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1200 K Street. N.W.. Washington, D.C. 200054026 . S 

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DEC 1 6 2003 

Re: Appeal J The Retirement Plan for Salaried Employees.of Sharon Steel 

Corporation.("Salaried Plan," Case #: 161810) 

. Dear 1-1 

The Appeals Board has reviewed your appeal of PBGC's April 4, 2000 determination of 

your Salaried Plan benefit. As explained below, we are denying your appeal. 

PBGC's lener said that you were entitled to a beneftt of $1,299.09 per month, if payments 

began,on March -1, 2011 (the first of the month following your 65th birthday) as a single life 

annuity with no survivor benefit. PBGC's files show that, effective March 1, 2001, you began 

receiving an estimated benefit of $619.87 per month. .After receiving a filing extension, you fded 

an ap+al on September 12, 2002, which raised three issues regarding the freeze of benefit 

. accrual; under the Salaried Plan: 

1. The amendment freezing accruals ("freeze amendment") was invalid because the notices 

dated June 1, 1987, and July 29, 1988, were defective as notices under §204(h) of the 

Employee Income Retirement Security Act (ERISA); 

2. The freeze amendment was invalid because Sharon's Board of Directors failed to approve 

it; and 

3. PBGC's phase-in regulation should not apply to the calculation of benefits after expiration 

of the temporary freeze on June 1, 1991. 

The Salaried Plan adopted the freeze amendment on March 11, 1988, which froze benefit 

accruals (but not vesting or eligibility service) retroactively to June 30, 1987. As to your first 

issue, the amendment's validity did not depend on either notice meeting the requirements of a 
§204(h) notice under ERISA.' Rather, as.an amendment to re60actively reduce: accruals, the 

freeze amendment had to comply with $412(c)(8) of the Code.' To comply, a special application 

had to be filed with.the IRS pursuant to Rev. ~r&. 79-18, 1979-1 C.B. 525, and IRS had to either 

grant its approval of the amendment or allow the 90-day review period to expue without taking 

action. Sharon filed the required application and IRS granted its approval on September 8, 1988. 

Rev. Proc. 79-18, which describes the procedure for filing notice with, and obtaining 

approval from, the IRS does not require advance notice. Because &l12(c)(8) of the cod; has as 

its focus amendments that retroactively reduce accruals, imposing an advance notice requirement 

on such amendments would make little sense. The only notice IRS required with regard to 

$412(c)(8) of the Code is the notice described by Martin Slate of the IRS is his letter of J& 9, 

1988, to Philip Smalley, Sharon's Senior Vice President - Human Resources. That letter stated: 

 he-notice [to affected parties] must state that an application for approval of the 

amendment has been filed with the Service and that the Service will ordinarily 

wider any relevant information submitted if that information is submitted within 

30 calendar days from the date the notice is mailed or hand delivered. 

Sharon provided such notices to affected parties on July 29, 1988. (You included a copy of this 

notice as Exhibit F to your appeal filing.) Further, IRS approved the retroactive amendment to 

the Plan after the 30day comment period had'expired. Accordingly, the Appeals ~oard rejects 

your contention that ihe retroactive amendment should be found invalid based on improper notice 

to plan participants. 

1 of the Free7e ,&tm&wt 

In your second issue, you question whether Sharon's Board of Directors approved the - 

freeze amendment. In deciding this issue, the Appeals Board has followed the legal principles set 

forth by the Supreme Court in Cuniss-Wright Corp. v. Schoonejongen, 514 U.S. 73 (1995). The 

Court in Schoonejongen concluded that the determination of whether a plan amendment procedure 

was followed in a particular case will depend on "a fact-intensive inquiry, under applicable 

I 

Section 204(3) was added to ERISA by the 1986 Budget Reunriliation Act. It provided that a single-employer 

plan 'may not be amended so as to provide for a significant reduction in the rate of future benefit accrusl. unless. after 

adoption of thc plan amendment and not less than 15 days before the cffcctive date of the plan ameodmem. rhe plan 

administrator provides a wriuen notice, sening fonh the plan amendment and its effective date. . . ." Section 2M(k) 

further prescribes the parks that an entided lo reccive such notice. 

