1 Becau se the la nguag e of the c ited statu tes is iden tical, thi s letter h ereina fter will only make ref erence to Code §412(n) for convenienc e. 1 2001-1 §302(a) (I.R.C. §412(a)) §302(c)(10) (I .R.C. §412(c)(10) §302(e) (I.R.C. §412(m)) §302(f) (I.R.C. §412(n)) §4062(c) [PBGC Letterhead] February 6, 2001 Your letter dated December 8, 2000, ac companying the PBGC Form 200 for the ("P lan "), has bee n re fer red to th is off ice for res pon se. In that letter, you question whethe r a lien under Section 412(n) of the I nternal Revenue Code ("Code") and Section 302(f) of the E mployee Retirement I ncome Security Ac t of 1974, as amended ("ERISA") 1 / can arise where a pension plan’s a ccumulated funding deficiency , as defined in Code §412(a), is less than one million dollars. Specifically , you dispute that a lien under Code §412(n) arose in favor of the Plan af ter the sum of missed contributions exceeded $1 million, because the accumulated funding deficie ncy of the Plan at the e nd of the prior plan ye ar was a ppro ximate ly [$630 ,000] . As more fully explained below, the Pension B enefit Guaranty Corporation ("PBGC") has historically followed the plain mea ning of the statutory language under the Code a nd ERISA, determining (a) whether a lien ha s arisen and (b) the amount of the lien on the basis of the sum of missed contributions, not on the basis of the accumulated funding deficiency of the plan.

2 Statutory Bac kground Code §412(n) was enacted as part of the Pension Protection Ac t of 1987 (Title IX of the Omnibus Budget Reconciliation Act of 1987, Pub. L . No. 100-203, December 22, 1987). The provision was amended by the Retirement Protection Act of 1994 (included in the Uruguay Round Agreements Act, Pub. L. N o. 103-465, December 8, 1994) to alter, inter alia , the time when the statutory lien would a rise and the amount of the statutory lien. Code §412(n) protects a pension plan whose contributing sponsor fa ils to make required contributions. A statutory lien is imposed on all property of the contributing sponsor and that of all members of its controlled group to secure the amount of the missed c ontributions. The lienholder is the pension plan, but the lien can only be perfected and enforc ed by the PBGC (or , at the PBGC’s direction, by the contributing sponsor or a controlled group member ). Code §412(n)(1) & (5). Not all missed contributions trigge r a statutory lien. Code §412(n)(1) provides that a lien arises on all property of a plan sponsor (and each member of its controlled group) when the sum of all missed require d installments and other payments to a plan (inc luding interest) exceeds one million dollars as of a due date for suc h an installment or payment. Code §412(n)( 1)(A) makes specific refer ence to a "required installment under subsection (m)" (Code §412(m)). The only other required pay ment under Code §412 is the payment requir ed as of the end of a plan y ear to assure that the plan's funding standard account will not en d with a de ficit (th e "cat ch-up pa yme nt"); tha t pay ment is "d ue" as l ate as 8- 1/2 months after the close of a plan y ear. Code §412(a), (c)(10)(A ). Thus, when the sum of missed §412(m) installments and catch-up pay ments, plus interest, exceeds one million dollars, a lien arises u nder §41 2(n). Simil arly , Code §412 (n)(3) provides that the a mount of th e lien is e qual to the sum of the missed installments and catch-up pay ments, including interest. Nothing in Code §412(n) states explicitly or sug gests that the determination of the lien threshold amount or the amount of the lien itself should be based on the accumulated funding deficiency of the pension plan. Factual Backgr ound As we understand the facts, the contributing sponsor of the Plan failed to make all or a part of a required contribution for the third quarter ly installment due on October 15, 1998. Thereafter, eight additional quarte rly installments were missed, and the catch-up pay ments for the 1998 and 1999 plan ye ars were also missed. The table below refle cts PBGC’s understanding of the amounts required as of each due da te with interest to September 15, 2000:

