f,V(\ 

PBGC 

Pension Benefit Guaranty Corporatioh 

1200 K Street, N.W., Washington, D.C. 20005-4026 

www.pbgc.gov

October 2, 2008 

Re: lCase Number 194465, 

Vision Metals Inc. Salaried Employees Pension Plan (the "Vision Metals 

Plan" or "Plan") 

We are responding to your April20, 2007 appeal ofPBGC's determination ofyour PBGC 

benefit. As explained below, we must deny your appeal. 

PBGC's Benefit Determination and Your Appeal: 

In its benefit determination letter dated March 28, 2007, PBGC determined that you are 

entitled to a monthly payment of $1,414.96 in the form of a Joint and 50% Survivor ("J&50%S") 

Annuity. PBGC's determination letter informed you that you had been overpaid by $22,280.67, and 

that your future monthly payments would be reduced by $137.96 (9.75%) until you have repaid the 

total amount, without interest. A copy ofthe March 28, 2007 benefit determination and its enclosed 

benefit statement and recoupment summary are at Enclosure 1. 

In your appeal letter dated April20, 2007, you stated that your current monthly PBGC benefit 

of $1,835.35 is the same as your pension benefit under the Vision Metals Plan and "is well below 

PBGC's maximum guaranteed benefit of$2,231.84." You contend that the $875.91 benefit you 

receive as an annuity from Aetna Insurance Company is not part ofyour Vision Metals Plan benefit. 1 

Rather, it is a benefit purchased on your behalf when the Quanex Corporation tem1inated its Plan in 

1985. Your appeal contends that this $875.91 annuity benefit should not be used in PBGC's 

calculation of its maximum guaranteed benefit ("MGB") and that «the $22,280.67 which PBGC 

1 Your appeal letter also states that a Vision Metals Plan manager,L -~relayed to you 

a message that a pension plan consultant at Watson Wyatt Company had checked with PBGC and 

"had been told that the Aetna annuity was a totally separate issue guaranteed by Aetna Insurance 

Company and not guaranteed by PBGC." The Appeals Board was unable to find any record ofthis 

conversation or who in PBGC, if anyone, provided this information to[_ -______] 
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states that I owe them [should be] removed you're the records." A copy of your appeal and the two 

documents you provided supporting your appeal are at Enclosure 2. 

Background 

According to PBGC records, Vision Metals, Inc. ("Vision"), was in the business of 

manufacturing steel tubing. Originally, Vision began in 1927 as Michigan Seamless Tube and made 

several acquisitions and name changes over the years. Vision's headquarters were located in Ann 

Arbor, Michigan, but relocated to South Lyon, Michigan. Vision owned tWo plants, Gulf States 

Tube Facility located in Rosenberg, Texas and Michigan Specialty Tube, located in South Lyon, 

Michigan. 

Vision was a wholly-owned subsidiary of Vision Metals Holding, Inc. ("VMHf'). Vision 

was the sponsor ofthe Vision Metals, Inc. Salaried Employees' Pension Plan and two other pension 

plans. 2 On November 13, 2000, Vision and VMHI filed petitions under Chapter 11 of the 

Bankruptcy Code. On November 9, 2001, employees at both facilities were notified by letter that 

their facility would bepermanentlyclosed and that all benefits would cease at closing. The expected 

final closing date according to the letter was December 31, 2001. The letter stated that employees' 

jobs would end betweenNovember30,2001 and December 13,2001. OnJanuary31,2002, the Gulf 

States Tube Facility and Michigan Specialty Tube shut down their plants permanently. 

Assets of Vision's Michigan facility were sold to Michigan Seamless Tube, an umelated 

company, with a closing date of October 21, 2002. The sale, however, did not include the 

assumption ofthe pension plans. On January 13, 2003, PBGC provided a Notice of Determination 

("NOD") to Vision under section 4042(a)(l) and (2) ofthe Employee Retirement Income Security 

Act of 197 4, as amended ("ERISA") that the Vision Metals, Inc. Salaried Employees' Pension Plan 

(the "Plan") had not met minimum funding standards and would not be able to pay benefits when 

due. Accordingly, PBGC stated its intent to have the Plan terminated and have January 31, 2002 

established as the Plan's tennination date. While the NOD recommended a January 31,2002 (date 

of plant shutdown) tennination date, PBGC changed the date of Plan termination ("DOPT") to 

October 21, 2002, the date ofthe asset sale to Michigan Seamless Tube. 3 

The two most significant events in the history of the Plan for purposes of this appeal 

occurred in 1997 and 1985. The Vision Metals, Inc. Salaried Employees' Pension Plan was 

established effective December 3, 1997 and is a continuation ofa portion ofthe Quanex Corporation 

2 Vision also sponsored the Michigan Specialty Tube Company Hourly Employee's 

Pension Plan (the "MST Plan") and the Pension Plan ofGulf States Tube Division ofVision Metals 

(the "GST Plan"). Neither of these plans is relevant to your appeal. 

