Pension Benefit Guaranty Corporation 93-3 October 14, 1993 RE FE RE NC E: [*1] 4 225 Limitatio n on W ithdraw al Liab ility. 422 5(a) Limitatio n on W ithdraw al Liab ility. Sale of A ssets. Lim itation o n W ithdraw al Liab ility. >4225( b)> >4225( d)> OP INI ON : We write in response to yo ur inquiry. You ask whet her t he PBGC adheres to t he i nter pret ati on of s ecti on 4225 of the Emp loy ee Re ti reme nt Inc ome Securit y Act of 1974 ("ERISA"), as amended by th e Multiempl oyer Pensi on Plan Amendm ent s Act of 1980 ("M PPA A"), set forth in it s amicus curiae brief in Trustees of t he Amalgamated Insura nc e Fund v. Gel tman Indus tri es, 784 F.2d 926 ( 9th Ci r. 1986) . In it s bri ef, PBGC addressed t he prope r appl icat ion of ERISA § § 4225(a) and 4225(b) wher e the wi thdrawn emp loyer sa tisfies the pr ereq uisites for the app lication o f both subsections.
PBG C expressed t he view t hat an e mployer meetin g the cr iter ia i n both subs ecti ons (a) a nd (b) may el ect the limi tati on that yields t he lesser of t he amounts determined under the two subsections. The N inth Circui t, however, reach ed a c ontra ry con clusion . 784 F.2d at 929-30. For th e reas ons se t out be low, P BG C co ntinues to believ e that its interpr etation of ER ISA § § 4 225 (a) an d 42 25( b) is co rrect as a matte r [*2] o f law. Under ERISA § 4225(a)(1)(A), an emp loyer w ho with draw s in con nectio n with a " bon a fide sa le of sub stantially all of [its] asse ts in an arm 's-length transa ction to an unre lat ed part y" wi ll ordin ari ly be permi tt ed to r etai n a port ion of its dissoluti on value. The Geltman court, however, citi ng "the lan guage and . . . stru cture" an d the "underl ying polici es of ERISA and M PPA A," concluded that an "insolvent" employer must be denied relief under subsection ( a)( 1)( A) , because subse ction (b ) pro vides a differe nt liability limit that is ex plicitly direc ted to "an insolvent employer undergoing li quidat ion or dis solu ti on." Th is analysi s overlooks several perti nent points . Fir st, when Congress i ntended t o deny cla sses of employers reli ef under sect ion 4225, i t di d so expl ici tl y. See ERISA § 4211( d) (pr ohibi ti ng appl icat ion of section 4225 to employers who wi thdr aw f rom coal -i ndust ry pe nsi on plans). Signi fica ntl y, not hing i n the l anguage of secti on 4225 suggest s that subsections (a) and (b) are mut uall y excl usive . n1 The t wo provi sion s hav e sepa rat e fa ctua l pre requi sit es, and prov ide different types of rel ief. So long as an employer satisfies the re quire men ts of bo th subse ctions, [*3 ] it should qualify for reli ef under eit her rul e, and i ts l iabil ity should not exceed the less er of t he amounts determi ned under th e two subse ctions. n1 Sections 4225(a) and (b) both begin with the phrase "in the cas e of an employer." The Geltman court s uggest ed this phras e was "evi dence t hat the sect ion s are t o operate exclus ive of ea ch oth er. . . ." T his sugge stion is m anifestly incor rect. The phrase "i n the ca se of" i s used as an int roducti on to at least 30 provisi ons of MPPAA ; in each such inst ance, it i s used in it s normal statut ory sense, a s a syno nym fo r "wh en" o r "if". 20A Words and Phra ses 75 (1959 & Sup p. 19 83) . Th is conclus ion is furt her support ed by the techni cal def ini tion of "insol vency" i ncluded i n sect ion 4225. Under sect ion 4225(d)(1), "an empl oyer i s ins olvent if [it s] l iabil iti es, i ncludi ng wit hdrawal l iabil ity under th e plan (det ermined without rega rd to subs ecti on (b) ), e xceed [ it s] a sset s (de ter mined a s of t he co mmencemen t of the li quidat ion or dissoluti on)" (emphasi s added). Sect ion 4201(b)(1)(D) def ines "wi thdrawal liabil ity" as i ncluding adjustment pursuant to sect ion 4225. Thus, the use of t he term "withdrawal li abilit y" in the defi nition [* 4] of insolvency incorporates any reductions in w it hdrawa l l iabi li ty res ult ing fr om the appli cati on of section 4225 (including subsection (a)) except t he reduct ion s et ou t i n sec ti on 4225(b) , whi ch i s spe cif ical ly excl uded. n2 n2 The decision is t herefor e incorr ect when it s tate s that whether "an employer is an ins olvent employer . . . is done by loo king to th e pro visions o f [section 422 5(d )(1)] w ithout re gard to [sec tion 42 25( a)]." G eltman , 784 F.2d at 92 9.