3 D ue D ate PY98 PY99 PY2000 Missed Co ntributi ons wit h Int eres t t o 9/15/ 2000 10/15/ 98 [$28,176] [$32,956] 1/15/ 99 [$62,569] [$71,692] 4/15/ 99 [$80,294] [$90,170] 7/15/ 99 [$80,294] [$88,355] 9/15/ 99 [$76,780] [$83,325] 10/15/ 99 [$80,294] [$86,557] 1/15/ 2000 [$80,294] [$84,795] 4/15/ 2000 [$160,294] [$165,870] 7/15/ 2000 [$160,294] [$162,530] 9/15/ 2000 [$319,995] [$319,995] Total: [$1,186, 245] Once the catch-up pay ment for the 1999 plan ye ar was missed on September 15, 2000, the sum of all missed installments and other required pay ments, plus interest, exceeded one million dollars. In y our letter, you sug gest that because the Plan’s accumulate d funding deficiency as of the end of the 1999 plan ye ar was slightly less than [$630,000], no lien could arise on September 15, 2000. Discussion Your letter includes an attached statement from the Plan' s actuaries asserting that the one million dollar lien triggering threshold in Code §412(n) is based on the a ccumulated funding deficiency of the Plan, not on the sum of missed contributions. Your actuaries point out that because a prior y ear's funding deficie ncy is included in the cur rent yea r's minimum funding requirements, the PBGC should, in essence, ignore the pr ior year 's missed contributions. Under their vie w, once i t is clear that the p rior y ear will end with a funding deficie ncy (which w ill gener ally not be kno wn until 8- 1/2 months a fter the close of the prior plan y ear), PB GC should not include any of the pr ior year ’s quarterly installments or the catch-up pay ment in determining whether a statutory lien arose. Such an approach would produce the following result: after the Plan's sponsor had failed to make the 1998 plan y ear catch-up pay ment (due by September 15, 1999), the PBGC would ignore the missed quarterlies that wer e due on October 15, 1998 and

4 January 15, 1999, as well as the c atch-up pay ment, itself, in determining whether a lien had arisen. As noted above, the language of Code §412(n) requires a summing of the missed contribution amounts, not a calculation of a plan’s accumulated funding deficiency at any g iven point duri ng a pla n ye ar. The statutory provision makes spe cific re ferenc e to quar terly installme nts and oth er requ ired pay ments (ca tch-up pa yme nts). The re is no sp ecific r efere nce to the plan’s accumulated funding deficie ncy nor a r equirement that the sponsor calculate that deficiency as of each contribution due date to determine whethe r the deficiency exceeds one million dollars. Congress knew how to make an explicit reference to a pla n's accumulated funding deficiency as of a specific date, but it did not do it here. See ERI SA §4062(c). As the table above shows, when the Plan did not receive the ca tch-up payment due by Septembe r 15, 2000 , the sum of all missed installme nts and oth er requ ired pay ments, plu s interes t, exceeded one million dollars, and a lien arose under Code §412(n). We also note that whe n contributions to the Plan were missed on October 15, 2000, an additional lien arose. Generally , the amount of the lien determined by adding all prior missed contribution amounts, plus interest, may exceed a pension plan’s accumulated funding deficienc y. Notwithstanding the lien amount determined and included in the filings made to per fect the lien by PBGC, g enerally the most that the agency will recover for the plan, in the event enforc ement of the lien is necessary , is the amount of the accumulated funding deficienc y. On the date of this letter, the agency is filing notices in the appropriate state recording offices for the lien under Code §412(n) that arose against the property of the Plan’s sponsor and of all members of its controlled group as of October 15, 2000. I f you have a ny questions concer ning any of the f oregoing, please fee l free to contact Frank McCulloch, Senior Counsel in the Office of the General Counsel (202-326-4020 [x3033]). Yo ur s v er y tr ul y, / s / James J. Keightley General Counsel