PBGC Pension Benefit Guaranty Corporation 

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

SEP 3 0 2005 

Re: Case 194605. Shasta Paper Company. Inc. Hourly 

Pension Plan (the Shasta Plan) 

The Appeals Board reviewed your appeal of PBGC's June 16,2004 determination of 

your PBGC benefit from the Shasta Plan, which was based on PBGC's determination that 

the Shasta Plan was not formally adopted until May 2, 2000. As explained below, the 

Board decided that the Shasta Plan was first adopted on January 8, 1999. As a result, 

PBGC's guarantee of benefits based on the $35 and $37 benefit rates will be phased-in at 

the $40/40% level instead of the $20/20% level that PBGC previously had determined. 

As a result of the Board's decision, PBGC's Benefits Administration & Payment 

Department will recalculate your PBGC benefit based on the Shasta Plan having been first 

adopted on January 8, 1999, and send you a corrected determination of your PBGC 

benefit amount. The corrected determination will include a new 45-dav ameal right. Please - .. note that your corrected PBGC benefit amount could be hiqher or lower than %e amount 

stated in PBGC's June 25,2004 determination letter. Also, as explained in the Discussion 

section below, the change in your benefits (if any) is likely tobe relatively small. The 

change is likely to be small because, even though PBGC had "phased in" your guaranteed 

benefits at 20%, PBGC also had concluded that you were entitled to more than 40% of 

your Shasta Plan benefit based on a plan asset allocation. 

PBGC's Determination and Your A~peal Letters 

Your December 20, 2002 letter said that the information PBGC used to calculate 

your estimated benefit was inaccurate. Your December 2002 letter appears to suggest. 

based on the ten documents you included with your letter, that the Shasta Plan was 

adopted on its original effective date (January 8,1999). The Appeals Board responded to 

your December 2002 letter on January 7,2003 and told you that your 2002 appeal filing 

was considered premature because PBGC had not yet issued you a formal benefit 

determination of your final PBGC benefit from the Shasta Plan. 

PBGC's June 16, 2004 formal benefit determination letter told you that you were 

entitled to a PBGC benefit of $1 18.26 per month payable as a Five-Year Certain and 
Continuous Annuity. The letter noted that because PBGC underpaid you. PBGC would 

send you a separate check for the total underpayment plus interest. PBGC included a 

Benefit Statement showing some of the details of its calculation of your final PBGC benefit. 

Your July 19,2004 appeal said PBGC used inaccurate information to calculate your 

benefit. With your appeal, you included a pay stub showing that Shasta was paying you a 

pension benefit of $268.99 before PBGC became the Shasta Plan's trustee, and another 

pay stub showing that Simpson is paying you $645.00, not the $708.00 shown as your 

Sirnpson offset on your PBGC Benefit Statement. 

Discussion 

PBGC provides pension insurance in accordance with the Employee Retirement 

Income Security Act of 1974, 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 under ERISA. 

1. Your PBGC-Guaranteed Benefit 

Your PBGC-guaranteed benefit is less than your full Shasta Plan benefit because of 

the leaal limits on auaranteed benefits set bv Conaress when it enacted ERISA. One of 

those?imits, the ~i;e-year Phase-In, affectsihe akount of your PBGC benefit. 

Under this limit, PBGC may guarantee benefits in new plans or increases in benefits 

resulting from plan amendments only to the extent of $20 per month or 20% of the 

increase, whichever is larger, for each full year that the plan or benefit increase was in 

effect before the plan's termination date. For this purpose, a new plan or a benefit 

increase starts to be "in effect" as of its effective date or its adoption date, whichever date 

is later. 

Because ERISA requires that the beneffis payable under a qualified defined benefit 

plan be defined in written form and because PBGC's copy of the first written Shasta Plan 

document was signed and dated May 2,2000, PBGC determined that all three of the preMay 1, 2001 benefit rates listed in that document ($35 effective January 8, 1999; $37 

effective May I, 1999; $39 effective May I, 2000) were adopted less than twofull years 

before the Shasta Plan terminated on October 31,2001. As a result, PBGC calculated the 

Shasta Plan benefits using the $35, $37, and $39 benefit rates, but limited its guarantee of 

those benefits to $20 per month or 20% of the benefit, whichever is larger. Similarly, 

PBGC concluded that the benefit rates greater than $39 are not guaranteed at all because 

their effective dates were all less than one full year before the Shasta Plan's termination 

date. 

The Appeals Board reviewed documents in PBGC's files and found that Shasta 
Paper, formerly known as Shasta Acquisition, Inc., acquired the Shasta Mill division of 

Simpson Paper Company, pursuant to an Asset Purchase Agreement (APA) dated 

January 8, 1999. Section 6.3.1 :3 of the APA required Shasta Paper to 

"establish or provide a defined benefit plan for Hired Hourly Employees (the 'New 

Hourly Defined Benefit Plan'), which plan shall provide Hired Hourly Employees with 

benefits substantially comparable to those required under the Collective Bargaining 

Agreement. The New Hourly Defined Benefit Plan shall recognize Simpson Service 

for Hired Hourly Employees for purposes of eligibility to participate, eligibility for 

benefits (including early retirement) and vesting, but not benefit accrual, in the new 

Hourly Defined Benefit Plan." 

