[Federal Register Volume 78, Number 153 (Thursday, August 8, 2013)]
[Notices]
[Pages 48506-48510]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-19219]


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PENSION BENEFIT GUARANTY CORPORATION


Approval of Amendment to Special Withdrawal Liability Rules the 
I.A.M. National Pension Fund National Pension Plan

AGENCY: Pension Benefit Guaranty Corporation.

ACTION: Notice of approval.

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SUMMARY: The I.A.M. National Pension Fund National Pension Plan 
(``I.A.M. Fund'') requested the Pension Benefit Guaranty Corporation 
(``PBGC'') to approve a plan amendment providing for special withdrawal 
liability rules for certain employers that maintain the I.A.M. Fund. 
PBGC published a Notice of Pendency of the Request for Approval of the 
amendment on December 26, 2012 (77 FR 76090) (``Notice of Pendency''). 
In accordance with the provisions of the Employee Retirement Income 
Security Act of 1974, as amended (``ERISA'''), PBGC is now advising the 
public that the agency has approved the requested amendment.

FOR FURTHER INFORMATION CONTACT: Beth A. Bangert, Office of the Chief 
Counsel, Pension Benefit Guaranty Corporation, 1200 K Street NW., 
Washington, DC 20005-4026; Telephone 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 Sec.  4201 of ERISA, an employer who completely or partially 
withdraws from a defined benefit multiemployer pension plan becomes 
liable for a proportional share of the plan's unfunded vested benefits. 
The statute specifies that a ``complete withdrawal'' occurs whenever an 
employer either permanently (1) ceases to have an obligation to 
contribute to the plan, or (2) ceases all operations covered under the 
plan. See ERISA Sec.  4203(a). Under the second test, therefore, an 
employer who closes or sells its operations will incur withdrawal 
liability. Under the first test, an employer who remains in business 
but who no longer has an obligation to contribute to the plan also is 
liable. The ``partial withdrawal'' provisions of Sec. Sec.  4205 and 
4206 impose a lesser measure of liability upon employers who greatly 
reduce, but do not eliminate, the operations that generate 
contributions to the plan. The withdrawal liability provisions of ERISA 
are a critical factor in maintaining the solvency of these pension 
plans and reducing claims made on the multiemployer plan guaranty fund 
maintained by PBGC. Without withdrawal liability rules, an employer who 
participates in an underfunded multiemployer plan would have a powerful 
economic incentive to reduce expenses by withdrawing from the plan.
    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 
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 does 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 anytime within five 
years after the employer ceased its contributions.\1\ There is a 
parallel rule for partial withdrawals from construction plans. Under 
Sec.  208(d)(1) of ERISA, ``[a]n employer to whom Sec.  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. No plan has 
ever requested PBGC to determine that it shares the characteristics 
of an entertainment plan.
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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 show 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 Sec.  
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 show 
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

[[Page 48507]]

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 adoption of the special rule would not adversely affect the 
plan. 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

    On December 26, 2012, PBGC published a notice soliciting public 
comment on a request on behalf of the I.A.M. Fund for approval of an 
amendment prescribing special withdrawal liability rules applicable to 
employers whose employees work under a contract or subcontract with 
federal or District of Columbia government agencies that, if approved 
by PBGC, would be effective for withdrawals occurring after January 1, 
2009. PBGC received no comments on the notice.
    The I.A.M. Fund is a multiemployer plan located in Washington, DC 
that covers workers with various skill-sets. It is maintained pursuant 
to collective bargaining agreements (``CBAs'') between contributing 
employers and the International Association of Machinists and Aerospace 
Workers. Certain contributing employers employ employees who work under 
a contract or subcontract with federal or District of Columbia 
government agencies governed by the Service Contract Act (``SCA''), 41 
U.S.C. 351 et seq.
    Under the I.A.M. Fund's proposed amendment, complete withdrawal of 
SCA employers would occur only: (a) Under conditions similar to those 
described in ERISA Sec.  4203(b)(2) for the building and construction 
industry; (b) upon the employer's sale or transfer of a substantial 
portion of its business or assets to another entity who performs such 
work in the jurisdiction of the collective bargaining agreement but has 
no obligation to contribute to the I.A.M. Fund; or (c) when the 
employer ceases to have any obligation to contribute in connection with 
the withdrawal of every or substantially all employer(s) from the 
I.A.M. Fund. Partial withdrawal of an employer would occur only under 
conditions similar to those described in ERISA Sec.  4208(d)(1).
    As of January 1, 2010, the I.A.M. Fund had approximately 107,869 
active participants and was paying approximately $445.8 million in 
benefits to 78,246 pensioners and survivors. For 2010, contributions 
were $331.8 million. The number of contributing employers remained 
stable from 2004-2010. Between 2004 and 2010, the number of active 
participants increased by almost 69%.
    As of September 2012, the I.A.M. Fund had approximately 414 SCA-
related CBAs covering 546 sites and 27,105 bargaining unit employees.