2 

Section 412(c)(8) of the Code and section 302(c)(S) of ERISA provide tbu no amendment may be uscd to reduce 

the accrued benefits of any.plan participant unless the Secrefary of Labor either appmves such amendment or fails to 

di~wrove the amendment within in days after the date on which a nodce of such amendment is tiled with the Secretary. 

Reorganization Plan No. 4 of 1978. which became effective December 31.1978. transferred this function to thc Secrrlary 

of the Treasury. 

. . I.. . .. . . . :. <... . :.. . . - -. . 
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corporate law principles, into what persons or committees :. . possessed amendment authority, 

either by express delegation or irnpliedly . . . ." Id. 'Further, in the event that an amendment was 

not properly authorized when issued, "the question would then arise whether any subsequent 

actions [by the company's officers] sewed to ratify the provision ex post. " Id. 

You assert that, "[a]lthough Sharon Steel wis operating in bankruptcy under James Tom, 

a chapter 11 trustee, Mr. Toren did not seek the Board 's approval of the [amendment] . . . .") 

You offered no evidence to support your claim that Mr. TO& had acted without the ~oard'of 

Director's approval. We note, however, that a Chapter 11 trustee generally has the authority to 

act in place of the Board of Directors. As the Supreme Court stated in Commodity Futures 

Trading Com'n v. Weintraub, 471 U.S. 343 (1985), "Congress contemplated that when a trustee 

is appointed, he assumes control- of .the business, and the debtor's directors are 'completely 

ousted.' See H.R.Rep. No. 95-595. pp. 220-221~ (1977)." Id. at 352-353. Accordingly, if Mr. 

Toren had authorized the freeze amendment without seeking the Board of Directors's approval, 

he likely would have done so under the powers granted to him by the Bankruptcy Court. 

Moreover, even if Sharon's Board of Director's had retained authority for plan 

amendments after Mr. .Torents ippointmknt, we conclude that'it likely had given the necessary 

approval. Before Mr. Toren was appointed as trustee in bankruptcy, Sharon took. action to freeze 

the P&I as evidenced by the written notice by Mr. Smalley dated June 1, 1987. Furthermore, 

given the financial status of Sharon Steel at the time of amendnient, the,retroactive freezing of 

accruals significantly impacted upon Sharon Steel's ability to reorganize under Chapter 11 of the' 

Bankruptcy Code. Thus, the retroactive freezing of accruals was an action that Sharon's Board 

of Directors, as well as the Chapter 11 trustee, reasonably would have taken. 

Finally, the Appeals Board concluded that the following additional factors support the 

holding that the freeze amendment had been properly authorized; either by explicit approval or 

: by subsequent ratification: 

On March 11, 1988, Mr. Smalley signed a Plan amendment implementing the freeze, 

which stated that "the Company has caused this amendment to be executed by its duly 

authorized officei : .. . " 

Mr. Smalley submitted an affidavit to PBGC (Exhibit H to your appeal filing) that 

indicated that the decision to freeze the plan was made with the full knowledge and 

authorization of Sharon's Board of Directors. 

~ollowin~ the adoption of the freeze amendment, Sharon Steel (who was plan 

Administrator) implemented the freeze in the benefit calculations for Plan participants. 

Mr. Toren had been appointed Chapter 11 austee in January 1988. which was after the freeze amendment 

process was initialed but was bcfore the actual plan amendment was signed. 
PBGC's GuarWhen the Salaried Plan terminated, effective October 17, 1993, its assets were not 

sufficient to provide all benefits PBGC guarantees under Title IV of ERISA. Because of legal 

limitations under ERISA and PBGC's regulations, the benefits that PBGC guarantees may be less 

,than the benefits a pension plan would otherwise pay. 

