained, or (4) ceases to have an obligation 
to contribute in connection with the withdrawal of every employer from 
the Plan or substantially all of the employers within the meaning of 
section 4219(c)(1)(D) of ERISA. A partial withdrawal occurs if an 
employer incurs a partial withdrawal within the meaning of section 4205 
of ERISA and, in addition, at any time from the date of the partial 
withdrawal through the succeeding five Plan Years: (1) Performs work of 
the type for which contributions to the Plan are currently or were 
previously required at any Pacific Coast port in the United States 
without having an obligation to contribute to the Plan for such work, 
or (2) sells or otherwise transfers a substantial portion of its 
business or assets to another person that performs longshore work 
without having an obligation to make contributions to the Plan under 
the collective bargaining agreements under which the Plan is 
maintained.
    The special withdrawal liability rules were subject to the Plan's 
satisfying certain funding requirements. In 1998, PBGC approved the 
Plan's request to modify the funding requirements in connection with an 
amendment adopted by the PMA and the ILWU. The funding requirement, as 
amended in 1998, is as follows:
    PBGC hereby grants the Plan's request for approval of a plan 
amendment modifying special withdrawal liability rules, as set forth 
herein. PBGC grants approval under the condition that such approval 
will expire, and the Plan's special withdrawal liability rules will be 
void as of the first day of the Plan Year following a Plan Year for 
which the Plan is not at least eighty-five percent (85%) funded, and 
during said following Plan Year the Contributions are less than the 
least of (a) total administrative cost and benefits for said following 
Plan Year or (b) the amount required to increase the Funding Percentage 
to eighty-five percent (85%) for said following Plan Year or (c) the 
maximum tax-deductible contribution to the Plan. The Plan has agreed to 
certify to these conditions annually. Should the Plan wish to again 
amend these rules at any time, PBGC approval of the amendment will be 
required.

The 2002 Collective Bargaining Agreement

    After protracted disagreements and work stoppages, the PMA and ILWU 
solicited and obtained the assistance of the Chairman of the Federal 
Mediation and Conciliation Service in an effort to reach a new labor 
agreement. With his assistance, the parties reached a six-year labor 
contract that allows for cost savings due to improvements in 
technology. The new labor contract provided for a gradual increase in 
Plan benefits from $95 per month per year of service (for a maximum of 
35 years of service) to $150 per month per year of service. The entire 
labor contract (and not just the increase in pension benefits) is 
contingent on PBGC approval of the pending request. The application 
represents that the labor agreement must be renegotiated from scratch 
in the event PBGC denies the request.

The Proposed Amendment

    The Plan has requested approval of several amendments to the 
existing rule. In particular, the Plan seeks to:
    (1) Revise certain actuarial assumptions (relating to mortality, 
disability, marital status, and expected retirement dates) in order to 
reflect emerging actuarial experience. The Plan does not propose to 
change other assumptions used for the annual actuarial certification to 
PBGC.
    (2) modify, on a temporary basis, the 85% funding requirement 
instituted in 1998. The Plan requests that this requirement be lowered 
to 65% through the end of the plan year ending June 30, 2008. The 
percentage would then increase by 3% per plan year until it again 
reaches 85%.
    (3) modify, on a temporary basis, the Plan's 80% funding 
requirement instituted in 1984. That requirement provides for 
additional contributions as of plan valuation date if the Plan's funded 
status is projected to fall below 80% in the 5th year following the 
valuation date. The Plan requests that this requirement be lowered to 
65% through the end of the plan year ending June 30, 2008. The 
percentage funded status requirement would then increase by 3% per plan 
year until it again reaches 80%.
    The Plan acknowledges that the benefit increases promised under the 
2002 collective bargaining agreement, combined with ``the disappointing 
stock market performance in the past few years'' will be likely to 
cause the Plan to fall below the 85% funding requirement set in the 
1998 agreement with the PBGC. This would evidently require substantial 
contribution increases over the next several years, and these costs 
would reduce investment needed, among other things, to reduce shipping 
costs and thereby improve the long-term funding base of the Plan. The 
PMA and the ILWU jointly posit that this ``temporary reduction'' in the 
85% funding requirement ``will help the West Coast ports to obtain 
long-term benefits that will long outlast the six-year term of the 
collective bargaining agreement''.
    The Plan also maintains that experience from 1984 through the 
present confirms the accuracy of the PBGC determination that the West 
Coast shipping industry shares the salient characteristics of a 
construction plan. In the words of the application:
    So long as the work of ILWU members is necessary for the movement 
of all types of cargo, the contribution base of the Plan rests upon the 
amount of cargo shipped. The amount of cargo shipped through West Coast 
ports is independent of the existence of any particular longshore 
employer.
    In addition, like the construction industry, the work is local, 
performed at the port of embarkation or debarkation. An employer cannot 
withdraw from the Plan while continuing to perform longshore work at 
West Coast ports, because longshore work along the entire West Coast 
for all ocean-going dry cargo work is covered under collective 
bargaining agreements that require contributions to the Plan. Given 
that the entire West Coast is one bargaining unit, it is not possible 
for cargo to be loaded or unloaded at any point on the coast without 
contributions being paid to the Plan. Thus, as a practical matter, it 
is not realistic to expect noncontributory, covered work. Nonetheless, 
if a former contributing employer were to compete against the Plan's 
other employers in this way, thereby diminishing the Plan's

[[Page 35466]]

contribution base, withdrawal liability would be imposed pursuant to 
the special liability rules previously approved by the PBGC. Because of 
the local nature of the work and the requirement that contributions be 
made to the Plan for all longshore work done on the West Coast, the 
comings and goings of employers do not have an adverse effect on the 
Plan's contribution base, which is dependent upon the vitality of the 
West Coast shipping industry as a whole. Thus, the covered industry 
evidences characteristics that indicate that cessations by employers do 
not have a weakening effect on the Plan's contribution base.
    The Plan further contends that past experience and reasonable 
future projections show that the relaxation of the current rule will 
not pose an unacceptable risk of loss to PBGC or participants.
    The Plan's funded status has improved dramatically since 1984, 
underscoring the ability of the industry to fund the Plan * * *. And, 
even though the Plan's funded status will decline for a time once the 
amendment fully takes effect, the Plan and the covered industry have 
unique characteristics that suggest that the Plan's contribution base 
is likely to remain stable * * * [Actuarial projections show that] the 
Plan's funding policy will return the Plan to 85% funding in a little 
over ten (10) years * * *. The Plan's continuation is dependent only on 
the continued activity in the West Coast shipping industry as a whole. 
Consequently, the Plan's contribution base is secure and the departure 
of one employer from the Plan is highly unlikely to have an adverse 
effect on the contribution base so long as the level of shipping does 
not decline.

Comments

    All interested persons are invited to submit written comments 
concerning the pending request to PBGC at the above address, on or 
before July 28, 2003. All comments will be made a part of the record. 
The PBGC will make the comments received available on its Web site, 
http://www.pbgc.gov. Copies of the comments and the pending request may 
be obtained by writing the PBGC's Communications and Public Affairs 
Department (CPAD) at Suite 240 at the above address or by visiting or 
calling CPAD during normal business hours (202-325-4040).

    Issued in Washington, DC, on this 10th day of June 2003.
Steven A. Kandarian,
Executive Director, Pension Benefit Guaranty Corporation.
[FR Doc. 03-14969 Filed 6-12-03; 8:45 am]
BILLING CODE 7708-01-P