,v~ 

PBGC

Protecting America's Pensions 

Pension Benefit Guaranty Corporation 

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

December 31, 2013 

Re: • Appeal 2013-c==J, PBGC Case Number~--------~ • Home Meridian International, Inc. ("HMI") 

• Pulaski Furniture Corporation Pension Plan for 

Employees (the "Plan") 

Dear Mr. ~-----~ 

The Appeals Board has reviewed your appeal 1 on behalf of your 

client, HMI, of PBGC's March 22, 2013 revised determination. PBGC 

determined HMI has incurred liability in the amount of $8,030,363 

under section 4062(e) of the Employee Retirement Income Security 

Act ("ERISA") with respect to the Plan. 2 

Your appeal is denied for the reasons explained in this 

decision. This decision is PBGC's final Agency action with respect 

to HMI's liability under section 4062(e) 

Introduction 

Section 4062 (e) provides financial protection for pension 

plans, their participants, and PBGC. The section 4062(e) liability 

rules are triggered when "an employer ceases operations at a 

facility in any location and, as a result of such cessation of 

operations, more than 2 0 percent of the total number of his 

employees who are participants under a plan established and 

maintained by him are separated from employment." 3 

1 Citations to the Appeals Brief are referenced as "AB." Citations to the 

Appeals Brief's Exhibits are referenced as "HMI Exh." followed by the Exhibit 

number. 

2 ERISA section 4062(e), which we will refer to as "section 4062(e) ," is 

published at 29 USC section 1362(e). In this decision, we will cite only to 

ERISA, without the parallel citations to the USC. 

3 PBGC uses the term "section 4062 (e) event" when it refers to the 

conditions under which section 4062(e) liability is incurred. See 29 CFR section 

4062.8(b) (example of "section 4062(e) event"). In this decision, we similarly 
-2­

These are strict criteria. Individual factors such as the 

financial condition of the sponsor or the plan's funding level are 

not relevant in determining liability. PBGC may, however, take such 

factors into account in its enforcement decisions. The Appeals 

Board reviews only determinations of liability under ERISA 

§4062 (e). 

ERISA section 4063 provides that an employer may satisfy 

section 4062(e) liability by placing the amount owed in escrow with 

PBGC. 4 Alternatively, PBGC may require a bond for up to 150 

percent of the section 4062 (e) liability. 5 If the pension plan 

remains underfunded and terminates within five years of the section 

4062(e) event, the escrowed amount is forfeited, or PBGC will 

"realize on the bond." 6 The proceeds held in escrow (or covered 

under the bond) then become assets of the terminated pension 

plan. 7 If the plan does not terminate within the five-year-period, 

the escrow will be refunded to the employer, without interest, or 

the bond is cancelled. 8 

As discussed in this decision, on August 28, 2009, HMI ceased 

operations at its Pulaski, VA manufacturing and corporate facility 

(the "Pulaski facility"). PBGC first learned of the cessation on 

September 15, 2010, when HMI filed two "PBGC Form lOs" (PBGC PostEvent Notice of Reportable Events) . HMI formally notified PBGC of 

relatively small declines in the Plan's active participant 

population: 

• from 96 to 76 (20.83%) between January 1, 2008 and April 8, 

2008, and 

• from 52 to 41 (21.15%) between January 1, 2009 and 

February 6, 2009. 

HMI included with its September 15, 2010 filing: 

• a statement that the Company was completing the last phases 

of a corporate consolidation that began in 2008, culminating 

with the closing of the Pulaski, VA distribution center in 

August 2009; 

use the term "section 4062 (e) event" to refer to the conditions under which 

section 4062(e) liability is incurred. 

• ERISA section 4063(b). 

s ERISA section 4063(c). 

6 ERISA section 4063 (c) (3). 

7 Id. 

8 ERISA section 4063 (c) (2) . 
-3­

• data on participant counts; and 

• a statement that the Plan was fully funded in 2007. 9 

HMI's notifications (Form lOs) caused PBGC to investigate potential 

section 4062(e) liability. 

PBGC's Determination 

PBGC's March 22, 2013 determination notified HMI that the 

company had incurred liability under section 4062(e) in the amount 

10 11 of $8,030,363. HMI is the Plan's contributing sponsor. PBGC 

gave the following reasons: 

• The Company's facilities in Pulaski, VA ceased operations 

during the period April 13, 2007 to August 28, 2009. 

• The Plan's active-participant population declined from 296 

to 18 during the April 13, 2007 - August 28, 2009 cessation 

period, or a decline of 93.92 percent. 12 

• The closure meets the criteria for a section 4062(e) event, 

because more than 20% of the employees who were participants 

under the Plan were separated from employment with HMI as a 

result of the cessation of operations. 

• HMI's liability under section 4062(e) as a result of the 

cessation of operations was $8,030,363 13 (the "4062(e) 

liability"). 

9 ERISA section 4043 (c) (3) requires filing such a Notice in certain 

instances where the number of a plan's active participants declines by certain 

percentages of 20% or more. In certain instances dependent on a plan's funding, 

29 CFR 4043.23(c) (2) waives the ERISA section 4043(c) (3) filing requirement. 

10 Liability arises under ERISA section 4063 (c) (2) by reference from 

section 4062 (e) . 

