Pension Benefit Guaranty Corporation 

93-3 

October 14, 1993 

REFERENCE: 

 [*1] 4225 Limitation on Withdrawal Liability.

4225(a) Limitation on Withdrawal Liability. Sale of Assets. Limitation on Withdrawal Liability. 

>4225(b)> 

>4225(d)> 

OPINION: 

We write in response to your inquiry. You ask whether the PBGC adheres to the interpretation of section 4225 of

the Employee Retirement Income Security Act of 1974 ("ERISA"), as amended by the Multiemployer Pension Plan

Amendments Act of 1980 ("MPPAA"), set forth in its amicus curiae brief in Trustees of the Amalgamated Insurance

Fund v. Geltman Industries, 784 F.2d 926 (9th Cir. 1986). In its brief, PBGC addressed the proper application of ERISA

§ § 4225(a) and 4225(b) where the withdrawn employer satisfies the prerequisites for the application of both

subsections. PBGC expressed the view that an employer meeting the criteria in both subsections (a) and (b) may elect

the limitation that yields the lesser of the amounts determined under the two subsections. The Ninth Circuit, however,

reached a contrary conclusion. 784 F.2d at 929-30. For the reasons set out below, PBGC continues to believe that its

interpretation of ERISA § § 4225(a) and 4225(b) is correct as a matter [*2] of law. 

Under ERISA § 4225(a)(1)(A), an employer who withdraws in connection with a "bona fide sale of substantially

all of [its] assets in an arm's-length transaction to an unrelated party" will ordinarily be permitted to retain a portion of

its dissolution value. The Geltman court, however, citing "the language and . . . structure" and the "underlying policies

of ERISA and MPPAA," concluded that an "insolvent" employer must be denied relief under subsection (a)(1)(A),

because subsection (b) provides a different liability limit that is explicitly directed to "an insolvent employer undergoing

liquidation or dissolution." 

This analysis overlooks several pertinent points. First, when Congress intended to deny classes of employers relief

under section 4225, it did so explicitly. See ERISA § 4211(d) (prohibiting application of section 4225 to employers

who withdraw from coal-industry pension plans). Significantly, nothing in the language of section 4225 suggests that

subsections (a) and (b) are mutually exclusive. n1 The two provisions have separate factual prerequisites, and provide

different types of relief. So long as an employer satisfies the requirements of both subsections, [*3] it should qualify

for relief under either rule, and its liability should not exceed the lesser of the amounts determined under the two

subsections. 

n1 Sections 4225(a) and (b) both begin with the phrase "in the case of an employer." The Geltman court suggested

this phrase was "evidence that the sections are to operate exclusive of each other. . . ." This suggestion is manifestly

incorrect. The phrase "in the case of" is used as an introduction to at least 30 provisions of MPPAA; in each such

instance, it is used in its normal statutory sense, as a synonym for "when" or "if". 20A Words and Phrases 75 (1959 &

Supp. 1983). 

This conclusion is further supported by the technical definition of "insolvency" included in section 4225. Under

section 4225(d)(1), "an employer is insolvent if [its] liabilities, including withdrawal liability under the plan (determined

without regard to subsection (b)), exceed [its] assets (determined as of the commencement of the liquidation or

dissolution)" (emphasis added). Section 4201(b)(1)(D) defines "withdrawal liability" as including adjustment pursuant

to section 4225. Thus, the use of the term "withdrawal liability" in the definition [*4] of insolvency incorporates any

reductions in withdrawal liability resulting from the application of section 4225 (including subsection (a)) except the

reduction set out in section 4225(b), which is specifically excluded. n2 

n2 The decision is therefore incorrect when it states that whether "an employer is an insolvent employer . . . is done

by looking to the provisions of [section 4225(d)(1)] without regard to [section 4225(a)]." Geltman, 784 F.2d at 929. 
PBGC believes that its interpretation of section 4225 is fully consistent with the "underlying policies of ERISA and

MPPAA." Section 4225 is but one of several ERISA provisions that limit the amount of withdrawal liability imposed

upon withdrawing employers. n3 Nothing in the congressional findings and policy declarations that preface MPPAA

indicate that the withdrawal liability limitation provisions should be construed to maximize the liability of an employer.

See MPPAA § 3, codified at 29 U.S.C. § 1001a. The same is true of the legislative history. 

n3 See, e.g., ERISA § § 4203(b), (c), (d), and (f), 4204, 4207, 4208, 4209, 4210, 4217, 4218, 4219(c)(1)(B), 4224,

and 4225. The Supreme Court has noted with approval Congress's efforts to moderate the impact of withdrawal liability

on employers, including Congress's effort in section 4225. Connally v. PBGC, 475 U.S. 211, 225, 226 n.8 (1986). [*5]

Finally, the interpretation offered in Geltman makes little economic sense. Under the rationale of the decision, an

employer whose liabilities exceeded its assets by only one dollar is "insolvent" and would automatically forfeit any relief

under section 4225(a)(1)(A). In contrast, if the employer's assets were one dollar greater than liabilities, the full liability

limitation would apply. n4 As discussed above, the application of the plain language of the statute avoids this sort of

anomaly. 

n4 The attached table, drawn from the PBGC's amicus brief, illustrates the dramatic increase in employer liability

caused by the single dollar difference. 

In conclusion, the plain wording of section 4225 dictates that an employer that meets the requirements of both

subsections (a) and (b) is entitled to an assessment of withdrawal liability that does not exceed the lesser of the amounts

determined under (a) and (b). Neither the legislative purpose nor principles of statutory construction compel a contrary

conclusion. The PBGC therefore continues to adhere to the position stated in its brief amicus curiae. 

I trust this responds to your question. If you have further questions [*6] regarding this matter, please contact Karen

Morris of my staff at (202) 778-8822. 

Carol Connor Flowe, General Counsel 

ADDENDUM 

Computation of Withdrawal Liability Under Arbitrator's Interpretation in Geltman Industries and Amelgamated

Insurance Fund, of Section 4225 

Assumptions: 

1. The value of the employer's assets after the sale is $ 100,000. 

2. The employer's liabilities other than withdrawal liability are $ 90,000. 

3. The unfunded vested benefits allocable to the employer prior to the application of section 4225 are $ 10,000 in

Example 1 and $ 10,001 in Example 2. 

Maximum Withdrawal Example 1 Example 2

Liability Under § 4225(a)

1. (a)(1)(A): 30% of

 the liquidation value

 of the employer =

 .30X($ 100,000- $ 90,000) $ 3,000

2. (a)(1)(B): unfunded

 vested benefits

 attributable to

 employees of the

 employer $ 0 or undetermined N/A

3. Greater of (a)(1)(A)

 or (B) (#1 or #2) $ 3,000
Maximum Withdrawal

Liability under § 4225(b)

4. (b)(1): 50% of

 allocable unfunded

 vested benefits =

 .50X$ 10,001 $ 5,000.50

5. (b)(2): additional

 amount due plan

 (remaining liquidation

 value after #4) N/A $ 4,999

6. Total collectible under (b)

 (sum of #4 and #5) $ 10,000

7. Amount paid to Plan $ 3,000 $ 10,000

8. Amount paid to creditors

 other than Plan $ 90,000 $ 90,000

9. Amount retained by

 employer $ 7,000 $ 0

 [*7]