Approval of Special Withdrawal Liability Rules: the Service Employees International Union Local 1 Cleveland Pension Plan, 18165-18168 [2017-07719]
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[FR Doc. 2017–07623 Filed 4–14–17; 8:45 am]
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[FR Doc. 2017–06998 Filed 4–14–17; 8:45 am]
BILLING CODE P
PENSION BENEFIT GUARANTY
CORPORATION
Approval of Special Withdrawal
Liability Rules: the Service Employees
International Union Local 1 Cleveland
Pension Plan
Pension Benefit Guaranty
Corporation.
ACTION: Notice of Approval.
AGENCY:
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ML17101A355.
ML042820192.
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ML13274A519.
ML14127A458 (Package).
ML14280A426 (Package).
ML12173A478 (Package).
ML13079A055.
ML15063A568.
ML032230247.
ML16133A575.
https://www.gao.gov/assets/670/667501.pdf.
https://www.gao.gov/new.items/d093sp.pdf.
ML13078A017.
The Service Employees
International Union Local 1 Cleveland
Pension Plan 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.
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.
ADDRESSES: A copy of the plan’s
complete request may be requested from
the Disclosure Officer, Pension Benefit
Guaranty Corporation, 1200 K Street
NW., Suite 11101, Washington, DC
20005 (fax 202–326–4042).
FOR FURTHER INFORMATION CONTACT:
Bruce Perlin, Assistant Chief Counsel
(Perlin.Bruce@PBGC.gov), 202–326–
4020, ext. 6818 or Jon Chatalian, Deputy
Assistant Chief Counsel (Chatalian.Jon@
PBGC.gov), ext. 6757, Office of the Chief
Counsel, Suite 340, 1200 K Street NW.,
Washington, DC 20005–4026; (TTY/
TDD users may call the Federal relay
service toll-free at 1–800–877–8339 and
ask to be connected to 202–326–4020.)
SUPPLEMENTARY INFORMATION:
SUMMARY:
Background
The Pension Benefit Guaranty
Corporation (PBGC) administers title IV
of the Employee Retirement Income
Security Act of 1974 (ERISA).
Under section 4201 of ERISA, an
employer that completely or partially
withdraws from a defined benefit
multiemployer pension plan becomes
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Federal Register / Vol. 82, No. 72 / Monday, April 17, 2017 / Notices
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 first test, an
employer that remains in business but
no longer has an obligation to contribute
to the plan will incur withdrawal
liability. Under the second test, an
employer that closes or sells its
operations will also incur withdrawal
liability. The ‘‘partial withdrawal’’
provisions of sections 4205 and 4206
impose a lesser measure of liability
upon employers who reduce, but do not
eliminate, the obligations or 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
insurance fund maintained by PBGC.
Without withdrawal liability rules, an
employer that 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
funding base of a pension plan is the
construction projects in the area covered
by the collective bargaining agreements
under which a pension plan is
maintained. Even if the amount of work
performed by a particular employer
fluctuates markedly in any given year,
individual employees will typically
continue to work for other contributing
employers in the same geographic area.
Consequently, the withdrawal of an
employer does not remove jobs from or
damage the pension plan’s contribution
base unless the employer continues to
work in the geographic area covered by
collective bargaining agreement without
contributing to the plan.
Although the general rules on
complete and partial withdrawal
identify events that normally result in a
diminution of the plan’s contribution
base, Congress recognized that, in
certain industries and under certain
circumstances, a complete or partial
cessation of the obligation to contribute
normally does not weaken the plan’s
contribution base. This reasoning led
Congress to establish special withdrawal
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rules for the construction and
entertainment industries.
