Pension Benefit Guaranty Corporation 95-3 December 22, 1995 RE FE RE NC E: [*1] 4 206 (b)(1 )  Ad justme nt for P artial W ithdraw al.  Red uction of Liab ility for Sub sequ ent W ithdraw al >4206( b)( 2)> >4211( c)( 2)> >29 CFR 2649 > >29 CFR 2649 .4> >29 CFR 2649 .8> OP INI ON : I am writi ng in response to your request for the Pension Benefit Guaranty Corporation' s ("PBG C") views with regard to the appli cati on of sect ion 4206(b) of t he Employee Reti rement I ncome Securit y Act of 1974, as amended ("E RISA"), 29 U.S. C. § 1 386(b) , a nd t he r egu lat ion s t her eun der, 29 C. F.R. pt. 2649, t o a multi employer pens ion plan that uses a va riatio n of the "modified presumptive method" for computing withdrawal l iabili ty. Secti on 4206 (b) governs com puta ti on of withdrawal l iabili ty where an employer has previousl y incurred a parti al withdrawal. You reque ste d P B G C 's co nc ur re nc e t ha t th e p la n's meth od of cal cula ti ng t he amoun t of employ ers' wit hdrawa l l iabi li ty wher e sec ti on 4206(b) appli es "i s not per s e permi ssi ble, but t hat, jus t as wit h al l ot her variations from the methods set fort h in the regulation, it will be pe rmissib le if its results in application ' properly reflect the employer's share of li abili ty wi th res pect to a p lan,'" qu oting E RIS A sec tion 42 06( b)(2 ). The metho ds for com puting an em ployer's [*2] allocable share of unfunded vested ben efits for purposes o f determining with drawal l iabil ity are set fort h general ly i n ERISA section 4211, 29 U.S.C. § 1391. The " mod ifi ed presumptive metho d" is se t forth in E RIS A sec tion 42 11( c)(2 ). Simp lifying som ewha t, that meth od calls for the calculati on, unde r ER ISA section 421 1(c) (2)(B ), of the em ploye r's share o f unfund ed ve sted b enefits for the pl an year preceding the 1980 am endments to ERISA , amortized over 15 years, and, under ERISA section 4211 (c)(2)(C), of the em pl oy er 's shar e of u nfu nded ves ted be nef it s f or the plan year before the wi thdrawal. In each case, the employer's share is ba se d o n t he ra tio of its re qu ir ed co nt ri bu tio ns to al l c on tr ib ut io ns fo r th e p re ce di ng 5 p la n y ea rs . T he em pl oy er 's alloca ble sha re of un funde d ves ted b enefits for deter mining withdra wal liab ility is the sum o f these am ounts. Pursuant to sect ion 4211(c)(5)( C), unl ess PBGC regulati ons provide ot herwis e, "a plan may be amended to pr ovide that a period of more than 5 but n ot more tha n 10 pla n yea rs may be use d" for any fra cti on in a comput ati on "meth od authori zed under this s ection for determini ng an employer's al locable share of unfun ded vested bene fits under [*3] this section ." Your lett er st ates t hat the pl an has adopte d the modif ied presu mptive met hod, but us es a 10-year period rat her than a 5-yea r perio d in the fr acti on set for th i n ERISA sec ti on 4211(c)(2)(C) to determine the employer's all ocable share of unfun ded vested bene fits. ERISA secti on 4206(b)(1) provides general ly t hat when an employer has incu rred liability for a p artial withd rawa l, any with drawal l iabil ity of th at employ er for a parti al or complet e wit hdrawal f rom that plan i n a subseque nt pla n year shall be reduced by the amount of the partial wi thdrawal li abilit y for the earl ier year. The reducti on may be ref erred to as the "Credit." ERISA section 4206(b )(2) provides that PBGC "shall prescri be such regulations as may be necessary to pro vide fo r pro per a djustm ents" in the Cr edit for cha nges in unfunded vested ben efits, changes in contribution ba se units, and " any oth er facto rs for wh ich [P BG C] d eterm ines ad justme nt to be app rop riate," so that the liabil ity f or a with drawal in a l ater year, after app lication o f the Cre dit, "p rop erly refl ects t he employer 's share of lia bili ty wi th res pect to t he pl an." The amount of t he Credi t f or pla ns us ing the modif ied pr esumpt ive method [*4] is set for th i n 29 C.F. R. § 2649. 4. In gener al, it provi des t hat the employ er' s sh are of unf unded ve ste d benef it s f or th e pla n yea r prec eding the 1980 ame ndm ents to ERISA i s amort ized over 15 years, and that the employer's share of unfunded vested benefit s for the plan year befo re the w ithdraw al is redu ced as if amo rtized in level annual inst allment s over 5 years , begin ning wi th t he plan

year in which t he prior part ial wit hdrawa l occ urre d. The s um of t hese number s i s t hen mul ti pli ed by a defi ned f ract ion in ord er to d eterm ine the a mou nt of the C redit. P ursuan t to PB GC regula tions: [a] plan t hat has a dopted a n al ter nati ve met hod of al locat ing unf unded ve ste d benef it s pur suan t t o sect ion 4211( c)(5) of [ERIS A] and p art 26 42 o f this subchapte r shal l adopt, by plan ame ndm ent, a m ethod of calc ulating the [Cre dit] that is consistent with t he rules in § § 264 9.3-2649.7 for plans using the st atutory alloca tion m ethod mos t similar to th e p la n's alt ernat ive all ocati on met hod.

29 C .F.R. § 264 9.8. Your let ter s tate s that the plan has a dopted a vari ati on of t he Credi t ca lcul ati on met hod in § 2649.4, "but substit uting the number ' 10 ' i n every place wh ere the numb er '5' app ears in the [*5] R egulatio n." P BG C rec ogniz es, and its regu lat ion i s des ign ed to i mplemen t, the congr essi onal mandat e th at t he comput ati on of the Credit should bri ng about a liability amount that "properly refl ects the emp loyer's shar e of liab ility with respe ct to the p lan." T he "p rop er" re sult of a cal cula ti on metho d, and the em ploye r's "pro per" share o f liabilities, how ever, is no t a mathemati cal absol ute; it varies as a plan's situat ion and tha t of the employ er ch ange ov er t ime. That appl icat ion of an obje cti vely reas onable cal cula ti on method may seem har sh to a par ticu lar employ er un der i ts part icul ar f acts and ci rcums tanc es, the ref ore, does not invalida te the m ethod . We recog nize tha t i t may be poss ibl e to c reat e some a lt ernat ive method for calculat ing wit hdrawa l l iabi li ty , or for calculati ng the Cr edit, that w ould , in som e app lications , yield resu lts that would not "properly refl ect the employer's shar e of liability with re spec t to the plan " as mea nt by ERISA secti on 4206(b)(2). In the mul tiempl oyer pla n sys tem creat ed by Co ngress , such d isputes o ver a p lan's metho dolo gy are p rop erly raised first in th e pl an s pons or r evi ew u nder ERISA. sect ion 4219(b )(2) and later, if necessar y, before an arbit rator [*6] and/or a revi ewin g cour t un der ERISA s ecti on 4221. I hope thi s inf ormation i s of hel p to you. If y ou have any additi onal quest ions, please c ontact att orney Deborah Bisc o, who is hand ling this ma tter. He r teleph one numb er is (20 2) 3 26-4 025 . Jam es J. K eightley Ge neral C ouns el