A Pension Benefit ~uarahy Corporation .. .. ". 1200 K Stmet, N.W., WasBngton, D.C. 20005-4026 COII*IU*I 

- 1 MAR 3 1 2004 

Re: Case 185923, r-1 A.P.S., 

Inc. Employees' Retirement Plan [the "Plan") 

Dear 71 

The Appeals Board has reviewed your appeal of PBGC's 

corrected benefit determination letter of February 24, 2003. 

For the reasons given below, the Board changed PBGC's 

determination and found that benefit should be 

determined using an Average Monthly Compensation ('AMC") figure 

of $14,453.98. The Board, however found no basis for changing 

PBGC's determination that Maximum Guaranteed Benefit 

('MGB") should be offset by the amount of an annuity purchased 

on his behalf by the Plan in connection with a 1992 spinof f/termination transaction ("Spin-Of f Benefit" ) . . Determination and Auueal 

In a determination letter dated September 27, 2002, PBGC 

informed your client, 1 1 that he was entitled 

to a monthly payment of $439.72, payable on September 1, 2009, 

in the form of a Straight' Life Annuity ("SIX'). By letter dated 

November 11, 2002, r-1 filed an appeai in which he 

contended (1) that PBGC should not have considered his Spin-off 

Benefit in determining his MGB and (2) that PBGC used an 

incorrect AMC figure'in computing his Plan benefit. By letter 

dated February 12, 2003, you supplemented appeal. 

In a corrected determination letter dated February 24, 2003, 

PBGC informed that he is entitled to a monthly payment 

of $498.35, payable on September 1, 2009 in the form of a SLA. 

On March 24, 2003, you appealed PBGC's corrected benefit 

determination since it did not fully resolve the issues =aised 

in your February 12, 2003 appeal. 
-2 

I Averaae Monthly ~om~ensation 

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PBGC's September 27, 2002 benefit determination used an AMC 

bw amount of $11,600.95. PBGC's February 24, 2003 corrected benefit Y1 

I determination used an AMC amount of $13,715.04. In your appeal 

h( filings, you and contend that correct AMC 

amount should be $14,453~98. 

Aft&= reviewing the Plan's provisions, the Appeals Board 

concluded that 7. correct AMC should be based on gross 

wages amounts on the W-2 statements that submitted 

even though gross wage figures during, 1990 and 1992 

included contributions to his 401(k) plan which were excluded 

from his W-2 income. The Board found that the Plan intended 

those contributions to be included in his Compensation. 

AMC 

Reduction 

Therefore, 

should 

of 

be 

the 

PBGC's 

$14,453.98. 

Board 

MGB 

accepted your 

bv the Spin-off 

contention 

Benefit 

that 71

The original Plan document was effective and adopted on 

July 1, 1974, and was amended from time to time thereafter. The 

final Plan document was amended and restated effective July 1, 

1989, and was adopted at some point in 1994 (the "Restated 

Plan" ) . PBGC' s determination of Plan benefit was 

based on these documents. The Plan terminated as of January 12, 

1999. 

As you note in your appeal, on April 1, 1990, the Plan was 

divided into two separate plans as part of a "spinoff/termination" transaction. The two parts consisted of the 

Plan, which covered active employees, and the A.P.S., Inc. 

Retirement Plan for Retirees and Terminated Vested Employees 

(the "Spin-off Plan"), which covered former employees. The 

Spin-off Plan was terminated as of May 15, '1990. 

~ecausewas an active employee at the time of the 

spin-off termination, none of his benefits were provided by the 

Spin-off Plan. The Plan, however, purchased a joint annuity 

contract from New York Life Insurance Company to provide 

with the benefits he had accrued as of May 15, 1990. 

In your appeal, you refer to the annuity purchase as the *SpinOff Benefit." The Plan, in purchasing the annuity, followed the - implementation guidelines for spin-off terminations that were . 

issued by PBGC, the Department of Labor, and the Internal 
.. 

., 

I. 

w Revenue Service in PBGC News Release No. 84-23, May 23, 1984 

(the "Implementation ~uidelines"). 

e 

w Section 4022 (a) of ERISA, 29 U.S.C. S 1322 (a), provides that 

UI 

I PBGC shall guarantee payment of all nonforfeitable benefits 

DI under a covered single-employer plan that terminates, subject to 

the limitations in section 4022(b), 29 U.S.C. S 1322(b). The 

MGB provision in ERISA Section 4022 (b) (3) states that 'the 

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 terminated in 1999 is $3,051.14. 

In its benefit determination, PBGC applied this MGB provision to 

'entire Plan benefit, which included both the portion 

of his benefit that was provided by the purchased annuity and 

the portion that was payable from the Plan's trust. 