The APA defined "Collective Bargaining Agreement" (Simpson CBA) as the "Labor 

Agreement between Simpson Paper Company, Shasta Mill, California, and the Union from 

May I, 1996 to April 30,2000. . ." The pages from the Simpson CBA that you provided 

with your appeal show benefit rates of $35 (effective May I, 1998) and $37 (effective 

May 1, 1999). 

Although the Appeals Board could not locate a signed version of the APA, the Board 

concluded that it probably was executed on or before January 8, 1999, because it is 

unlikely that an asset purchase transaction of this type would have occurred before the 

execution of a formal agreement. Thus, based on the terms of the APA and the terms in 

the Simpson CBA, the Appeals Board concluded that the $35 and $37 benefit rates were 

both adopted more than two but less than three full years before the Shasta Plan 

terminated. As a result, PBGC will recalculate the guaranteed portion of all Shasta Plan 

benefits calculated using the $35 and $37 benefit rates by limiting these benefits to $40 per 

month or 40% of the benefit, whichever is larger. 

The effective date of the increase in the benefit rate from $37 to $39 is May 1,2000, 

which is more than one but less than two full years before the Shasta Plan terminated. So, 

PBGC will recalculate the guaranteed portion of the increase resulting from the change 

from the $37 benefit rate to the $39 beneffi rate by limiting the increase to $20 per month 

or 20% of the increase, whichever is larger. 

2. Your Full PBGC Benefit Based on the Allocation of Assets and Section 4022(c) of 

ERISA 

When the value of plan assets exceeds the value of benefits that PBGC guarantees 

(which appears to be the case with the Shasta Plan), PBGC will pay additional 

nonguaranteed benefits based on an allocation of plan assets to benefits. See 

Enclosure 1 for a description of ERISA's priority categories for this allocation. With 

respect to the Shasta Plan, ERISA requires PBGC to allocate the Shasta Plan's assets first 

to guaranteed benefits in Priority Category 4 (because there are no Shasta Plan benefits in 

Priority Categories 1 through 3) and then to non-guaranteed benefits in Priority Category 5. 
In addition to the allocation of plan assets, ERlSA requires PBGC to allocate an 

additional amount of money (the ERlSA § 4022(c) amount) based on PBGC's average 

recoveries from the plan sponsors of terminated plans. PBGC calculated the Shasta Plan's 

ERlSA § 4022(c) amount using the Small Plan Average Recovery Ratio (SPARR) for2001, 

the year in which the Shasta Plan terminated. The SPARR is calculated based on a 

specific formula in ERlSA § 4022(c) that PBGC is required to use. The 2001 SPARR is 

9.6%. So. PBGC calculated the Shasta Plan's ERlSA 4022(c) amount to be $561,758, 

which is 9.6% of the difference between the value of all Shasta Plan benefits ($9,576,275) 

and the value of the Shasta Plan's assets ($3,724,370). 

It is very likely that, in spite of the Appeals Board's decision that the $35 and $37 

benefit rates should be phased in at the $40/40% phase-in level instead of the $20/20% 

phase-in level, the Shasta Plan's assets will still be greater than the value of all PBGCguaranteed benefits. In that case, the total value of benefits that PBGC can pay to the 

group of all Shasta Plan participants --that is, the combined total of guaranteed benefits, 

plan asset allocation benefits, and 5j 4022(c) benefits --would remain the same. In other 

words, if the Shasta Plan's assets are still sufficient to cover PBGC-guaranteed benefits 

even when the $35 and $37 benefit rates are phased in at the $40/40% level, the total 

value of all benefits payable by PBGC to Shasta Plan participants will be equal to 

$4,286,128, which is the sum of the Shasta Plan's final assets ($3,724,370) and the 

Shasta Plan's § 4022(c) amount ($561,758). However, even though the total value of all 

benefits payable by PBGC to Shasta Plan participants is likely to remain the same, some 

participants' PBGC-payable benefits will increase while other participants' PBGC-payable 

benefits will decrease. Such increases or decreases, which will result directly from the 

rules that PBGC must follow in calculating PBGC-payable benefits, in most cases are likely 

to be relatively small. 

3. Offset of Your Simpson Pension Plan Benefit Amount 

Your July 19,2004 appeal letter suggested that PBGC should have used an offset 

amount of $645 per month, the amount you are receiving under the Simpson Plan, rather 

than the $708 offset amount shown on your PBGC Benef~ Statement. 

Enclosure 2 shows that before PBGC became the Shasta Plan's trustee, the 

Shasta Plan's former administrator used the $708 offset amount when the Shasta Plan 

started paying you your original benefit amount of $268.99 I((23.12 x $43) - $708) x 0.941. 

This calculation methodoloav conforms to the examole shown in the Shasta Plan's 

Summary Plan Description. See page4 of Enclosure 3. The Appeals Board decided that 

PBGC properlv followed the former Shasta Plan administrator's methodolo~v and that this . - -. 

methodology accords with the Shasta Plan's provisions. 
Decision 

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

Board decided that the Shasta Plan was first adopted on January 8, 1999. As a result of 

the Board's decision, PBGC's Benefits Administration & Payment Department will 

recalculate your PBGC benefit based on the Shasta Plan having been first adopted on 

January 8, 1999, and send you a corrected determination of your PBGC benefit amount. 

The corrected determination will include a new 45-day appeal right. 

We regret the delay in responding to your appeal and appreciate your patience while 

we completed our review. If you need other information from PBGC, please call PBGC's 

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

Sincerely, 

Michel Louis 

Appeals Board Member 

Enclosures (3)