Protecting America's Pensions 

Pension Benefit Guaranty Corporation 

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

December 18, 2012 

I Esq. 

Re: 0 Mr. • I Appeal

• Pension Plan of Bethlehem Steel Corporation and 

Subsidiary Companies (the "Bethlehem Plan" or the 

"Plan") , PBGC Plan No. 196603 

0 Successor to the Lukens Inc. Salaried Employees 

Retirement Plan As Amended and Restated Effective 

December 31, 1992• (the "Lukens Plan") 

Dear Mr. 

We are responding to your appeal of PBGC's November 2, 2010 

de.termination of Mr. s benefit under the Bethlehem Plan. As 

explained below, we must deny Mr. 's appeal. We must also 

change his PBGC-payable benefit to $0 because he received an amount 

greater than his Maximum Guaranteeable Benefit under the Employee 

Retirement Income Security Act of 1974, as amended ("ERISA"), when 

the Plan paid a $400,000 lump-sum distribution to him in 1998. 

Background 

Mr. was born.~=o~n~l~~~~~~~ He was hired by Lukens 

Steel Co. ("Lukens") on '-I~-~~---__jl. Lukens was merged with and 

into Bethlehem Steel Corporation ("Bethlehem") effective May 29, 

1998. 

Mr. was laid off on 1998. He and others were 

parties to Severance Agreements with Lukens Steel. These Severance 

Agreements triggered payment obligations ("severance payments") . 1 

· The · severance payments would have created potential tax 

liabilities. Those tax liabilities could be mitigated if portions 

of the severance payments were to be moved through a pension plan 

1 Mr. Severance Agreement was dated October 31, 1990, according 

to a June 5, 1998 letter from Bethlehem that you included with your appeal. The 

June 5, 1998 letter is at Enclosure 1 to this decision. 
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qualified under the Internal Revenue Code. On June 5, 1998, shortly 

before Mr. was laid off, Bethlehem explained the following: 

We also propose to pay a portion of the severance 

payments to you through the qualified Lukens pension plan 

·· rather than as a direct payment from Bethlehem. This 

will not reduce the amount you will receive but it will 

provide you a potential benefit in the event you would 

prefer to rollover that, payment · and· thereby defer 

taxation. 2 

Consistent with Bethlehem's June 5, 1998 explanation, the 

Lukens Plan was amended effective June 1, 1998 (the "1998 

Amendment") to increase the ben~fi ts of Mr. '-1---;==~~~and 8 other 

3 The 1998 Amendment provided Mr. with a new 

Cash Balance Benefit in addition to the benefit the Plan already 

provided (his "prior Plan benefit"). 

The 1998 Amendment states "[A] Designated Participant's 

Accrued Benefit shall also include the Participant's Cash Balance 

Benefit." 4 The 1998 Amendment also defined a "Special Distribution 

Date," which was July 1, 1998 for Mr. . Effective July 1, _ 

1998, he received the following options for receiving his new Cash 

Balance Benefit: 

• a $2,425.64 per month Straight Life Annuity ( "SLA"), what we 

call his "Cash Balance Annuity," 5 

• an actuarially-equivalent $2,298.05 per month Joint and 50% 

Survivor (~J&50%S") annuity, 

• other alternative actuarially-equivalent annuities, or 

• a sing~e $400,000 lump sum. 

2 The quote is from Enclosure 1 to this letter. A payment from a taxqualified pension plan is also excluded from what is defined as a "parachute 

payment" in IRC § 280G(b). Certain parachute payments are subject to an excise 

tax under IRC § 4999. 

3 rhe 1998 Amendment is part of Enclosure 3 to this letter. The amendment 

was to the Lukens Plan .As Amended and Restated Effective December 31, 1992, at 

Enclosure 2 to this letter. 

4 See section B2 of the 1998 Amendment, on page 6 of Enclosure· 3 to this 

letter. 