11 The term "contributing sponsor" is defined in ERISA section 4001 (a) (13) . 

12 93.92% = (296 {actives on 4/13/2007} - 18 {actives on 8/28/2009}) ~ 296 

Under 29 CFR section 4062.8(a), this percentage is a fraction: 

(1) the numerator of which is the number of the employer's employees 

who are participants under the plan and are separated from 

employment as a result of the cessation of operations; and 

(2) the denominator of which is the total number of the employer's 

employees, as determined immediately before the cessation of 

operations, who are participants under the plan. 

13 $8,030,363 =($19,338,839 {Plan liabilities}·- $10,788,623 {Plan assets}) 

x 93.92% decline in the Plan's active population 

Assets and liabilities are as of August 29, 2009. 
-4­

PBGC's determination further states that HMI may satisfy its 

liability under ERISA sections 4062 {e) and 4063 by placing the 

$8,030,363 amount in escrow with PBGC, or, alternatively, by 

posting a bond for up to 150 percent of the 4062(e) liability. PBGC 

also informed HMI that PBGC has the authority to consider 

alternative arrangements for satisfying the 4062{e) liability. 

If the Plan terminates under section 4041(c) or 4042 of ERISA 

by August 28, 2014 (five years from the date of the Cessation of 

Operations), the escrow will be forfeited to PBGC, or PBGC will 

realize against the bond. If the Plan does not terminate within the 

five-year period, the escrow will be refunded to HMI without 

interest, or the bond will be cancelled. 

Your Appeal 

On September 5, 2013, you filed a 43-page appeal brief (your 

"appeal" or "AB") that requests the Appeals Board "reverse the 

determination of PBGC staff in this case." AB at 4. You filed 

supplements to your appeal on October 22, 2013, December 2, 2013, 

and December 18, 2013. The six issues in your appeal and 

supplements are as follows: 

1. 	 Was HMI' s closure of its facility in Pulaski, Virginia a 

cessation of operations for the purposes of section 4062(e)? 

(AB at 22-29) 

2. 	 Should 4062 (e) liability be based only on the decline in 

active participation on the final day of the cessation? (AB at 

35-36) 

3. 	 Was the Plan "established and maintained" by HMI within the 

meaning of section 4062{e)? (AB at 29-30) 

4. 	 Does PBGC's 4062(e)-liability calculation conflict with IRC 

funding rules and PBGC's duties under ERISA? (AB at 36-38) 

5. 	 Should HMI be exempt from 4062 (e) liability based on its 

credit-worthiness and the risk of plan termination? (AB at 

31-35 and your first and third supplemental briefs) 

6. 	 Does determining HMI's 4062(e) liability while PBGC is 

withholding certain documents requested under the Freedom of 

Information Act ("FOIA") deny HMI due process? (AB at 38-42 

and your first two supplemental briefs) 

Relevant Statutory and Regulatory Background 

The Statutory Language in Section 4062(e) 

Section 4062(e), which applies to single-employer plans 

covered by Title IV of ERISA, states: 
-5­

If an employer ceases operations at a facility in any 

location and, as a result of such cessation of 

operations, more than 20 percent of the total number of 

his employees who are participants under a plan 

established and maintained by him are separated from 

employment, the employer shall be treated with respect to 

that plan as if he were a substantial employer under a 

plan under which more than one employer makes 

contributions and the provisions of sections [4063, 4064, 

and 4065 of ERISA] shall apply. 

Additional Requirements in ERISA Section 4063 

Section 4062(e) provides that, if an event triggering 

liability occurs, the employer "shall be treated with respect to 

that plan as if he were a substantial employer under a plan under 

which more than one employer makes contributions and the provisions 

of sections [4063, 4064, and 4065 of ERISA] shall apply." 14 While 

the requirements in ERISA section 4063 are important with respect 

to your appeal, ERISA sections 4064 and 4065 do not appear to 

impact upon the issues you have raised. 15 

ERISA section 4063 applies to single-employer plans that have 

two or more contributing sponsors, at least two of whom are not 

under common control (i.e., multiple employer plans). Liability 

under section 4063 is triggered when a "substantial employer" 

withdraws from a multiple employer plan. As PBGC stated in its 

preamble to its section 4062(e) regulation (June 16, 2006), the 

cessation of operations at a facility (as defined in section 

14 Under section 4001 (a) (2) of ERISA, "substantial employer," for any plan 

year of a single-employer plan, means one or more persons-­

(A) 	 who are contributing sponsors of the plan in such plan year, 

(B) 	 who, at any time during such plan year, are members of the same 

controlled group, and 

(C) 	 whose required contributions to the plan for each plan year 

constituting one of­

(i) 	 the two immediately preceding plan years, or 

(ii) 	 the first two of the three immediately preceding plan years, 

total an amount greater than or equal to 10 percent of all 

contributions required to be paid to or under the plan for 

such plan year. 

