Pension Benefit Guaranty Corporation 

86-27 

December 17, 1986 

REFERENCE: 

 [*1] 4041(a) Termination by Plan Administrator. Filing of Notice of Intent to Terminat

4047 Restoration of Plans 

OPINION: 

This is to advise you that the Pension Benefit Guaranty * * * Corporation (the "PBGC" ) has reviewed those plans

which you have represented as those which X Corporation * * * seeks to adopt. Based on our review of the proposed

plan documents, our extensive discussions with you and the Union * * *, and a review of facts and circumstances

incidental to adoption of these proposed plans, we have determined that if X were to adopt such plans, the effect would

be a de facto continuation of the previously terminated X plans. 

Accordingly, pursuant to paragraph 3 of the Agreements entered into between X and the PBGC, and pursuant to the

PBGC's authority to enforce Title IV of the Employee Retirement Income Security Act ("ERISA"), the PBGC hereby

disapproves the adoption of the proposed plans. 

Plan termination insurance is to be provided where plans actually and fully terminate. Thus, for example, partial

terminations do not give rise to termination-generated claims for guaranteed benefits. See United Steelworkers of

America v. Harris & Sons Steel Co., 706 F.2d 1289 (3d Cir. [*2] 1983). Nor do insurance claims arise from termination

schemes which approximate terminations facially, but which, in fact, continue the plans for covered participants. PBGC

Opinion Letter 81-11 (May 11, 1981). See also Interco Inc. v. Pension Benefit Guaranty Corp., 620 F. Supp. 688

(E.D.Mo. 1985). 

This principle has been established for a number of years. For example, in PBGC Opinion Letter 81-11, the

Executive Director of the PBGC wrote that: 

In our view, the termination insurance program of Title IV was not intended to subsidize an employer's ongoing

retirement program. Accordingly, we believe that a purported termination of one plan, contrived in concert with the

establishment of new retirement arrangements which are designed to provide substantially the same benefits for the

future, should not be treated as a termination within the statutory contemplation so as to require the payment of PBGC

guarantees. 

This agency ruling proceeded to make clear that "Section 4047 of ERISA, 29 U.S.C. § 1347, provides PBGC with

express authority to limit plan terminations" and that "the breadth of this provision is further reflected in its additional

grant of authority to PBGC [*3] to restore to its pre-termination status, a plan whose termination has already been

completed." 

Plan termination insurance is designed by Congress to provide insurance for plans which actually terminate. The

program is set up to protect participants and beneficiaries who would otherwise be deprived of pensions. 

The program is not designed to provide supplemental financing for ongoing pension programs. Compare, the singleemployer insurance program provisions co ntained principally in 29 U.S.C. § § 1301-1368 et seq., with the

multiemployer assistance program provisions contained in 29 U.S.C. § § 1381-1461. 

In this case, X filed notices of its intent to terminate its pension plans on October 29, 1985. Prior to that time,

however, X had already agreed with the Union * * * to create a Pensioners' Relief Program to provide financial relief

to * * * Union represented employees who might incur a loss of present or future benefits in the event of termination.

See 1985 Strike Settlement Agreement (October 15, 1985) at Appendix C. 

From the PBGC's perspective, the existence of this relief program, was not in itself, objectionable. However,

statements by X management [*4] n1 and the * * * Union * * * n2 concerning the continuation of benefits after the

expected termination date of the X plans raised doubts about whether the original plans had in substance been terminated.
n1 See SupplementalAnswer of Defendants Binger, Denby, Seymour, Marshall, DePalma, Maxwell, Paulson, Allyn,

Anderson and Wilbur, Tintori v. Allyn, No. 85-1463 at 2 (W.D. Pa. November 8, 1985) (explaining that the Pensioners'

Relief Program provided "for the creation of a pension relief fund the purpose of which is to compensate for any loss

in pension benefits resulting from the termination of the pension plans . . . in an underfunded status" ). 

n2 The * * * Union * * * explained to its members that the "money going into the new Pension Program should be

sufficient to provide relief to those people comparable in value to what they will lose by reason of termination of the

pension plans." Summary of Settlement Agreement, * * * (October 17, 1985) at 4. 

