hVi 

I 'BGC Pension Benefit Guaranty Corporation 

protestlng A~~~~~~,s hnrlonr 1200 K Street, N.W., Washington, D.C. 20005-4026 

JUL 2 1 2009 

Re: 2 Case 193468; Brad Whitney Sportswear Manufacturing 

Company (BWSMC) Pension Plan (the Plan) 

The Appeals Board reviewed your appeal of PBGC's March 23,2004 determination 

of your PBGC benefit from the Plan. For the reasons stated below, the Board found that 

you presented no reason to increase your PBGC benefit and, therefore, we are denying 

your appeal. 

Background 

PBGC provides pension insurance in accordance with the Employee Retirement 

Income Security Act of 1914, as amended (ERISA). If a plan sponsor is unable to support 

its pension plan. PBGC becomes trustee of the plan and pays benefits as defined in the 

plan, subject to the limitations and requirements set by Congress in ERISA. 

Records available to the Appeals Board reveal that the Plan terminated on 

December 31, 1992 and PBGC became the Plan's trustee on July 27.2001. 

After PBGC became the Plan's trustee, PBGC reviewed Plan records and 

participant data, and determined the amount of the Plan's final assets as of the Plan's 

termination date. PBGC then calculated the Plan benefits and guaranteed benefits 

payable to each of the Plan's participants as of the Plan's termination date. Because the 

Plan's assets as of the Plarl's termination date were less than the total value of guaranteed 

benefits payable to the Plan's participants, PBGC determined that ERISA's limitations 

came into play. 

PBGC's determination letter told you that you are entitled to receive a single lumpsum payment of $3,352.00 plus interest from the date of Plan termination. PBGC's Benefit 

Statement, which PBGC enclosed with its determination letter, explained that your benefit 

was affected by ERISA's Substantial Owner Phase-In limitation. 
Your A~peal 

Your April 29, 2004 appeal letter claimed that PBGC's determination is wrong 

because (1) PBGC incorrectly calculated the date on which you became a Substantial 

Owner, and (2) PBGC did not include "the settlement funds received as a result of the 

fiduciary breach action that were collected after the plans terminated." 

Discussion 

1. lnclusion of Stock Certificates 27 and 40 in PBGC's Determination of the Date on 

Which You Became a Substantial Owner 

In your appeal letter, you asserted that PBGC incorrectly used December 7,1984, 

as the date you became a "substantial owner". To support your claim, you said that 

Certificates 77 and 4Q. far 298 and 288 shares of sb , respectively, were "made out to 

and were held by the71 

In addition, you provided copies of stock ownership records prepared 

former Plan Administrator. Because Certificates 29 and 40 were not 

under your care or control, you claimed that these shares should not be included in 

PBGC's determination as to when you became a Substantial Owner. You said that 

excluding Certificates 27 and 40 from your ownership interest would result in changing the 

date you owned more than 10 per cent of the stock from December 7, 1984, to 

December 25, 1988, 

The Substantial Owner Phase-In limitation is described in section 4022(b)(5j(~) of 

ERISA. ERISA § 4022(b)(5)(A) defines a "substantial owner" as follows: 

"(5)(A) For purposes of this title, the term "substantial owner" means an individual who- 

. . . 

(iii) in the case of a corporation, owns, directly or indirectly, more than 10 percent in valueof 

either the voting stock of that corporation or all the stock of that corporation. 

For purposes of clause (iii), the constructive ownership rules of 5 1563(e) of the Internal Revenue 

Code of 1954 shall apply (determined without regard to § 1563(e)(3)(C))." 

The constructive ownership rules related to trusts are found in section 1563(e)(3) of the 

Internal Revenue Code (IRC). IRC § 1563(e)(3) provides as follows: 

"(3) Attribution from estates or trusts.-- 

(A) Stock owned, directly or indirectly, by or for an estate or trust shall be considered as owned by 

any beneficiary who has an actuarial interest of 5 percent or more in such stock, to the extent of such 

actuarial interest. For purposes of this subparagraph, the actuarial interest of each beneficiary shall 

be determined by assuming the maximum exercise of discretion by the fiduciary in favor of such 

beneficiary and the maximum use of such stock to satisfy his rights as a beneficiary. 

