Pension Benefit Guaranty Corporation OPINION 97-1 May 5, 1997 RE FE RE NC E: [*1] 4001(b)(1)40 01 De fini tions 4201(a)4201 W ith drawal Li abili ty Est ablis hed 29 CFR 4001 .3>40 01.3 > OP INI ON : This resp onds to yo ur request for the opinion of t he Pension Benefit Guaranty Corporation ("PB GC" ) concerning the application of t he employer liabili ty provisi ons of the Employee Retirement Income Secur it y Act of 1974 ("ERISA") to mem bers of co ntrolled group s located o utside the United States. Your requ est make s t he f oll owi ng r epre sen tat ion s of fa ct. Compan y A i s a pri vately- owned do mestic holding corpora ti on whose assets are its equity inter ests in several operating subsi diaries located t hroughout the world, incl uding Comp any B, a domes ti c corpor ati on. I n Sept ember 1993, Company A a nd Company B (coll ecti vely , t he "Debtor s") petit ioned for reorgani zati on under Chapter 11 of the Bankr uptcy Code. Comp any B was obligated to contribute to t he Plan, a "multiemployer plan" wit hin the meani ng of sect ion 4001(a)( 3) of ER ISA . On J anua ry 1, 19 94, C omp any B perm anen tly cease d all co vered ope rations or to h ave a n ob ligation to con tribute unde r the P lan within th e me aning o f ER ISA § 42 03( a). Sub sequ ently , th e Plan und erwent a "m ass withdr awal" with in t he meaning of 29 C.F.R. § 4001.2. The Plan [* 2] fi led bankru ptcy cla ims a gain st the Debtors for withdrawal li abilit y, incl uding liability alloc able as a res ult of th e mass wi thdrawal . The Debtors and t he Plan ent ered into a settl ement agreement that provided that t he Plan would have an allowed general unsecured claim against Comp any B. The settlement agreement releas ed certain enti ties t hat are under "common co ntrol" with Company B within the meaning of ERISA § 4001(b)(1). T he settl ement agre ement expre ssl y prov ided, howe ver, that the release doe s not ap ply to eight wholly -owned subsi diari es of Company A t hat ar e incorporat ed and operate i n the Unit ed King dom (collec tively, the "U K E ntities"). W e assum e that the se ttlemen t agree men t was du ly app rove d by the bank ruptc y cour t. You ask (i) whether the UK Entit ies cons tit ute a "si ngl e employ er" wi th t he Debtor s wi thi n th e meani ng of ERISA § 400 1(b )(1), a nd if so ( ii) whethe r the U K E ntities' locatio n outsid e the U nited S tates affec ts the prin ciple tha t all con trolled grou p me mbe rs are jo intly and se verally liab le for withd rawa l liability. As you k now, s ecti on 4221 of ERISA pr ovi des that disput es between a plan s ponsor and an employ er on is sues concerning withdrawal and wit hdrawal [*3] li abilit y are to be resolved through arbi tra ti on. PBGC does not involve itself in such pro ceed ings. H owe ver, P BG C will conti nue it s pract ice of answeri ng general questi ons of i nterpre tati on under Tit le IV of ERISA. Secti on 4201(a) of ER ISA provides that "if an employer wit hd raw s f rom a multiemployer plan[, ] . . . then the emp loyer is li able to t he pl an i n th e amount dete rmin ed under [part 1 of s ubti tl e E of Tit le I V of ERISA] t o b e it s wi th dr aw al li abi li ty ." Se ct io n 4 001 (b )( 1) pr ovi des th at f or pu rp os es of Tit le IV, under regu lat ions pres cri bed by [ PBGC], all employ ees of tra des or busi ness es ( whet her or not i ncorpor ated) which are under common cont rol shall be treated as em ploye d by a single em ploye r and all such tra des o r busin esses a s a single employer. The regulat ions pres cribed under the preceding sentence shal l be consistent and coextensive with r egulations prescri bed for si mil ar pur poses by the Secretary of the Treasu ry u nder s ecti on 414(c) of t he In ter nal Revenue Code of 1986 [("IR C")]. Th is prin cipl e of treati ng commo nly controll ed businesses as a si ngle employer was subsequently reaffi rmed during debates on th e Multi employ er Pens ion Pl an Amendmen ts Act of 1980 ("MPPAA"). [* 4] As t he Sena te f loor s ponsor stated:

