pension Benefit Guaranty Corporation 1200 KStreet, N.W., Washington, D.C. 200054026 

'0 

Re: Appeal 1 Franklin Steel Company Hourly 

Pension Plan (the "Plan") 

Dear 71 

The Appeals Board has reviewed your appeal of PBGC's 

September 28, 2001 determination that you are entitled to a monthly 

benefit of $575.13 payable as a Straight Life Annuity (n~LA") 

comencing October 1, 2014 (age 62). As explained below, the Board 

changed PBGC's determination by finding that you are entitled to 

$589.22 per month as an SLA beginning October 1, 2014 (age 62). 

PBGC's determination letter stated that "you are entitled to 

a monthly payment of $575.13 and that you may begin to receivethis 

amount on 10/01/2017 [your normal retirement date]." Please note, 

however, that the Summary of PBGC Benefits, enclosed with PBGC' s 

letter. showed that you are entitled to receive the same $575.13 

monthly amount at your Earliest Unreduced Retirement Date of 

n10/01/2014" (age 62). 

In your appeal, you: (1) you questioned the difference between 

the benefit amounts ($810.99 at age 62 and $679.50 at age 60) shown 

in PBGC's January 29, 1998 estimated benefit letter and the lower 

amounts ($575.13 at age 62 and $482.07 at age 60) shown in PBGC's 

September 28. 2001 benefit determination letter; (2) questioned the 

difference between the 1990 pension earnings PBGC used ($29,783.82) 

and your 1990 Social Security earnings ($32,156); (3) stated that 

you were "informed by the International Union that the closing date 

[plan termination date] was July 31,. 1994, not March 31, 1994 [the 

date used by PBGCI; and (4) asked whether you would receive "the 

additional $400.00 a month supplement which other employees have 

received." 

The Plan's definition of Earnings excludes all Cost-of-Living 

Adjustments effective after June 30, 1974. This definition excludes 

a significant portion of the earnings which appear on a 

participant's Form W-2 Wage and Tax Statement. You were one of a 
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number of participants for whom W-2 earnings were contained in 

y PBGC files available to the Appeals Board, but for whom the Plan's 

pension Earnings were not available. With regard to this issue, 

PBGCrs actuarial close-out report states: 

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"If no pension earnings were provided, we estimated the 

average compensation using.70% of the average of the 

highest 5 consecutive years of W-2 earnings out of the 10 

years before termination. We were able to identify 70% as 

a reasonable estimation by comparing the average pension 

earnings with the average W-2 earnings for those 

participants for whom both were available." 

The Appeals Board found that this 70% adjustment was reasonable, 

based on the methodology described in.PBGC's actuarial close-out 

report. 

Determination 

In preparing your' benefit estimate, PBGC calculated your 

Average Monthly Earnings ("AME") without usinq the 70% adjustment 

discussed above: 

1989 $40.896.00 

1988 $40.566.76 

1987 $41,226.39 

1986 $41.848.46 

1985 $34,942.19 

Total $199.479.80 

AME $3,324.66 (= $199,479.80 1 60 months) 

PBGC calculated your estimated monthly benefit of $810.66 at age 62 

by taking 1.1 percent of the product of your AME and your 

Continuous Service [1.1% x ($3,324.66 AME x 22.1667 CS)I. 

In preparing your formal benefit determination, PBGC 

calculated your AME usins the 70% adjustment discussed earlier: 

1990 $30,172:32 

1989 $40,896.00 

1988 $40,566.76 

1987 $41,226.39 

1986 $41,851.09 

Total $194,712.56 

Average $3.245.21 (= $194,712.56 / 60 months) . 

Adjustment $2,271.65' (= 70% of $3,245.21) 
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.i! PBGC determined your formal monthly benefit of $575.13 at age 62 by 

r~ taking 1.1 percent of the product of your AME and your CS and then 

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t: increasing'that amount by 5%. as follows: 

Thus, PBGC's benefit determination is lower than PBGC's benefit 

estimate, because PBGC's benefit determination used an AME of 

$2,271.65 (which was based on the 70% adjustment discussed above), 

while PBGC's benefit estimate used an AME of $3,324.66 (which was 

not based on the 70% adjustment discussed above). 

There are two other differences between PBGC's benefit estimate 

and benefit determination, i.e., the CS figure and the 5% increase. 