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
and the employer either continues to
perform previously covered work in the
jurisdiction of the collective bargaining
agreement or resumes such work within
five years without renewing the
obligation to contribute. In the case of
a plan terminated by mass withdrawal
(within the meaning of ERISA section
4041(A)(2)), section 4203(b)(3) provides
that the five-year restriction on an
employer resuming covered work is
reduced to three years. Section
4203(c)(1) of ERISA applies the same
special 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. In
contrast, the general definition of
complete withdrawal in section 4203(a)
of ERISA includes the permanent
cessation of the obligation to contribute
regardless of the continued activities of
the withdrawn employer.
Congress also established special
partial withdrawal liability rules for the
construction and entertainment
industries. 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.’’ Under section 4208(d)(2) of
ERISA, ‘‘[a]n employer to whom section
4203(c) (relating to the entertainment
industry) applies shall have no liability
for a partial withdrawal except under
the conditions and to the extent
prescribed by the [PBGC] by
regulation.’’
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 have
characteristics that would make use of
the special withdrawal liability rules
appropriate. ERISA section
4203(f)(2)(A). In addition, each plan
application must show that the special
rule will not pose a significant risk to
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the PBGC. ERISA section 4203(f)(2)(B).
Section 4208(e)(3) of ERISA provides
that a plan may adopt rules for the
reduction or elimination of partial
withdrawal liability—under regulations
prescribed by PBGC—subject to PBGC’s
determination that such rules are
consistent with the purpose of ERISA.
PBGC’s 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. The regulation may be accessed
on PBGC’s Web site (https://
www.pbgc.gov). 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
will not pose a significant risk to the
PBGC.
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.
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The Request
PBGC received a request, dated
September 16, 2011, from the Service
Employees International Union Local 1
Cleveland Pension Plan (the ‘‘Plan’’), for
approval of a plan amendment
providing for special withdrawal
liability rules. Subsequently, the Plan
requested that PBGC suspend review of
the amendment. On January 24, 2014,
the Plan requested that PBGC again
consider the amendment and provided
updated actuarial information. PBGC
published a Notice of Pendency of the
Request for Approval of the amendment
on August 19, 2015 (80 FR 50339).
PBGC’s summary of the actuarial reports
provided by the Plan may be accessed
on PBGC’s Web site (https://
www.pbgc.gov/prac/pg/other/guidance/
multiemployer-notices.html).
The Plan is a multiemployer pension
plan covering the commercial building
cleaning and security industries in the
greater Cleveland, Ohio area. The Plan
represents in its submission that the
industry for which the rule is
requested—the commercial building
cleaning industry—has characteristics
similar to those of the construction
industry. According to the Plan’s
submission, the principal similarity is
that when a contributing employer’s
contract to clean a building expires, the
cleaning work will generally continue to
be performed by employees covered by
the Plan, irrespective of the employer
retained to perform the cleaning
services. Under the proposed
amendment, a complete withdrawal of
an employer whose employees perform
substantially all work in the commercial
building cleaning industry will occur
only when: (a) The employer ceases to
have an obligation to contribute under
the Plan and (b) the employer continues
to perform work in the jurisdiction of
the Plan of the type for which
contributions were previously required
or resumes such work within five years
after the date on which the obligation to
contribute under the plan ceases and
does not renew the obligation at the
time of the resumption. Additionally,
the proposed amendment provides that
a withdrawal from the Plan occurs if an
employer sells or otherwise transfers a
substantial portion of its business or
assets to another individual or entity
that performs work in the jurisdiction of
the Plan of the type for which
contributions are required without
having an obligation to make
contributions to the Plan. In the case of
termination by mass withdrawal (within
the meaning of ERISA section
4041A(a)(2)), the proposed amendment
provides that section 4203(b)(3),
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permitting a construction employer to
resume covered work after three years of
withdrawal instead of the standard fiveyear restriction, is not applicable to
withdrawing commercial building
cleaning industry employers. Therefore,
in the event of a mass withdrawal, there
is still a five-year restriction on
resuming covered work in the
jurisdiction of the Plan.
