Pension Benefit Guaranty Corporation 

Protecting America's Pensions 1200 K Street. N. W., Washington, D.C. 20005-4026 

March 6, 2009 

Re: I, Case 194672, Outboard Marine Corporation 

Employees Retirement Plan (the IIRetirement Plan ll ) 

Dear I: 

The Appeals Board has reviewed your second appeal of PBGC's 

May 18, 2005 determination of your benefit under the Retirement 

Plan.l For the reasons stated below, we have denied your second 

appeal. Accordingly, this decision, which upholds PBGC's May 18, 

2005 revised determination, becomes PBGC's final administrative 

action concerning your benefits under the Retirement Plan. 2 

PBGC's Benefit Determination and Your First Appeal 

PBGC's revised determination letter stated that you are 

enti tIed to a monthly benefit of $1,449.43 in the form of a 

Straight Life Annuity with No Survivor Benefits. Because this 

would be an increase over the $1,255.06 per month that PBGC has 

been paying you, PBGC said that you would receive a backpayment for 

the difference between what PBGC owed you and what you had 

received. Although it was not mentioned in the determination or 

Benefit Statement, PBGC had concluded that you were not entitled to 

any additional benefits from PBGC based on the legal requirements 

that apply to the September 30, 1999 merger of the Outboard Marine 

Corporation Employees Pension Plan ("Pension Plan") into the 

Previously, on July 24, 2007, we denied your first appeal. 

2 Your second appeal states that you and four other former Outboard Marine 

Corporation ("OMe") employees "have essentially merged our efforts" and are 

appealing their benefit determinations "on substantially the same issues." 

Although the Appeals Board decided not to formally consolidate these five 

appeals, we have completed our review of all of them. As a result, we are 

issuing separate decisions on the same date to all five appellants. 
2 

Retirement Plan. 3 

In your September 14, 2005 appeal letter and subsequent 

addenda, you asserted that the Pension Plan was underfunded on 

September 3D, 1999, and the pre-merger Retirement Plan was 

overfunded on that date. You noted that: (I) ERISA and IRe 

provisions are designed to prevent participants from losing 

benefits when their pension plan merges with a pension plan that is 

less well-funded; and (2) Treasury Regulation 1.414(e)-1 provides 

that, if the merged plan terminates within five years after the 

merger, a special schedule of benefits ("Special Schedule") must be 

created to give participants in the better-funded plan a higher 

claim against the merged plan'S assets. 

Among other things, your first appeal disagreed with PBGC's 

conclusion that creation of a Special Schedule was not needed. You 

asserted that: (1) PBGC' s analysis of the need for a Special 

Schedule did not take into account all relevant information, nor 

was the analysis unbiased; and (2) if PBGC had performed a proper 

analysis, the likely result is that you and some other pre-merger 

Retirement Plan participants would be entitled to greater benefits 

from PBGC. 4 

The Appeals Board's 2007 Decision and Your Second Appeal 

The Appeals Board's July 24, 2007 decision ("2007 Decision") 

explained that a Special Schedule could improve a participant's 

termination benefit from PBGC only if both of the following two 

conditions were met: (1) the merged plan was underfunded (based on 

an ERISA § 4044 allocation) on the merger date; and (2) the funding 

level of the merged plan (based on an ERISA § 4044 allocation) on 

Legal requirements governing pension plan mergers are set out in 

section 208 of the Employee Retirement Income Security Act ("ERISA"), section 

414 (V) (1) of the Internal Revenue Code ("IRC"), and Treasury Regulation 

1.414(Q)-I. Among other things, the Treasury Regulation requires the creation 

of a "Special Schedule" of benefits under certain conditions. The plan merger 

requirements are discussed in detail on pages 3 - 5 and in Appendix 1 of the 

Appeals Board's prior decision. 

Before it issued your revised benefit determination, PBGC documented its 

findings on the plan merger issue on page 28 of its Actuarial Case Memo ("Case 

Memo"). The Case Memo is the document (dated November 9, 2004) in which PBGC's 

TPD-B approved the actuarial valuation of the Retirement Plan. In the Case Memo, 

PBGC, among other things, concluded: "Even if we did not consider the merged plan 

to be fully funded at the merger date, we do not believe the special schedule 

would be applicable to the DOPT valuation results." 

Your first appeal also questioned the validity of the merger. The 

Appeals Board's July 24, 2007 decision, however, found that the merger was valid. 

You have not questioned the validity of the merger in your second appeal. 
3 

the Plan's Date of Plan Termination ("DOPT") was higher than the 

funding level of the lower- funded plan immediately before the 

merger. With respect to the second condition, we upheld PBGC's 

finding (which you did not contest) that the Retirement Plan's 

assets covered 62.51% of Priority Category 4 benefits on its DOPT 

of August 17, 2001. 