3 The date ofthe NOD, January 13,2003, remains the date from which overpayments are 

calculated. The Appeals Board does not have authority to review or change the DOPT. Having a 

date of Plan termination as October 21,2002 as opposed to January 13,2002 is more favorable to 

you as it lessens the reduction to the MGB based on age as discussed later in this opinion. 
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Salaried Employees' Pension Plan ("Quanex Corporation Salaried Plan" or "New Quanex Plan") 

without gap or lapse in time or coverage. 

The establishment ofthe Plan was directly related to the December 3, 1997 agreement ofthe 

Quanex Corporation and Vision to a spin-offbusiness transaction. The spin-off included the sale 

ofQuanex Tube Group locations to Vision. As part of this December 3, 1997 spin-off transaction, 

Quanex Corporation transferred the assets and liabilities of its New Quanex Plan to Vision. Vision 

Metals, Inc. then adopted the Vision Metals Plan effective December 3, 199.7 as a mirror image of 

the New Quanex Plan for the exclusive benefit ofcertain current and former employees ofMichigan 

Seamless, Quanex Corporation, and Vision. 

The other key transaction impacting this appeal occurred in 1985 at the Quanex Corporation. 

Quanex had since 1976 sponsored a Quanex Corporation Pension Plan for Salaried Employees (also 

referred to as "Old Quanex Plan"). The Old Quanex Plan terminated on October 31, 1985 and the 

new Quanex Corporation Salaried Plan (''New Quanex Plan") was re-established the following day, 

November 1, 1985. 

Whether this 1985 termination ofthe Old Quanex Plan and the immediate re-establishment 

ofthe New Quanex Plan constituted a "successor plan" under ERJSA section 4021 (a) is the critical 

legal issue surrounding your appeal and is discussed later in this opinion. 

Discussion 

When the Vision Metals Plan terminated effective October 21,2002, it did not have sufficient 

assets to provide all benefits PBGC guarantees under Title IV ofERISA. The terms ofthe Plan, the 

provisions of ERJSA, and PBGC regulations and policies determine your entitlement to PBGC 

benefits. 

PBGC is limited by law as to the pension benefits it guarantees. PBGC determined that one 

ofthese limits, the maximum guaranteed benefit ("MGB"), also know as the maximum insurance 

limit, requires a reduction in your monthly benefit payments from PBGC. Before discussing this key 

issue ofhow the MGB applies to your benefits, however, we first will discuss PBGC's determination 

of your Plan benefit amount. 

A. Your Plan benefit amount. 

1. Your Quanex Plan Service. 

PBGC records show that you were hired on c-=_==-J 1968 and participated in the Old 

Quanex Plan. The Old Quanex Plan: 

- terminated on October 31, 1985; 

- purchased accrued benefits such as your Aetna-provided benefit; and 

- was reestablished with the same name on November 1, 1985 (which we refer to as the 

"New Quanex Plan"). 
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2. The Re-established New Quanex Plan Offset for Your Aetna Benefit 

For employees, like you, active through the 1985 termination and reestablishment, 

Continuous Service and Participation continued uninterrupted. 4 The reestablished New Quanex 

Plan, however, reqwred "offsetting" (reducing) for such an employee's benefits already provided by 

the terminated Quanex Plan.5 Thus, under the reestablished New Quanex Plan, your benefit was 

calculated using all Quanex service, but reduced for your Aetna benefit. 

3. Plan Assets and Liabilities Spun-Off to Vision Metals Plan 

Effective December 3, 1997, the Quanex Corporation: 

- sold all of its Tube Group locations to Vision Metals, Inc.; and 

- spun-off from the New Quanex Plan to the Vision Metals Plan assets and liabilities for 

affected employees, such as you. 

Vision Metals, Inc. established the Vision Metals Plan effective December 3, 1997 as a 

mirror image of the New Quanex Plan for the exclusive benefit of certain current and former 

employees ofMichigan Seamless, Quanex Corporation, and Vision. 

4. How Vision Metals Determined Your Benefit 

The Vision Metals Plan also uses all of your Quanex employment, but reduces for your Prior 

Plan benefit.6 The Prior Plan is the Old Quanex Plan that was terminated effective October 31, 1985. 

Vision Metals calculated your total Plan benefit as: 

- $3,007.50 7 

per month if paid as a Straight Life Annuity; or 

- $2,711.26 8 

per month in your Joint and 50% Survivor Annuity form. 

The Vision Metals Plan's Worksheet calculation ofyour benefit is at Enclosure 4. Vision used 33.32 

[17.155 + 16.165] years total service, from September 5, 1968 through December 31, 2001. 