The reason for these differences is that P8GC's benefit estimate was 

calculated as of March 31, 1994, your date of termination of 

employment (using a CS figure of 22.1667 years), whereas PBGC's 

benefit determination was calculated as of September 30, 1993, the 

latest date at which the Plan's 5% increase was effective (using a 

CS figure of 21.92 years). Please note that these two differences, 

taken together, work to your advantage, and that the only reason 

that the benefit determination is lower than the estimate is that 

the benefit determination used a lower AME. 

The Board's Recalculation of Your ~ont'hlv Benefit 

In its review of your appeal, the Board discovered that PBGC's 

valuation spreadsheets mistakenly showed a 1985 earnings figure of 

$3,404.20 (instead of $34,949 .D). As a result, the Board found that 

your highest five consecutive years of earnings occurred from 1985 

through 1989. The Board recalculated your AME, as follows: 

1989 $40,896.00 

1988 $40,566.76 

1987 $41,226.39 

1986 $41,851.09 

1985 $34,942.19 

Total $199,482.43 

Average $3.324.71 (= $199,482.43 / 60 months) 

Adjustment $2,327.30 (= 70% of $3,324.71) 

Accordingly, the Board determined your monthly benefit to be 

$589.22, as follows: 

$589.22 = [1.1% of ($2,327.30 AME x 21.92 CS)] x 1.05 
Your 1990 Earninqs 

In your appeal, you questioned the difference between the 1990 

earnings figure ($29,783.82) used by the P3GC in estimating your 

monthly benefit and the earnings figure shown on your 1990 Social 

Security Statement ($32,156). You have two 1990 Franklin Steel W-2's 

in your parti~~pant file. One is for $29,783.82, the other is for 

$388.50, and together they sum to $30.,172.32 (the figure used by 

PBGC in its formal determination). As noted, however, the Board 

found that your highest five consecutive years of earnings occurred 

from 1985 through 1989. Even the highest of your 1990 earnings 

figures ($32,156 from your Social Security Statement) would not be 

included among your. highest five consecutive years of earnings, 

because such figure is lower than your 1985 earnings. ($34,949.19). 

Therefore, the Board found that it.was not necessary to determine 

which of your 1990 earnings figures should be considered correct. 

Plan Termination Date 

When PBGCinitiates plantennination in accordance with Section 

4042 of ERISA (as occurred in this case), Section 4048(a) (3) of 

ERISA provides that the date of plan termination is 'the date 

established by the [PBGC] and agreed to by the plan administrator." 

The "Agreement for Appointment of Trustee and Termination of Pension 

Plan" between PBGC and the "AdminLstrator of the Franklin Steel 

Company Wage Employees' (Hourly) Pension Plan' set the date that 

Franklin Industries ceased business operations, March 31. 1994, as 

the date of Plan termination. Please note that the Appeals Board 

has no authority to change an established plan termination date. 

The $400.00 Tmorarv Supdement 

under Sections 3.4 and 3.5 of the Plan, a participant who was 

entitled to a Permanent Incapacity Retirement, a 70/80 Retirement, 

or a Rule of 65 Retirement could become entitled to receive an 

"Increased Pension" (a $400.00 temporary monthly supplement 

generally payable to age 62). 

As of Plan termination, you had completed 22.17 years of 

continuous service and you had attained 41 years and six complete 

months of age. Thus, your combined age and years of continuous 

service equaled 63.67 which was. .less than 70 (one of the 

requirements for 70/80 Retirement) and less than 65 (one of the 

requirements for Rule of 65 Retirement). In addition, there is no 

evidence that you met the Plan's coilditions for disability 

retirement on or before the Plan termination'date. Thus, as of Plan 

termination, you had not satisfred the conditions necessary to 

become entitled to a Permanent Incapacity Retirement, a 70/80 
Retirement, or a Rule of 65 Retirement. Therefore, you are not 

entitled to receive the Plan's $400.00 temporary supplement. 

Having applied the law, Plan provisions, and PBGC's rules to 

the facts in this case, the Board changed PBGC's determination and 

found that you are entitled to a monthly benefit of $589.22 payable 

in the form of an SLA commencing October 1, 2014 (age 62). Please 

note that the amount of your monthly benefit is subject to 

adjustment depending on your actual retirement date and on the form 

in which your annuity is paid. 

This is the agency's final action regarding the issues you 

raised in your appeal. You may, if you wish, seek court review of 

this decision. 

We appreciate your patience while we completedour review. If 

you need other information from PBGC, please call the Customer 

Service Center at 1-800-400-7242. 

Sincerely, 

Harriet D. Verburg u 

Chair, Appeals Board