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Protecting 

PBGC America's PensionsPension Benefit Guaranty Corporation 

1200 K Street, N.W., Washington, D.C. 20005-4026 

April 20, 2011 

Re: Appeal 2010-0110 (Case No. 199720), Brooklyn Hospital Center Retirement 

Income Plan (the "BHCPlan") 

Dear I 

"-------~ 

The Appeals Board has reviewed your appeal of PBGC's September 23, 2009 determination 

of your benefit under the BHC Plan. As explained below, we changed PBGC's determination by 

finding that your 1996 Earnings are $150,000, instead of$112,500. Asa result, you are entitled to a 

benefit of$3,567.83 per month ifpaid as a Straight Life Annuity beginning March 1,2011 (age 65). 

PBGC's Benefit Determination and Your Appeal 

PBGC's determination said that you are entitled to a benefit of $3,520.96 per month,ifpaid 

as a Straight Life Annuity starting March 1,2011, the first of the month following your 65th birthday. 

PBGC explained that your monthly benefit will be higher if you choose to retire after March 1,2011, 

and that you may elect a different benefit form. PBGC also enclosed a benefit statement that

summarized your benefit calculation. 

On October 27, 2009, you wrote to the Appeals Board to request an extension oftime in which 

to file an appeal, a more detailed explanation of your benefit calculation, and the salary data PBdc 

used. The Board granted you a filing extension of 45 days from the date you received the information 

you requested. On November 23, 2009, PBGC's Benefits Administration and Payment Department·

sent you the salary data and a more detailed benefit statement. 

You filed a timely appeal on January 4, 2010, stating that the $112,500 in earnings both the 

former Plan administrator and PBGC used for 1996 is incorrect. You explained that your Medicare 

wages were $188,673.00, as shown on your 1996 W-2 form. You said it appears that (1) your salary 

for 1996 (your last year of employment) was limited to $150,000, in accordance with the section 

401(a)(17) compensation limits of the Internal Revenue Code ("IRC")~ and (2) the $150,000 cap was 

prorated to $112,500 because you completed less than a full year of employment in 1996. You believe 

your 1996 salary should be the full $150,000 IRC cap, which would increase your benefit to $3,567.83 

per month. 

. 

. 
j . You included the following documents in support of your appeal: (1) your 1996 W-2 form, (2) 

a letter dated I I 1996 from the Executive Vice President, BHC, which said your 

employment was terminated effective] 11996, and you would bepaid three months salary 

in-lieu-of·notice, and (3) a retirement package from the BHC Plan Administrator dated March of2006. 

This package included a Calculation of Accrued Benefit worksheet that listed your salary history for 

the years 1993-1996 with the notation that "earnings are capped at the IRS-mandated compensation 

limit in effect for the applicable plan year." . 

Background 

The BH C Plan terminated, effective March 31, 2006, without sufficient assets to provide all 

benefits PBGC guarantees under the Employee Retirement Income Security Act ("ERISA"), and 

PBGC became the trustee on September 17,2007. Consequently, the terms of the Plan, the provisions 

of ERISA, and PBGC and Internal Revenue Service ("IRS") regulationsdetermine the benefits PBGC 

can pay. 

The files available to the Appeals Board show that (1) you were born on j I (2) 

you were hired by SHC on I I 1978, and (3) your employment there ti:mrlinated, effective 

1 1 1996. Your appeal did not dispute the benefit formula or underlying data (other than 

the 1996 prorated salary amount) used to calculate your BHC benefit. 

IRC Compensation Limits 

Section 40 l(a)(17) of the IRC provides, generally, that a trust which is part ofa pension plan 

shall not constitute a qualified trust unless the annual compensation of each employee taken into 

account under the plan for any year does not exceed a specified amount (the "compensation limit"). 

Section 1.401 (a)(17)-1 (b)(3) of the IRS implementing regulation sets forth the rules for applying the 

oompensation limit to a plan year. In general, II ••• the annual compensation limit is applied to the 

compensation for the plan year on which allocations or benefit accruals for that plan year are based. II 

Subparagraph 1.401 (a)(17)-1 (b )(3)(iii) explains how the compensation limit applies to certain periods . 

of fewer than 12 calendar months, 

(A) Compensation for a period of less than 12-months --Proration 

required. Ifcompensation for a period ofless than 12 months is used for 

a plan year, then the otherwise applicable annual compensation limit is 

reduced in the same proportion as the reduction in the 12-month period: 

For example, if a defined benefit plan provides that the accrual for each 

month in a plan year is separately determined based on the 

compensation for that month and the plan year accrual is the sum of the 

accrual for all months,then the annual compensation limit for each 

month is 1I12thofthe annual compensation limit for the plan year. In 

addition, ifthe period for determining compensation used in calculating . 

an employee's allocation· or accrual for a plan year is a short plan year 

(i.e., shorter than 12 months), the annual compensation limit is an 

amount equal to the otherwise applicable' annual compensation limit 

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multiplied by the fraction, the numerator of which is the number of 

months in the short plan year, and the denominator of which is 12. 

(B) No proration required for participation for less than a full plan year. 

Notwithstanding paragraph (b )(3)(iii)(A) of this section, a plan is not 

treated as limiting the compensation used in determining an employee's 

allocations or benefit accruals to a specified portion of the employee's 

annual compensation merely because the plan formula provides that the 

allocation or accrual for each employee is based on compensation for 

the portion of the plan year during which the employee is a participant 

in the plan. In addition, no proration is required merely because an 

employee is covered under a planfor less than afull plan year, provided 

that allocations or benefit accruals are otherwise determined using 

compensation for a period of at least 12 months. (Italics added for 

emphasis.) 