15 ERISA section 4064 applies to the termination of a single-employer 

pension plan that has, or had, two or more sponsors that are not members of the 

same controlled group. ERISA section 4065 requires PBGC-covered, single-employer 

plans to file annual reports with PBGC. 
-6­

4062(e)) is "analogous," but not "equivalent," to a withdrawal from 

a multiple employer plan. 16 

Under section 4063, if a section 4062(e) event occurs: 

• 	 The employer must notify PBGC of the event within 60 days. 

PBGC shall, as soon as "practicable" thereafter, determine the 

amount of the liability and notify liable persons; 17 and 

• 	 Any amount collected by PBGC shall be held in escrow. 18 In 

the alternative, the employer may be required to furnish a 

bond to PBGC in an amount not exceeding 150 percent of the 

liability. 19 

The Duration and End of Liability 

ERISA section 4063(c) (2) provides that, if the plan does not 

terminate within five years, "the liability is abated and any 

payment held in escrow shall be refunded without interest (or the 

bond cancelled) in accordance with bylaws or rules prescribed by 

the corporation." 

ERISA section 4063(c) {3) provides that the following shall 

occur in the event of pension plan termination within the 

five-year-period: 

If the plan terminates under [ERISA] section 4041 (c) or 

4042 within the 5-year period . [PBGC] shall­

(A) demand payment or realize on the bond and hold such 

amount in escrow for the benefit of the plan; 

(B) treat any escrowed payments under this section as if 

they were plan assets and apply them in a manner 

consistent with this subtitle; and 

(C) refund any amount to the contributing sponsor which 

is not required to meet any obligation of [PBGC] with 

respect to the plan. 

Alternative Arrangements for Satisfying Liability 

ERISA section 4067 authorizes PBGC to make "alternative 

arrangements" with any contributing sponsors or members of their 

controlled group for satisfaction of liability. As authorized by 

this provision, PBGC has taken a flexible enforcement approach as 

16 71 Fed. Reg. 34,819, 34,821 (June 16, 2006). 

11 ERISA section 4063(a). We refer to the amount of this liability as the 

"4062(e) liability." 

18 Id. 

19 ERISA section 4063 (c) . 
-7­

to how a plan sponsor satisfies its 4062(e) liability, evaluating 

each case based on its facts and circumstances. For example, PBGC 

and employers often agree on "alternative arrangements" for 

liability under which additional funding contributions are made to 

pension plans. 

Regulations and Enforcement Program 

Section 4062(e) was included in the original 1974 version of 

ERISA. In 2006, PBGC exercised its authority under section 4063 

and promulgated a final liability calculation rule for section 

4062(e). From 2006 to 2010, PBGC negotiated settlements in 37 

enforcement actions under section 4062 (e) for more than $600 

million. 

In 2010, PBGC decided to "clarify the meaning of statutory 

terms used to describe when an event covered by section 4062(e) 

occurs" through a proposed section 4062 (e) regulation. 75 Fed. 

Reg. 48283, 48284 (Aug. 10, 2010). The proposed regulation sought 

to clarify PBGC's interpretation of several terms in the statute. 

For example, it explained PBGC's position that a section 4062(e) 

cessation of operations occurs when an employer ceases a single 

operation - an "organizationally, operationally, or functionally 

distinct unit of an employer." 75 Fed. Reg. 48285. The proposed 

regulation also indicated that "section 4062(e) may apply to an 

employer's cessation of an operation at one facility even if the 

employer continues or resumes the operation at another facility." 

Id. The 2010 proposed regulation has not become a final regulation. 

On November 2, 2012, PBGC established a "4062(e) Enforcement 

Pilot Program" (the "Pilot Program"). Under this program, PBGC 

focuses its 4062 (e) enforcement efforts on plan sponsors who 

present the greatest risk of plan termination. 

The Appeals Board's Factual Findings 

Corporate History 

Pulaski Furniture Corporation was incorporated in Pulaski, VA 

on October 28, 1955. 20 It manufactured and sold a variety of 

bedroom, dining, occasional, and youth furniture as well as curio 

cabinets to the middle and upper consumer markets. 

In September 2006, Pulaski Furniture Corporation became a 

subsidiary of Home Meridian International, Inc. ("HMI Parent"), as 

part of a corporate merger. In 2008, all of the common stock of 

Pulaski's parent company was purchased by a higher-level parent 

company, Home Meridian Acquisition, Inc. ("HMA"). In 2010: 

20 AB at 5 acknowledges Pulaski Furniture Corporation, was "founded in 1955 

in Pulaski, Virginia." Enclosure 3 to this decision show HMI, formerly Pulaski 

Furniture Corporation, was incorporated on October 28, 1955. 
-8­

• HMI Parent was renamed Home Meridian Holdings, Inc. ( "HMH") , 

and 

• Pulaski Furniture Corporation was renamed Home Meridian 

International, Inc. ( "HMI") . 21 

• HMI (formerly Pulaski Furniture Corporation) today remains 

an ongoing Virginia stock corporation. 22 

The Pension Plan's History 

Pulaski Furniture Corporation established the Plan effective 

November 1, 1955. 23 Accrued benefits under the Plan were frozen 

effective March 31, 2005. The Plan was closed to new entrants 

effective April 1, 2005. 