4 November 1, 1985 New Quanex Plan sections 3.01 and 3.02. 

5 November 1, 1985 New Quanex Plan section 14.01. 

6 See Enclosure 3 page N-2, Plan section 4.04. 

7 17.155 years pre-11/1/85 x $7,784.05 x 1.5%-$30.90 fee+ 16.165 years (11/1/85­

12/31/2001) x (1% x $7,784.05 earnings + .5% x $3,636.05 earnings above "covered 

compensation") x 0.667 reduction for starting early. The .667 (1 - 60 months x 5/9%) adjustment 

for post-11/1/1985 service is required by Plan section 4.04(B)- See also calculations at Enclosure 

4, pages 3 and 4. 

8 $3,007.5 x .9015 annuity form adjustment. 
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The Plan administrators further concluded that, after applying the Plan's offset for the 

$875.91 9 monthly benefits provided by the terminated Quanex Plan (which are being paid through 

your Aetna Life Insurance Company contract), you would receive $1,835.35 [$2,711.26- $875.91] 

per month as a J&50%S annuity. You did not appeal the manner in which Vision calculated your 

Plan benefit, and we found no error in its calculation. 

B. Your PBGC benefit (after application of the MGB limit). 

As discussed above, the MGB limits the benefit amounts PBGC may guarantee with respect 

to a terminated single-employer pension plan. The MGB, which is a specified dollar amount that 

PBOC applies to all pension plans that tenninate within the same calendar year, is established in 

ERISA section 4022 and sections 4022.22 and 4022.23 of the Title 29 Code of Federal Regulations 

(''the Code"). Since the Plan terminated in 2002, under ERISA's provisions the MOB is $3,579.55 

per month payable at age 65 as a Straight Life Annuity with no Survivor Benefit. Generally, under 

ERISA and PBGC regulations, the MOB also must be adjusted for early retirement and form of 

benefits. · 

You retired on January I, 2002, over nine months before DO PT. When you retired you were 

60 years old and you elected a J&50%S Annuity. PBOC determined that the MOB applicable for 

you, as a participant retired at DOPT with a J&50%S Annuity, is equal to $2,231.84. We 

independently verified that your MOB, in the form of a J&50%S Annuity, is $2,23 I .84. 10 

9 ($1, 115.31 - $60 early commencement fee) x .83 annuity fonn adjustment. See line C6 

On page 3 of Enclosure 4. 

1

° Congress expressly delegated to PBGC the authority to determine the actuarial values of 

benefits for purposes ofthe MGB. See U.S.C. section 1322(b )( 4). Based on this express delegation, 

PBGC issued a regulation that establishes the MOB age reduction factors and form factors for 

benefits that start before age 65. See 29 Code ofFederal Regulations section 4022.23( c). Under this 

regulation,. the MOB shall be reduced by 7112% per month for each full month between a 

participant's 60th and 65th birthdays, or 7% per year. The number of whole months for which the 

reduction applies is counted from the later ofthe participant's age at DOPT or age that he begins to 

receive benefits. In your case, the MOB age reduction is counted from DOPT (October 21, 2002) 

because that is later than your actual retirement date. 

PBGC and Plan records show your date ofbirth as , 1941. On October 21, 2002 

you had 49 full months until your 651

h birthday. Thus, PBOC further determined that the MOB age 

adjustment factor is 0.7142 [I - (7/12 of 1% per month x 49 months)]. 

The MOB form adjustment factor is .90 for a J&50%S benefit. Because the value of a 

J&50%S Annuity differs depending on the age ofthe spouse, PBOC increases or decreases the fonn 

adjustment factor based on whether the spouse in younger or older than the participant On DOPT, 

you were nearest your 61 st birthday and your spouse(. .. ) was nearest her 58 1

h birthday. 

Under PBOC regulations, for a spouse 3 years youuger than the participant, the J&50%S benefit is 
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In determining your PBOC benefits, PBGC concluded that your Vision Metals Plan benefit 

of$2,711.2- which included your $875.91 monthly benefit paid by Aetna- exceeded your MGB 

of $2,231.84 per month. PBGC further concluded that your $2,231.84 MOB should be reduced by 

the $875.91 amount paid by Aetna, resulting in a PBGC-guaranteed benefit of$1 ,355.93 per month 

[$2,231.84 MOB- $875.91 Aetna-paid benefit= $1,355.93]. PBGC also concluded that, under 

ERISA section 4022(c), legal recoveries funded an additional $59.03 per month of your benefit. 

Therefore, your total PBOC benefit is $1,414.96 [1,355.93 + $59.03] per month. We note that your 

appeal did not question the ERlSA section 4022(c) portion of yqur benefit, and we found it was 

correct. 