PBGC beli eves tha t i ts int erpre tat ion of sect ion 4225 i s f ull y cons ist ent wit h th e "under ly ing poli cies of ERISA and M PP AA ." Sect ion 4225 i s but one of seve ral ERISA provisi ons that limi t th e amount of with drawal lia bili ty i mposed upon withdra wing em ploye rs. n3 N othing in the co ngress ional find ings and polic y d ecl ara ti ons th at pref ace MPPAA indica te that t he withdrawal li abilit y limit ation provisions should be co nstrued to maximize the li abilit y of an employer. See M PP AA § 3, co dified a t 29 U .S.C. § 100 1a. T he sam e is true o f the legislative history. n3 See, e.g., ERISA § § 4203 (b), (c), (d), and (f ), 4204, 4207, 4208, 4209, 4210, 4217, 4218, 4219(c)( 1)(B), 4224, and 4225. The Su preme Co urt has n oted with ap pro val Co ngress 's efforts to mod erate th e imp act of w ithdraw al liability on emp loyers, inc luding Co ngress 's effort in sect ion 4225. Connal ly v. PBGC, 475 U.S. 211, 225, 226 n. 8 (1986). [*5] Finally, the interp retation offered in Ge ltman m akes little econ omic sense. U nde r the ratio nale of th e decisi on, an employer whos e liabilities e xcee ded its assets by o nly one d ollar is " insolve nt" and would aut omatical ly f orfei t any reli ef under section 4225(a)(1)(A). In contrast, if t he employer's ass ets were one dollar greater than liabi liti es, the full liability li mi tat ion would app ly. n4 A s discu ssed a bov e, the ap plicatio n of the p lain langu age o f the statute a void s this sort o f ano maly. n4 The attached table, drawn from the PB GC 's amicus b rief, illustrates the dram atic incre ase in em ploye r liability cause d by the single d ollar d ifference . In conclusion, the p lain wording o f section 422 5 dictates that an em ployer that mee ts t he requi rem ents of b oth subsections (a) and (b) is ent it led t o an as sess ment of wit hdrawa l l iabi li ty tha t does not exce ed the lesser o f the am ounts determin ed under (a) and (b). Neither the l egisl ativ e purpose nor pri nciple s of statut ory constructi on compe l a contrary con clusion . The PB GC therefo re co ntinues to adhe re to the positio n stated in its brief am icus cur iae. I trust this res ponds to your question. If you have further question s [*6] regarding this ma tter, please contact Karen M orris o f my staff at (2 02) 778 -882 2. Car ol Co nnor Flow e, Ge neral C ouns el AD DEN DUM Computat ion of Wit hdr aw al Li abi li ty Und er Ar bi tr at or ' s I nt er pr et at io n i n Ge lt man Indust ries and Amelgamated Insu rance Fund, of Sec ti on 4225 Assum ption s: 1. T he valu e of the e mplo yer's assets after the sale is $ 100 ,000 . 2. T he em ploye r's liabilities othe r than w ithdraw al liability are $ 90 ,000 . 3. Th e unfun ded vested bene fits allocab le to the e mplo yer prio r to the appl ica tion of se ction 4 225 are $ 10,0 00 in Exa mple 1 and $ 10 ,001 in Exa mple 2. Maximum W ith drawal Example 1 Example 2 Liabil ity Under § 4225(a) 1. (a )(1) (A): 30% of t he liquidati on value of the employer = . 30X($ 100,000- $ 90,000) $ 3,000 2. (a)( 1)(B): unf unded vested bene fits attributab le to employees of t he employer $ 0 or u ndetermi ned N/A 3. Gr eat er of (a) (1) (A) or ( B) (#1 or #2) $ 3,000
Maximum W ith drawal Liabi li ty under § 4225(b) 4. (b) (1): 50% of allocabl e unfun ded vested benefits = . 50X$ 10,001 $ 5,000. 50 5. (b)(2) : addit ional amount due pla n (r emain ing li quidat ion val ue af ter #4) N/A $ 4,999 6. Total coll ecti ble u nder ( b) (s um of #4 a nd #5) $ 10,000 7. Amount pai d to Plan $ 3,000 $ 10,000 8. Amount paid to creditors other t han Plan $ 90,000 $ 90,000 9. Amount ret aine d by employer $ 7,000 $ 0 [*7]