Employment Started Declining and Outsourcing Began In 2006 


Manufacturing Ceased In April 2007 


Significant reductions in the number of active Plan 

participants began in 2006. See the Appendix to this decision. 

Also, in late 2006, "HMI undertook to source furniture for all its 

companies through HMI's manufacturing partners in Malaysia, China, 

and Vietnam." 24 

In February 2007, the Company announced that it would "cease 

manufacturing operations in Pulaski, Virginia in April 2007." 25 On 

February 16, 2007, the Company issued a WARN notice to its 

manufacturing employees, advising of an imminent: 

permanent closing of the entire Pulaski Furniture 

Corporation Plant 1 facility located at 301 North Madison 

Avenue, Pulaski, Virginia .... We estimate that your date 

of separation from Pulaski Furniture Corporation will be 

between April 15, 2007 and April 30, 2007. 

21 We use the term "Company" in this decision to refer to Pulaski Furniture 

Corporation (old name), the same corporation as is now named HMI (effective 

January 6, 2010). 

22 HMI Exh. 1 page 3 paragraph 8 references HMI Parent's purchase of 

Pulaski in 2006. HMA's acquisition of all of HMI Parent's common stock in 2008 

is described in HMH's audited financial statements- see Enclosure 1 page 8. The 

renaming of Pulaski Furniture Corporation to Home Meridian International, Inc. 

effective January 6, 2010 is described in both Enclosure 1 page 8 and in 

Enclosure 2. Enclosure 3 also shows Pulaski, now named HMI, remains ongoing as 

a Virginia stock corporation. The renaming of Pulaski's parent in 2010, from HMI 

Parent to HMH (using our abbreviations) is also described in Enclosure 1 page 8. 

23 Pursuant to a December 31, 1985 acquisition, the Pension Plan of Gravely 

Furniture Company, Inc. was merged into the Plan effective January 1, 1986. 

24 HMI Exh. 1 pages 2-4 paragraphs 6 and 9. 

2 s HMI Exh. 1 page 6 paragraph 18. 
-9­

Afterward, a local newspaper reported: 

In April 2007, Pulaski Furniture's Plant One on Fifth 

Street shut down. It was the company's last domestic 

manufacturing facility .... 260 workers were displaced. 26 

This evidence shows Pulaski Furniture ceased all manufacturing at 

the Pulaski facility in April 2007. 

Reductions Continued After Manufacturing Ended In April 2007 


Some Remaining Operations Transferred During 2008-2009 


According to the appeal, HMI began transferring operations 

from the Pulaski, Virginia to HMI's new location in North Carolina 

in 2007. The appeal states the following: 

Beginning in mid 2007, corporate, warehouse, customer 

service, and other company activities were gradually 

relocated to HMI's new facilities in High Point. 

Operations in Pulaski did not cease completely until 

August 28, 2009. 27 

You also provided the Appeals Board with a 2007 newspaper report 

showing that HMI had announced a prospective plan to relocate its 

headquarters and a design, sourcing and marketing center to a 

20,000-square foot facility at an address in High Point, NC. 28 

However, on the Form 10 Notices that HMI filed with PBGC on 

September 15, 2010, HMI indicated that its corporate consolidation 

and relocation started in 2008 and continued into 2009. Moreover, 

an April 8, 2008 industry publication stated the new facility cited 

in the 2007 newspaper report quoted above was opened in January 

2008: 

[HMI Parent] has announced it will relocate some jobs 

from its Pulaski, Va., and Phoenix locations to its 

corporate headquarters [in High Point] ... In January, HMI 

opened the 20,000-square-foot office as the home base for 

all four of its divisions. 29 

26 

account, 

East 

http://www.furnituretoday.com/article/45580-Home 

3387. 

Fifth 

29 

28 

27 

The 

See 

HMI 

HMI 

The 

coincide 

two 

Street, 

Exh. 

Exh. 

Furniture 

news 

addresses 

44 

1 

because 

report 

N.E. 

page 

Today, 

7 

for 

is 

301 

paragraph 

at 

Plant 

April 

North 

http://www.southwesttimes.com/2009/04/archive

1, 

8, 

Madison 

20. 

2008, 

in 

The 

the 

Avenue 

at 

same 

WARN 

Enclosure 

Meridian 

statement 

notice 

is at 

4 

the 

and 

to 

to 

is 

shift 

intersection 

in 

this 

at 

the 

AB 

letter 

jobs 

at 

newspaper 

12-13. 

to 

and 

with 

Hig 

­ h_Point.php. - - - - - ­
-10­

Based on this information, the Appeals Board concluded that any 

transfer of any remaining operations at the Pulaski facility to 

North Carolina began in 2008 and ended in 2009. Over the period 

from January 1, 2006 to August 28, 2009, which includes the 

corporate consolidation and relocation, the number of active 

participants in the Plan declined from 448 to 18, or 95.98%. 30 

This calculation is based on documents submitted by HMI. See the 

Appendix to this letter. 

Summary of the Board's Factual Findings 

In summary, the Appeals Board found the following facts: 

(1) The Company ceased operations at the Pulaski facility 

gradually over a period beginning in 2006. Operations in 

Pulaski did not cease completely until August 28, 2009. 31 

(2) In April 2007, during the 2006-2009 cessation period, the 

company's manufacturing operations ceased and were not 

transferred to any other Company location or facility. 