PBGC also determined that your overpayments through June 2007 total $22,280.67. 11 You 

are not being charged interest on your overpayments. To repay your overpayments, PBGC will 

temporarily reduce your $1,414.96 PBOC benefit by not more than 10%. If you and your wife die 

before your overpayments are repaid, PBGC will not seek further repayment from your estate or your 

wife's estate. 

PBGC's Actuarial Case Memo for the Plan notes that the MOB legal limit affected a total of 

9 ofthe 277 Plan participants. You are one ofthe 9 participants who had their benefit reduced by the 

MGB. As is discussed in detail below and in the appendix to this decision, your PBGC benefits are 

reduced by the MGB because PBGC treated the New Quanex Plan, established on November 1, 1985, 

as a successor plan to the Old Quanex Plan, which te~inated a day earlier on October 31, 1985. We 

also explain in detail below the reasons why we are affirming PBGC's determination on this 

successor plan issue. 

C. PBGC's Successor Plan Analysis. 

I. A Predecessor Plan and a Successor Plan are a single plan for purposes oflite MGB. 

In making benefit determinations for terminated pension plans, PBGC consistently has treated 

a successor plan and its predecessor plan (or predecessors) as one plan in applying the MGB. In so 

concluding, PBOC has relied upon the following language in section 4021 (a) of ERISA: 

For purposes of this title, a successor plan is considered to be a continuation of a 

predecessor plan. For this purpose, unless otherwise specifically indicated in this title, 

a successor plan is a plan which covers a· group of employees which includes 

further adjusted by a factor of.97. Thus, your MGB, adjusted for your age at DOPT, your J&50%S 

form ofbenefit, and the age ofyour spouse is $2,231.84 [$3,579.55 x .7142 x .90 x .97]. 

11 ($1,835.35- $1,414.96) x 53 months 211/2003- 6/1/2007. The Plan terminated on 

October 21,2002. However, PBGC is recouping overpayments following January 13, 2003 (starting 

February 1, 2003), when PBGC issued its Notice of Determination that the Plan would be 

terminated. See 29 CPR 4002.81(c)(1). Because you appealed, PBOC has continued paying you 

the $1,835.35 per month and your overpayments have grown. 
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substantially the same employees as a previously established plan, and provides 

substantially the same benefits as that plan provided. 29 U.S.C. § 132l(a). 

This statutory language accordingly indicates that a successor plan and its predecessor(s) are to be 

treated as a single entity. We also note that the phrase "for purposes of this title" in the above 

provision refers to Title IV ofERJSA, which (among other things) includes the MGB provision. 

PBGC' s experience is that successor plans often are created by "termination/re-establishment" 

transactions, in which the plan sponsor terminates a sufficient defined benefit pension plan and then 

establishes a new plan covering substantially the same employees and providing substantially the 

same benefits. 12 PBGC concluded that it is reasonable for participants in "termination/reestablishment" transactions to be treated similarly regarding the MGB to participants in plans that 

have remained ongoing. Such consistent treatment will occur only ifthe successor and predecessor 

plans are treated as one entity. We note that the termination ofthe Old Quanex Plan and the creation 

of the New Quanex Plan occurred as a result of such "termination/re-establishment" transactions. 

2. 	 The PBGC andAppeals Board conclusion that the Vrsion Metals Plan is a successor to the 

Old Quanex Plan. 

PBGC considered Vision Metals Plan effective December 3, 1997 to be a successor to the 

Quanex Corporation Salaried Employee's Pension Plan (the New Quanex Plan) and made this 

determination in April 2005. The finding is documented in the Actuarial Case Memorandum dated 

March 7, 2007 (excerpt at Enclosure 5). 

An implicit finding in PBGC' s determination ofyour benefit is also that the New Quanex Plan 

is a successor to the Old Quanex Plan in 1985. We note that the determination that a new plan is a 

successor to a former plan increases participants' benefits in some cases and reduces them in others. 13 

In the circumstances of your case, the determination that the New Quanex Plan is a successor to the 

12 Generally, employers have engaged in "termination/re-establishment" transactions for 

the purpose of recovering surplus assets in the predecessor plan upon its termination. If the 

employer complies with the legal requirements governing such transactions, recovery of surplus 

assets is permitted under ERISA and the Internal Revenue Code. 