We concluded, therefore, that the only way a Special Schedule 

of benefits could improve your PBGC benefits was if the assets of 

the Pension Plan (which the Board agreed was the lower funded of 

the two Plans) covered less than 62.51% of Priority Category 4 

benefits on the merger date. To determine whether or not the 

Pension Plan/s funding on the merger date was below this threshold, 

the Appeals Board retained the services of Milliman, Inc. 

("Millimanfl) to review independently the actuarial information 

regarding the merger of the Pension Plan into the Retirement Plan. 

SpecificallYI the Board reque~ted that Milliman address 

whether or not a Special Schedule of Benefits constructed as of the 

September 30, 1999 merger date would have impacted the PBGC benefit 

payable to any participant of the Retirement plan. Milliman's 

detailed memorandum analyzing the merger issue concluded: 

[W]e were unable to find a set of assumptions that we 

consider reasonable. . that would yield a PC4 funding 

percentage in the lower funded plan at the Date of Merger 

that is less than the DOPT PC4 funding percentage of 

62.51%. Consequently, we conclude that a 9/30/1999 IRC 

414(Q) Special Schedule of Benefits will not affect the 

plan termination benefit of any participant in the merged 

plan. 

Memorandum dated June 25, 2007 from I I and LI ____ ~ 

"-----__ ---"I of Milliman to Chip Vernon("Milliman Memorandum") at page 

In its analysis of the merger, Milliman assumed that the RPA 

'94 current liability of the Retirement Plan on the merger date as 

calculated by Hewitt Associates ("Hewitt") ($494,912,659) was close 

to the actuarially appropriate 414(Q) liabilities for the merged 

Plan. 6 After receiving the Milliman Memorandum, the Appeals Board, 

S The Milliman Memorandum, which is Appendix A to the 2007 Decision, also 

is included as Enclosure 1 to this decision. 

"Current liability" is defined in section 412 (V) (7) of the IRe. In this 

decision, "RPA '94 current liability" refers to the calculation by Hewitt of the 

Retirement Plan's current liability on September 30, 1999, as reflected in the 

Retirement Plan's 1999 Form 5500 filing with the IRS. 
4 

with Milliman's assistance, prepared an estimate (Appendix 3 to the 

2007 Decision) to reconcile the benefit liabilities at DOPT 

(8/17/01) to the benefit liabilities at the merger date (9/30/99).7 

This estimate showed the Retirement Plan's benefit liabilities at 

DOPT ($481,706,576), projected backwards, corresponded to benefit 

liabilities at the merger date of approximately $482.4 million.s 

The Appeals Board concluded in the 2007 Decision that this 

backwards projection supported Milliman's use of the RPA \ 94 

current liability that was calculated by Hewitt (rather than a 

larger amount that could be more favorable to you) in its analysis 

of the merger issue. 

For the reasons explained in the 2007 Decision, the Appeals 

Board "fully accepted Milliman's thorough and sound analysis of the 

merger issue" as presented in the Milliman Memorandum. The Board 

accordingly decided that a Special Schedule of Benefits would not 

affect the plan termination benefit of you or any other 

participant. 

We decided, however, that because that decision was based in 

part on information and analysis not previously provided to you, we 

would provide you with the opportunity to file a second appeal if 

you disagreed with that decision. After you requested and the 

Board granted extensions of time, you filed a second appeal on 

March 24, 2008. You also have made several additional filings with 

the Appeals Board after that date, including extensive supplemental 

materials submitted on December 15, 2008. 

In your second appeal, you claim that "PBGC failed to prove 

its contention that a Special Schedule for Asset Allocation is not 

necessary even with the supplemental data contracted with 

Milliman." For this issue, you question the Appeals Board's and 

Milliman's conclusions on several specific grounds, which are 

discussed in detail later in this decision. Your appeal also 

asserts that PBGC should increase your benefit because: (1) PBGC 

decided not to terminate the Retirement Plan on February 28, 2001 

In this decision. we use the term "Milliman/PBGC Backwards 

Reconciliation" to refer to the analysis in Appendix 3 of the 2007 Decision. 

The Appeals Board noted the following caveats with respect to the use 

of these estimates to reconcile the data: (1) Hewitt's current liability amount 

uses an interest rate of 6.29%, while the backwards projection uses PBGC's 

interest rates (6.30% for 20 years; 5.25% thereafter)i (2) the backwards 

projection is based on PBGC's Expected Retirement Age assumptions. while the 

current liability amount is based on Hewitt's retirement assumptions (which took 

into account the Waukegan and Milwaukee shutdowns); and (3) the backward 

projection does not take into account changes in participant data between 10/1/99 

and 8/17/01. 
5 

as it initially proposed, and a substantial decrease in Retirement 

Plan assets occurred after that date; and (2) PBGC settled its 

"unfunded benefit liabilities" claim in OMC' s bankruptcy for an 

amount you consider to be inadequate. You suggest that, if PBGC 

had taken different actions with respect to the above, your PBGC 

benefit would be greater. 