(3) The 2006 to August 28, 2009 cessation period includes the 

smaller April 13, 2007 -August 28, 2009 cessation period PBGC 

used to calculate HMI's 4062(e) liability. 

(4) Any transfer of the remaining Company operations from the 

Pulaski facility to new and/or existing facilities in North 

Carolina began in January 2008 and ended on August 28, 2009. 

Discussion 

We address below the six issues that you raised in your 

appeal. 

1. Was HMI's closure of its facili

cessation of operations for 

4062 (e)? (AB 22-29) 

ty in Pulaski, Virginia a 

the purposes of section 

Your primary argument is that the shutdown of the Pulaski 

facility was not a cessation of operations but merely a relocation 

of operations to North Carolina. You therefore argue that the 

first criterion for liability under section 4062(e) -cessation of 

operations - was not met. 

30 430 = 448 {on January 1, 2006} - 18 {on August 28, 2009}. 

95.98% = 430 decline+ 448 {actives on January 1, 2006}. See the data in 

the Appendix to this letter. 

31 That is not to say that section 4062 (e) applies only when all operations 

cease, although that is the factual background in this case. Rather, liability 

arises under section 4062(e) whenever an operation ceases at a facility and, as 

a result, more than 20\ of the active participants in a plan are separated from 

employment. See PBGC Appeals Board Decision on Munksjo, Inc. (December 31, 2013). 
-11­

You base your argument on a comparison of the Company's 

circumstances to those in PBGC Opinion Letter 77-134 (what we call 

"77-134," dated March 18, 1977). You quote 77-134: 

The plant is being re-located within * * * and in 

connection therewith more than 20% of the active 

participants will be laid-off or discharged. The 

remaining active participants will continue participation 

(i.e. accruals and vesting) under the Plan while those 

laid-off or discharged with vested rights under the Plan 

will retain such rights and the Company will continue to 

fund them. Under the foregoing facts there is neither a 

termination of the Plan under Title IV of the Act nor do 

the provisions of Sec. 4062(e} of [ERISA] apply. 32 

You also state: 

Opinion Letter 77-134 clearly states PBGC's formal 

interpretation that mere relocation of operations do not 

create risk of distress or involuntary plan terminations 

"nor do the provisions of Sec. 4062(e) of the Act apply" 

to such relocations. 33 (underlining added) 

The Appeals Board finds your reliance on 77-134 to be 

misplaced. 77-134 describes a specific plan where only one fact was 

given as material to the decision: operations ceased at an 

employer's facility and were merely transferred to another of the 

employer's facilities. 

The facts surrounding the Company's cessation of its 

operations at the Pulaski facility are very different. Operations 

ceased over a period beginning in 2006, ending completely on 

August 28, 2009. During the cessation period, in April 2007, the 

Company's manufacturin~ operations ceased entirely and permanently. 

Employment fell 78.6% 4 during 2006 - 2007, before any transfer of 

operations began in 2008. Thus, the majority of HMI's operations 

were never transferred anywhere. The transfer of some remaining 

operations to North Carolina was simply a small and final part of 

a larger cessation. 35 

These facts are distinguishable from those surrounding the 

transfer of operations described in 77-134, in which there was a 

32 AB at 25. 

33 AB at 25. 

34 (448 {actives on 1/1/2006}- 96 {on 1/1/2008}) + 448 {on 1/1/2006} 

See the data in the Appendix to this letter. 

35 Some operations transferred after manufacturing ceased, such as 

logistical and warehousing operations. 
-12­

mere transfer of operations. We concluded HMI's transfer of its 

remaining operations to North Carolina is materially different than 

the transfer of operations described in 77-134. 

For the reasons explained above, the Appeals Board concluded 

that the advice offered in Opinion Letter 77-134 is not applicable 

to HMI's cessation of operations at its Pulaski facility. 36 

2. 	 Should 4062(e) liability be based only on the decline in 

active participation on the final day of the cessation? 

(AB at 35-36) 

You questioned how PBGC calculated the Company's 4062 (e) 

liability ($8,030,363) for the cessation ending August 28, 2009. 

PBGC used the 93.92% decline in the participant population (the 

"reduction ratio") between April 13, 2007 and August 28, 2009, a 

37 	 38 period of 2 1/2 years. You propose instead using a 53.66% 

decline over 1 day, from August 27, 2009 to August 28, 2009. You 

conclude PBGC should have calculated $4.58 million 39 instead of 

$8,030,363. 

We affirm operations ceased throughout the April 13, 2007 ­

August 28, 2009 period that PBGC used to calculate HMI's 4062(e) 

36 Because the facts in this case are different from those in Opinion 

Letter 77-134, the Appeals Board does not need to address your argument that 

"[i]f PBGC wants to reverse the longstanding guidance of PBGC Opinion Letter 

77-134, PBGC must adopt a new regulation pursuant to the notice and comment 

process required by 5 U.S.C. § 553." AB at 31. The Appeals Board notes, however, 

that the authority you cite does not support this position. The cases you cite 

indicate that an agency may not change its interpretation of its own regulation 

without formally changing the regulation itself. By contrast, "there is no 

barrier to an agency altering its initial interpretation [of a statute] to adopt 

another reasonable interpretation." Paralyzed Veterans of America v. D. C. Arena, 

L.P., 117 F.3d 579,586 (D.C. Cir. 1997). And "an agency is free to alter its 

past rulings and practices even in an adjudicatory setting" if it "provides a 

reasoned explanation for any failure to adhere to its own precedents." Hatch v. 