ERISA sections 4022@)(1) and @)(7) phase-in PBGC's guarantee of "any increase in the 

amount of benefits under a plan resulting from a plan amendment" made or effective within the 

five years before Plan termidtion. This phase-in is equal to the greater of 20 percent of the 

benefit increase per month, or $20.00 per month (but not more than the amount of the increase), 

for each full year the Plan amendment was in effect before Plan termination. Under ERISA, the 

time a benefit increase is in effect begins with the later of the date the increase was adopted or the 

date it hecame effective. 

Section 4022.2 of PBGC's regulation on Benefis Payable in Terminated Singte-Employer 

Plans defines a benefit increase as "any benefit arising from the adoption of a new plan or an 

increase in the value of benefits payable arising from an amendment to an existing plan." This 

section further states that "benefit increase" includes "any change in plan provisions which 

advances a panicipant's or beneficiary's entitlement to a benefit, such as liberalized prticiPation 

requirements or vesting schedules, reductions in the normal or early retirement age under a plan, 

- and changes in the foqn of benefit payments." 

PBGC treated the Plan amendment unfreezing benefit accruals as a benefit increase subject 

to phase-in. PBGC determined that this amendment was "in effect" under ERISA for two full 

years between its effective date (June 1, 1991) and the Plan's termination date (October 17. 1993). 

Thus, PBGC phased-in its barantee of benefits attributable to postJune 1, 1991 accruals at the 

rate of 4O%/$40 per month. 

As to your third issue, you said that the accrual freeze was intended to be temporary and 

the unfreezing merely a resumption of old benefits, not a benefit increase. To support your 

position, you cited Mr. Smalley's affidavit (Exhibit H). While the affidavit does assert that 

company officials'intended the freeze to be temporary, it also notes that the intent was to unfreeze 

the plan "at such time as the business prospects of Sharon Steel Corporation improved." 

However, ERISA's'phase-in rule establishes a "bright-line" test governed only by the occurrence 

of a benefit increase. ERISA does not permit PBGC to ignore a required phase-in based on the 

intent or particular economic circumstances of a plan sponsor. Moreover, the terms of the freeze 

amendment did not place any conditions on its effectiveness, nor did it contain an expiration date. 

Thus, even if the freeze was intended to be temporary, a plan amendment clearly was required to 

"unfreeze" the Plan. 
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I a result of.the March 11, 1988 freeze amendment, participants could accrue no ! additional benefits under the Salaried Plan, but instead.were lited to the benefits they had earned *r 

I as of the effective date of the freeze (June 30, 1987). Then, solely by operation of the June 1, 

1991 unfreeze amendment, prticibts resumed accruing benefits based on their service and 1 earnings afterthat date. The economic impact of this amendment was to increase immediately 

8. after June 1, 1991 the accrual rate of zero that was in effect immediately befop June 1, 1991. 

For the reasons described above, the Appeals Board concluded that the amendment . 

unfreezing benefit accruals resulted in anincrease in the value of benefits payable to Salaried Plan 

participants arising from an amendment to an existing plan. 

Decision 

Having applied the law, Plan provisions and PBGC regulations and policies to the facts in 

this case, the Appeals Board found that (1) the Freeze ~mendment was validly adopted; (2) 

affected parties received proper notice under ERISA and the Code; (3) the 1991 Plan amendment 

lifting the freeze on beneiit accruals is a benefit increase under ERISA section 4022(b)(l)(B); (4) 

the amendment was in effect under ERISA for two full years before the Plan termination date; and 

(5) PBGC's guarantee of the amount of any benefit increase resulting from the Plan amendment 

is phased-in at the 40%1$40 rate. Therefore, we found no basis for changing -PBGC's 

determination of your benefit and must deny your appeal. 

This is the Agency's final decision with respect to this matter and you may, if you wish. 

seek court review. If you have any questions, please call PBGC's Customer Contact Center at 

1-800-400;7242. 

Sincerely, 

. LindaM. Mii 

Member, Appeals Board