Background 

On pages 3 to 14 of the 2007 Decision, we presented extensive 

background information related to the pension merger issue. That 

background information is incorporated by reference, rather than 

repeated here. 

We have included, in the Appendix to this decision, an 

explanation of the benefits PBGC guarantees and ERISA's 

requirements for the allocation of pension plan assets. We further 

are providing, as Enclosure 2 to this decision, Chapter 5.10-1 of 

PBGC's Operating Policy Manual, entitled "Benefit Liabilities in 

Priority Category 6" ("PC6 Policy"). The PC6 Policy discusses how 

non-vested benefits are treated upon a pension plan's termination. 

We are providing the information in the Appendix and Enclosure 2 

since it relates to certain issues raised in your second appeal. 

Discussion 

A. The plan Merger Issue 

Your second appeal contains several specific assertions and 

claims concerning the plan merger issue, which are addressed below. 

1. Your Assertions Concerning Non-Vested Benefit Liabilities. 

Your appeal notes: (1) the Schedule B in the Retirement Plan's 

1999 Form 5500 filing with IRS ("1999" Schedule B") shows 

approximately $24 million non-vested active participant liabilities 

on September 30, 1999 (the plan merger date) i and (2) PBGC's Case 

Memo shows there were no non-vestea benefit liabilities on DOPT. 

You question whether PBGC properly handled non-vested benefits in 

valuing the Retirement Plan's benefit liabilities at DOPT. You 

further point out that the Milliman Memorandum and the 

Milliman/PBGC Backwards Reconciliation do not reflect an accounting 

for non-vested benefits. You suggest that the failure of Milliman 

and the Appeals Board to take them into account is a flaw in their 

merger analysis. 

As you state, the 1999 Schedule B shows Retirement plan vested 

benefit liabilities of $471.1 million and total benefit liabilities 
6 

of $494.9 million. Thus{ according to that document { the nonvested benefit liability for non-vested active participants was 

$23.8 million on the merger date. You further correctly state 

that, according to the Case Memo, none of the $481.7 million in 

benefit liabilities at DOPT was for non-vested benefits. We 

explain below the reasons for this decrease in non-vested benefit 

liabilities between the merger date and DOPT, following some 

background information. 

As stated in the PC6 Policy (Enclosure 2), the first five 

priority categories in ERISA section 4044 cover nonforfeitable 

(i.e., vested) benefits. The sixth priority category ("PC6") 

covers forfeitable (i.e., non-vested) benefits. 

One type of PC6 benefits, which is listed in Section F of the 

PC6 Policy, is for "benefits contingent on future age or service." 

This classification includes, for example, the benefit liabilities 

for participants who had not met the five-year vesting requirement 

for a Retirement Plan benefit as of the valuation date. 9 

Similarly, this classification includes subsidized early retirement 

benefits and temporary supplemental benefits that, as of a future 

date, participants could become eligible to receive. 10 Furthermore, 

as noted in the PC6 Policy, PC6 liabilities include any benefit 

amounts for which eligibility is based (in whole or in part) on the 

occurrence of a future event, such as plant shutdown, disability, 

or death. 

On the plan merger date, many of the OMC business operations 

were still ongoing, including the Milwaukee and Waukegan 

operations. Thus, as of the merger date, PC6 benefit liabilities 

included benefit amounts for participants with less than five years 

of service and for participants who at a future date could qualify 

for subsidized early retirement benefits or temporary supplements. 

Although we do not have information showing how Hewitt calculated 

$23.8 million in non-vested benefit liabilities for purposes of the 

1999 Schedule B, the Appeals Board found no reason to disagree with 

that amount. 

9 Such benefit liabilities are in PC6 because participants with less than 

five years of service generally are not eligible to receive Retirement Plan 

benefits. 

10 A pension benefit is nonforfeitable (and hence is in a category with 

higher priority than PC6) if the participant has satisfied all conditions for the 

benefit except "submission of a formal application, retirement, completion of a 

required waiting period, or death in the case of a benefit which returns all or 

a portion of a participant's accumulated mandatory employee contributions upon 

the participant's death." 29 U.S.C. § 4001(a) (8) (definition of nonforfeitable). 
7 

By DOPT 1 however 1 the si tuation involving OMC 1 s business 

operations had changed dramatically. When OMC filed its Chapter 11 

bankruptcy petition on December 221 2000 1 it already had signaled 

its intention to liquidate its assets by terminating substantially 

all manufacturing operations and laying off the majority of its 

workforce. Furthermore, on February 9, 2001, the Bankruptcy Court 

had approved the sale of substantially all of OMC's assets. PBGC's 

Case Memo further shows thatl on DOPT 1 there were only 85 "Active 

Vested" participants and zero "Non-Vested" participants. 

