#\ Pension Benefit Guaranty Corporation p&B 1200 K Street. N.W.. Washington, D.C. 20005-4026 

1 JUL 2 8 2004 

~e: Case 184793; Atkinson 1987 Pension 

Plan 

The Appeals Board has reviewed your appeal of PBGC's 

November 19, 2002 determination of your PBGC-payable benefit with 

respect to the terminated Atkinson 1987 Pension Plan (the "1987 

Plan"). As explained below, the Board found no basis for changing 

PBGC' s determination. 

BACKGROUND 

PBGC's November 19, 2002 letter informed you that you are 

entitled to a monthly benefit of $1,471.21, instead of the 

estimated monthly benefit of $1,777.43, which you were then 

receiving. PBGC's Benefit Statement indicated that as of the date 

of Plan termination, October 15, '1998, you were receiving a monthly 

benefit of $1,952.64. 

On March 17, 2003, PBGC's authorized representative sent you 

a letter explaining why your PBGC benefit is smaller than your 

benefit under the 1987 Plan. This letter is quoted below, in 

pertinent part: 

. . . the sum of the Atkinson Pension Plan benefit and 

the Atkinson 1987 Pension Plan benefit are subject to one 

PBGC Maximum Guaranteed Benefit. The Atkinson 1987 

Pension Plan is a successor to the Atkinson Pension Plan. 

In 1987, the Atkinson Pension Plan was terminated, 

annuities were purchased, and the Atkinson 1987 Pension 

Plan was created. The provisions of the Atkinson 1987 

Pension Plan are nearly identical to the provisions of 

the Atkinson Pension Plan; therefore, they are subject to 

one PBGC Maximum Guaranteed Benefit. The PBGC Maximum 

Guaranteed Benefit for participants in plans terminating 

in 1998 is $2880.68 per month, payable as a Straight Life 

Annuity at age 65. Because you're receiving more than 
$2880.68 from the Atkinson Pension Plan, the maximum 

guaranteed benefit for the Atkinson 1987 Pension Plan is 

$0.0 . . . 

On April 16, 2003, you filed an appeal in which you contended 

that the 1987 Plan was not a successor to the Atkinson Pension Plan 

("Atkinson Plan"), and that, as a result, the sum of the Atkinson 

Plan benefit and the 1987 Plan benefit should not be subject to 

"one PBGC Maximum Guaranteed Benefit." 

Plan History 

Section 1 of the 1987 Plan describes its establishment as 

follows: 

The Atkinson 1987 Pension Plan (the "Plan") was 

established effective December 1, 1987, by the Company to 

provide pensions for eligible employees and their 

surviving spouses or other beneficiaries. The Plan is a 

successor to the Predecessor Plan, which was terminated 

effective December 1, 1987. Benefits accrued by 

participants in the Predecessor Plan who were actively 

employed by a member of the Affiliated Group on 

December 1, 1987, were fully vested and transferred to 

the Plan as of December 1, 1987. 

Section 13(v) of the 1987 Plan defines the "Predecessor Plan" as 

"the Atkinson Pension Plan, which was terminated as of December 1, 

1987." 

PBGC's audit report describes the history of the 1987 Plan as 

follows : 

The Plan was originally established effective December 1, 

1987, by the Guy F. Atkinson Company of CA ("Atkinson") 

to provide pensions. for eligible employees and their 

surviving spouses or other beneficiaries. It is a 

successor to 'the Atkinson Pension Plan, which was 

terminated on November 30, 1987, after settlement of its 

benefit obligations through the purchase of annuity 

contracts with the TransAmerica Life Insurance Company. 

Benefits accrued by participants in the predecessor plan 

who were actively employed by Atkinson on December 1, 

1987, were transferred to the 1987 Atkinson Plan on that 

date and those accrued benefits are provided by an 

annuity contract issued by Pacific Mutual Life Insurance 

which is held in the name of the Plan. 
*: 

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41 PBGC's actuarial report addresses the successor plan issue, as 

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follows: li! 