13 In the case of the Vision Metals Plan, a handful of participants had their maximum 

guaranteeable benefits reduced because ofa determination that the New Quanex Plan is a successor 

to the Old Quanex Plan. But, had the New Quanex Plan terminated in an unfunded condition less 

than five years after it was created, a determination that the new plan is a successor could avoid 

benefit cutbacks based on ERJSA's guarantee limits, such as reductions due to the phase-in of 

benefits under a newly-established pension plan (see 29 United States Code ("U.S.C.") section 

1322(b)(l), (2), and (7)), and under the five-year lookback provision that governs the allocation of 

certain plan assets (see 29 U.S.C. section 1344(b)(3)). 
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Old Quanex Plan results in benefits reductions because it means your Plan benefit exceeds the amount 

PBGC can lawfully pay based on the MGB (maximum insurance limit). 14 

Under PBGC's usual procedures in cases where a successor plan may exist, PBGC's Office 

of Chief Counsel ("OCC") prepares a legal opinion analyzing the successor plan issue. PBGC's 

Benefits Payment and Administration Department ("BAPD") then implements OCC 's successor plan 

opinion in determining the benefits PBGC pays to participants in the pension plan. Furthermore, if 

a participant raises a successor plan issue in the appeal ofhis or her benefit d.etermination, the OCC 

legal opinion on the successor plan issue will be part ofthe record for purposes ofthe Appeals Board's 

reVIeW. 

In this case, however, OCC had not prepared a legal opinion on the issue ofwhether the New 

Quanex Plan was a successor to the Old Successor Plan. The Appeals Board therefore asked 

appropriate officials in OCC to prepare a successor plan opinion in advance ofthe Appeals Board's 

consideration of this issue. We further delayed answering your appeal until we received OCC's 

analysis on this issue. The analysis by OCC concluded that the New Quanex Plan is a successor to 

the Old Quanex Plan. 

We have carefully reviewed the OCC legal opinion, as well as previous PBGC precedents, 

in our analysis ofthis matter. The Appeals Board has determined the New Quanex Plan is a successor 

to the Old Quanex Plan. Our full findings are in the Appendix to this decision. The Appeals Board 

also finds that the Vision Metals Plan, created in the spinoff transaction in December 1997, is a 

successor to the New Quanex Plan. The Appeals Board, thus, determined that your accrued benefit 

under the Old Quanex Plan, represented by the portion of your benefit payable by Aetna, is part of 

your Vision Metals Plan benefit and is subject to PBGC's maximum guaranteed benefit. 

3. PBGC's offset ofyour Aetna annuity benefit is consistent with PBGCprecedents. 

In Opinion Letter 86-28 (Enclosure 6), PBGC rejected an argument, similar to the one raised 

in your appeal, made in a case that also involved a pension plan's purchase of insurance annuities. 

In that case, the annuity provided the individual with a monthly benefit that exceeded the MGB. 

PBGC concluded in the opinion letter that the purchased annuity had to be taken into account for 

purposes of the MGB limitation. PBGC noted that "the fact that the Plan assets used to purchase the 

annuity contract ... are not available to pay other outstanding Plan liabilities upon Plan termination 

14 We note that, ifthe New Quanex Plan was not a successor to the Old Quanex Plan, then 

your benefit accrued under the Old Quanex Plan (and now paid by Aetna) would not be used in 

calculating your benefit under the New Quanex Plan's successor (i.e., the Vision Metals Plan). The 

Aetna annuity would not be offset because the MGB limits the benefits "under a single-employer 

plan which terminates ...." Thus, ifthe Old Quanex Plan is considered to be a separate plan from 

the Vision Metals Plan (rather than part of a successor plan relationship), then the Aetna annuity 

distributed to you by the Old Quanex Plan would not be deducted from the Vision Metal Plan's 

MGB. 
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does not affect the application of[the MGB limit] to benefits under the Plan." Accordingly, since the 

purchased annuity was already providing more than the maximum guaranteed amount, the letter stated 

that is would be "inconsistent with both the statute's maximum guarantee limitation and with the 

PBGC's statutory mandate" for PBGC to provide this participant with additional guaranteed 

payments. Furthermore, PBGC's position in Opinion Letter 86-28 was upheld by the court's decision 

in Larni v. PBGC, 1989 U.S. Dist. LEXIS 19153 (W .D. Pa. 1989). 

PBGC has applied the holding in Opinion Letter 86-28 to cases where the insurance annuity 

was purchased by a predecessor plan. Specifically, PBGC has concluded that when a "continued" 

successor plan is created through "spin-off termination" or "termination/re-establishment transactions, 

it is appropriate to apply a single MGB that takes into account the insurance annuities purchased in 

those transactions. 

Thus, PBGC's MGB limit applies to your full, combined benefits under the Vision Metals 

Plan and its predecessor plans, which includes both the portion ofyour benefits that were paid by the 

Vision Metals Plan ($1,835.35) and the portion that is paid by your Aetna annuity ($875.91). We 

further found that the two documents you submitted with your appeal (at Enclosure 2) do not provide 

a basis for changing PBGC's decision concerning how the MGB should be applied. In fact, language 

in both documents is consistent with the Plan language ofcalculating the total pension benefit based 

on total service under all prior plans) and then using the Aetna annuity (already purchased) as part 

ofthe total pension benefit. 