Because of OMC 1 s cessation of operations, at DOPT it was 

impossible for any participant, as of a future datel to meet the 

vesting requirements for a benefit or to meet the eligibly 

requirements for an early retirement subsidy or for a temporary 

supplement. 11 Thus, the Appeals Board found no reason to disagree 

with PBGC's determination that the Retirement Plan had $0 in PC6 

benefit liabilities at DOPT .12 

As is stated in the second appeal 1 the Milliman Memorandum 

used l as a source document for its analysisl the 1999 RPA \ 94 

current liability of $494.9 million that was reported in the 1999 

Schedule B. Milliman l s analysis further does not differentiate 

between "vested" and "non-vested" benefit liabilities. Rather, the 

benefit liabilities amount Milliman used for "Active" participants 

($141.5 million} equals the sum of the vested ($117.7 million) and 

non-vested ($23.8 million) benefit liabilities that are shown on 

the 1999 Schedule B. 

We concluded that Milliman's lack of differentiation between 

vested and non-vested liabilities does not affect the validity of 

its conclusions concerning the merger issue. ERISA 4044 provides 

11 Footnote 4 to the PC6 Policy addresses this situation: "To become 

entitled to a benefit contingent on post-termination service, the participant 

must satisfy the conditions for credited service under the plan. This would not 

be possible if the "employer" under the plan (or other entity for which 

employment counts toward credited service under the plan) ceased to exist." 

12 As you note in your appeal, a Retirement Plan amendment effective on 

September 30, 1999 provided that certain participants with less than 5 years of 

vesting service were immediately vested. PBGC concluded that this amendment was 

subject to a $20/20% phase-in; thus, at DOPT, part of this benefit increase is 

in PC4 and the remainder is in PC5. As of the merger date, however, none of this 

benefit increase was in PC4 because, on that date, the amendment was subject to 

a $0/0% phase-in. 

Thus, some benefits in PC6 on the merger date became benefits in PC4 or in 

PC5 at DOPT. We note that this occurred not only for some participants with less 

than five years of service on the merger date, but also for some participants who 

qualified for subsidized early retirement benefits and/or temporary supplements 

after the merger date but before DOPT. 
8 

that plan assets are allocated to nonforfeitable benefits (i.e., to 

benefits in PC1 through PCS) before they are allocated to PC6 (nonvested benefits). Thus, with respect to the legal requirements 

governing pension plan mergers, the amount of PC6 benefit 

liabilities on the merger date does not affect how plan assets are 

to be allocated as of the merger date to benefit categories with 

higher priority (i.e., benefits in categories PC1 through PC5). 

As discussed above, the critical question for the merger issue 

is whether "the PC4 funding percentage in the lower funded plan at 

the Date of Merger [i.e., the Pension Plan] is less than the DOPT 

PC4 funding percentage of 62.51%." Accordingly, regardless of 

whether the Pension Plan had several million in non-vested benefit 

liabilities on the merger date or $0, the outcome would be the same 

with respect to the critical issue of whether the Pension Plan's 

PC4 funding percentage was 62.51% (or greater) on the merger date. 

Thus, we found that Milliman's analysis and conclusions on the 

merger issue to be sound regardless of the value of the Retirement 

Plan's non-vested benefit liabilities on the merger date.13 

Finally, we concluded that the lack of accounting for nonvested benefits in the Milliman/PBGC Backwards Reconciliation does 

not have a material impact upon our resolution of the plan merger 

lssue. First, as discussed above, we found no reason to change 

PBGC's conclusion that non-vested benefit liabilities were $0 at 

DOPT. Also, as is discussed in other parts of this decision, we 

13 As is discussed in the Milliman Memorandum at pages 8-11, Milliman 

constructed an Excel model to produce asset allocation results as of the merger 

date under various scenarios. One of the variables Milliman used in its models 

is the percentage of total liability allocated to PCS. The model constructed by 

Milliman, however, assumed for each scenario that the PC6 benefit liability 

amount was $0. 

If, however, Milliman had included PC6 amounts in its models but otherwise 

did not change the models, the result would be that (under each scenario) the PC4 

funding ratio for the Pension plan would be increased. For example, in 

Assumption Set 1, Milliman assumed (at the merger date) that 90% of each pension 

plan's liability for retirees was in PC} and 7% of each plan's total benefit 

liability was in PCS. If we modify Assumption Set 1 to assume that 5% of each 

plan's benefit liability is in PC6 (but do not change the assumptions for PC) and 

PCS benefits), the $238,077,960 in total benefit liabilities for the Pension Plan 

would be allocated as follows: $128,372,282 to PC3; $81,136,323 to PC4; 

$16,665,457 to PC5; and $11,903,898 to PC6. Under these modifications to 

Assumption Set 1, the Pension Plan would be 93.0% funded in PC4 [$75,496,366 

assets available for PC4 + $81,136,323 PC4 Liabilities = 93.0%], as compared to 

81.1% without the modifications. Thus, it appears to us that the inclusion of 

a PC6 benefit category in the Milliman models would strengthen, rather than 

weaken, Milliman's conclusion that (under all reasonable sets of assumptions) the 

Pension Plan was at least 62.51% funded in PC4 as of the merger date. 
9 

found no basis for changing PBGC's conclusion that benefit 

liabilities totaled $481.7 million on DOPT. 