Under current law, a group of t rades or businesses und er com mon co ntrol, whether or no t incorpora ted, is treated as a single employ er f or pur poses of empl oyer li abil it y un de r Title IV. Thus , if a termina ting single e mplo yer pla n is maintai ned by one or more memb ers of a controll ed group, the entire group is the "employer" and is responsible for any employer liabil ity. The leadin g case in this area is Pen sion B enefit Guarant y Corpor ati on v. Ouimet Corp., 470 F. Su pp. 945 (D. Mass . 1979), [af f' d, 630 F. 2d 4 (1st Cir. 1980), cert . den ied, 450 U.S. 914 (1981),] in which t he court held t hat all members of a controlled group are jointly and seve ral ly li able for employ er l iabi li ty impose d under sect ion 4062 of ERISA. The bill does not modif y the defin iti on of "employer " in any way, and the Ouimet decisi on remains good law. 126 Co ng. Rec. 23,287 (198 0) (statement of Sen. Williams). In the years since MP PAA was enacted, the pri nciple that with drawal li abil it y i s a j oint and se veral obli gati on of al l c ont rol led gro up mem bers has becom e well set tled. [* 5] Your question co ncerns the ap plication of this principle to foreign c ontrolled gro up mem bers. Becau se it appears from your inquiry that Com pany A ha s a "contro lling interest" in the UK E ntities within th e meaning of the sec tion 41 4(c) regula tions, the U K E ntities wo uld b e und er "c omm on co ntrol" with the D ebto rs within the meaning o f section 400 1(b)(1 ) of ER ISA and therefore treated w ith the Debto rs as a si ngl e employ er f or purposes of section 4201(a). See 26 C.F.R. § 1.414 (c)-2(a), (b)(1), (2)(A). It i s our opini on th at, as s uch, the y woul d be jointly and severa lly liable for withdra wal liab ility. In our view , your inqui ry does not impli cate ext rater rit orial application of ERISA. The Plan and its relat ed trust are estab li shed and adminis tered i n the Unit ed States (see ERISA § 4021(a); I RC § 401(a)). The event s that tri ggered liability under ERISA took place in t he United St ates and involved the cessati on of the contri bution obl igat ion or cover ed opera tions, under the Plan, of one o r mo re U nited S tates entities. T hus, the liab ility in que stion rep resen ts the do mestic appli cati on of Unit ed States law. Th e fact that th is liability may ulti mately incl ude within i ts scope certain [* 6] foreign aff ili ates does not compel a diff erent conclusi on, as by stat ute su ch aff ili ates a re part of a "si ngle e mployer." As the cou rts have c orre ctly noted , Title IV 's contro lled gro up p rinciple is intended to prevent business owners from avoiding liability by fractionalizing their busi ness

opera tions, and f rom juggling thei r activi ties t o eviscerate the l iabili ty provisi ons of ERISA. These p urpose s wou ld be i ll -se rved by a cont roll ed grou p prin cipl e th at di d not a pply to all enti ties under com mon contro l. Even if th e que st ion in vol ved e xt rat err it ori al appl ica ti on of ERISA, we would reach the same conclusion. It is well sett led th at Congre ss h as the power to enact laws t hat have extrater ritorial application, but i s presumed not to have exerci sed that power unless i ts int ent to do so is clear f rom the statut e. We think controlled group li abil it y un der ERISA was intended to have extraterritorial app lication, and that this is clear from the relevant statutes. In original s ection 4001(b) of ER ISA (now section 4001(b )(1)), Congress aut hor iz ed PB GC to pro mulga te regulations governi ng the t reat men t of enti ties under common control. Those regulations are to be "consist ent and coe xtensiv e" [*7] wi th certa in Tr easur y regula tions. A cco rding ly, when P BG C ad opte d reg ulations in 197 6 to implement sect ion 4001( b), i t i ncorpor ated thos e Treasu ry r egul ati ons by refe rence. A few years l ater, i n enacting MPPAA, Co ngress carried forwa rd the c ontro lled gro up p rinciple for pu rpo ses of the new w ithdraw al liability rules. It did so aga in i n 1986 when it enact ed sec ti on 4001(a) (14) an d amended section 4062(a) t o codif y t he pri ncipl e of control led gro up l iab il it y i n t he c ont ext of t ermi nat ion of a si ngl e- empl oye r pl an, usi ng s li ght ly dif fe ren t t ermi nolo gy to describe the "employer." None of these legi slati ve actions indicat ed any Congressional