5 The $2,425.64 amount is shown in Exhibit 7 to your appeal. 

PBGC miscalculated the Cash Balance Annuity as a $2,184.32 per month SLA 

(what we call his "Assumed Cash Balance Annuity" ) . This miscalculation does not 

materially affect the Appeals Board's decision because both amounts ($2,425.64 

and $2,184 . 32) exceed his Maximum Guaranteed Benefit, as we explain in this 

decision. We also reconcile the two calculations later in this decision. 
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Bethlehem separately agreed to reimburse the Plan $2.455 million, 

including $400,000 attributed to Mr. 6 

Mr. chose to receive his Cash Balance Benefit under-the 

lump-sum option ($400,000) after his wife waived her right to the 

J&50%S annuity. He received the $400,000 lump-sum distribution on 

or about July 30, 1998. The prior Plan benefit that still rem<;1ined 

unpaid would provide $2,639.02 per month if paid as an SLA starting 

at age 65. 

The Lukens Plan merged into the Bethlehem Plan on October 1, 

1998. Bethlehem filed for bankru,ptcy protection on October 15, 

2001. The Plan terminated on December 18, 2002 without sufficient 

assets to provide all benefits. PBGC became the Plan's statutory 

trustee ·on April 30, 2003. 

PBGC's November 2, 2010 Determination 

PBGC determined Mr. is entitled to a PBGC-payable 

monthly benefit of $1,207.12, if paid in the form of a Straight 

Life Annuity with no survivor benefits starting on August 1, 2012. 

PBGC's guaranteed-benefit calculations may be summarized as 

follows: 

(1) PBGC assumed Mr. would claim his prior Plan benefit 

starting at age 65. 

(2) PBGC combined both components of his benefit ($2,184.32 

Assumed Cash Balance Annuity starting July 1, 1998 and 

$2,639.02 prior Plan benefit starting I I) into a

total Plan-provided SLA that would pay $4, 823.34 a·t age 65. 

(3) · PBGC limited the $4,823.34 combined Plan benefit to 

$3, 579. 55, the Maximum Guaranteeable Benefit ( "MGB") under 

~RISA for PBGC-payable benefits starting at age 65. 7 

(4) As a result of ERISA' s "phase-in" requirement, PBGC 

guarantees 80% of the increase from the prior Plan benefit to 

the MGB-limited total Plan benefit; thus, PBGC calculated a 

total guaranteed amount of $3,391.44. 8 

6 See "Financial Impact under Summary of Lukens Inc. Salaried Employee 

Retirement Plan Amendments" at the fourth page of Enclosure 3 to this letter. 

7 The MGB is required by ERISA§ 4022(b) (3) and 29 CFR §§ 4022.22~23. For 

a plan terminating in 2002, the MGB provides $3,579.55 per month if PBGC payments 

begin at age 65 under an SLA. See 29 CFR § 4022.23(c) and§ 4022 Appendix D. 

8 $2,639.02 {4-year-oid benefit} 

+ ($3,579.55 {total age-65 annuities limited by MGB} - $2,639.02) x 80% 

PBGC applied 80% phase-in because the 1998 Amendment was both adopted and 

effective between 4-5 years before Plan termination. Phase-in is required by 

ERISA § 4022(b) (7) and 29 CFR §§ 4022 . 24-25. 29 CFR § 4022.24(c) requires 

applying the MGB limit in 29 CFR § 4022.22 before calculating phase-in. 

(
..... 

. · 

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(5) PBGC subtracted the Assumed Cash Balance Annuity 

($2,184.32) that Mr. effectively received as a partial 

distribution when he chose payment under the lump-sum option. 

PBGC concluded the share of the guaranteed benefit that remains to 

be -paid by PBGC was $1,207.12 9 per month if paid as an SLA 

starting August 1, 2012. 

Your March 4, 2011 Appeal 

In your March 4, 2011 appeal, you objected to the 

characterization of Mr. 's $400,000 payment as a "partial 

distribution" bf his pension. You characterize the $400,000 as an 

amount to be paid .in addition to the pension (his prior Plan 

Benefit) that he was entitled to receive before the 1998 Amendment. 

Thus, you believe PBGC mis-characterized the $400,000 Cash· Balance 

payment as a "partial ,.distribution" of his pension. 

You claimed ERISA'-s guaran_tee limit applies only to his 

"traditional pension," the prior Plan benefit that has not yet been 

paid. Also, the prior Plan benefit would provide $2, 6 3 9 . 0 2 per 

month, an amount that: 

(i) is below the age-65 MGB ($3,579.55), and 

(ii) by itself is not affected by phase-in, because it was 

already provided by the Lukens Plan before the 1998 Amendment. 