In your appeal, you contend that under the express terms of 

the Plan, a participant has an accrued benefit only to the 

extent that the benefit calculated under either formula 'A" or 

formula 'B" of Section 5.1 (a), whichever is larger, exceeds his 

Spin-Off Benefit. In effect, you argue that full 

Plan benefit is his Section 5.l(a) benefit, that this benefit 

does not include his Spin-Off benefit, and that, as a result, it 

should be fully guaranteed because it does not exceed PBGC's 

MGB . 

The Plan's terms, however, do not support 

that .the Spin-off Benefit is not part of yrrs""gsE t: 

benefit. Section 2.1 of the Restated Plan states that the SpinOff Benefit satisfied the *Plan benefits of each Member which 

were accrued as of May 15, 1990 . . . . " Thus, Section 2.1 

explicitly identifies the Spin-Off Benefit as a Plan benefit and 

as part of a participant's accrued benefit. 

Furthermore, Section 2.1 explains that because the Spin-Off 

Benefit has been purchased and because the Spin-Off Benefit 

covered Plan benefits accrued through May 15, 1990, the purpose 

of the Restated Plan is "to provide retirement and incidental 

benefits for periods of employment with the Employer from and 

after May 16, 1990 . . ." and that such benefits will be paid 

from the Plan's Trust Fund. Accordingly, the benefit set forth 

in Section 5.1 (a) of the Restated Plan only covers that part of 

the Plan benefit which the Member accrued after May 15, 1990; it 
does not cover the Member's full Plan benefit as accrued over 

the entire course of his employment with the Employer. 

Your appeal also states that "Section 4022 of ERISA and the 

regulations promulgated thereunder, which govern the PBGC's 

guarantee of benefits, do not contain any provision relating to 

the offset of benefits annuitized as part of a 'spinoff/termination' transaction." In addition, you contend that 

"There is no statutory or regulatory authority that permits the 

PBGC to use benefits for which its guarantee has been 

extinguished (the Spin-off benefits) to offset its guarantee of 

benefits for which its guarantee has not been extinguished (the 

accrued benefits under the plan) ." 

1n 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 stdted in the Opinion Letter as 

follows: 

The fact that the Plan assets used to purchase the 

annuity contract for [a participant] are not available 

to. pay other outstanding Plan liabilities upon Plan 

termination does not affect the application of 29 

U.S.C. 5 1322(b) (3) to benefits under the Plan. The 

irrevocable commitment exclusion [in PBGC's regdation 

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) (31, to maintain premiums at 

the lowest level consistent with its obligations.' 

I For the pension plan addressed in Opinion Letter 86- 

28 (which terminated in 19851, the Maximum Guaranteed Benefit 

was $1,687.50 per month. 
Furthermore, PBGC's position in Opinion Letter 86-28 was upheld 

by the court's decision in Lami v. PBGC,. No. 8.6-1709 (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. 

Finally, you state that the Implementation Guidelines 

require plan sponsors to treat spin-off/termination transactions 

consistently with complete plan terminations. In particular, 

you contend that if instead of a spin-off/termination 

transaction, the Plan sponsor had completely terminated the Plan 

on May 15, 1990, and had subsequently established another plan 

for which PBGC had assumed trusteeship, the PBGC could not use 

the annuitized benefits under the Plan to offset its guarantee 

with respect to benefits under the subsequent plan. Thus, you 

conclude that a spin-off termination transaction in accordance 

with the Implementation Guidelines should not produce a 

different result. 

While the Implementation Guidelines establish certain rules, 

they do not provide that. spin-off terminations must be treated 

.identically by PBGC as transactions in which a new plan is 

created. In any event, the hypothetical you constructed would 

not necessarily result in a different outcome from a spin-off 

termination. For example, section 3 of the Implementation 

Guidelines addresses the situation where a plan sponsor would 

create a new plan that PBGC would deem to be a successor to a 

terminated plan. In such a case, PBGC applies a single MGB 

limit to the combined benefits under the two plans. See .ERISA 

5 4021(a), 29 U.S.C. § 1321(a) (for purposes of Title IV of 

ERISA, 'a successor plan is considered to be a continuation of 

a predecessor plan" ) . 

In sum, the Board found no basis presented in your appeal 

for treating annuities that a pension plan purchased as part of 

a spin-off/termination transaction differently than benefits 

that are paid directly from the Plan's trust. 

Decision 

The Board found that 1 benefit should be 

determined using an Average Monthly Compensation figure of 

$14,453.98. he Board, however, found no basis for changing 

PBGC' s determination that . calculation of Maximum 

Guaranteed Benefit should include an offset for the amount of 
his Spin-Of f Benefit. PBGC will issue a new. determination 

incorporating the.Boardrs decision. 

This is the agency's final action regarding the issues 

raised in 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 Louis 

Acting Chair, Appeals Board 

Enclosures