The request includes the actuarial
data on which the Plan relies to support
its contention that the amendment will
not pose a significant risk to the
insurance system under Title IV of
ERISA. The Plan submitted actuarial
valuation reports for Plan years 2007–
2014. Although the Plan’s financial
condition deteriorated after the 2007–
2008 financial crisis, the Plan
immediately took action to increase
employer contributions, by diverting
contributions allocated to other
employee benefit plans.1 In 2011, the
Plan’s funding percentage and other
tests of financial health placed the Plan
in the Green zone (strongest category)
and the Plan has been in the Green zone
since.2 Although the number of active
participants in the Plan dropped 19%
between 2007 and 2013 (while retirees
decreased 6%), contributions increased
13% over the same time period.3 To
date, the Plan’s active participant base
remains solid—about 36% of the
participant population—and
contributions remain steady.
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 4203.5(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
1 Under the Pension Protection Act of 2006 (PPA),
the Plan would have certified as in critical status
(Red zone) in 2009, but instead elected to freeze its
2008 Green zone status for one year pursuant to the
Worker, Retiree, and Employer Recovery Act of
2008 (WRERA).
2 Updated actuarial information became available
after the Notice of Pendency, and PBGC reviewed
5500s and Actuarial Valuation Reports for Plan
years 2015–2016, which confirmed the Plan was
still in the Green zone.
3 During Plan years 2014–2016, active
participants decreased by another 5% (while
retirees decreased 6%). The number of separated
vested participants increased in recent years, but
the average monthly benefit of these participants is
less than the average monthly benefit of the current
retiree population. Additionally, the updated
actuarial information demonstrates a commitment
to sustained contributions, as evidenced by a 5%
increase in the average employer contribution rate
between 2013 and 2015.
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18167
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.
As the Plan has asserted, covered
work must be performed at a
commercial building located in the
Cleveland, Ohio region. The work is
local in nature and generally continues
to be covered by the Plan regardless of
the employer retained to do those
services. An employer ceases to have an
obligation to contribute when it loses a
cleaning or security contract because the
building owner outsources the work or
retains a different service provider, or
when the employer closes its business
due to bankruptcy, retirement, or
business relocation. Over the past 10
years, cessation of contributions by any
individual employer has not had an
adverse impact on the Plan’s
contribution base. Most of the
employers that have ceased to
contribute have been replaced by
another employer who begins
contributions for the same employees at
the same location for the same work.
The Plan presented historical data
supporting the notion that building
contract employer withdrawals have not
negatively affected the Plan’s
contribution base.
2. What is the exposure and risk of loss
to PBGC and participants?
Exposure. Although the Plan’s
financial condition deteriorated as a
result of the 2007–2008 financial crisis,
the Plan sponsor took assertive actions
to help the Plan recover, significantly
increasing contributions in Plan years
2010 and 2011. As a result, in 2011 the
Plan’s actuary determined that the
Plan’s financial health placed it in the
Green zone and the Plan continues to be
in the Green zone to date. Active
participants in the Plan decreased by
19% from 2007 to 2013 (and retirees
decreased by 6%), but contributions
increased by 13% over the same time
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Federal Register / Vol. 82, No. 72 / Monday, April 17, 2017 / Notices
period. Thus, the parties have worked to
preserve an adequate cushion against
market downturns.
Risk of loss. The record shows that the
Plan presents a low risk of loss to
PBGC’s multiemployer insurance
program. 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 commercial buildings in the
greater Cleveland area. Plan
representatives presented data
demonstrating that building cleaning
contracts for covered employment under
the collective bargaining agreement
have changed hands approximately 20–
25 times during the past 18 years, and
the rate at which a new signatory
employer has assumed a prior signatory
employer’s building contract and has
hired the prior employer’s employees to
clean the same building is 90–92%.
Accordingly, the data substantiates the
Plan’s assertion that the 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 Plan’s submissions and
the representations and statements
made in connection with the request for
approval, PBGC has determined that the
plan amendment adopting the 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 providing 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.