Thus, you believe PBGC should guarantee the full Plan benefit that 

has not already been paid. 

You· also asserted PBGC' s phase-in calculation is somehow 

"double penalizing" Mr. for the distribution of his Cash 

Balance Benefit in a $400,000 lump sum. 

In further support of your appeal, you cited Lami v. PBGC. 10 

You stated the Lami. Court noted the benefits purchased under 

plaintiffs' annuity contracts were part of their "regular 

retirement incomes." In contrast, you claimed Mr. 's $400, 000 

lump-sum distribution was separate and apart from his "traditional 

Lukens Plan benefit." Thus, you believe none of Mr. 's 

pension has been provided. 

You also noted the Lami. Court discussed PBGC's regulation for 

reducing monthly benefits that were already being paid. In 

contrast, you noted Mr. ,------,has not received any payments from 

the Plan since receiving his lump sum in 1998, 4 years before the 

$1,207.12 = $3,391.44 (total guaranteed amount) - $2,184.32 (Assumed 

Cash Balance Annuity). 

10 Lami v. Pension Benefit Guar. Corp., 1989 u.s. Dist. LEXIS 19153, (W.D. 

Pa. July 18, 1989). 
}..,. _. 1­ .. ""' 

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Plan terminated and 14 years ago. Thus, you question whether PBGC 

might be mistakenly applying to Mr. regulations that instead 

apply to monthly benefits that are actually ~lready in pay. 

You asserted it is "anomalous" for Mr. 's MGB to be 

affected by a 4-year old lump-sum payment in light of ERISA section 

4045, which allows PBGC to "recapture" certain amounts paid to a 

participant within only a 3-year period before a pension plan's 

termination. 

You stated Mr. and his wife relied on an October 28, 

2004 letter where PBGC estimated PBGC would pay him a $2,639.02 

pension starting at age 65. 

You asked to reserve the right to· request a hearing or an 

opportunity to present witnesses in your appeal. You advised you 

are open to informal discussions with PBGC to discuss these issues 

further. 

You stated there is information potentially relevant to your 

Appeal which you did not possess and therefore could not include in 

your Appeal. You requested the right to supplement the record in 

Mr. I ~s case with such additional information to the extent it 

became available. 

Discussion 

When the Plan terminated on December 18, 2002, it did not have 

sufficient assets to provide all benefits. Thus, PBGC became the 

Plah's statutory trustee. The terms of the Plan, ERISA, and PBGC's 

regulations determine the benefits PBGC can pay. 

For a benefit to be guaranteeable, a participants must satisfy 

a plan's conditions for entitlement to the benefit no later than 

the plan's termination date. 11 

The benefit PBGC guarantees may be less than the benefit a 

pension plan would otherwise pay as a result of legal limits under 

ERISA and PBGC's regulations. A participant may receive more than 

his guarantee, however, if sufficient plan assets and legal 

recoveries are available. 

As shown in the Appendix to this decision, Mr. 's 

guaranteed benefit is larger than the benefit funded by the Plan's 

assets. Theref,ore, the analysis in this Discussion relates to his 

guaranteed benefit, which we will show was already provided before 

the Plan terminated. 

11 See ERISA§§ 400l(a) (8), 4022. See also 29 CFR §§ 4022.3 and 4022.4. 

The Bethlehem Plan's sponsor filed for bankruptcy before September 16, 2006. 

Therefore, the Bethlehem Plan is exempt from new ERISA § 4022(g) and 4044(e) 

requirements for substituting Bethlehem's bankruptcy petition date for the 

Bethlehem Plan's termination date. 
).. '

-.)·. 

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$400,000 Payment ·was a Partial · Distribution Of a Pension Benefit 

Mr. 's Plan benefit consists of 2 components: (i) The 

Cash Balance Benefit that he was paid under the lump-sum option in 

1998, and (ii) The remainder (his prior Plan benefit), an annuity 

that has not been paid. 12 You questioned whether payment of the 

$400, 000 Cash Balance Benefit was a partial distribution of a 

pension benefit. 

