Pension Benefit Guaranty Corporation 94-3 Augus t 2, 1994 RE FE RE NC E: [* 1] >42 03(b) (1) > 4204(a)(3)  Sale of Assets.   Bond Requirement on Liquidation of Seller 4209(c) De Minimis Rule . Excepti ons to De Minimis Rule 421 9(c) (1)(D ) No tice & Co llection o f W ithdraw al Liab ility - Payme nt on M ass W ithdraw al 422 1 Reso lution of Disputes >29 CFR 2648 > >29 CFR 2648 .3> >29 CFR 2648 .9> OP INI ON : I write in response to yo ur letter requesting the op inion of the Pen si on B enefit G uaran ty Corporat ion ( "PBGC") regarding the "* * * " Pension Plan (the "Plan"). PBG C has als o receive d lett ers f rom several employers who have wri tten to exp ress their v iews o n the fac tual and legal issue s raised by you r requ est. The Trustees of th e Plan have c oncluded th at a mass with drawal occur red in 1988 and have iss ued mass wi thdrawal li ability asses sments in accor dance wit h sect ions 4209(c) an d 4219(c)(1)(D) of t he Employee Retirement

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Sec urit y Act of 19 74 ( "E RIS A" ),as am end ed. A numb er of em ploye rs have challen ged the T rustees ' conclusio n. Y ou request P B G C 's opinion wh ether the Plan experien ced a mass wi thdrawal by subst anti ally all employers in 1988 and whet her the circum stance s supp ort the c onc lusion tha t some of these emp loyers w ith drew pursuant to an "agre ement or arran gem ent" [*2 ] to withd raw. You advise that t en out of twelve employers wi thdrew from the Plan in t he three-year period from 1986 through 1988. You represent that two employers wit hdrew in 1986, one in 1987, and seven of the nine rem aining e mplo yers in 1988. Of the seven employers that withdrew in 1988, five belonged to the same emp loyer a ssocia tion. Histori call y, eac h of these fi ve employers had adopted co llecti ve bargaining agreements wit h the same terms and conditions. Under the agre eme nts

ratified fo r the thre e-year p eriod begin ning in 1 988 , the five em ploye rs cea sed h aving a n ob ligation to con tribute to the Pla n. On July 1, 1989, the Plan terminat ed by amendm ent, pursuant to ERISA § 4041 A(a )(1). A t this point, two employers remained. In 199 0, th e Trustees determi ned that a mass wi thdrawal by subst anti ally all employers had occurred in 1988. M ass withdrawal l iabili ty asses sments were iss ued to each of the employ ers t hat wi thdrew bet ween 1986 and 1988, in a ccordan ce wi th ERISA § § 4209(c) and 4219(c )(1) (D) and pa rt 2648 of t he PBGC's r egul ati on s . As you are aw are, s ecti on 4221 of ERISA provides tha t dis putes bet ween a plan spons or and a n empl oyer on iss ues concerning wit hdrawa l an d wit hdrawa l [* 3] liabil ity ar e to be resolved first through arbitrat ion, and if necessar y, in t he courts. The PBG C does not interj ect its elf i nto these st atutory procedures by iss uing opinions on the application of t he law to part icul ar tr ansact ions or di sputes . We will , however , conti nue our pract ice of answeri ng quest ions of general interpr etation unde r Title I V o f ER ISA . Ge nerally, a mass wi thdrawal occurs on t he wit hdrawal of ev ery em ploye r fr om a pla n or by the wit hdrawa l of substa ntially all employers f rom a plan pursuant to an agreement or arrang ement t o withdr aw. ERISA provides special rules for calc ulating w ithdraw al liability following a mass withd rawal. Emp loyers may lose the be nefit of an y app licable de mini mis r educt ion u nder ERISA § 42 0 9(c) and o f a ny redu cti on du e t o th e 20- yea r ca p li mit ati on un der ERI SA § 4219(c)(1)(D )(i). In add ition, sec tion 42 19( c)(1 )(D )(ii) requir es tha t al l unf unded vest ed benefits be all ocated among the withdrawing employers, rather than l imiti ng an individua l

emp loye r' s asse ssment to it s all ocable shar e of th e unfun ded vested benef it s, as adj ust ed, as dete rmin ed in accor dance with ERISA § § 4201 and 42 11. PBGC has i ssued a f inal regulation, 29 [*4] C.F. R. Part 2648, t hat es tabli shes r ules f or the r edetermi nati on and real loca tion of w it hdrawal liability follow ing a m ass withd rawa l.