Additionally, as is discussed in footnote 12 of this decision, 

some benefits that were in PC6 at the merger date were included in 

PC4 or PC5 at DOPT. Since the Milliman/PBGC Backwards 

Reconciliation is a comparison of the total benefit liabilities in 

the Retirement Plan as of the two dates, there is no need to make 

an adjustment for benefits that moved from one priority category to 

another. 

Lastly, while some benefit liabilities in PC6 on the merger 

date may not have been Retirement plan liabilities at DOPT,14 this 

does not have a material impact on our resolution of the merger 

issue. This is because, if we included an additional entry in the 

backward reconciliation for non-vested benefit liabilities, it 

would (in effect) change only the amount of PC6 benefit liabilities 

on the merger date. It would not require any adjustment to benefit 

liabilities in categories pel through PC5 as of the merger date. 

Accordingly, even if we changed our backwards reconciliation to add 

an adjustment for non-vested benefits, such a change would not 

affect our analysis of the critical merger issue of whether or not 

the Pension Plan's PC4 funding percentage was 62.51% (or greater) 

on the merger date. 

2. Your Assertions Concerning the February 27, 2001 OMC Board 

Resolution. 

Your appeal asserts that, on February 27, 2001, OMC's Board of 

Directors adopted a resolution ("Board Resolution") that amended 

the Retirement Plan to decrease temporary supplemental benefits and 

other benefits obligations. ls You question whether PBGC, in its 

DOPT valuation of the Retirement Plan, took into account the 

14 Benefits in PC6 at the merger date would not be Retirement Plan 

liabilities at DOPT if, for example, the conditions for the benefit had not been 

satisfied on or before DOPT and could not be satisfied after DOPT. See 

discussion on pages 7-8 and footnote 11 above. 

15 The Board Resolution (Enclosure 3 to this decision) states: 

RESOLVED, effective February 27, 2001 or, on a person-byperson basis, the earliest later time permitted by applicable law, 

the Outboard Marine Retirement Plan (the "Plan H ) be, and it hereby 

is, amended to reduce benefits under the Plan (whether or not in pay 

status) including, without limitation, any temporary supplemental 

benefit or ancillary benefits (including ancillary health insurance 

benefits), to the maximum extent allowed by applicable law 

(including Section 411(d) (6) of the Internal Revenue Code of 1986, 

as amended). 
10 

benefit reductions under the Board Resolution. 16 You also claim 

that, if (in fact) PBGC's DOPT valuation had included these benefit 

reductions, the Milliman/PBGC Backwards Reconciliation would be in 

error because it did not contain an adjustment for the benefit 

reductions between the merger date and DOPT. 

You further suggest that the Board Resolution could have a 

significant impact. Your appeal states: "My guess based on emails 

I have which I have attached the benefit changes pertaining to 

supplements could be $30 - $40 million (but I think doing my own 

reconciliations that the value is significantly less)." In your 

benefit reconciliation calculations, you estimate the impact of the 

Board Resolution to be $15.8 million. 

When PBGC valued the Retirement Plan's benefit liabilities at 

DOPT, PBGC decided not to accept the Board Resolution as a plan 

amendment. PBGC reached this decision primarily because OMC, as 

Plan Administrator, had never implemented the Board Resolution. We 

concluded that PBGC's decision was reasonable in light of the 

particular circumstances involved, which are discussed below. 

The Board Resolution was adopted on (or near) the date when 

OMC's management decided to explore, as an alternative to PBGC's 

termination of the Retirement Plan, a private sector arrangement 

under which an insurance company would issue annuity contracts to 

Retirement Plan participants. The Board Resolution's apparent 

purpose, therefore, was to facilitate the purchase of plan 

termination annuities from an insurer through a reduction (to the 

maximum extent permitted by law) of the Retirement Plan's benefit 

obligations. 

OMC's efforts to complete a private sector termination through 

the purchase of insurance annuity contracts were unsuccessful. It 

further appears that, because a private sector termination proved 

not to be feasible, OMC never implemented the benefit decreases 

provided under the Board Resolution. 17 We further observe that 

OMC's decision not to implement the Board Resolution (and PBGC's 

decision not to change what OMC had done) generally was in the 

interest of the Retirement Plan's participants because it avoided 

16 In this decision. our reference to PBGC's "DOPT valuation" refers to 

PBGC's valuation of the Plan at DOPT as reflected in the Case Memo. 