Thus, the regulation requires a Plan to prorate the compensation limit for a particular Plan year for all 

participants with compensation in that year whenever the Plan year is a short Plan year of fewer than 

12 months. The IRS does not require the limit to be prorated with respect to an individual employee 

"merely because an employee ·is covered under a plan. for less than a full plan year, provided that 

allocations or benefit accruals are otherwise determined using compensation for a period of a least 

12 months." (See 26 Code of Federal Regulations § 1.401(a)(17)-1(b)(3)(iii)(B).) 

As shown below, the BHC Plan incorporated the IRC section 401 (a)(17) compensation limits 

into the Plan's formal definition of Earnings. The filesPBGC's auditors obtained when the Plan 

terlninated did not contain a copy of the Plan document in effect when your employment te~inated 

in 1996. To analyze your appeal, we reviewed the earliest available. document, which is the Plan that 

took effect January 1,2001 ("the 2001 Plan"). The definition of "Earnings"·under sectioil1.1 of the 

2001 Plan provides in part that: 

This Plan shall not take into consideration a Participant's earnings to the 

extent such Earnings exceed $200,000 during a Plan [calendar] Year. 

This $200,0 00 limitation shall be· indexed by the [cost of living] 

Adjustment Factor [prescribed by the Secretary of the Treasury under 

Section 41S(d) of the IRC] for years beginning after December 31, 

1987]. If there are less than tw~lve (12) months in the Plan Year; this 

$200,000 limitation (as adjusted) shall be prorated by multiplying such 

limitation by a fraction, the numerator of which isthe number of months 

in the Plan Year and the denominator of which is twelve (12). 

In addition to other app~icable limitations set forth in the Plan, and 

notwithstanding any other provision of the Plan to the contrary, for Plan 

Years beginning on or after January 1, 1994, the annual Earnings of each 

Employee taken into account under the Plan shall not exceed the 

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Discussion 

Your einployment with BHC ended on 1 11996. As you noted in your appeal, both 

the Plan and PBGC prorated the $150,000 compensation limit for 1996 to account for the fact that your 

employment terminated before the end of the 1996 Plan Year. Although the IRS does not require this 

proration, the issue here is whether section 1.1 of the BHC Plan requires proration in this instance. 

Section 1.1 describes the rules for. applying the annual IRC compensation limitsto BHe Plan 

Years. This section also adds a definition of "determination period" as "any period, not exceeding 12 

months, over which Earnings are determined" beginning in such calendar year. Section 1.1 further 

requires proration oflRS limits with respect to a Plan Year or a determination period with fewer than 

12 months. 2 However, in the context of section 1.1, the Appeals Board concluded that Plan years and 

determination periods apply Plan-wide and uniformly to the periods over which Earnings are 

determined for all Plan participants under the· benefit formulas described in Plan section 4.1. Said 

another way, we found that section 1.1 does not apply on a participant-by-participant basis. Otherwise, 

OBRA '931 annual compensation limit. The OBRA. '93 annual 

compensation limit is $150,000, as adjusted by the Commissioner for 

increases in the cost-of-livingin accordance with Section 40 I (a)(17)(B) 

ofthe [IRC]. The cost-of-living adjustment in effect for a calendar year 

applies to any period, not exceeding 12 months, over which Earnings are 

determined (determination period) beginning in such calendar year. If 

a determination period consists offewer than 12 months, the OBRA '93 

annual compensation limit will be multiplied by a fraction, the 

numerator of which is the nuinber of months in the determination 

period,and the denominator of which is 12. 

Fot Plan Years beginning on or after January 1, 1994, any reference in 

this Plan to the limitation under Section 401 (a)(I7) of the IRC shall 

mean the OBRA '93 annual compensation limit set forth in this 

provision .. 

If Earnings for any prior determination period are taken into account in 

determining an Employee's benefits accruing in the current Plan Year, 

the Earnings for that prior determination period are subject to the 

OBRA '93 annual compensation limit in effect for that prior 

determination period. For this purpose, for determination periods 

beginning before the first day of the first Plan Year beginning on or after 

January 1, 1994, the OBRA '93 annual compensation limit is $150,000. 

Omnibus Budget Reconciliation Act of 1993 

2 The Plan years at issue in your case were full calendar years. 

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contrary to Plan terms, a different "determination period" would apply separately to each participant 

whose employment ended before the end of a full or partial Plan year. 

Accordingly, the IRClimit without proration applies in determining your 1996 Earnings. 

Because your actual earnings for 1996 as shown on your W -2 form exceeded the IRC compensation' 

limit for that year ($150,000), your Earnings under Plan section 1.1 for 1996 is limited to $150,000. 

Using the correct 1996 Earnings, your Plan benefit as a Straight Life Annuity beginning at age 65 is 

$3,567.83 per month, which is the same amount you cited in your appeal. 

Decision 

Having applied the law, the terms of the Plan and PBGC and IRS regulations to the facts in 

your case, the Appeals Board found that your 1996 Earnings under Plan section 1.1 are $150,000, 

instead of the $112,500 PBGC used. Asa result, the Board further found that you are entitled to. 

$3,567.83 per month ifpaid as a Straight Life Anriuity beginning March 1,2011 (age 65), instead of 

the $3,520.96 per month PBGC determined. 

This is the Agency's final decision on the matter and you may, if you wish, seek court review. 

If you have any questions, please callPBGC's Customer Contact Center at 1-800-400-7242. 

Sincerely, 

Linda M. Mizzi 

Member, Appeals Board 

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