Pension Benefit Guaranty Corporation 93-2 July 7, 1993 RE FE RE NC E: [*1] 4205(a)( 1) Parti al Withdrawal s. Cont ribut ion Decli ne. >4205( b)( 1)> >4206( a)( 2)( A)> OP INI ON : I wri te i n res ponse t o your let ter reque sti ng gu idanc e on t he cal cula ti on of partial wi thdrawal li abilit y foll owing a 70-percent decl in e i n con tr ibu ti ons unde r Se cti on 4206 of t he Empl oye e Re tireme nt I ncome Sec uri ty Act of 1974 ("ERISA "), as ame nded, 29 U .S .C . § 13 86 (1 99 2) . S pe ci fic al ly, yo u r eq ue st o ur op in io n o n w ha t p la n y ea r's contr ibut ion ba se un it s make up th e numer ator of t he f rac ti on des cri bed at Sect ion 4206( a)( 2) of ERISA, 29 U.S. C. § 138 6(a) (2). Ge nerally, a parti al wi thdrawal occurs on t he las t day of a plan y ear in which an employer experiences a 70-percent contr ibut ion decl in e. ERISA § 4205(a )(1 ), 29 U.S. C. § 1385 (a)(1). A 70-percent contributi on decline occurs whe never an emplo yer's contribution base uni ts in e ach y ear of a "3-y ear t est ing peri od" do not excee d 30 pe rc en t o f th e e mp lo ye r's contr ibut ion base u nit s i n th e "hi gh bas e yea r." ERI SA § 4205(b)( 1)(A), 29 U.S.C. § 1385(b) (1)(A). For these purpo ses, the 3-y ear t est ing peri od includes the curr ent plan year and the t wo immediately preceding plan year s. ERISA § 4205(b)( 1)(B)( i), [*2] 29 U.S.C. § 1385(b)( 1)(B)( i). The cont ribu ti on base units i n the high base year i s an average of the two highest ye arly co ntributio n bas e unit am ounts in the 5 p lan year s imme dia tel y pre cedi ng the 3-year t esting perio d. ER ISA § 42 05( b)(1 )(B )(ii), 29 U.S .C. § 1 385 (b)(1 )(B )(ii). An employer' s li abili ty f or a parti al wit hdrawa l i s det ermi ned pur suan t t o Sect ion 4206 of ERISA, 29 U.S .C. § 1386. In the case of a parti al withdrawal occurri ng because of a 70-percent contrib ution d ecline, the first step is to calc ulate the amo unt of un funde d ves ted b enefits allo cab le to the employ er for a hypothe tica l complet e wit hdrawal under Sect ion 4211 of ERI SA, 2 9 U.S. C. § 13 91, d eterm ined " as if the em ploye r had withdra wn in a c omp lete withd rawa l . . . on the last day of the fi rst plan year in the 3-y ear testi ng period." ERISA § 4206 (a)(1)(B); 29 U .S.C. § 138 6(a) (1)(B ). Th is figure is then adjusted b y multiplying it by 1 minus a fraction the nume rator of which is the emp loyer's contribution base units for the plan ye ar follo wing the plan ye ar in wh ich the p artial withd rawa l occu rs, and the de nom inator o f which is the average of the employ er' s contr ibuti on base uni ts f or the 5 plan years immediately [*3] preceding the 3-year testi ng perio d. ER ISA § 42 06( a)(2 )(A) a nd (B ); 29 U .S.C. § 138 6(a) (2)(A ) and (B) . You ask whether the numerator of the fract ion is t he contribution base unit s for the plan y ear following the hypothet ical complete withdrawal (i. e., the second plan ye ar in the 3 -year testing perio d), or the co ntributio n bas e units for the plan year f ollowing the thi rd plan y ear in the 3- year t esti ng period. Under Sect ion s 4205 (b) (1) and 4 206(a )(2 )(A) of ER ISA , 29 U .S.C. § § 13 85( b)(1 ) and 138 6(a) (2)(A ), the answ er is the latter . As st ated above, a part ial wit hdrawa l i s deeme d to occ ur on the la st d ay of a p la n y ea r in wh ic h t he em pl oy er 's contr ibut ion base uni ts i n each year of a 3-year t esting period do not exceed 30 percent of the employ er' s cont ribu ti on base units in the hig h bas e year. E RIS A § 4 205 (b)(1 )(A), 2 9 U .S.C. § 138 5(b )(1)(A ). Th e three year test perio d incl udes the cur rent pl an year and the two immediately preceding plan ye ars. ER ISA § 42 05( b)(1 )(B )(i), 29 U.S .C. § 1385(b )(1)(B)(i). The "cont ribu ti on base uni ts for the pl an year f ollowi ng the pl an year in whi ch the par tial with drawal occurs" ref erenc ed in Sect ion 4206( a)(2) (A) of ERISA, 29 U.S .C. § 1386(a) (2)( A) [* 4] (emphasis added), thus ref ers to the p lan year followin g the last p lan year in the 3-ye ar testing p eriod . Using yo ur ex am pl e o f a pa rt ia l w ith dr aw al oc cu rr in g i n 1 99 2, an em pl oy er 's liabil ity i s calculat ed using the amount of unfund ed ve sted b enefits allo cab le to the e mplo yer und er Se ction 4 211 of ERI SA, 29 U. S.C. § 1391, for a hypothet ical complete withdrawal occurring i n 1990, the first plan yea r in the 3 -year test p eriod . This amount i s then multi plied by 1 minus a frac tion t he n um erator of which i s the employer' s contributi on base units for 1993, and the den omin ator o f which is the emp loyer's ave rage c ontrib ution b ase un its for the yea rs 19 85 th roug h 19 89.

I hope thi s has been of ass ist ance to y ou. I f y ou have any fur ther quest ions , pl ease conta ct D. Bruce Campbel l of my staff at (2 02) 778 -191 8. Car ol Co nnor Flow e, Ge neral C ouns el