17 The Appeals Board identified several Retirement plan participants who 

were receiving temporary supplements at DOPT. Additionally. OMC's failure to 

implement the Board Resolution is demonstrated, in your case, by OMC's conclusion 

that you were entitled to a temporary supplemental benefit of $400 per month 

starting in June 2001. 
11 

benefit reductions. Thus, it is the Appeals Board's view that 

PBGC's position concerning the Board Resolution was reasonable. 1s 

Moreover, even if we agreed with you that PBGC must implement 

the Board Resolution and decrease benefits, we concluded that it 

would not have as large an impact upon the plan merger analysis as 

your appeal suggests. First of all, we note that ERISA section 

204 (g) and IRC section 411 (d) (6) generally prohibit plan amendments 

that eliminate or reduce accrued benefits .19 Accordingly, for 

benefits protected by those sections of ERISA and the IRC, the 

Board Resolution generally could not lawfully reduce benefits. 

The Board Resolution potentially could impact upon temporary 

supplements since, under IRS regulations, temporary supplements 

generally are not protected by IRC section 411(d)(6).20 

Nevertheless, to the extent that the Retirement Plan's temporary 

supplements could have been reduced or eliminated by a plan 

amendment, much of the impact would involve benefits that were in 

PC5 or PC6 on the merger date (which would not be funded by the 

Retirement Plan's assets at DOPT even if the benefit reduction 

amendment was implemented) .2l 

Accordingly, we decided that the issue you raised concerning 

the Board Resolution does not provide a basis for changing our plan 

merger analysis in our 2007 Decision. 

18 We also note that the Board Resolution is vague in that it did not 

state precisely which benefits were being reduced. This also supports PBGC's 

decision not to accept the Board Resolution as a plan amendment. 

19 See also Section G of the PC6 Policy, which refers to this rule. 

20 Treasury Regulation § 1.411(d) -4'd Q&A l(d). 

21 As is stated above, the critical question for the merger issue is 

whether the lower funded plan on the merger date (the Pension Plan) was less 

funded in PC4 than the merged Retirement plan at DOPT. Further, as also 

discussed above, any benefit reductions that occurred in PCS or PC6 between the 

merger date and DOPT would not affect the Retirement Plan's funding for benefits 

in PC3 or PC4 at DOPT. 

We note that temporary supplements often are in PCS because: (1) the 

"Accrued at Normal Retirement Age" limit, which is discussed in the Appendix, 

generally limits the amount of the temporary supplement that PBGC guarantees; and 

(2) the phase-in rule (also discussed in the Appendix) limits PBGC's guarantee 

of increases in temporary supplements that resulted from plan amendments that 

occurred within five years of DOPT. 
12 

3. Your Assertions Concerning Hewitt's Benefit Liabilities 

Estimates as of January 1, 2001. 

Your appeal notes that Hewitt valued the Retirement Plan's 

benefit liabilities at $527.0 million as of January 1, 2001. 

According to your calculations, this $527.0 million liability as of 

January 11 2001 corresponds to a $528.2 million liability as of the 

September 30 1 1999 merger date. You assert that the Milliman/PBGC 

Backwards Reconciliation, which shows $482.4 million in benefit 

liabilities as of the merger date, is inconsistent with the Hewitt 

estimates. You suggest that the Appeals Board should use the 

$528.2 million merger date amount in its analysis of the plan 

merger issue. 

As is discussed in a November 19, 2001 memorandum from Theresa 

R. Leatherbury of Milliman USA to Ruth Williams of PBGC 

("Leatherbury Memorandum/ " which we are providing as Enclosure 4 to 

this decision),22 Hewitt/s January 1,2001 estimates were based upon 

PBGC's plan termination assumptions. Additionally, the Leatherbury 

Memorandum indicates that Hewitt/s actuarial assumptions for the 

January 1, 2001 estimates were similar to those used in PBGC's "UBL 

Program." As discussed in our 2007 Decision, the UBL Program is a 

standard computer program that PBGC uses to estimate a pension 

plan's Unfunded Benefit Liabilities ("UBLs/) as of a particular 

plan termination date. 

The Leatherbury Memorandum also shows that Milliman, at PBGC's 

request, used the January 2001 Hewitt estimates as a source 

document for estimating the Retirement Plan's benefit liabilities 

and under funding as of DOPT (8/17/2001). The spreadsheet attached 

to the Leatherbury Memorandum indicates that the Retirement plan's 

estimated benefit liabilities at DOPT are $535.2 million, of which 

$519.9 million is for vested benefits.23 

22 The work performed for PBGC by Milliman USA in November 2001 was done 

by a different Milliman office and by different actuaries than the Milliman 

office and Milliman actuaries who performed the plan merger analysis for the 

Appeals Board in 2006-2007. 

21 PBGC used the calculations in this spreadsheet, which showed the 

Retirement Plan's underfunding at DOPT to be $101.6 million, for purpose of 

PBGC's bankruptcy claim for Unfunded Benefit Liabilities under ERISA section 

4062. In your December 15, 2008 appeal supplement, you request that PBGe not use 

the $101.6 million amount in analyzing the plan merger issue. 