intent that controll ed group liability be limited to dome stic entities. The PBG C regulat ions provi de that two or more tr ades or busi nesses will be consider ed under commo n control (and hence a single e mplo yer) for p urpo ses of T itle IV o f ER ISA if they are " 'under c omm on co ntrol,' as de fined in regulati ons prescri bed under sect ion 414( c) of the [IRC]. " 29 C.F. R. § 4001.3(a )(1) , (2) . Sec ti on 414(c) of the IRC authorizes the Secretary of the Treasury to prescri be regulations based on "princ iples simi lar t o the pri nciple s whic h apply in the case [*8] of s ubsec ti on (b) [of sect ion 414] ." Under sect ion 414(b) of the IRC, employees of corporations that are "members of a controlled group of corporations (within the meaning of secti on 1563 (a), determined wit hout regard to s ecti on 1563(a) (4) and (e)(3) (C)) sha ll be t reated as employed by a sin gle employ er." The Treasury Regulat ions un der sect ion 414(b) provi de, in perti nent par t, t hat the ter m "members of a c ontr oll ed grou p" means two or more corporati ons connect ed through stock owne rshi p described in sect ion 1563( a)(1) , (2) , or (3), whet her or not s uch cor porat ions are "c ompon ent me mbe rs of a cont roll ed grou p"

within t he meaning of section 1563(b). 26 C. F.R. § 1.4 14(b)-1(a). Thus, the governing Treasury regulat ion under section 414(b) does not incorporate the "foreign corporation" exclusion of secti on 1563 (b)(2)(C). (That subsection excludes certai n foreign ent ities fr om con trolled grou p me mbe rship fo r purp oses o f filing conso lidated tax retur ns.) It follows that one of the " princ iples wh ich ap ply in the case of sub section (b) [o f section 414 ]" is that corporations connected through stock owne rshi p under sect ion 1563( a) s hall be tre ated as a s ing le e mploy er, even i f t hey mi ght [*9] otherwise be excluded from the group under section 1563(b). And, tr ue to Congres s' s mandate t hat t he regul ations under IRC § 414(c) be based on pri nciple s si milar to th ose that apply under IRC § 414(b), the stock owne rship tes ts set forth at 26 C.F.R. § 1.414(c) -1 et s eq. subst anti ally refl ect t he stock ownershi p test s of IRC § 1563(a), wi th no exp ress exclusion of foreign e ntities. Other section s of the IR C am ply de mon strate tha t Congr ess knew h ow to speci fy a subgroup of c orporati ons, s uch as "foreign corporations " or "domest ic c orporat ions ," wh en t hat was i ts int ent. See, for exampl e, s ecti on 861(a) (1) (referri ng to "domes ti c corpor ati ons") ; s ecti ons 881- 84 (deal ing wit h ta xati on of "f orei gn cor porat ions "); and se cti on 864(b) (providing rules f or whether a "foreign corporation" is engaged in tr ade or business withi n the United States). Clea rly, if Congres s had i nten ded to e xcept for eign ent it ies fr om the ambit of rel evant cont roll ed group provis ions s uch as section s 414 and 1 563 (a) of the IRC or sec tion 40 01( b) o f ER ISA , it would have don e so ex press ly . In ste ad, as noted above, the excl usi on of f orei gn ent it ies in s ecti on 1563(b) is to be disreg arde d whe n dete rmining [*10 ] the me mbe rship of a "controlled group of corporations" under IRC § 414(b). This principle of expansive controlled group members hip, which serves to effectu ate the p rop hylactic p urpo ses of co ntrolled grou p liab ilit y, is emb odied in t he sect ion 414(c) regulations as wel l. I n sum, we think that secti on 4001(b)(1) of ERISA ult imatel y inc orporates IRC provisi ons that gene rally app ly to all co rpo rations unde r com mon contro l, includin g foreig n cor por ations. A cco rding ly, it would be our opini on t hat Congres s int ended for t he contr olled gr oup princi ple under Tit le IV of ERISA to hav e extr aterr itor ial application on the f acts you have given. The opinions st ate d her ein are li mit ed t o Tit le IV of ERISA, and we expres s no vie w regardi ng juri sdict ional iss ues relating to suits against foreign situs entiti es. We hop e the for ego ing resp onse is helpful. If you have any qu estions, please feel free to call N athanie l Rayle o f this Offi ce at 202.326. 4020, ex t. 3886. James J. Keig htl ey Ge neral C ouns el