The Cash Balance Benefit is based on an Account Balance that 

increases over time at defined interest rates, independent of 

actual investment performance. The Account balance is a 

hypothetical amount: 

The Account Balance shall constitute a recordkeeping 

entry, and not an individual account, and no Plan 

contribution shall be allocated to, or for the benefit 

of, any Designated Participant's Account Balance. 13 

The hypothetical Account Balance is converted to an annuity, .. what 

we call the Cash Balance Annuity, using defined interest and 

mortality assumptions. 14 The Cash Balance Annuity is defined to be 

a component of the _annuity the Plan provides at a participant's 

Normal Retirement Date. 15 We concluded: 

• Plan documents define the Cash Balance Benefit in the form 

of 	 an annuity, what we call the Cash Balance Annuity 

($2, 42 5. 64 _per month if paid as an SLA starting July 1, 1998) . 

• The Plan offered options for receiving the Cash Balance 

Benefit in alternative forms. With his wife's permission, Mr. 

'------~chose the option of ,receiving an actuarially-equivalent 

lump sum ($400,000) .instead of as a Cash Balance Annuity 

($2,425.64 per month). 

12 Mr. 's benefit is determined under Part 2 of the Lukens Plan (at 

Enclosure 2 to this letter), as amended by the 1998 Amendment (at Enclosure 3). 

13 See section 15.1(a) (6) of the 1998 Amendment, on page 15 of Enclosure 

3 to this letter. 

14 "'Cash aalance Benefit' means an annuity" -see section 15.1(d), added 

by section D2 of the 1998 Amendment, on page 16 of Enclosure 3. The rules for 

updating Account Balances and converting to an annuity are in sections 15.1-2 on 

pages 14-17 of Enclosure 3. 

15 "[A] Designated Participant's Accrued Benefit shall also include the 

Participant's Cash Balance Benefit." See section B2 of the 1998 Amendment, on 

page 6 of Enclosure 3 to this letter. "'Accrued Benefit' means ... the amount 

of benefit ... payable as a single life annuity beginning at the Participant's 

Normal Retirement Date." See section 1.1 of the 1992 Plan, on page 35 of 

Enclosure 2 to this letter. 

~~""1 L J ....J , - 

, .. - ,' ---- -	 T ' -:-M;;;,6-..::.· ­
j _ 

yl 

-7­

• We must affirm PBGC's determination that the $400,000 lumpsum payment was a partial distribution of Mr. s 

pension. 

Guarantee Limits Apply To the Total Pension Benefit 

The Cash Balance Benefit's features distinguish it from the 

type of benefit under an "individual account plan," the type of 

plan exempt from PBGC coverage under ERISA sections 4021 (b) (12) and 

3(34). In a similar situation, PBGC Opinion Letter 89-6 explains: 

The term "individual account plan" refers to a plan in 

which the level of benefits for each employee may 

fluctuate up or down depending on the experience of the 

account. In your Plan, the level of benefits is 

apparently fixed by a formula and is not dependent on the 

actual experience of each separate account; the interest 

rate is not tied .to the actual investment performance of 

the Plan's assets, but is based on specific provisions in 

the Plan document. Therefore, on the basis of the 

information you have supplied, it appears that the Plan 

is covered by the plan termination insurance provisions 

of Title IV of ERISA. 

PBGC's coverage of cash balance plans is broadly 

a~knowledged. 16 Thus, Mr. s Cash Balance Benefit is a type 

of benefit covered under PBGC's guarantee program, and consequently 

subject to the guarantee limits under ERISA section 4022. 

PBGC' s guarantee limits apply to the .total. benefits that a 

pension plan provides a participant, without distinguishing 

components that might be created by separate plan provisions. Under 

ERISA 4022 (b) (3), the MGB applies simply to "[t] he amount of 

monthly benefits described in subsection (a) provided by a plan." 

Likewise, under ERISA sections 4022(b) (7) and 4022(b) (1) (B), the 

phase-in limit applies to "any increase in the amount of benefits 

under a plan." 17 

Historically, PBGC has applied the MGB to the total planprovided retirement annuity, includin~ portions a plan may have 

already funded before termination. 1 PBGC' s interpretation of 

section 4022 is a plain interpretation of the law. Mr. 's 

Cash Balance Benefit is simply part of a Plan-provided pension, the 

16 For example, see the second paragraph under Background under PBGC's 

Proposed Rule published in Federal Register/ Vol. 76, No. 210/ Monday October 31, 

2011 . 