W hen a mas s withdr awal o ccurs by the w ithdraw al o f s ubstant iall y all employers from a pl an pursuan t to an agreement or arrangement to withd raw, o nly those emp loyers w ithdraw ing pu rsuant to the agre eme nt or ar range men t to with draw los e th e benef it of an y re ducti on due t o the 20-y ear ca p li mit ati on and ar e subj ect to the ful l al locat ion ( or reallocation) of th e plan' s unf unded ves ted be nefits . ERISA § 4 219(c)(1)(D ); 29 C.F.R. § 2648.3(b )(2) and (c). However, e very empl oyer t hat wi thdraws in a pl an year in whi ch subst anti ally all employers with draw pursuan t to an agreement or arrangement loses the benefi t of the de mini mis reduction, regardl ess of whether the employ er wit hdraws pursu ant to the agree men t or arra ngem ent. ER ISA § 42 09( c)(1 ); 29 C .F.R. § 264 8.9. W hen a mass withdrawal occurs by t he withdrawal of eve ry employer fro m a p lan, slightly differ ent rules app ly. All emplo yers w ithdraw in g from a plan that t erminates by the wi thdrawal of every employer l ose the benefit of any reduct ion due to t he 20-year cap li mitat ion, r egardles s of when [*5] t he employer wi th draw s f rom t he pl an. ERISA § 4219(c)(1)(D ); 29 C.F. R. § 2648.3(b)(1). Under ERISA § 4219(c)(1)(D)(ii ) and 29 C.F.R. § 2648.3(c), an employer is subject to the f ull all ocation of the plan' s unf unded vest ed benefi ts onl y if the employ er wit hdraws from th e plan af ter the beginni ng of t he second f ull plan ye ar precedi ng the dat e the pl an ter minat es by the withdrawal of the last employer. Finally, because a year in which a plan t erminat es by t he wit hdrawal of every e mployer is, by de finition, a p lan year in which subst anti ally all employers with draw from t he plan, every e mployer that with draws f rom a plan in t hat pl an year is liable fo r any d e minim is amo unts. ER ISA § 42 09( c)(1 ); 29 C .F.R. § 264 8.3( a)(1 ). Thu s, employers withdrawing i n a mass withd rawa l may pay greater amounts of wit hdrawal liabil ity because t he special rul es ne gate the rel ief giv en t o or dinar y with drawing e mployers under th e de minimi s rul e and the 20 y ear payment cap. The full all ocation of unfunded vested benefit s also may increase a wi thdrawing emp loyer's liability to a plan. As PBGC noted in the prea mble to i ts proposed and final mass withdraw al liability regulati ons, the increase in [ *6] with drawal liability paya ble to a pla n fo ll owing a mass wit hdrawa l i s i nten ded to e ncour age pl an cont inu ati on by reducing the potential future liabil ities of the remaining employers. 49 Fed. Reg. 45018 , 45019 (19 84); 51 Fed. Reg. 103 14 ( 198 6). W ith this background, we turn to your questions. The first quest ion you raise i s whether " subst anti ally al l" employers wit hdrew from t he Pla n. The t erm "su bsta nti all y al l" i s not defi ned by the sta tut e or addr esse d by its legisl ative history in the context of ER ISA § § 420 9(c) or 4 219 (c)(1)(D ). Howe ver, the term is use d in a number of other provi sions of subt itl e E of Titl e IV of ERISA, incl uding provi sions that (1) provi de special wit hdrawa l ru les for employers if substan tially all covered employees work in a cer tain indust ry or i f subs tant iall y all contri butions to a plan are made by emp loyers in certain industries, ERIS A § 42 03(b )(1)(A), (d)(2 ); (2) limit the amount of certain em ployers' with drawal liability in the case of a bon a fi de sal e of a ll or su bsta nti all y al l of the ir a sset s, ERISA § 4225(a) (1); and, (3) impose special bonding requirements on an employer seeking to avert a withd rawa l if all or sub stantially all of the emp loyer's [*7] assets are distribu ted, E RIS A § 4 204 (a)(3 ). A numbe r of court dec isions interpreting "substantially all" in the context of these other provisions have concl uded the term mean s 8 5% or more. W e disagree. If Congress had intended a strict numerical test , it could easily have incl uded a percent age tes t in the s tatu te. In deter mining whether a par tial withdra wal has occurr ed, for example, Cong ress opte d for a test base d on a 70% decline in contri bution base units i n each of three consecutive pl an years measured against a bas e year. ERISA § 4205(a)(1), (b)( 1). Thus, Congress cl early knew how t o fashi on a str ict numerical test. In the ma ss withdr awal c ontex t, however, and in ot her provi sions of ERISA employin g simi lar l anguage, it chose to leav e the d eterm ination to the pla n spo nsor, su bjec t to arb itration a nd re view b y the co urts. T he secon d is sue y ou rai se con cerns what is meant by an "agre ement or ar rang ement " to wi thdr aw f rom a plan . Again, the se t erms a re not defined by the st atut e. Pl ainl y, howeve r, a n agr eement or ar rang ement to wi thdr aw nee d not be in writi ng or otherwise formali zed. It can be infer red from the facts and circumstance surrounding the withd rawa l. For exam ple, [*8 ] and "agr eem ent or a rrang eme nt" is li kely where nine out of t en employers withdraw from one plan over a thr ee-y ear per iod to st art an other. On the othe r hand, i f th ree employer s li quidate i n Chapter 7 bankr uptcy proce edings, three employers sell their ass ets to buyers who do not have an obligati on to contribute to t he plan, and thre e withdr aw to sta rt their ow n plan , there p rob ably is no "agr eem ent or a rrang eme nt" to w ithdraw . Often, a plan will not have access to inf ormation to determine whether subst antiall y all employers withdrew pursuant to an agreement or arrangement. Accordingly, Congress specified, i n ERISA § 4219 (c )(1) (D), t hat an agr eement or arra ngement to wit hdraw fr om a plan is presumed whenev er subst anti ally all employers with draw from a pl an over

a three-ye ar pe riod . This p rovisio n pro vides in pertin ent pa rt:

W ith drawal by an employer from a plan, during a per iod o f 3 co nsecu tive plan years with in which substa ntially all the emp loyers w ho ha ve an o bligatio n to co ntribute unde r the pla n withd raw, sha ll b e presumed t o be a wit hdrawal pursu ant to a n agre eme nt or ar range men t, unless the emp loyer p rove s other wise b y a pre pon dera nce o f the evid ence . See also ERISA [*9] § 4209(d). Such ev idence s hould, of course, incl ude the re as on s fo r th e e mp lo ye r's withdr awal fro m the P lan and why its withd rawa l was no t a part o f an agre eme nt or ar range men t to withd raw. I hope thi s has been of assistance to you. If you have a ny further questions, please cal l D. Bruce Campbe ll of m y staff at (20 2) 3 26-4 125 . Carol Connor Flowe Ge neral C ouns el