FERC, 654 F.2d 825, 834 (D.C. Cir. 1981). 

37 The 93.92% reduction ratio is calculated in footnote 12 above. 

$8,030,363 93.92% x $8,550,216 Unfunded Benefit Liabilities 

$8,550,216 = $19,338,839 benefit liabilities - $10,788,623 assets 

38 53.66% = 22 {decline} + 41 {"immediately before" August 28, 2009} 

We calculated 56.10% instead of 53.66% using the method you propose and the 

data in the Appendix to this letter: 

56.10% = 23 {decline} + 41 {"immediately before" August 28, 2009} 

The discrepancy (56 .10% vs. 53. 66\} is not material to deciding whether the 

method you propose is correct. 

39 $8,550,216 Unfunded Benefit Liability x 53.66% decline 


The $4.58 million amount you propose is at AB at 34. 

-13­

liability. Also, PBGC's regulation requires calculating the 

percentage decline in the active participant population using: 

the number of the employer's employees who are 

participants under the plan and are separated from 

employment as a result of the cessation of operations. 40 

For these reasons, we must deny your request to replace the 2 1/2­

year decline PBGC used with the 1-day decline you propose. 

93.92% Decline Due To Cessation During April 2007 -August 2009 

We reviewed PBGC's calculation of the percentage (93.92%) of 

the active participants whose employment was terminated as a result 

of the cessation of operations ending in August 2009. We found: 

• PBGC's calculation may be skewed slightly too high, as one 

of the exhibits you submitted suggests. 41 Typically, some 

active employees would retire during a 2 1/2-year period, even 

if operations remained steady. Such retirements would cause 

the active-participant population to decline, because the 

frozen Plan could not add any new employees as participants. 

The retiree ~opulation, however, increased by only 3 

participants 4 during 2005, the year before the merger 

occurred. Thus, including approximately 7.5 43 retirees in an 

active-employee decline of 278 44 would slightly reduce the 

93.92% decline PBGC calculated. 

• PBGC's calculation (93.92%) may be skewed slightly too low, 

because the active-participant population declined by 156 

participants (33.93% 45 ) during the 15 months from January 1, 

2006 to April 17, 2007. Your appeal provides an explanation, 

stating that after the September 2006 merger: 

40 see 29 CFR section 4062.8 (a) (1). 

41 See HMI Exh. 30 paragraph 4 pages 4-5. 

42 3 = 552 {retirees as of 1/1/2006} - 549 {retirees as of 1/1/2005}, based 

on data in the Plan's Form 5500s - see the Appendix to this letter. 

43 7.5 = 3 {per year} x 2.5 years {April 2007 - August 28, 2009} 

•• 296 {actives on 4/13/2007} - 18 {actives on 8/28/2009} 


See footnote 12. 


45 33.93\ = (448 {actives on 1/1/2006}- 296 {actives on 4/13/2007}).;. 448, 

a calculation similar to PBGC's 93.92% calculation summarized in footnote 12 

above. See the data in the Appendix to this letter. 
-14­

HMI promptly began implementing its strategic plan to 

streamline operations, control costs, consolidate, and 

improve efficiencies. 46 

This evidence indicates the decline PBGC determined, beginning 

in April 2007 (93. 92%), is the continuation of a 33.93% 

cessation that began in 2006 or earlier. Combining the two 

active-participant declines (156 and 278) would slightly 

increase the 93.92% decline PBGC determined. 47 

We found that on balance, the 93. 92% PBGC determined for the 

percentage of Plan participants whose employment was terminated as 

a result of the cessation operations at the Pulaski facilities is 

slightly favorable for the Company. 

3. 	 Was the Plan "established and maintained" by HMI within 

the meaning of section 4062 (e)? (AB at 29-30) 

Your appeal states that although HMI has funded the Plan 

liability, the HMI control group "did not establish the plan and 

has not 'maintained' the plan for section 4062(e) purposes because 

partici~ants have not accrued benefits under the plan since April 

2005." 8 

However, because Pulaski Furniture Corporation established the 

Plan in 1955, and HMI is simply a new name for that entity and 

remains legally obligated to maintain the Plan, HMI "established 

and maintained" the Plan, regardless of whether participants 

continue to accrue plan benefits. As plan sponsor, the Company made 

and continues to make contributions to the Plan. 49 Accordingly, all 

evidence shows the Plan was "established and maintained" for the 

purposes of section 4062(e) by the corporate entity now named HMI. 