17 Footnote 8 in this decision shows how phase-in was calculated in PBGC's 

November 2, 2010 determination. 

18 For example, see PBGC Op. Ltr. 86-28. 
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same as if, instead of choosing an actuarially-equivalent lump sum 

( $4001 000) ; 

• In 1998 he and his wife had chosen the $2,425.64 annuity on 

which the lump sum was based, or 

e If he had decided to wait and retire at age 65 with an 

annuity based on a larger Account Balance. 

For the reasons articulated above, the Appeals Board affirms PBGC's 

determination that legal guarantee limits apply to Mr. 's 

total Plan benefit, including the Cash Balance Benefit component. 

PBGC-Payable Portion of Guaranteeable Benefit Is $0 

For a benefit that has already commenced, PBGC's regulation 

requires a calculation of the MGB using the participant's ~ge when 

a plan terminates (age on December for Mr. 

~--~ 

) • 19 His Cash Balance Annuity had already effectively started 

4 years earlier, on July 1, 1998, when he received his Cash Balance 

Benefit under the lump-sum alternative ($400,000). Thus, for the 

portion of his Accrued Benefit that was already effectively in pay 

at Plan termination, which is his Cash Balance Annuity, the correct 

MGB is $1,682.39. 20 

You showed Plan actuaries calculated Mr. 's Cash Balance 

Annuity would provide $2,425.64 per month if paid as an SLA 

starting July 1, 1998. Plan actuaries used a 5.99% interest rate, 

the correct rate for converting a $400,000 Initial Account Balance 

for Mr. to his Cash Balance Annuity. 21 PBGC incorrectly 

calculated a $2,184.32 amount for his Cash Balance Annuity by using 

a · 5.00% interest rate. 22 Both amounts ($2,425.64 and $2,184.32) are 

19 See 29 CFR § 4022.23(c), which requires the MGB to be adjusted for the 

participant's age as of the later of a plan's termination or the start of PBGC's 

benefit payments. 

20 $3,579.55 for plans terminating in 2002 

_x 47% adjustment for age at Plan termination, on December 18, 2002 

47% = {100% - 7% x 5 years - 4% x 4 6/12 years}, for a total of~----~ 

full months before age 65. See 29 CFR § 4022.23(c) and§ 4022 Appendix D. 

21 .Mr. 's $400, 000 Initial Account Balance is identified by his 

Social Security number in Schedule C to the 1998 Amendment. After the $400,000 

Initial Account Balance is used to define an annuity ($2,425.64), payment in an 

Actuarially Equiv.alent lump sum (also $400, 000) was permitted with spousal 

consent by·section ~.4C, added by section B13 on page 9 of Enclosure 3. 

22 The 5.00% rate PBGC used applies only for converting between certain 

actuarially-equivalent annuity forms- see section 15(b) of the 1998 Amendment, 

on page 15 of Enclosure 3. The 5 . 99% rate is correct for converting between an 

Account Balance ($400,000) and the normal form of benefit (an SLA or a J&50%S 

annuity), under section 15(d) of the 1998 Amendment- see page'16 of Enclosure 

3. The normal form of benefit is given in section 7.2 on page 71 of Enclosure 2 
-9­

more than the MGB that applies to his Cash Balance Annuity, which 

is $1,682.39. 

Thus, the lump sum effectively provided $2,425.64 per month, 

which is more than 100% of Mr. s Maximum Guaranteeable 

Benefit ($1,682.39). Therefore, the portion of the guaranteeable 

benefit that remains for PBGC to pay, even before applying the 

phase-in limit, is $0. 

PBGC's Actuarial Technical Manual explains, with regard to a 

pension plan where only part of a participant's pension was in pay 

at plan termination: 

For participants not in pay status under at least one 

component as of [plan termination], the Maximum 

Guaranteed Benefit (MGB) limitation is first applied to 

the component plan benefit with the earliest· annuity 

starting date (or all benefits in pay at [plan 

termination]) . The remaining portion (if any) of the MGB 

is applied to the next component plan benefit that the 

participant elects to begin collecting, and so on. The 

percentage of the MGB used in previous components is 

tracked through [an automated benefit-calculation 

system]. Essentially, a rolling MGB is applied. 23 

Thus, our guaranteed-benefit calculation agrees with existing PBGC 

rules for a pension with component annuities· that have different 

starting dates. 

