Pension Benefit Guaranty Corporation 

76-74 

June 3, 1976 

REFERENCE: 

 [*1] 4021(b)(1). Plans covered. Individual Account Plans 

OPINION: 

 This is in response to your letter of April 23, 1976, addressed to * * * the Pension Benefit Guaranty Corporation,

in which you ask the Pension Benefit Guaranty Corporation ("PBGC" or "Corporation") to advise you of its position

regarding your opinion: 

". . . that under these provisions [Article V, Section 2 of the Carpenters' Industrial Pension Plan and Article 2(a) of

the Carpenters' Construction Pension Plan] of the Plans, read in the light of Sections 4021(b) and 3(34) of ERISA and

the decision in the John Connolly case referred to above, the Pension Fund is not required or permitted to pay termination

insurance premiums to the Pension Benefits [sic] Guaranty Corporation, in that the Pension Plans are excluded from the

termination insurance provisions of ERISA as 'individual account plans' and/or 'defined contribution plans.'" 

In addition, you ask whether or not the Corporation intends to appeal the decision rendered in the Connolly case.

The Corporation will appeal the Connolly decision. However, you should be aware that the Connolly decision only

applies to the actual plan that was before the court, [*2] and that the benefit provisions contained in the * * * Plans are

significantly different than the provisions in the * * * Plan. 

 While you did not provide the Corporation with a copy of the relevant portions of a collective bargaining agreement,

it would appear from the terms of the Plan that a participating employer is obligated to contribute to the Fund a specific

amount for each hour that a Plan participant works for that employer. Participants may earn Past and Future Service

Credits based (primarily) on the number of hours they work in a given year. These Credits, however, are not a factor

in determining the amount of a participant's benefit entitlement (except for the Past Service benefit in the Industrial Plan),

rather they are utilized solely to determine who is or is not vested in a pension. 

Section 3(34) of the Employee. Retirement Income Security Act of 1974 ("ERISA" or "Act") provides: 

"The term 'individual account plan' or 'defined contribution plan' means a pension plan which provides for an

individual account for each participant and for benefits based solely upon the amount contributed to the participnat's

account, and any income, expenses, gains and losses, and [*3] any forfeitures of accounts of other participants which

may be allocated to such participant's account." 

In order to determine whether the * * * Plans meet the definition set forth above, each benefit provision in the Plans

will be examined separately. 

The * * * Pension Plan contains no provisions for maintaining individual accounts for each participant as required

by the Act. Further, the pension benefit provided in the Plan is a flat dollar amount governed by the amount being

contributed by the participant's employer at the time the pension commences, provided the participant has earned one

year of Future Service Credit at that contribution rate. There appears to be no attempt to determine the amounts that have

been contributed on behalf of an individual participant; nor, as required by the Act, is the individual participant's benefit

determined by the amount of contributions made over the years on his behalf and any income or experience gains and

losses credited to his account as required by the Act. Since the Normal Pension benefit provision contained in the * *

* Pension Plan does not meet the statutory criteria of an individual account plan, the Plan cannot be excluded [*4] from

Title IV coverage. Further, as the other forms of retirement benefits, i.e., Reduced, Early and Vested Deferred, are all

based on the Normal Pension benefit, they, too do not meet the statutory definition of an individual account plan. 

 The * * * Pension Plan is somewhat more complex than the * * * Plan. Pension Credits are not only used to

determine vesting but the Normal Pension is comprised of two parts, one based on Past Service Credits and one on Future

Service Credits. A participant receives a defined benefit of $1.50 per month for each year of Past Service Credit, if the
initial Contribution Rate paid on behalf of the employee was $ .10 per hour. A different dollar amount is determined

actuarially if the initial contribution rate is less than $ .10 per hour. 

The * * * Plan does provide for maintaining individual accounts for each employee. This account is "the sum of

Employer Contributions made on behalf of an Employee, without additions for interest." Plan, Article I, § 19. A

participant's monthly benefit is 1.5% of the amount in the Account as of his retirement. Since a participant is entitled

to a benefit for life (Plan, Article VII, § 1), a monthly benefit [*5] of 1.5% of an Employee's Account would exhaust

the Employee Account within 66 months of the participant's retirement if the participant's retirement benefit was paid

solely from the Employee Account. Further, since there is no allocation of the trust's income, expenses, gains and losses

to participant accounts, a participant's lifetime benefit cannot be funded solely from the amount in his account. The

benefit in the Plan is based on and funded by the unallocated trust income and the aggregate benefit paid to the

participant during his lifetime is not limited to the amount in his account; thus, the Plan does not satisfy the statutory

individual account plan definition, and cannot be excluded from Title IV coverage as an individual account plan. 

Under the terms of the Plan, should the reserves of the Plan used to pay such benefits become depleted, participants

would still be entitled to benefits. It is these benefits that PBGC insures - and pays - when necessary. Thus, Plan

participants would benefit from insurance coverage should the Plan ever be unable to pay benefits. 

I hope the analysis set forth above is helpful in explaining PBGC's position on this matter. Should you have [*6]

any further questions please feel free to contact me. 

Henry Rose 

General Counsel