HMI's legal obligations to maintain the Plan, for example to 

pay PBGC premiums and fund the Plan, were not changed by the 2005 

amendment that froze accruals and participation. 50 HMI remains the 

plan sponsor, and accordingly retains duties imposed by ERISA to 

46 AB at 9. 

47 We calculated the combined decline (95.98%) in footnote 30 above. 

48 AB at 29. 

49 The Plan sponsor's name "Pulaski Furniture Company" is shown on the Form 

5500s as the Company through 2009. Following the corporate renaming in 2010, HMI 

was listed as plan sponsor. Further, as plan sponsor, HMI stated that it "plans 

to maintain and fund the Pulaski Plan." AB at 17 and Exh. 1 paragraph 31. 

(italics added). 

50 Amendment 3 to the Plan froze accruals and participation. It did not 

freeze vesting, in accordance with ERISA section 203(c). 
-15­

maintain the Plan. While you argue that 77-134 provides guidance on 

this issue, we found that 77-134 is inapplicable. 77-134 makes no 

reference to when a plan is "established and maintained" by an 

employer under section 4062(e}. Therefore, we must deny your claim 

that the Plan's 2005 freeze changes HMI's status as the entity that 

established and maintained the Plan for the purpose of determining 

liability under section 4062(e). 

4. 	 Does PBGC's 4062(e)-liability calculation conflict with 

IRC funding rules and PBGC's duties under ERISA? (AB at 

36-38) 

After some discussions, the Agency and the Plan actuary agreed 

$8, 030, 363 is the correct mathematical result for calculating 

4062(e) liability as of August 29, 2009, when using: 

• the 93.92% reduction ratio; 

• participant data that HMI asked PBGC to use; 

• actual plan assets; and 

• PBGC's plan-termination assumptions. 

Your appeal claims use of PBGC's plan-termination actuarial 

assumptions is unreasonable. You assert PBGC' s assumptions are 

inconsistent with the actuarial assumptions that an ongoing pension 

plan must use to comply with the tax-qualification requirements in 

51 the Internal Revenue Code. 

PBGC's regulation states PBGC must determine 4062(e) liability 

based on the amount of liability "described in section 4062 of 

ERISA for the entire plan," as if the plan terminated immediately 

after the date of the cessation of operations. 52 Therefore, PBGC 

used the actuarial assumptions that would have applied as if the 

Plan had terminated on August 29, 2009. The actuarial assumptions 

that PBGC uses on a termination basis (the same assumptions as 

required under 4062 (e)) are required by PBGC regulation 29 CFR 

section 4044. 53 Therefore, we must deny your request to change the 

actuarial assumptions PBGC used. 

You claim further that PBGC' s valuation assumptions when 

assessing 4062(e} liability conflict with PBGC's duty under ERISA 

section 4002(a) (1) "to encourage the continuation and maintenance 

51 AB at 36-38. 

52 29 CFR section 4062.8 (a). 

53 For a terminated plan, the actuarial assumptions in 29 CFR section 4044 

are based on annuity purchase rates, i.e. on what it would cost to settle 

obligations in the annuity marketplace. 
-16­

of voluntary private pension plans for the benefit of their 

participants." 54 

The Plan's funding has deteriorated from 98.8% in January 2008 

to 82% in January 2013, even under the on~oing-plan actuarial 

assumptions you propose that PBGC should use. 5 For an underfunded 

pension plan such as the Plan PBGC's enforcement of section 4062{e) 

provides financial protection to the plan, its participants, and to 

PBGC. You have demonstrated no imbalance between how PBGC has 

carried out its dual responsibilities under sections 4002(a) {1) and 

4062{e). 

5. 	 Should HMI be exempt from 4062(e) liability based on its 

credit-worthiness and the risk of plan termination? (AB 

at 31-35 and your first and third supplemental briefs) 

You state PBGC's section 4062(e) claim is based on Company 

actions that strengthened the Company and enhanced its ability to 

fund the Plan. For example, referring to the events in question 

(cessation of most operations and the transfer of remaining 

operations to North Carolina), you state: 

Thanks to the savings and efficiencies achieved from the 

relocation, HMI has contributed more than $3.4 million to 

the Pulaski Plan since April 2010. 56 

You also state: 

PBGC has identified no evidence that the Pulaski Plan 

will experience an involuntary or distress termination 

before August 28, 2014, less than a year from now. 57 

Section 4062 (e) does not excuse section 4062 (e) liability 

based on any assessment of risk that a plan will terminate. To the 

contrary, section 4062(e) simply creates the liability and 

contemplates releasing the liability (if paid as a bond or escrow) 

after 5 years if a plan does not terminate. Moreover, PBGC has 

54 AB at 4 and at 38. 

55 The 98. 8\ Funding Target Attainment Percentage ( "FTAP") as of January 1, 

2008 is at AB at 35. You noted the 82\ FTAP as of January 1, 2013 on page 6 of 

your October 22, 2013 supplemental brief. The FTAP is calculated on an ongoingplan basis and is based in part on past corporate-bond interest rates. 

You provide an alternate plan funding percentage as of January 1, 2008, 

118.3\ instead of 98.8\, at Exhibit 54 to your third supplemental brief. As 

permitted by the Financial Accounting Standards Board's standard 35 ( "FASB 35"), 

the 118.3\ calculation is based on alternative actuarial assumptions, including 

the Plan sponsor's choice of a 7.5% interest rate for all future years. 