Decision 

You have presented no basis to change PBGC's determination dated March 28, 2007 and, 

thus, your appeal is denied. This letter concludes your administrative remedies with respect to 

PBGC' s March 28, 2007 determination. You may, ifyou wish, seek review in federal district court 

ofPBGC's determination with respect to the issue you raised. 

Sincerely, 

411~ William F. Condron, Jr. 

Appeals Board Member 

Appendix- Appeals Board Analysis ofthe Successor Plan Issue 


7 Enclosures: 


(1) Benefit Determination dated March 28, 2007 with Benefit Statement and Recoupment Summary 

(5 pages) 

(2) Your appeal (3 pages) 

(3) Excerpt, Vision Metals, Inc. Salaried Employees' Pension Plan document (14 pages) 

(4) Vision Metals Plan Calculation Worksheet (7 pages) 

(5) Excerpt, Actuarial Case Memorandum dated 3/7/2007 (2 pages) 

(6) PBGC Opinion Letter 86-28, dated December 31, 1986 (3 pages) 

(7) Joint Implementation Guidelines (5 pages) 
APPENDIX 

Appeals Board's Determination Concernin& the Successor Plan Issue in Vision Metals 

As is stated in the main part our decision, the Appeals Board has determined the New Quanex 

Plan is a successor to the Old Quanex Plan. Our full findings and conclusions on this issue are 

presented below. 

1. Legal Framework for our analysis ofthe successor plan issue 

Your appeal involves three plans: the Old Quanex Plan, the New Quanex Plan, and the Vision 

Metals Plan. It is clear that the Vision Metals Plan, created as the result of the spin-off transaction 

between Quanex and Vision Metals, Inc., is a successor plan to the New Quanex Plan; it was an exact 

continuation of the previous plan, covered the same participants, and provided the same benefits. 

Your appeal does not dispute this fact. The key issue in your appeal is whether the New Quanex Plan 

is a successor to the Old Quanex Plan. 

Our analysis of whether the New Quanex Plan is a successor plan to the Old Quanex Plan 

begins \vith the language of ERISA section 4021, which is the section of ERISA that addresses 

PBGC's coverage of pension plans under Title IV ofERISA. Specifically, ERISA section 4021(a) 

provides: 

For purposes of this title, a successor plan is considered to be a 

continuation of a predecessor plan. For this purpose, unless 

otherwise specifically indicated in this title, a successor plan is a 

plan which covers a group ofemployees which in~ udes substantially 

the same employees as a previously established plan, and provides 

substantially the same benefits as that plan provided. 

In accordance with this statutory language, PBGC has-consistently applied the following three tests 

in determining whether a plan is a successor plan: 

(I) Does it cover substantially the same employees? 

(2) Does it provide substantially the same benefits? and 

(3) Is there continuity between the two plans. 

We further note that PBGC has considerable experience analyzing whether a pension plan is 

a successor ~. This successor plan ana1ysis frequently is fact-dependent, and therefore often must 

be decided on a case-by-case basis. Accordingly, in deciding the successor plan issue in this appeal, 

we have carefully analyzed the relevant facts in applying the above three tests. 1 

1 We also have examined many ofthe successor plan determinations that PBGC has made 

for other pension plans. Based on this examination, we concluded that our determination that the 

New Quanex Plan is a succes~or to the Old Quanex Plan is in accordance with PBGC's prior 

precedent in similar cases. 

·r 
In the case ofthe Old Quanex Plan and the New Quanex Plan, there is no doubt that the first 

and third tests are met. The New Quanex Plan explicitly provides that any participant in the Old 

Quanex Plan who was in the active employ of Quanex Corporation on the New Quanex Plan's 

effective date is a participant in the New Quanex Plan. Continuity between the two plans is also 

amply evident, since the New Quanex Plan became effective on November 1, 1985, immediately after 

the October 31, 1985 termination date ofthe Old Quanex Plan, and service under the Old Quanex 

Plan was counted for purposes of computing benefits under the New Quanex Plan. 

The remaining issue, which we address in detail below, is whether the two plans (i.e., the New 

Quanex Plan and the Vision Metals Plan) satisfy the second test ofproviding substantially the same 

benefits as the Old Quanex Plan. 

2. Successor plan status in cases involving "termination/re-establishment" transactions 

Many of the successor plan determinations previously made by PBGC have involved 

"termination/re-establishment" transactions that are similar to how the Old Quanex Plan was 

terminated and how the New Quanex Plan was created. We note that, in 1984, PBGC and the 

Departments of Treasury and Labor issued "Implementation Guidelines" (Enclosure 7 to this 

decision) that specifically addressed the successor status of a new pension plan that was created in 

such transactions. The Implementation Guidelines stated: 

An employer that terminates a sufficient defined benefit pension plan may establish 

a new defined benefit plan covering the same group ofemployees. The new plan may 

grant past service credit for the period during which an employee was covered by the 

terminated plan (subject to the limitations of Section 415 of the Internal Revenue 

Code). The prior plan and the new plan, in combination, may provide benefits for each 

participant equivalent to those to which the participant would have been entitled ifthe 

prior plan had continued without interruption. The PBGC will clarify the fact that a 

successor plan is exempt from the five year phase-in ofbenefit guarantees that applies 

to newly established plans. The above is .one example of what will be deemed a 

successor plan by the PBGC. 