(6) . . . 
(C) This paragraph shall not apply to stock owned by any employees' trust in § 401(a) which is 

exempt from tax under § 501(a)." 

Thus, although you claimed in your appeal that you should not have been 

considered the owner of the stock identified by Certificates 27 and 40 because you had no 

control overthese shares of stock, the IRC's constructive ownership rules make it clearthat 

PBGC properly considered you to be the owner of that stock. As a result, the Appeals 

Board found that PBGC properly included the shares of stock represented by Certificates 

27 and 40 in determining the percentage of your ownership in BWSMC as of December 7, 

2. Inclusion of Settlement Funds Received by PBGC as a Result of the 2001 Fiduciaw 

Breach Judsment Award 

Afterthe Plan terminated but before PBGC became the Plan's trustee, a judgment 

was entered in the United States District Court for the Northern District of California in favor 

of 1 as Trustee of the Plan in the sum of $229.141 .I6 

together with interest thereon at the legal rate from March 31, 2001 until paid. The 

Appeals Board noted that the judgment specifically provided as follows: "From any funds 

received in execution of the judgment,l 

shall not receive any benefit until participants with vested accrued benefits in either the 

Defined Benefit Pension Plan or the Profit Sharing Plan on or after December 15, 1990, 

that is excludingl have been paid in full." Thus, the 

judgment contemplated the possibility that the Plan's trust would still be insufficient to pay 

the benefits of all the other vested participants even after the judgment was satisfied. 

Because the judgment described above remained unpaid, PBGC acted to enforce 

the judgment once PBGC was appointed the Plan's trustee. This activity resulted in a 

Settlement Aareement and Release (Agreement) betweed 

trust dated 12/5/74 and PBGC effective February 8,2002. 

As a result of the Agreement, PBGC received a check in the amount of $169,702.74 by 

overnight Federal Express on September 11,2002. 

ERISA 5 4044 requires that a plan's assets be allocated in a prescribed orderto the 

value of benefits described in six priority categories. PBGC regulations make it clearthat, 

in the case of a plan that is trusteed by PBGC, the allocation of assets must be performed 

as of the date of the plan's termination. See 29 Code of Federal Regulations § 4044.3(b). 

Thus, in order for the allocation to be performed as of the plan's termination date, PBGC 

must calculate the total amount of all benefit liabilities as of the plan's termination date and 

also determine the total value of the plan's assets as of the plan's termination date. 

So, after execution of the Agreement, under which PBGC would receive $167,500 

with interest from February 8,2002, PBGC followed its standard Recovety Valuation Policy 

to determine the value of the payment as of the Plan's termination date. PBGC 

determined that the amount PBGC would receive under the Agreement had a value of 

$96,325 as of the Plan's termination date (December 31, 1992). So, after adding that 
amount to the rest of the Plan's assets, PBGC determined that the Plan's final assets as of 

the Plan's termination date were equal to $f45,339. 

PBGC's final actuarial valuation of the Plan's benefit liabilities, which was completed 

on September 10, 2003, determined that the total value of guaranteed benefits as of the 

Plan's termination date was equal to $185,340. So, because the Plan's assets were equal 

to $145,339 as of the Plan's termination date, the Plan's assets were insufficient to pay all 

of the benefits that PBGC guarantees. The Board noted that PBGC is paying all 

guaranteed benefits in full despite the $40,001 shortfall, and that PBGC is also paying 

4.94% of all benefit liabilities in excess of guaranteed benefits under ERISA 9 4022(c). 

Based on the above, the Appeals Board found that PBGC properly accounted for 

the amount paid under the Agreement when PBGC determined the value of assets 

available to pay the Plan's vested benefits in accordance with ERISA. 

We regret that the outcome of your appeal is not favorable, but the Appeals Board 

must make its decision in accordance with ERISA, and PBGC's rules and regulations. 

Decision 

Having applied the law and PBGC's rules to the facts of this case, the Appeals 

Board found that you presented no reason to increase your PBGC benefit and, therefore, 

we are denying your appeal. This decision is the agency's final action regarding the issues 

raised by your appeal, and you may, if you wish, seek court review of this decision. If you 

need other information about your benefit, please call PBGC's Customer Contact Center at 

1-800-400-7242. 

Sincerely, 

Michel Louis 

Appeals Board Member