We have not relied upon the $101.6 million amount or the other spreadsheet 

calculations because we found PBGC's DOPT valuation (which show Unfunded Benefit 

Liabilities at DOPT of $79.8 million) to be more accurate than the spreadsheet 

for purposes of determining plan asset and plan benefit values at DOPT. 
13 

The Appeals Board further asked the actuarial firm of Bolton 

Partners ("Bolton") to use PBGC' s UBL Program to determine the 

Retirement Plan's estimated benefit liabilities as of the merger 

date and as of DOPT. Both of these calculations used, as a source 

document, the data in the 1999 Schedule B. The calculations 

prepared by Bolton (Enclosures 5 and 6 to this decision) show the 

following amounts: (1) $553.0 million in benefit liabilities on the 

merger date, of which $509.4 million is for vested benefits; and 

(2) $524.8 million in benefit liabilities at DOPT, of which $473.0 

million is for vested benefits. By comparison, PBGC's DOPT 

valuation shows $481.7 in benefit liabilities, all of which is for 

vested benefits. 

The above information thus indicates that Hewitt's January I, 

2001 estimates, as well as the calculations Bolton made using the 

UBL program in combination with the 1999 Schedule B, substantially 

overestimated the Retirement Plan's benefit liabilities at DOPT. 

The Hewitt estimates (projected to DOPT by Milliman) show benefit 

liabilities that are $53.5 million greater than the amount PBGC 

valued at DOPT. The Bolton DOPT estimates show a difference at 

DOPT of $43.1 million.24 

In the 2007 Decision, the Appeals Board concluded that the RPA 

'94 current liability of the Retirement Plan on the merger date as 

calculated by Hewitt ($494,912,659) is close to the actuarially 

appropriate section 414 U) liabilities for the merged Plan. We 

also concluded that the Milliman/PBGC Backwards Reconciliation 

indicated that the total RPA '94 current liability on the merger 

date, as calculated by Hewitt, was comparable to (or even somewhat 

higher than) the benefit liabilities of the Retirement plan if they 

had been calculated using PBGC's actuarial assumptions. 

We decided, after considering your assertions in the second 

appeal, that the Hewitt January 1, 2001 estimates and the Bolton 

calculations do not provide a reason to change the above-mentioned 

conclusions in our 2007 Decision. As discussed above, the Hewitt 

and Bolton estimates and calculations overestimated the benefit 

liabilities at DOPT when compared with PBGC's DOPT valuation. It 

also is likely that the merger date benefit liabilities estimates 

that Bolton made using the UBL Program, as well as the Hewitt 

January 1, 2001 estimates (if they are projected backwards to the 

merger date), overestimated benefit liabilities as of the merger 

24 The differences, although notable, were not as large when only vested 

benefits are considered. The Hewitt estimates (projected to DaPT by Milliman) 

show $38.2 million more in vested benefits than PBGC's DaPT valuation. 

Additionally, Bolton's DaPT estimate of vested benefits is $8.1 million less than 

the DaPT valuation. 
14 

date. Finally, we found no reason to change the DOPT valuation to 

make it consistent with these other estimates, since the DOPT 

valuation occurred after a thorough audit of participant data and 

was based on detailed actuarial calculations for the identified 

Retirement Plan participants. 25 

4. Addi tional Assertions in Your Appeal Concerning the Plan 

Merger Issue. 

• You contend that the $494.9 million 1999 RPA '94 current 

liability as of the merger date should not have been used by 

Milliman in its merger analysis. You assert that I under 

PBGC's plan termination actuarial assumptions, participants 

are assumed to retire at much younger ages than under RPA '94 

assumptions, and thus the liability at time of merger is 

greater than what Milliman used. 

In the 2007 Decision, we acknowledged that while the 

interest rate and mortality assumptions for the RPA '94 current 

liability calculation as of the merger date were not significantly 

different from the PBGC termination liability interest and 

mortality assumptions as of the merger date the expected 

retirement age assumptions were not the same. Nevertheless, we 

concluded that the backwards projection indicates that the total 

RPA '94 current liability on the merger date, as calculated by 

Hewitt, was comparable (or even somewhat higher) than the benefit 

liabilities of the Retirement Plan if they had been calculated 

using PBGC's actuarial assumptions. 

We have considered the assertions in your March 24, 2008 

appeal regarding these above~stated holdings, but we decided that 

you have not provided a basis for changing them. We note that your 

disagreement with the Milliman/PBGC Backwards Reconciliation in a 

2S While PBGC relies upon the UBL Program in estimating pension plan 

liabilities, the accuracy of its results ultimately depends upon the quality and 

completeness of the actuarial data that is inputted into the program. With 

respect to Hewitt's valuation of the Retirement Plan at the merger date, PBGC had 

only the 1999 Schedule B; thus, PBGC lacked detailed information concerning how 

Hewitt made its calculations. Furthermore, PBGC did not have the additional 

detail that an Actuarial Valuation Report ("AVR") as of the merger date would 

have provided. As is discussed in the 2007 Decision, there is no evidence that 

any Retirement Plan AVR was prepared after 1998, and we were unsuccessful in 

obtaining any additional benefit calculation information from Hewitt. 