PBGC's Interpretation Upheld in Lami v. PBGC 

In Lami, an administrator was required to reduce plaintiffs' 

benefits to an estimated PBGC-payable amount after a plan 

terminated. The Lami. Court upheld PBGC'·s procedures for calculating 

the PBGC-payable amount. You sought to distinguish the facts here 

from those in Lami. You theorized that the Cash Balance Benefit 

was never a part of Mr. 's regul~r retirement income. Under 

your theory, the Lami. Court' D reliance on the PBGC' s Maximum 

Guaranteeable Benefit Regulation, that the MGB applies to "all 

'benefits payable with respect to a participant under~ plan'" 24 

would become irrelevant. 

(Part 2 of the Lukens Plan). Under sections 15(e)-(f) of the 1998 Amendment, the 

Cash Balance Interest Rate is the 30 Year Treasury securities for the month of 

December 1997 (5.99%), the last month of the Plan year before the $400,000 was 

distributed. 

23 The quote is from PBGC's Actuarial Technical Manual Chapter 9 October 

2009 Meeting Minutes section K "Multiple Retirement Dates . " 

24 The text the Lami. Court quoted, at 29 CFR § 2621.3 (a), has been moved 

to 29 CFR § 4022 . 22. The Court applied 29 CFR § 2621.3(a) to benefits that were 

part of ~ami's "regular retirement income." 
' 
 .. 

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To the contrary, we have shown Mr. ' s Cash Balance 

Benefit is defined as an annuity (what we call his Cash Balance 

Annuity) that is payable at his Normal Retirement Date. 25 Thus, we 

have rejected your theory that the Cash Balance Benefit was not a 

part of Mr. 's pension benefit. Moreover, even if the Cash 

Balance Benefit were not already defined as an annuity, PBGC would 

still guarantee his Cash Balance Benefit because it could have been 

paid as an. annuity. 26 Consequently, PBGC's Maximum Guaranteeable 

Benefit Regulation applies to the entire benefit Mr. earned, 

as was also the case in Lami. 

Referring to ERISA section 4022 (a) , the Lami. Court explained, 

"The maximum statutory guarantee applies to 'all nonforfeitable 

benefits ... under a single employer plan which terminates.'" 27 The 

Court .concluded the MGB applied to the total plan benefit, 

including the benefit that the Plan had already provided through an 

insurance contract. 

You noted that at plan termination, the plaintiffs in Lami 

were still receiving a benefit from an insurance company. In 

contrast, none of Mr. 's Cash Balance Annuity was being paid 

or remained to be paid when the Plan terminated. We find this 

difference between the two circumstances (Lami and I ~ is

immaterial. In both circumstances, at plan termination a pension 

plan had already provided through lump-sum payment the value of a 

plan-provided annuity. 

Thus, we found no material difference between the facts in 

Lami and in Mr. s appeal. 

Other Issues 

You claimed certain regulations discussed in Lami, now at 29 

CFR section 4022 Subparts D and E, cannot be used to justify PBGC's 

25 See footnote 15. Lump-sum payment is only an alternative to receiving 

a benefit ~hat"is defined as an annuity, as shown in footnote 21. 

26 At 29 CFR § 4022.7(a), PBGC's regulation states: 

"Alternative benefit . If a.benefit that is guaranteed under this 

part is payable in a single installment or substantially so under 

the terms of the plan, or an option elected under the plan by the 

participant, the benefit will not be guaranteed or paid as such, but 

the PBGC will guarantee the alternative benefit, if any, in the plan 

which provides for the payment of equal periodic installments for 

the life of the recipient." 

27 See Lami v. Pension Benefit Guar. Corp., 1989 U. S. Dist. LEXIS 19153, 

(W.D. Pa. July 18, 1989). The Court cited ERISA§ 4022(b) (3) (B) (the MGB) and 

quoted ERISA§ 4022(a). 
-11­

adjustments for Mr. $4 00, 000 payment. 28 We agree. Because 

_Mr. is not receiving a PBGC benefit (unlike the Lami 

plaintiffs), neither PBGC nor the Appeals Board is relying on 29 

CFR section 4022 Subparts D or E. 