W. Thomas Reeder,
Director, Pension Benefit Guaranty
Corporation.
[FR Doc. 2017–07719 Filed 4–14–17; 8:45 am]
BILLING CODE 7709–01–P
mstockstill on DSK30JT082PROD with NOTICES
POSTAL REGULATORY COMMISSION
[Docket No. CP2017–162]
New Postal Products
Postal Regulatory Commission.
Notice.
AGENCY:
ACTION:
The Commission is noticing a
recent Postal Service filing for the
SUMMARY:
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17:14 Apr 14, 2017
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Commission’s consideration concerning
a negotiated service agreement. This
notice informs the public of the filing,
invites public comment, and takes other
administrative steps.
DATES: Comments are due: April 19,
2017.
Submit comments
electronically via the Commission’s
Filing Online system at https://
www.prc.gov. Those who cannot submit
comments electronically should contact
the person identified in the FOR FURTHER
INFORMATION CONTACT section by
telephone for advice on filing
alternatives.
ADDRESSES:
FOR FURTHER INFORMATION CONTACT:
David A. Trissell, General Counsel, at
202–789–6820.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Introduction
II. Docketed Proceeding(s)
I. Introduction
The Commission gives notice that the
Postal Service filed request(s) for the
Commission to consider matters related
to negotiated service agreement(s). The
request(s) may propose the addition or
removal of a negotiated service
agreement from the market dominant or
the competitive product list, or the
modification of an existing product
currently appearing on the market
dominant or the competitive product
list.
Section II identifies the docket
number(s) associated with each Postal
Service request, the title of each Postal
Service request, the request’s acceptance
date, and the authority cited by the
Postal Service for each request. For each
request, the Commission appoints an
officer of the Commission to represent
the interests of the general public in the
proceeding, pursuant to 39 U.S.C. 505
(Public Representative). Section II also
establishes comment deadline(s)
pertaining to each request.
The public portions of the Postal
Service’s request(s) can be accessed via
the Commission’s Web site (https://
www.prc.gov). Non-public portions of
the Postal Service’s request(s), if any,
can be accessed through compliance
with the requirements of 39 CFR
3007.40.
The Commission invites comments on
whether the Postal Service’s request(s)
in the captioned docket(s) are consistent
with the policies of title 39. For
request(s) that the Postal Service states
concern market dominant product(s),
applicable statutory and regulatory
requirements include 39 U.S.C. 3622, 39
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U.S.C. 3642, 39 CFR part 3010, and 39
CFR part 3020, subpart B. For request(s)
that the Postal Service states concern
competitive product(s), applicable
statutory and regulatory requirements
include 39 U.S.C. 3632, 39 U.S.C. 3633,
39 U.S.C. 3642, 39 CFR part 3015, and
39 CFR part 3020, subpart B. Comment
deadline(s) for each request appear in
section II.
II. Docketed Proceeding(s)
1. Docket No(s).: CP2017–162; Filing
Title: Notice of United States Postal
Service of Filing a Functionally
Equivalent Global Expedited Package
Services 7 Negotiated Service
Agreement and Application for NonPublic Treatment of Materials Filed
Under Seal; Filing Acceptance Date:
April 11, 2017; Filing Authority: 39 CFR
3015.5; Public Representative: Curtis E.
Kidd; Comments Due: April 19, 2017.
This notice will be published in the
Federal Register.
Stacy L. Ruble,
Secretary.
[FR Doc. 2017–07706 Filed 4–14–17; 8:45 am]
BILLING CODE 7710–FW–P
POSTAL SERVICE
Product Change—Priority Mail
Negotiated Service Agreement
AGENCY:
ACTION:
Postal ServiceTM.
Notice.
The Postal Service gives
notice of filing a request with the Postal
Regulatory Commission to add a
domestic shipping services contract to
the list of Negotiated Service
Agreements in the Mail Classification
Schedule’s Competitive Products List.