:i The Atkinson 1987 Pension Plan was established effective 

December 1, 1987, by the Guy F. Atkinson Company of CA 

("Atkinson"). It is a successor to the Atkinson Pension 

Plan, which was terminated on November 30, 1987, the day 

before the effective date of this plan. The provisions of 

the two plans are identical.-Benefits accrued under the 

predecessor plan were transferred to this plan along with 

assets sufficient to purchase an annuity contract from 

Pacific Mutual Life Insurance company to pay those 

benefits.'The remaining assets in the predecessor plan 

reverted to the employer. 

Joint Im~lementation Guidelines 

PBGC News Release No. 84-23, May 23, 1984, announced that 

PBGC, the Department of Labor, and the Internal Revenue Service 

agreed to Joint Implementation Guidelines (copy attached) for 

processing defined benefit pension plan terminations involving 

asset reversions to the plan sponsor. The termination of the 

Atkinson Plan was a pension plan termination in which the employer 

recovered excess assets. Thus, it was subject to the Joint 

Implementation Guidelines. 

The Joint Implementation Guidelines address two types of 

transactions: termination/re-establishments (Item 3 of the 

Guidelines) and spin-off/terminations (Item 4 of the Guidelines). 

In a terminatiodre-establishment, an employer that terminates a 

sufficient defined benefit pension plan creates a new defined 

benefit plan covering the same group of employees. In a "spin-off 

termination" - which appears to be the type of transaction that 

occurred in the case of the Atkinson Plan - a portion of the prior 

plan is spun-off (and thus remains ongoing), while the remainder 

of the prior plan is terminated. 

With respect to spin-off/terminations, Item 4 of the 

Guidelines state: 

In the case of a so-called "spin-off/terminationf', 

generally no termination will be recognized . . . unless 

the following conditions are satisfied: 

* The benefits of all employees (including those covered 

by the ongoing plan) must be fully vested and nonforfeitable as of the date of termination. 
* All benefits accrued as of the date of termination in 

the ongoing plan must be provided by the purchase of 

annuity contracts which represent irrevocable commitments 

for the benefit of each individual participant. 

All employees who were covered by the original plan 

must be given advance notice of the transaction in 

similar time and manner as if the entire original plan 

were being terminated. 

ERISA's Definition of a Successor Plan 

The term "successor plan" is defined in Section 4021 (a) of 

ERISA, which provides: 

For purposes of this title, a successor plan is 

considered to be a continuation of a predecessor plan. 

For this purpose, unless otherwise specifically indicated 

in this title, a successor plan is a plan which covers a 

group of employees which includes substantially the same. 

employees as a previously established plan, and provides 

substantially the same benefits as that plan provided. 

PBGC' s Maximum Guaranteed ~eief it Limit 

Since its enactment, ERISA has limited the amount of 

guaranteed benefits that participants can receive from PBGC as a 

result of the termination of an underfunded pension plan. This 

Maximum Guaranteed Benefit ("MGB") provision, which is found in 

ERISA section 4022(b) (3), provides that 'Ithe amount of monthly 

benefits . . . provided by a plan, which are guaranteed under this 

section with respect to a participant" cannot exceed the value of 

$750 per month (in the form of a life annuity commencing at age 

65), adjusted for changes in the Social Security contribution and 

benefit base. The maximum guaranteed benefit for a plan that 

terminated in 1998, as was the case with the 1987 Plan, is 

$2,880.68. 

PBGC has consistently treated predecessor and successor plans 

as one plan for purposes of applying the MGB limitation. 

DISCUSSION 

Successor Plan Issue 

As is explained later in this letter, a successor plan 

analysis is not needed to resolve your appeal. For that reason, the 

basis for the Board's decision (which is discussed below) differs 
in certain respects from the explanation provided in PBGC's letter 

of March 17, 2003. But because both PBGC's correspondence with you 

and your appeal addresses the successor plan question,, the Board 

will discuss that issue first. 