You questioned whether PBGC doubly reduced Mr. 's PBGC 

benefit because he chose to be paid his Cash Balance Annuity under 

the lump-sum alternative ($400_,000). Our summary· of PBGC's 

calculation of the P~GC-payable benefit shows no double reduction 

occurred. Our correction to Mr. II•s PBGC_-payable benefit 

(finding _his MGB has already been furry-provided) likewise has no 

double reduction. 

You also questioned whether PBGC might be reducing Mr. ,-----------, 's PBGC-payable benefit for the $400,000 payment because of 

~t_h_e---M~GB adjustments in 29 CFR 4022.23(c)-(e). 29 .This is not why 

PBGC is reducing Mr. 's PBGC-payable benefit. PBGC reduced 

Mr. I rs PBGC-payable amount because his $400 I 000 lump-sum 

distr1but1on was made in lieu of paying a $2,425.64 per month Planprovided annuity. However, the Appeals Board is correcting PBGC's 

oversight in omitting the MGB age reduction in 29 CFR 4022.23 (c). 30 

You observed that under ERISA section 4045, PBGC may 

"clawback" certain payments the Plan made during the 3 years before 

Plan termination. We have shown Mr. received the lump-sum 

equivalent of an annuity that provides $2,425.64 per month ·for 

life, more than his $1,682.39 per month MGB on December 18, 2002. 

While section 4045 does not allow PBGC to recapture any of his 

$400,000 payment, neither does it require PBGC to pay any part of 

a pension benefit that has already been provided. Thus, section 

4045 is irrelevant to PBGC' s calculation of what guaranteeable 

benefit, if any, remains for PBGC to pay. 

You enclosed an October 28, 2004 PBGC letter that estimated 

PBGC would pay a $2, 63 9. 02 SLA starting at age 65 (August 1, I I . 

PBGC' s October 2004 letter explai~ed: ."Please note that this is 

only an estimate of your benefit under the Plan and may change if 

[a] review provides different information." 31 

28 The name "Benefit Reduction Regulation" as used in the Lami decision and 

in your appeal refers to rules that have moved to and are divided between: 29 CFR 

4022 Subpart D "Benefit Reductions in Terminating Plans," starting at 29 CFR § 

40i2.61; and Subpart E, "PBGC Recoupment and Reimbursement of Benefit 

Overpayments and Underpayments," starting at 29 CFR § 4022.81. The Lami Court 

cited a prior version of this regulation at 29 CFR 2623. 

29 You cite 29 CFR 4022.22. The current citation for the section you 

reference is. 29 CFR 4022.23. 

30 In footnote 20, we corrected the $3,579.55 MGB PBGC used to $1,682.39. 

31 PBGC' s October 28, 2004 _letter is at Exhibit 4 to your- appeal. 
-12­

PBGC did not promise Mr. a PBGC payment. To the 

contrary, PBGC indicated uncertainty about what his PBGC benefit 

might finally be determined to be. 

When producing the October 28, 2004 estimate, PBGC overlooked 

that the Plan had already paid Mr. his Cash Balance Benefit 

in a $400,000 lump sum in 1998. The Appeals Board cannot require 

PBGC to pay again a benefit that has already been paid. For these 

reasons, we must deny your request for PBGC to pay a benefit based 

on PBGC's October 2004 benefit estimate. 

We decided your appeal based on: (i) long-established law and 

PBGC procedures, and (ii) documented facts, including benefit 

calculations you submitted and Plan documents. Therefore, we deny 

your request for a hearing or an opportunity to present witnesses. 

In its March 11, 2011 letter acknowledging receipt of your 

appeal, the Appeals Board granted your request to supplement your 

appeal. We adyised you could supplement your appeal at any time. 

Our records do not show that you provided any such additional 

information. 

Decision 

Having applied the law, regulations, and Plan provisions to 

the facts in his case, we must deny Mr. 's appeal. We are 

changing his PBGC benefit to $0 because he already received more 

than his Maximum Guaranteeable Benefit when he was paid the 

actuarial value of his Cash Balance Annuity in 1998. 