SUMMARY:
DATES:
Effective date: April 17, 2017.
FOR FURTHER INFORMATION CONTACT:
Elizabeth A. Reed, 202–268–3179.
The
United States Postal Service® hereby
gives notice that, pursuant to 39 U.S.C.
3642 and 3632(b)(3), on April 10, 2017,
it filed with the Postal Regulatory
Commission a Request of the United
States Postal Service to Add Priority
Mail Contract 306 to Competitive
Product List. Documents are available at
www.prc.gov, Docket Nos. MC2017–111,
CP2017–159.
SUPPLEMENTARY INFORMATION:
Stanley F. Mires,
Attorney, Federal Compliance.
[FR Doc. 2017–07630 Filed 4–14–17; 8:45 am]
BILLING CODE 7710–12–P
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]]>Agencies
[Federal Register Volume 82, Number 72 (Monday, April 17, 2017)]
[Notices]
[Pages 18165-18168]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-07719]
=======================================================================
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PENSION BENEFIT GUARANTY CORPORATION
Approval of Special Withdrawal Liability Rules: the Service
Employees International Union Local 1 Cleveland Pension Plan
AGENCY: Pension Benefit Guaranty Corporation.
ACTION: Notice of Approval.
-----------------------------------------------------------------------
SUMMARY: The Service Employees International Union Local 1 Cleveland
Pension Plan 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. 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.
ADDRESSES: A copy of the plan's complete request may be requested from
the Disclosure Officer, Pension Benefit Guaranty Corporation, 1200 K
Street NW., Suite 11101, Washington, DC 20005 (fax 202-326-4042).
FOR FURTHER INFORMATION CONTACT: Bruce Perlin, Assistant Chief Counsel
(Perlin.Bruce@PBGC.gov), 202-326-4020, ext. 6818 or Jon Chatalian,
Deputy Assistant Chief Counsel (Chatalian.Jon@PBGC.gov), ext. 6757,
Office of the Chief Counsel, Suite 340, 1200 K Street NW., Washington,
DC 20005-4026; (TTY/TDD users may call the Federal relay service toll-
free at 1-800-877-8339 and ask to be connected to 202-326-4020.)
SUPPLEMENTARY INFORMATION:
Background
The Pension Benefit Guaranty Corporation (PBGC) administers title
IV of the Employee Retirement Income Security Act of 1974 (ERISA).
Under section 4201 of ERISA, an employer that completely or
partially withdraws from a defined benefit multiemployer pension plan
becomes
[[Page 18166]]
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 first test, an employer that
remains in business but no longer has an obligation to contribute to
the plan will incur withdrawal liability. Under the second test, an
employer that closes or sells its operations will also incur withdrawal
liability. The ``partial withdrawal'' provisions of sections 4205 and
4206 impose a lesser measure of liability upon employers who reduce,
but do not eliminate, the obligations or 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 insurance fund
maintained by PBGC. Without withdrawal liability rules, an employer
that 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 funding base of a pension plan
is the construction projects in the area covered by the collective
bargaining agreements under which a pension plan is maintained. Even if
the amount of work performed by a particular employer fluctuates
markedly in any given year, individual employees will typically
continue to work for other contributing employers in the same
geographic area. Consequently, the withdrawal of an employer does not
remove jobs from or damage the pension plan's contribution base unless
the employer continues to work in the geographic area covered by
collective bargaining agreement without contributing to the plan.
Although the general rules on complete and partial withdrawal
identify events that normally result in a diminution of the plan's
contribution base, Congress recognized that, in certain industries and
under certain circumstances, a complete or partial cessation of the
obligation to contribute normally does not weaken the plan's
contribution base. This reasoning led Congress to establish special
withdrawal rules for the construction and entertainment industries.