PBGC has concluded that the above statement suggests that a new plan created through such 

termination/reestablishment transactions generally should be considered a successor plan. 

Additionally, PBGC has concluded that there are good reasons for generally finding that a successor 

plan relationship exists in such cases. In so concluding, PBGC took into account that the purpose of 

"termination/re-establishment" transactions ordinarily had been to allow the pension plan sponsor to 

obtain a reversion ofthe excess assets in the plan (the amount of assets beyond the level needed to 

provide accrued benefits).2 Such a reversion has been (and is) permitted under ERISA ifthe sponsor 

2 PBGC records do not show whether Quanex in fact received a reversion ofexcess plan 

assets. PBGC' s legal position concerning whether a successor plan exists, however, is not dependent 

upon whether a reversion was received. Accordingly, we concJude that whether or not Quanex 

actually received a reversion is immaterial to our successor plan analysis. 
terminated the plan, but employers have wanted to take reversions without terminating their plans. 

The Implementation Guidelines effected a compromise to address this desire byplan sponsors 

while protecting participants. Under the Guidelines, a sponsor would be allowed to terminate its plan, 

take a reversion, and then re-establish the plan in such a waythat left participants in a similar position 

than if the plan had not terminated. PBGC has concluded that the successor plan language in the 

Implementation Guidelines provided protections to participants consistent with this intent, since 

successor plan status (as stated in the Guidelines) allowed PBGC to guarantee benefits in the same 

manner as if the prior plan had not terminated. For example, if a plan created through 

"termination/re-establishment" transactions is a successor plan and subsequently terminates within 

five years, it would not be subject to the five-year phase-in for benefits guaranteed in newlyestablished pension plans. Accordingly, in evaluating the successor plan issues in this appeal, the 

Appeals Board has applied PBGC's long-standing position concerning the interpretation of the 

Implementation Guidelines' language. 

3. Comparison ofthe Benefits under the Old Quanex Plan and the New Quanex Plan 

The Old Quanex Plan follows the design ofmany defined benefits plans, with benefits based 

on "high-S" earnings times years ofservice with Quanex Corporation (or its predecessor, Michigan 

Seamless Tube Company). The normal retirement age for participants was age 65, and participants 

could retire at age 55 with 10 years of service. The benefit amount was 1.5% of average earnings 

during the five consecutive calendar years during which earnings were the highest multiplied times 

years ofcontinuous service. At a minimum, the benefit could not be less than $9 per month times 

years of continuous service. The early retirement benefit was the normal retirement benefit, 

actuarially reduced to reflect early commencement ofbenefits. The Old Quanex Plan provided a "30­

and-out" benefit, which permitted participants to retire at any age with 30 years ofservice. The "30­

and-out" benefit was equal to the normal retirement benefit minus a flat $60. For example, if the 

normal retirement benefit was $2,400/month, the 30-year pension would be $2,340/month. The Old 

Quanex Plan also had a disability benefit that applied to any participant employed for at least six 

consecutive months, ifthat individual became totally and permanently disabled. Employees in the 

Old Quanex Plan became participants when hired and vesting was "cliff' vesting upon reaching 10 

years of continuous service. The plan year was November 1 through October 31. 

The New Quanex Plan continued the same basic structure as the Old Quanex Plan. As under 

the Old Quanex Plan, benefits were based on the same "high-S" average earnings method (typically 

the final 5 years ofemployment) that were counted under the Old Quanex Plan. Average earnings, 

as before, were the highest average earnings over any five-consecutive-year period. Thus, the "highfive" earnings used in the formula for all years ofservice would, in most cases, be the final five years. 

Benefits were reduced by the amount payable from the Old Quanex Plan. There were no changes to 

the normal retirement age and the early retirement age under the New Quanex Plan; they remained 

age 65 and 55 respectively, with 10 years ofcontinuous service still required for early retirement and 

an actuarially reduced benefit for early retirement. Finally, the New Quanex Plan continued with the 

immediate participation upon hiring rule, its cliff' vesting upon reaching 10 years of continuous 

service, and a plan year that ran from November 1 through October 31. 

There were some differences, however, in the New Quanex Plan. The flat 1.5% formula 

continued to apply to service before the effective date ofthe New Quanex Plan (November l, 1985). 