As the statutory definition in ERISA section 4021(a) 

indicates, there are three key tests for determining whether a plan 

is a successor plan: (1) does it cover substantially the same 

employees? (2) does it provide substantially the same benefits? and 

(3) is there continuity of the two plans? 

In various opinion letters involving successor plans, PBGC has 

examined one or more of these factors. See, for example, PBGC 

Opinion Letters 80-16, 81-7, and 88-9 (copies attached). In those 

letters, PBGC has concluded that the first test - that is, whether 

the new plan covers "substantially the same employees" - may be 

satisfied even if the new plan does not cover all the participants 

of the prior plan. In PBGC Opinion Letter 81-7, a company wanted 

to split three plans into 16 divisional plans as part of a 

corporate restructuring. The Opinion Letter concluded that the 

divisional plans would be successor plans. Also, Opinion Letter 

88-9 concluded that, where a plan split into two plans that 

included all the participants and liabilities of the original plan,' 

the new plans must be considered to be successor plans. 

With respect to the "substantially the same benefits" test, 

several of these opinion letters addressed situations where one or 

more new plans assume the benefit liabilities of a prior plan with 

respect to a group of employees. In these situations, PBGC has 

advised that "one of the factors the PBGC considers in determining 

whether a plan provides'substantially the same benefits' as a 

previously established plan is whether it assumes the defined 

benefit liabilities from the previously established plan." See 

Opinion Letter 81-7. The Opinion Letters concluded that such an 

assumption of liabilities satisfies the "substantially the same 

benefits" test. 

These precedents indicate that the 1987 Plan is a successor to 

the Atkinson Pension Plan since (1) the plans covered 

"substantially the same employees" because the active Atkinson 

employees who were covered under the prior plan became covered by 

the new plan; (2) the benefitsare "substantially the same" in that 

the 1987 Plan assumed benefit liabilities of the prior plan for the 

group of active employees; and (3) there was continuity between the 

plans because the effective date of the 1987 Plan coincided with 

the termination date of the Atkinson Pension Plan. 
Ap~lication of PBGC's MGB Limitation 

As indicated above, a successor plan analysis is appropriate 

if a participant is entitled to.pension benefits from two pension 

pians sponsored by the same employer and the participant's combined 

benefits from the plans exceeds.PBGC's MGB limit. This is because 

PBGC treats a predecessor plan and its successor as one plan for 

purposes of applying the MGB. 

While you participated in two pension plans sponsored by 

Atkinson, all of the benefits you had accrued under the first plan 

(Atkinson Plan) were transferred to the second (the 1987 Plan) in 

1987. Accordingly, as a result of the transfer, the 1987 Plan 

became responsible for the full amount of the' benefits you had 

earned during your entire employment with Atkinson. Thus, in your 

case it is not necessary to determine whether the 1987 Plan was a 

successor to the Atkinson.Plan because there are no benefits from 

the terminated Atkinson Plan for PBGC to offset. 

The MGB limit applies to "the amount of monthly benefits . . . provided by a plan, which are guaranteed . . . with respect to a ' 

participant." ERISA section 4022 [b) (3) . In your case, your 

accrued benefit under the 1987 Plan is equal to "Past service 

Benefit" and your 'Current Service Benefit." The "Past Service 

Benefit," which is based on your service prior to December 31,1995, 

includes your service with Atkinson prior to the termination of the 

Atkinson Plan in 1987. The "Future Service Benefit" covers your 

employment from 1996 to 1998. When you retired on February 1, 

1998, the Plan Administrator ("PA") determined that your total 

monthly benefit under the Plan was $5,236.91 based on a February 1, 

1998 commencement date and a Joint and 66 2/3% Survivor Annuity 

form of benefit. 

Because the 1987 Plan was created through a spinoff/termination transaction, the 1987 Plan had purchased an annuity 

from Pacific Mutual Life Insurance ("PM") to provide the portion of 

your benefit you had accrued prior to the termination of the 

Atkinson Plan. As discussed above under "Background," p.urchase of 

this annuity was required under the Joint Implementation 

Guidelines. In your appeal, you assert that your PM Annuity should 

not be included in the benefit which is subject to PBGC's Maximum 

Guaranteed Benefit ("MGB") . 