56 AB at 2. 

57 AB at 34. 
-17­

historically enforced section 4062(e) regardless of the size of the 

plan or the financial condition of the plan sponsor. 

More recently, PBGC announced its Pilot Program in which PBGC 

may forbear 4 062 (e) enforcement based on certain factors, including 

risk. 58 PBGC determined the Company does not qualify for 

forbearance under the Pilot Program because: 

• The Company has reported weak financial performance, a 

significant level of debt that is secured by substantially all 

Company assets, as well as other aspects of financial 

distress. 

• The Plan has more than 100 participants. 

The Appeals Board does not have the authority to review PBGC's 

discretionary decisions concerning actions PBGC could take to 

recover funds owed to PBGC or to PBGC-trusteed pension plans. In 

particular, the Appeals Board does not have the authority to review 

PBGC's exercise of discretion under the Pilot Program. 59 

For the reasons given above, the Board cannot use the 

Company's credit-worthiness or any risk assessment of plan 

termination as a basis for changing PBGC's determination. 

6: 	 Does determining HMI's 4062(e) liability while PBGC is 

withholding certain documents requested under the Freedom 

of Information Act ("FOIA") deny HMI due process? (AB at 

38-42 and your first two supplemental briefs) 

Your appeal and your October 22, 2013 and December 2, 2013 

supplemental briefs noted documents that would be responsive to 

your multiple requests for information under FOIA were withheld by 

PBGC's Disclosure Division based on exceptions that it cited in its 

FOIA responses. You list 8 categories of documents on pages 38-41 

of your appeal. 

Please note that the Disclosure Division's FOIA responses are 

not subject to review by the Appeals Board. The Appeals Board has 

no authority to change the Disclosure Division's decision as to 

what documents it releases as part of the FOIA process. Nor is the 

Appeals Board involved in: (1) the PBGC General Counsel's decisions 

on FOIA appeals, or (2) FOIA litigation. 

The documents PBGC provided HMI give the basis for PBGC' s 

determination. The Board's decision is fully documented by the 

PBGC-provided documents and the documents submitted on appeal. 

Therefore, the administrative record for the Board's decision on 

58 Granting such forbearance is consistent with ERISA section 4067, which 

allows PBGC to settle liability under alternative arrangements. 

59 29 CFR section 4003. 
-18­

your appeal is complete, notwithstanding that PBGC withheld from 

HMI certain documents based on FOIA exemptions. The Board, in 

deciding your appeal, did not rely on the withheld documents. We 

find you have identified no violation of HMI's due process rights. 

Decision 

The Appeals Board has reviewed your appeal of PBGC's 

determination that HMI had incurred liability, in the amount of 

$8,030,363, under ERISA section 4062(e). For the reasons explained 

in this decision, the Board found your appeal did not provide a 

sufficient basis for changing PBGC' s determination. We must, 

therefore, deny your appeal. This decision is PBGC's final Agency 

action with respect to HMI's liability under section 4062(e). HMI, 

accordingly, has exhausted its administrative remedies. HMI may, 

if it wishes, seek review of this decision in US District Court. 

Sincerely, 

William D. Ellis 

Appeals Board Member 

Appendix: Data on the Plan's Population of Active Participants 

Enclosures: 

1. 2010 audited financial statements of Home Meridian 

Holdings, Inc. for the Year ended October 31, 2010 and Period 

from December 31, 2008 to November 1, 2009. (30 pages) 

2. Articles of Amendment Changing the Name of a Virginia Stock 

Corporation, renaming Pulaski Furniture Corporation as Horne 

Meridian International, Inc. (HMI), effective January 6, 2010. 

(3 pages) 

3. Virginia State Corporation Commission documents showing 

that on August 28, 2013, HMI (incorporated October 28, 1955) 

paid its annual registration fee, $190 based on 20,000 

authorized shares. (2 pages) 

4. April 8, 2008 Furniture Today report stating HMI opened a 

new 20,000-square foot facility in High Point in January 2008. 
Appendix: Data on the Plan's Population of Active Participants 

The Appeals Board's decision is based on the following data on 

the number of participants in the Plan who were actively employed 

as of certain dates. All data comes from HMI-provided documents, 

including your appeal. 

As Of 

Date 

Participants 

I Total Actives Data Source

1/01/2005 1,601 501 2005 Form 5500 Schedule B 

1/01/2006 1,525 448 2006 Form 5500 Schedule B 

1/01/2007 1,450 327 2007 Form 5500 Schedule B 

4/13/2007 NA * 296 60 11/24/2010 

HMI e-mail 

1/01/2008 1,392 96 2008 Form 5500 Schedule SB 

4/11/2008 NA 76 HMI Form 10 

1/01/2009 1,270 52 2009 Form 5500 Schedule SB 

2/06/2009 NA 41 HMI Form 10 

8/28/2009 NA 18 data from Plan's actuary 

12/31/2009 1,235 18 2009 Form 5500 and data 

from Plan's Actuary 

* "NA" = Not Available 

60 31 active participants left covered employment prior to a general layoff 

that began on April 13, 2007. 

I