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But for service onand after that date, the normal retirement benefit changed to a two-tier formula: 

1% ofhigh 5 average earnings up to the "Covered Compensation Level,"and 1.5% ofhigh-5 average 

earnings in excess ofthat level. The Covered Compensation Level was defined in reference to Table 

ll results in Revenue Ruling 71-446 and any subsequent revisions. The $9 per month minimum 

benefit formula continued to apply to all service, unchanged from the Old Quanex Plan. Thus, the 

new two-tiered benefit formula was somewhat less generous than the old 1.5% formula. 

The New Quanex Plan eliminated the 30-and-out retirement benefit for any participant hired 

after November 1, 1985. For participants hired before the New Quanex Plan took effect, the 

retirement was still permitted at any age with 30 years ofcontinuous service.· The amount ofthe 30­

and-out benefit remained the same as under the Old Quailex Plan with the exception that the benefit 

based on service after the effective date was subject to the same less generous formula as discussed 

above. In addition, the benefit based on service after November 1, 1985 was subject to the same 

actuarial reduction as the early retirement benefit (capped at a 50% reduction). Thus, the New 

Quanex Plan also made the 30-and-out retirement provision less generous to the employees hired 

prior to November 1, 1985. Finally, the New Quariex Plan eliminated the disability pension, though 

·we do not know ifit was replaced by a disability benefit payable from a separate plan. 

4. Appeals Board's conclusion that benefits in the two plans are "substantially the same" 

In analyzing whether the New Quanex Plan is a successor to the Old Quanex Plan, we 

considered the basic structure ofthe two plans in determining whether the benefits were substantially 

the same. Incomparing the benefits, we accorded significant weight to the fact that the basic structure 

ofthe Old Quane;x Plan was carried fotward in the New Quanex Plan. Benefits in both were based 

on a high-5 average earnings formula and years ofcontinuous service with the Quanex Corporation. 

The high-5 average earnings formula that applied all years ofservice was based on the highest five · 

consecutive years ofearnings; there was not one high-5 average earnings amount for service lmder 

the Old Quanex Plan and another high-5 average earnings amount for years after the re-establishment. 

Both plans provided for normal retirement at age 65 and an actuarially reduce early retirement at age 

55 with 10 years ofservice. Both plans permitted retirement after 30 years ofservice, regardless of 

age, for those hired before the establishment oftheNew Quanex Plan. Finally, both plans provided 

for immediate participation ofnew hires, 1 0-year. cliffvesting, and the same plan years. 

While we also are aware that there were some differences in the retirement formulas as 

discussed above, we found it significant that, in at least one important respect, the continuity bt;!tween 

the Old Quanex Plan and the New Quanex Plan benefitted employees. As discussed above, an 

employee's high-5 earnings, taking into account all years of employment with Quanex (or its 

predecessor) is used in the New Quanex Plan in determining the pension benefit accruing for service 

prior to November 1, 1985 and for the pension benefit accruing for service after November 1, 1985. 

For most employees, average earnings over the last five years ofemployment are much higher than 

their average earnings earlier in their career. Thus, this kind of final-earnings formula used in the 

New Quanex Plan generally produces a much higher benefit than ifa completely unrelated new plan 

· had been established, disregarding prior years ofservice. 

The Appeals Board also accorded weight to fact that the Quanex Corporation followed the 

classic termination/re-establishment inodel, as envisioned in the Implementation Guidelines, in 

creating the New Quanex Plan. While a minor deviation from this classic model occurred in that the 

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New Quanex Plan was slightly less generous in its benefit formula for service after November 1, 

1985, we nevertheless concluded that, overall, the benefits provided by the combination ofthe New 

Quanex Plan and the Old Quanex Plan were substantially "equivalent" to the benefits that would have 

been provided had the Old Quanex Plan continued.3 

5. Summary ofOur Successor Plan Determination 

Insummary, the Appeals Board's found that New Quanex Plan is a successor plan, as defined 

in ERISA section 4021(a), to the Old Quanex Plan because the two plans (1) covered substantially 

the same employees; (2) provided substantially the same benefits; and (3) there was continuity 

between_ the two plans. 

3 In making this fmding, we take into account the sponsor's option at any time ofreducing 

future accruals and/or eliminating or changing the 30-and-out retirement provision. We also take 

into account that the change to the 1.5% benefit formula and the 30-and-out benefit were effectively 

phased in over time. These changes had little impact on participants near retirement in 1985, though 

they did impact participants hired closer in time to the New Quanex Plan. While we note that the 

reduction from 1.5% to 1% is ofsignificance to some participants, the reduction is mitigated in that 

the 1.5% multiplier still applied to average-earnings above the "Covered Compensation Level" and 

many participants (including you) had significant earnings above that level. Thus, the effective 

multiplier was somewhere between 1.0 and 1.5%. Finally, while the New Quanex Plan eliminated 

the disability benefit, the effects ofthis change would impact only a limited number ofparticipants. 

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