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 and the employer either continues to perform previously
covered work in the jurisdiction of the collective bargaining agreement
or resumes such work within five years without renewing the obligation
to contribute. In the case of a plan terminated by mass withdrawal
(within the meaning of ERISA section 4041(A)(2)), section 4203(b)(3)
provides that the five-year restriction on an employer resuming covered
work is reduced to three years. Section 4203(c)(1) of ERISA applies the
same special 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. In contrast, the general definition of complete withdrawal
in section 4203(a) of ERISA includes the permanent cessation of the
obligation to contribute regardless of the continued activities of the
withdrawn employer.
Congress also established special partial withdrawal liability
rules for the construction and entertainment industries. 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.'' Under section 4208(d)(2) of ERISA, ``[a]n employer to whom
section 4203(c) (relating to the entertainment industry) applies shall
have no liability for a partial withdrawal except under the conditions
and to the extent prescribed by the [PBGC] by regulation.''
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 have characteristics that would
make use of the special withdrawal liability rules appropriate. ERISA
section 4203(f)(2)(A). In addition, each plan application must show
that the special rule will not pose a significant risk to the PBGC.
ERISA section 4203(f)(2)(B). Section 4208(e)(3) of ERISA provides that
a plan may adopt rules for the reduction or elimination of partial
withdrawal liability--under regulations prescribed by PBGC--subject to
PBGC's determination that such rules are consistent with the purpose of
ERISA.
PBGC's 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. The
regulation may be accessed on PBGC's Web site (https://www.pbgc.gov).
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 will not pose a significant
risk to the PBGC.
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.
[[Page 18167]]
The Request
PBGC received a request, dated September 16, 2011, from the Service
Employees International Union Local 1 Cleveland Pension Plan (the
``Plan''), for approval of a plan amendment providing for special
withdrawal liability rules. Subsequently, the Plan requested that PBGC
suspend review of the amendment. On January 24, 2014, the Plan
requested that PBGC again consider the amendment and provided updated
actuarial information. PBGC published a Notice of Pendency of the
Request for Approval of the amendment on August 19, 2015 (80 FR 50339).
PBGC's summary of the actuarial reports provided by the Plan may be
accessed on PBGC's Web site (https://www.pbgc.gov/prac/pg/other/guidance/multiemployer-notices.html).
The Plan is a multiemployer pension plan covering the commercial
building cleaning and security industries in the greater Cleveland,
Ohio area. The Plan represents in its submission that the industry for
which the rule is requested--the commercial building cleaning
industry--has characteristics similar to those of the construction
industry. According to the Plan's submission, the principal similarity
is that when a contributing employer's contract to clean a building
expires, the cleaning work will generally continue to be performed by
employees covered by the Plan, irrespective of the employer retained to
perform the cleaning services. Under the proposed amendment, a complete
withdrawal of an employer whose employees perform substantially all
work in the commercial building cleaning industry will occur only when:
(a) The employer ceases to have an obligation to contribute under the
Plan and (b) the employer continues to perform work in the jurisdiction
of the Plan of the type for which contributions were previously
required or resumes such work within five years after the date on which
the obligation to contribute under the plan ceases and does not renew
the obligation at the time of the resumption. Additionally, the
proposed amendment provides that a withdrawal from the Plan occurs if
an employer sells or otherwise transfers a substantial portion of its
business or assets to another individual or entity that performs work
in the jurisdiction of the Plan of the type for which contributions are
required without having an obligation to make contributions to the
Plan. In the case of termination by mass withdrawal (within the meaning
of ERISA section 4041A(a)(2)), the proposed amendment provides that
section 4203(b)(3), permitting a construction employer to resume
covered work after three years of withdrawal instead of the standard
five-year restriction, is not applicable to withdrawing commercial
building cleaning industry employers. Therefore, in the event of a mass
withdrawal, there is still a five-year restriction on resuming covered
work in the jurisdiction of the Plan.
The request includes the actuarial data on which the Plan relies to
support its contention that the amendment will not pose a significant
risk to the insurance system under Title IV of ERISA. The Plan
submitted actuarial valuation reports for Plan years 2007-2014.