The PBGC did not (and does not now) object to * * * participants or beneficiaries receiving all of their promised

benefits. The PBGC did object, though, to X's apparent attempt to contrive a new means of improperly diverting [*5]

termination insurance funds to payment of ongoing X pension obligations. Consequently, the PBGC questioned whether

the pension plans were, in fact, being continued, albeit in another form. Because of these questions, the PBGC did not

initially recognize X's termination notices or assume trusteeship of the underfunded plans. 

The PBGC was presented with copies of * * *'s Pensioners' Relief Program in February 1986 in the form of two

Voluntary Employees' Beneficiary Associations ("VEBAs") and an individual account plan. In late February, X

proposed to make a payment from these relief programs to provide temporary relief to its employees. The PBGC advised

that, in view of its temporary nature, the single payment standing alone would not itself nullify termination. However,

the PBGC further advised that: 

the one-time payment does not and cannot stand alone. Both actions and statements prior to that one-time payment

and actions of X and others subsequent to that payment must be considered in determining whether the one-time payment

was one step among several in continuing, rather than terminating, the pension plans. To the extent that the actions of

X and others before and after [*6] the one-time payment are determined to negate a finding of termination, PBGC

reserves the right to include the one-time payment as part of a pattern inconsistent with X's claim to termination.

Moreover, in the event that there had been a pre-existing understanding, written or unwritten, for X to emerge from its

current reorganization proceeding with a program designed to provide retirees with pension relief comparable to what

they would be receiving under the terminated plans, PBGC reserves the right to consider each step in any such plan,

including the one-time payment, as inconsistent with the concept of termination. 

Letter of Edward Mackiewicz, General Counsel, PBGC, to * * * (February 27, 1986). 

Following protracted negotiations, the PBGC, X and the * * * Union * * * entered into an Agreement, on August

19, 1986, regarding the termination of the hourly pension plans. On the same date, the PBGC and X antered into a

second Agreement regarding the termination of the plans of X's salaried employees. These Termination Agreements

provided that X's plans "[have] been terminated not later than November 8, 1985, in accordance with the requirements

of ERISA." They further provided [*7] that the VEBAs would be terminated no later than the earlier of two years from

the date of the Agreements or the approval of a bankruptcy disclosure statement. Finally, they provided that X would

submit any additional plans to the PBGC for its review. The PBGC specifically reserved its right to withhold agreement

if the proposed follow-on programs either sought to effect a continuation or restoration of the plans terminated under

the Agreements, constituted an ongoing employees' benefit program providing benefits substantially equivalent to those

provided under the terminated plans, or otherwise failed to comply with applicable law. 

In August and September 1986, X submitted to the PBGC for its review a * * * (Union Supplemental Plan) and a

* * * (Salaried Supplemental Plan). 

Under the proposed Union Supplemental Plan, * * * makes * * * contributions each payroll period based upon the

number of hours worked by union employees. n3 A portion of that contribution is then credited to the individual account

of each participant in Basic Benefit Status or each beneficiary in Ancillary Benefit Status (i.e., presently eligible to

receive benefits). 

n3 The contribution derived in this fashion is first reduced by the amount of any contributions previously made to

the VEBAs or to a separate individual account maintained for current employees. See Article 5.1. [*8] 

The amount credited to each account is the "Partial Benefit Difference", which is defined in Article 5.3(a) as 95%

of the difference between the Prior Pension Plan Benefit (defined in Article 1.19) and the Title IV Benefit guaranteed

to be paid by the PBGC under ERISA (as defined in Article 1.25). The Salaried Supplemental Plan uses a formula which

is similar in overall effect. n4 Thus, participants or beneficiaries who are or will be receiving guaranteed benefits from
the plan termination insurance system would also receive substantial additional benefits from the proposed plans. The

effect would seem to be -- by apparent design -- to situate certain (but not all) participants as though the plans had not

terminated. n5 

n4 Under the Salaried Supplemental Plan, the individual account is credited with 90% of the difference between the