In Opinion Letter 86-28 (enclosed), PBGC rejected a similar 

argument in a case that also involved a pension plan's purchase of 

insurance annuities. PBGC stated in the Opinion Letter as follows: 
E 

JI .The fact that the Plan assets used to purchase the ? annuity contract for [a participant] are not available to 

W 

I pay other outstanding Plan liabilities upon Plan 

3 termination does not affect the application of [the MGB 

limit] to benefits under the Plan. The irrevocable 

commitment exclusion [in PBGC's regulation at 29 C.F.R. 

4044.31 pertains only to the allocation process; it does 

not change the amount of [the Plan's] regular retirement 

benefit. . . . It is that benefit which is subject to the 

maximum guarantee of Section 4022 (b) (3) of ERISA. I note 

that a conclusion that Title IV's maximum guarantee 

limitation does not apply to [the] full accrued benefit 

under Plan Section 4.3 would ultimately result in the use 

of PBGC funds to ensure that a participant in an 

underfunded pension plan receive a benefit of more than 

$3,000 per month. Such a result is inconsistent with 

both the statute's maximum guarantee limitation and with 

the PBGC's statutory mandate, set forth in Section 

4002 (a) (3) of ERISA, 29 U.S.C. § 1302 (a) (3), to maintain 

premiums at the lowest level consistent with its 

obligations .I 

Furthermore, PBGC's position in Opinion Letter 86-28 was 

upheld by the court's decision in Lami v. PBGC, No. 86-1709 (W. D. 

Pa. July 18, 1989). We have enclosed a copy of this unpublished 

decision for your reference. PBGC believes that the principles 

articulated in Opinion Letter 86-28 and in the Lami decision 

reflect a sound interpretation of ERISA. 

Thus, PBGC' s MGB applies to your full 1987 Plan benefit, which 

includes both the portion of your benefit payable under your PM 

Annuity ($3,284.27) and the portion payable out of the 1987 Plan's 

trust fund ($1,952.64) . PBGC' s MGB for participants in' plans 

terminating in 1998 is $2880.68 per month, payable as a Straight 

Life Annuity at age 65. Thus, since you are receiving more than 

$2880.68 under your PM Annuity; you are already receiving more than 

your full MGB. 

Your appeal also asserts that line (3) of PBGC's benefit 

statement - which shows a Monthly Benefit funded by Plan Assets of 

$1,341.04 - is incorrect. Your argument with respect to this item, 

however, directly relates to your assertion that PBGC should have 

excluded the PM Annuity from your calculation of your MGB. As 

I For the pension plan addressed in Opinion Letter 86-28 

(which terminated in 1985), the Maximum Guaranteed Benefit was 

$1,687.50 per month. 
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8 discussed above, the Appeals Board has rejected that argument. The 

. . Board further concluded that you have not presented any basis for 

0) 

41 changing the amount of your PBGC benefit that is based upon a plan 

2 asset allocation. We note that PBGC's March 17, 2003 letter gave 

.you a detailed explanation as to how the 1987 Plan's assets were 

allocated to your benefits. 

DECISION 

The Appeals Board found no basis presented in your appeal for 

changing PBGC's determination. This is the agency's final action 

regarding your appeal. You may, if you wish, seek court review of 

this decision. If you need other information from PBGC, please call 

the Customer Contact Center at 1-800-400-7242. 

Sincerely, 

Michel ~ouis 

Acting Chair, ~p~eais. Board 

Enclosures: 

(1) PBGC News Release No. 84-23 with the Joint Implementation 

Guidelines. 

(2) PBGC Opinion Letters 80-16, 81-7, 88-9, and 86-28. 

(3) Court's decision in Lami v. PBGC, No. 86-1709 (W. D. Pa. 

July 18, 1989).