This letter concludes his administrative remedies with respect 

to PBGC's November 2, 2010 determination. He may, if he wishes, 

seek U.S. District Court review of PBGC' s determination with 

respect to the issues you have raised. We thank you and Mr. 

for your patience while we carefully reviewed his appeal. '--------~ 

Sincerely, 

William D. Ellis 

Appeals Board Member 

Appendix: Any PBGC-Payable Benefit Is Under PBGC's Guarantee 

Enclosures: 

,---'---~------, 

Bethlehem's June 5, 1998 Notice of Termination to Mr. 

'--------~ 

(also at Exhibit 5 to your appeal, 3 pages)

(2) Excerpt from Lukens Plan As Amended and Restated Effective 

December 31, 1992. (44 pages) 
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(3) 1998 ' Amendment to the· Lukens Plan and documents 

authorizing the amendment. (23 pages, Schedule C is redacted.) 

(4) Table of the Lukens Plan's a.ctuarial reductions for 

starting a Deferred Vested Benefit before age 65 

cc: 
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Appendix: Any PBGC-Payable Benefit Is Under PBGC's Guarantee 

The Bethlehem Plan was only 44%~funded and was underfunded by 

more than $4.5 billion. The Bethlehem Plan's assets totaled'$3.5 

billion at plan termination on December 18, 2002. Afterward, only 

$9.3 million more became available for providing benefits from 

PBGC's legal claims. Consequently, Plan assets and legal recoveries 

were exhausted in a category of benefits called Priority Category 

3 (''PC3"). 32 

A PC3 benefit must be earned and payable 3 years before a 

plan's termination, and it must be determined under 5-year old plan 

provisions. Mr. 's PC3 benefit is based on: 

(1) accruals through December 18, 1999, 3 years before Plan 

termination, and 

(2) the Lukens Plan as in effect on December 18, 1997, 5 years 

before the Plan terminated. 33 

Thus, the amount of his PC3 benefit does not include the amount of 

his Cash Balance Benefit under the 1998 Amendment. 34

Mr.. 's gross PC3 benefit (before considering funding and 

his $400, 000 payment) would have provided only $749.40 35 per month 

as of December 18, 1999. Because the Plan already effectively 

provided him a larger amount when the value of his $2,425.64 Cash 

Balance Annuity was distributed to him in 1998, he has no unpaid 

PC3 amount to which any Plan assets may be allocated. 36 

32 Plan assets and legal recoveries fund benefits under ERISA § § 4044, 

4022(c). Funds are allocated to six different tiers of benefits. Plan assets ancl 

legal recoveries together were sufficient to only fund 60.0425% of the total PC3 

benefits. PC3 is defined in ERISA§ 4044(a) (3). 

33 The Lukens Plan document in effect in 1997 is Enclosure 2 to this 

letter. 

34 The 1998 Amendment was effective June 1, 1998 and signed July 30, 1998. 

See Enclosure 3. 

35 $2,175.74 {on December 31, 1997} + $210.04 {1998} + $179.43 {1999} 

x 0.29214 {age on December 18, 1999 (See Enclosure 4)} = $749.40. 

This accrual data underlines the $2,639.02 accrued benefit you asked the 

Appeals Board to use. See page 6 of Exhibit 6 to your appeal. The actuarial 

reduction is required by Lukens Plan section 6.2(c). See Enclosure 2 page 68. 

36 It is likely Mr. would have no benefit funded by Plan assets even 

if the amount of his cashed-out Cash Balance Annuity were less than the amount 

of his gross PC3 benefit. It is likely his Earliest PBGC Retirement Date ( "EPRD" l 

would be age 55 under 29 CFR 4022.10. Because he was only age years 

before Plan termination, an age-55 EPRD would make an asset allocation in PC3 

impossible for his benefit. PBGC' s EPRD policy explains, "recent changes in plan 

design will r!=quire increasingly difficult case-by-cas·e analysis to distinguish 

retirement annuities from other plan payments." 
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Because Mr. has no unpaid benefit left to be funded by 

the available Plan assets and legal recoveries (exhausted in PC3), 

any PBGC-payable benefit is under PBGC's guarantee.