Although the Plan's financial condition deteriorated after the 2007-
2008 financial crisis, the Plan immediately took action to increase
employer contributions, by diverting contributions allocated to other
employee benefit plans.\1\ In 2011, the Plan's funding percentage and
other tests of financial health placed the Plan in the Green zone
(strongest category) and the Plan has been in the Green zone since.\2\
Although the number of active participants in the Plan dropped 19%
between 2007 and 2013 (while retirees decreased 6%), contributions
increased 13% over the same time period.\3\ To date, the Plan's active
participant base remains solid--about 36% of the participant
population--and contributions remain steady.
---------------------------------------------------------------------------
\1\ Under the Pension Protection Act of 2006 (PPA), the Plan
would have certified as in critical status (Red zone) in 2009, but
instead elected to freeze its 2008 Green zone status for one year
pursuant to the Worker, Retiree, and Employer Recovery Act of 2008
(WRERA).
\2\ Updated actuarial information became available after the
Notice of Pendency, and PBGC reviewed 5500s and Actuarial Valuation
Reports for Plan years 2015-2016, which confirmed the Plan was still
in the Green zone.
\3\ During Plan years 2014-2016, active participants decreased
by another 5% (while retirees decreased 6%). The number of separated
vested participants increased in recent years, but the average
monthly benefit of these participants is less than the average
monthly benefit of the current retiree population. Additionally, the
updated actuarial information demonstrates a commitment to sustained
contributions, as evidenced by a 5% increase in the average employer
contribution rate between 2013 and 2015.
---------------------------------------------------------------------------
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 4203.5(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.
As the Plan has asserted, covered work must be performed at a
commercial building located in the Cleveland, Ohio region. The work is
local in nature and generally continues to be covered by the Plan
regardless of the employer retained to do those services. An employer
ceases to have an obligation to contribute when it loses a cleaning or
security contract because the building owner outsources the work or
retains a different service provider, or when the employer closes its
business due to bankruptcy, retirement, or business relocation. Over
the past 10 years, cessation of contributions by any individual
employer has not had an adverse impact on the Plan's contribution base.
Most of the employers that have ceased to contribute have been replaced
by another employer who begins contributions for the same employees at
the same location for the same work. The Plan presented historical data
supporting the notion that building contract employer withdrawals have
not negatively affected the Plan's contribution base.
2. What is the exposure and risk of loss to PBGC and participants?
Exposure. Although the Plan's financial condition deteriorated as a
result of the 2007-2008 financial crisis, the Plan sponsor took
assertive actions to help the Plan recover, significantly increasing
contributions in Plan years 2010 and 2011. As a result, in 2011 the
Plan's actuary determined that the Plan's financial health placed it in
the Green zone and the Plan continues to be in the Green zone to date.
Active participants in the Plan decreased by 19% from 2007 to 2013 (and
retirees decreased by 6%), but contributions increased by 13% over the
same time
[[Page 18168]]
period. Thus, the parties have worked to preserve an adequate cushion
against market downturns.
Risk of loss. The record shows that the Plan presents a low risk of
loss to PBGC's multiemployer insurance program. 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 commercial buildings in the greater
Cleveland area. Plan representatives presented data demonstrating that
building cleaning contracts for covered employment under the collective
bargaining agreement have changed hands approximately 20-25 times
during the past 18 years, and the rate at which a new signatory
employer has assumed a prior signatory employer's building contract and
has hired the prior employer's employees to clean the same building is
90-92%. Accordingly, the data substantiates the Plan's assertion that
the 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 Plan's submissions and the representations and
statements made in connection with the request for approval, PBGC has
determined that the plan amendment adopting the 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 providing 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.
W. Thomas Reeder,
Director, Pension Benefit Guaranty Corporation.
[FR Doc. 2017-07719 Filed 4-14-17; 8:45 am]
BILLING CODE 7709-01-P