[[Page 48508]]



                                                                             Summary of Actuarial Valuation Results
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                                               2010                        2009                       2008                   2007               2006               2005               2004
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                                                                                 Participant Data (as of Jan. 1)
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Participant Counts:
    --Active......................  107.869                     104,210                    112,842                               93,672             68,276             67,181             63,894
    --Retired.....................  78,246                      76,418                     74,534                                71,547             70,138             68,261             65,491
    --Separated Vested............  83,925                      81,943                     79,092                                76.406             72,463             73,193             72,010
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        --Total...................  270,040                     262,571                    266,468                              241,625            210,877            208,635            201,395
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                                                                                        Contribution Data
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Contribution Base Units...........  N/A                         212,406,557                210,572,334                      208,129,349        182,572,827        145,873,219        139,636,859
Contributions Received............  $331,827,659                $318,412,576               $297,403,006                    $269,232,994       $229,965,014       $186,198,239       $166,273,860
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                                                                                     Fund Disbursement Data
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Benefits Paid.....................  $445,754,303                $418,034,866               $389,758,999                    $363,962,958       $342,698,440       $323,603,306       $302,687,611
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        Total Disbursements.......  $514,294,120                $482,408,116               $456,233,117                    $429,698,388       $401,038,579       $374,564,146       $346,893,190
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                                                                                    Funding Valuation Results
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Actuarial Accrued Liability \2\...  $10,226,289,591             $9,518,894,643             $8,786,060,437                $8,319,506,519     $7,177,520,251     $6,757,777,312     $6,316,201,092
Actuarial Value of Plan Assets 3 4  $9,348,495,105              $7,324,683,461             $8,528,445,344                $7,562,612,176     $6,910,936,597     $6,542,310,777     $6,291,567,994
Unfunded Actuarial Accrued          $877,794,486                $2,194,211,182             $257,615,093                    $756,894,343       $266,583,654       $215,466,535        $24,633,098
 Liability.
Normal Cost.......................  $262,972,734                $247,015,553               $224,816,950                    $224,796,287       $175,174,376       $161,286,365       $146,360,771
Ratio of Contributions to Normal    1.01                        0.77                       1.22                                    0.96               1.18               1.05               1.12
 Cost Plus Interest on Unfunded
 Actuarial Accrued Liability.
Funding Valuation Interest Rate...  7.50%                       7.50%                      7.50%                                  7.50%              7 50%              7.50%              7.50%
IRC Sec.   432 Plan Status \5\....  Neither Endangered nor      Neither Endangered nor     Neither Endangered nor                   N/A                N/A                N/A                N/A
                                     Critical                    Critical                   Critical
Funding Standard Account credit     $1,441,923,418              $1,287,537,314             $1,215,638,933                $1,115,449,739     $1,100,832,864     $1,034,280,096       $997,208,997
 balance (at end of year).
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                                                                               Current Liability Valuation Results
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Current Liability \6\.............  $12,890,834,839             $11,616,776,438            $11,423,640,776               $8,852,393,063     $7,728,528,595     $6,964,467,902     $6,178,194,421
Market Value of Plan Assets.......  $7,415,989,310              $6,103,902,884             $9,143,330,428                $8,505,670,319     $7,440,076,874     $6,917,117,902     $6,194,918,670
Unfunded Current Liability........  $5,474,845,529              $5,512,873,554             $2,280,310,348                  $346,722,744       $288,451,721        $47,350,000                 $0

[[Page 48509]]

 
Current Liability Normal Cost       $812,708,299                $724,602,812               $722,802,865                    $515,502,172       $373,709,001       $332,979,085       $283,365,005
 (Expected Increase in Current
 Liability Due to Benefits
 Accruing During the Plan Year).
Ratio of Contributions to Increase  0.31                        0.32                       0.34                                    0.50               0.59               0.55               0.59
 In Current Liability Due to
 Benefit Accruals Plus Interest on
 Unfunded Current Liability.
Current Liability Interest Rate     4.58%                       4.82%                      4.33%                                  5.78%              5.77%              6.10%              6.55%
 \7\.
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                                                                             Withdrawal Liability Valuation Results
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Total Unfunded Vested Benefit       $0                          $209,374,018               $0                                        $0                 $0                 $0                 $0
 Liability for Withdrawal
 Liability Purposes \8\.
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(1) Elective January 1, 2011, the rate of future benefit accrual was reduced by 40% (except for participants subject to a custom benefit schedule and those whose employers first joined the
  fund after April 1, 2003). This change facilitated a zone certification of ``Neither Endangered nor Critical'' for 2010, which satisfied a key requirement for extending the amortization
  period for funding standard account charge bases in effect as of January 1, 2009 (under Code Sec.   431(d)).
(2) The actuarial accrued liability was determined using actuarial assumptions selected by the plan actuary which are deemed to be reasonable (taking into account the experience of the plan
  and reasonable expectations) and which offer the actuary's best estimate of anticipated experience under the plan. The actuarial accrued liability was determined under the individual entry
  age normal actuarial cost method.
(3) The actuarial value of plan assets was based on recognition of the difference between actual investment return and that anticipated under the funding valuation interest rate assumption
  over a five-year period. The actuarial value is constrained to a 20% corridor around market value.
(4) The plan elected to implement certain funding relief options allowed under the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010. These relief
  provisions involve i) extending the recognition period for investment losses experienced in 2008 to 29 years; ii) extending the upper constraint on the actuarial value of assets to 130%
  market value; and iii) modifying the asset valuation method by smoothing the difference between expected and actual return for the year ending December 31, 2008 over a period of 10 years.
(5) The 2009 plan status of ``Neither Endangered nor Critical'' is the result of an election by the plan's trustees to freeze the plan status at the 2009 level, as permitted under the Worker,
  Retiree and Employer Recovery Act of 2008 Without this legislation, the 2009 plan status would have been ``Endangered.''
(6) The current liability was determined under actuarial methods and assumptions specified by the Internal Revenue Code and implementing regulations. The unit credit actuarial cost method was
  used to determine current liability.
(7) The current liability assumed interest rate is selected from a range based on the four-year weighted average rate on 30-year Treasury bonds as of the valuation date.
(8) The unfunded vested benefit liability for withdrawal liability purposes was calculated using the unit credit actuarial cost method, the funding valuation interest rate assumption and the
  funding valuation actuarial value of plan assets.


