Approval of Amendment to Special Withdrawal Liability Rules for Service Employees International Union Local 25 and Participating Employers Pension Trust, 71562-71564 [E5-6625]

Agencies

• Pension Benefit Guaranty Corporation

[Federal Register Volume 70, Number 228 (Tuesday, November 29, 2005)]
[Notices]
[Pages 71562-71564]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-6625]


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PENSION BENEFIT GUARANTY CORPORATION


Approval of Amendment to Special Withdrawal Liability Rules for 
Service Employees International Union Local 25 and Participating 
Employers Pension Trust

AGENCY: Pension Benefit Guaranty Corporation.

ACTION: Notice of approval.

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SUMMARY: The Service Employees International Union Local 25 and 
Participating Employers Pension Trust requested the Pension Benefit 
Guaranty Corporation (``PBGC'') to approve a plan amendment providing 
for special withdrawal liability rules for employers that maintain the 
Plan. PBGC published a Notice of Pendency of the Request for Approval 
of the amendment on July 6, 2005 (70 FR 38983) (``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: Frank Anderson, Attorney, 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 section 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 section 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 
sections 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

[[Page 71563]]

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. 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 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 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 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 aversely 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 July 6, 2005, PBGC published a notice soliciting public comment 
on a request on behalf of the Service Employees International Union 
Local 25 and Participating Employers Pension Trust (``Plan'') for 
approval of an amendment prescribing special withdrawal liability rules 
that, if approved by PBGC, would be effective as of September 30, 2002. 
PBGC received no comments on the notice.
    The plan is a multiemployer plan covering the commercial building 
cleaning and security industry in Chicago, Illinois. It is maintained 
pursuant to collective bargaining agreements with the Building Owners 
and Managers Association of Chicago and independent cleaning 
contractors. As of October 1, 2003, it had approximately 10,000 active 
participants and was paying approximately $14.4 million in benefits to 
4,157 pensioners and survivors.
    The plan had 173 contributing employers as of October 1, 2002, and 
contributions for the year ending September 30, 2003, were $10.7 
million. The number of contributing employers has remained stable from 
1996-2002, with a small increase in 2001 when employees of independent 
contractors who clean Chicago public school and police stations became 
participants in the plan. Between 1996 and 2002, the number of active 
participants increased by almost 67%.
    Contributions have increased at a faster rate than benefit 
payments, with increases occurring as new groups were added to the 
plan; in 1997, benefits were 248% of contributions and in 2003 they 
were 134% of contributions. The contribution rate was $12 per employee 
per week from 1981 until 2003, when it was increased to $18 per 
employee per week.
    Since October 1, 2001, the monthly benefit has been $27 for each 
year of credited service after December 1, 1968, plus $10 per year of 
credited service before December 1, 1968. Total service is limited to 
25 years. (In 1999, the rate was $25 and in 2000, it was $26.) In 
addition, the plan has increased the pensions of retirees by 4.87% in 
1998 and by 1.00% in 2000.

                                Summary of Actuarial Valuation Results, 2000-2003
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                                                                          Valuation Date (October 1)
                            Item                             ---------------------------------------------------
                                                                  2003         2002         2001         2000
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Active participants.........................................       10,297       10,061        7,995        7,182
Retirees....................................................        4,157        4,088        4,146        4,070
Monthly benefit accrual rate................................           27           27           27           26
Max. monthly benefit........................................          675          675          675          650
Contributions...............................................       10,739        7,804        6,579        5,340
Benefits (000)..............................................       14,424       13,786       13,258       12,839
Accrued liability (000).....................................      229,508      217,770      210,172      196,940
Market value of assets (000)................................      195,336      174,021      189,389      219,731
Net min. funding charge w/o credit bal. (000)...............       14,039       12,822        9,338        6,974
Normal cost (000)...........................................        8,888        8,674        6,719        5,585
Unfunded accrued liability* (000)...........................       34,172       43,749       20,783     (22,791)
Present value of vested benefits (000)......................      206,284      198,020      192,041      183,588

[[Page 71564]]

 
Unfunded liability, vested benefits* (000)..................       10,948       23,999        2,652     (36,143)
Valuation interest rate (%).................................          7.5          7.5          7.5         7.5
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* Using market value of assets

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 
section 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 Plan, 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 Plan's contribution base 
resembles that found in the construction industry. This threshold 
question requires consideration of the effect of employer withdrawals 
on the Plan's contribution base.
    Work covered by this plan must be performed at the office building 
located in Chicago. Thus, the work is local in nature; it generally 
will continue to be covered by the Plan. An employer ceases 
contributing when work is outsourced, the contractor loses a cleaning 
or security contract with a building owner, bankruptcy, closeout of a 
business as a result of retirement, or business relocation. Over the 
past ten years, cessation of contributions by any individual employer 
has not had an adverse impact on the Plan's contribution base. Most 
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. The bargaining parties have increased benefits for active 
workers by just over 25% since 1999. For a participant who retires with 
25 years of service (the maximum) the monthly benefit has risen from 
$538 to $675. Thus, benefit liabilities will rise because recent 
retirees will have higher benefits.
    Risk of loss. The record shows that the Plan presented a low risk 
of loss to PBGC guaranty funds. The Plan's active participant 
population is increasing. Plan assets increased from 1997 to 2000, and 
dipped slightly after that. While no longer fully funded for accrued or 
vested benefits, underfunding decreased in 2003. The Plan and the 
covered industry have unique characteristics that suggest that the 
Plan's contribution base is likely to remain stable. Contributions to 
the Plan are made with respect to Chicago commercial office buildings. 
Consequently, the Plan's contribution base is secure and the departure 
of one employer from the Plan is not likely to have an adverse effect 
on the contribution base so long as the number of buildings covered 
does not decline.

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 Plan's request for 
approval of a plan amendment modifying special withdrawal liability 
rules, as set forth herein. Should the Plan wish to amend these rules 
at any time, PBGC approval of the amendment will be required.


    Issued at Washington, DC, on this 17th day of November, 2005.
Bradley D. Belt,
Executive Director, Pension Benefit Guaranty Corporation.
[FR Doc. E5-6625 Filed 11-28-05; 8:45 am]
BILLING CODE 7708-01-P