Prior Pension Plan Benefit (see Article 1.22) and the Title IV Benefit (see Article 1.30), plus certain additional benefits,

up to a total $1,000 per month. See Article 5.3(a). 

n5 The PBGC does not regard as material the relatively small differences between the benefits projected under these

proposed Supplemental Plans and those that would have been provided under the original plans. [*9] 

Accordingly, we find that the VEBAs, and the proposed supplemental and follow-on plans, when taken together,

reflect an overall pension scheme which is designed to continue the plans after the date of termination established under

Title IV of ERISA. This continuation in fact is illustrated by the interrelationship of the pre-termination benefit structure

of the purportedly terminated plans and the benefit formulas of the post-termination plans. For example, the VEBAs,

and supplemental and follow-on plans, taken together, provide for: 

1) continuation of service for purposes of vesting in a participant's accrued benefit and entitlement to a fully

subsidized early retirement benefit after the date of termination. Under the proposed Supplemental Plans, posttermination service will be taken into account for purposes of determining benefits. The Union Supplemental Plan

provides, "In determining the amount of the benefit, a Participant's Service . . . shall be taken into account in determining

whether the Participant or his Beneficiary would have been eligible for a benefit (e.g., a disability benefit or a deferred

vested benefit) under the terms of a Prior Pension Plan." Article [*10] 1.19; see also the definition of "Service" in Article

1.24. The Salaried Supplemental Plan has similar provisions. See Articles 1.22 and 1.29. Moreover, we understand

that this concept would also apply to fully subsidized retirement, such as "30-and-out." 

2) recognition of post-termination events (such as disability) for purposes of determining entitlements under pretermination benefit formulas. Under each of the Supplemental Plans, a participant may receive benefits based upon events

(such as disability or retirement) occurring after the termination date. Thus, Basic Benefit Status is defined to include

the participant who "would have become entitled to an immediate Prior Pension Plan Benefit on or before the Valuation

Date because of retirement or disability had the Prior Pension Plan not been terminated." See Union Supplemental Plan

Article 1.4(c); Salaried Supplemental Plan Article 1.4(c). 

3) restoration or reimbursement for benefits which are not guaranteed under Title IV of ERISA. Under each of the

Supplemental Plans, a participant may receive benefits that fully restore Congressionally-mandated limitations on * *

* insured termination benefits. [*11] 

Thus, the adoption of the supplemental and follow-on plans would result in a de facto plan continuation. If X

adopted such plans and thereby effected a continuation in fact, then the PBGC would be constrained to exercise its

authority under Section 4047 of ERISA to restore all or part of the assets and liabilities existing under the previously

terminated X plans. 

As we have previously agreed, the X plans have terminated, and on a date not later than November 8, 1985. We

stand by that agreement. Consequently, if X were to adopt the proposed plans, we would only restore assets and

liabilities attributable to participants covered under the adopted plans. With respect to participants who are not covered

by such plans, there would be no restoration. 

We would encourage you to dissuade X from its intention to adopt these proposed plans, and thus attempt, in effect,

to continue the terminated plans, while having the PBGC pay the guaranteed portion of the terminated plans' benefits.

Of course, should X or the Union * * * choose to accept restoration and the * * * concomitant obligation to provide all

of the affected * * * participants' benefits, we would work with you to help you meet [*12] your pension promises. 

In sum, we disapprove the proposed follow-on plans because they would effect an impermissible continuation of

terminated plans for which guaranteed benefits are being paid. We urge X not to adopt these plans, but if it should we

would restore assets and liabilities attributable to covered participants. We continue to stand ready to work with you to

reach mutually acceptable * * * solutions to the difficult issues between us. In this regard we await your proposals on

bankruptcy issues, and your performance under the agreements entered into last spring. 

Kathleen P. Utgoff 

Executive Director 
Royal S. Dellinger 

Deputy Executive Director and Chief Negotiator