[[Page 48510]]

Decision on the Proposed Amendment

    The statute and the implementing regulation state that PBGC must 
make two factual determinations before it approves a request for an 
amendment that adopts a special withdrawal liability rule. ERISA Sec.  
4203(f); 29 CFR 4203.4(a). First, on the basis of a showing by the 
plan, PBGC must determine that the amendment will apply to an industry 
that has characteristics that would make use of the special rules 
appropriate. Second, PBGC must determine that the plan amendment will 
not pose a significant risk to the insurance system. PBGC's discussion 
on each of those issues follows. After review of the record submitted 
by the I.A.M. Fund, and having received no public comments, PBGC has 
entered the following determinations.

1. What Is the Nature of the Industry?

    In determining whether an industry has the characteristics that 
would make an amendment to special rules appropriate, an important line 
of inquiry is the extent to which the I.A.M. Fund's contribution base 
resembles that found in the construction industry. This threshold 
question requires consideration of the effect of SCA employer 
withdrawals on the I.A.M. Fund's contribution base. As with 
construction-industry employers, when SCA employers contributing to the 
I.A.M. Fund lose their contracts, the applicable federal or District of 
Columbia government agency contracts with a new employer to contribute 
at the same or substantially the same rate for the same number of 
contribution base units as the previous SCA employer. This is because 
the SCA provides that employees must not be paid less than the wages 
and fringe benefits set by the Department of Labor or as collectively 
bargained. Over the past ten years, cessation of contributions by any 
individual SCA employer has not had an adverse impact on the I.A.M. 
Fund's contribution base. Most SCA employers that have ceased to 
contribute have been replaced by another employer who begins 
contributing for the same work.

2. What Is the Exposure and Risk of Loss to PBGC and Participants?

    Exposure. During the seven year period from 2004 to 2010, the 
I.A.M. Fund's active participant population increased by 69% while the 
number of retirees increased by 17%. In those same years, the number of 
contribution base units grew strongly and the dollar amount of 
contributions doubled. Benefits paid exceeded contributions in every 
year, but grew only 47%--a significantly slower than the growth of 
contributions.
    Risk of loss. The record shows that the I.A.M. Fund presented a low 
risk of loss to PBGC guaranty funds. The I.A.M. Fund did not have 
unfunded vested benefits for withdrawal liability purposes as of 
December 31, 2009, and did not have to assess withdrawal liability for 
withdrawals in 2010. The I.A.M. Fund and the covered industry have 
unique characteristics that suggest that the I.A.M. Fund's contribution 
base is likely to remain stable. Contributions to the I.A.M. Fund are 
made with respect to SCA employers whose employees work under a 
contract or subcontract with federal or District of Columbia government 
agencies covered under the SCA. Consequently, the I.A.M. Fund's 
contribution base is secure and the departure of one SCA employer from 
the I.A.M. Fund is not likely to have an adverse effect on the 
contribution base so long as the replacement SCA employer contributes 
to the I.A.M. Fund for substantially the same number of contribution 
case units at the same or higher contribution rate as the previous 
employer.

Conclusion

    Based on the facts of this case and the representations and 
statements made in connection with the request for approval, PBGC has 
determined that the plan amendment modifying special withdrawal 
liability rules (1) will apply only to an industry that has 
characteristics that would make the use of special withdrawal liability 
rules appropriate, and (2) will not pose a significant risk to the 
insurance system. Therefore, PBGC hereby grants the I.A.M. Fund's 
request for approval of a plan amendment modifying special withdrawal 
liability rules applicable to SCA employers, as set forth herein. 
Should the I.A.M. Fund wish to amend these rules at any time, PBGC 
approval of the amendment will be required.

    Issued at Washington, DC, on this 26 day of July, 2013.
Joshua Gotbaum,
Director, Pension Benefit Guaranty Corporation.
[FR Doc. 2013-19219 Filed 8-7-13; 8:45 am]
BILLING CODE 7709-02-P