Also, in the DOPT valuation, PBGC identified a smaller number of Retirement 

Plan participants than Hewitt had listed in its actuarial reports. PBGC further 

corrected benefit data for a large number of participants. This may account, at 

least in part, for the differences between Hewitt's valuation as of January I, 

2001 and PBGC's DOPT valuation. 
15 

large part is based on your contentions concerning non-vested 

benefit liabilities and the OMC Board Resolution, which we have 

already addressed above. 26 

• You assert that Milliman's analysis of the merger issue 

undervalued the benefits in PC3 at the time of merger. You 

claim that PBGC's determination of $325 million in PC3 

liabilities at DOPT corresponds to a $354 million PC3 

liability at merger date (before adjustments for deaths that 

occurred between the two dates) . 

On page 8 of the Milliman Memorandum, the Milliman actuaries 

explained their conclusions concerning the likely PC3 liability as 

of the merger date. The Milliman actuaries, who have extensive 

expertise concerning defined-benefit pension plans, reached their 

conclusions after having examined the data in the 1998 Actuarial 

Valuation Reports for both of the pre-merger pension plans. We 

concluded that your March 24, 2008 appeal did not provide a 

sufficient basis for changing Milliman's' analysis. Accordingly, 

the Appeals Board accepted the expert analysis of the Milliman 

actuaries, rather than your own analysis, concerning the likely PC3 

benefit liabilities as of the merger date. 

• You state that Milliman should redo its analysis. Although 

you considered Milliman's approach to be sound and its 

analysis thorough, you contend that the underlying data they 

relied upon was not valid. You further state that the primary 

problem is that the retirement age assumptions used did not 

correspond to the actual ages when active participants would 

be expected to retire taking into account the plant closures. 

We have considered your objections to the analysis in the 

Milliman Memorandum and in Milliman/PBGC Backwards Reconciliation, 

but we decided that you have not provided a sufficient basis for 

26 Your March 24, 2008 appeals notes that the Milliman/PBGC Backwards 

Reconciliation did not contain an adjustment for mortality between the merger 

date and DOPT, which we had acknowledged in a footnote in the 2007 Decision. You 

further estimate that the adjustment for mortality would be "less than 2% or $10 

million." You also indicate that, by itself, the adjustment for mortality has 

"little impact," but that it would have an impact when combined with the other 

adjustments you asserted should be made. We agree that an adjustment for preDOPT mortality, even if it were $10 million, would not impact our merger 

analysis. 

Your appeal also asserts that PBGC's valuation of benefits at DOPT (i.e., 

as of August 17, 2001) actually may have been valued at September 30, 2001. 

Your appeal also indicates, however, that the difference in the dates may not be 

significant. We found no basis for concluding that PBGe had valued benefits as 

of September 30, 2001, rather than as of DOPT. 
16 

changing them. As discussed above, Milliman, in its analysis of 

the plan merger issue, used Hewitt's RPA '94 current liability 

calculations (without changing the underlying retirement age 

assumptions used by Hewitt). The Milliman/PBGC Backwards 

Reconciliation further verified that Hewitt's RPA '94 current 

liability calculations were consistent with PBGC's DOPT valuation. 

We decided that, in light of Milliman's expert analysis of the 

merger issue and our reconciliation of the relevant data, your 

appeal does not establish a reason for changing the analysis 

through the use of different retirement age assumptions. The 

Appeals Board accordingly denied your request that the Milliman 

analysis be redone. 

• In your appeal (which included several spreadsheets as 

enclosures) , you provided your own estimates of the Retirement 

Plan's benefit liabilities, as well as estimates for the 

separate Retirement Plan and Pension Plan liabilities prior to 

the plan merger. You estimated, for example, $535 million in 

termination liabilities at merger date, which includes a $7 

million adjustment for pre~DOPT mortality. In another part of 

your appeal, you estimated the merged plan's liabilities on 

the merger date for the ERISA 4044 asset allocation categories 

as follows: $365.6 in PC3, $122.2 million in PC4i $27.3 

million in pes; and $23.8 million in PC6 (which results in a 

total liability of $538.9 million). 

Your $538.9 million estimate of the Retirement Plan's benefit 

liabilities on the plan merger date, among other things, includes 

a $23.8 million adjustment for non-vested liabilities and a $15.8 

million adjustment for "benefit reductions." As discussed above, 

we disagree with your position that these two adjustments should be 

made. We further concluded that, overall, the estimates and 

calculations in your appeal overstate the Retirement Plan's benefit 

liabilities on the merger date, as well as the separate Retirement 

Plan and Pension Plan liabilities immediately prior to the plan 

merger. Accordingly, we decided that the Appeals Board's findings 

and conclusions on the plan merger issue (as stated in the 2007 

Decision) should not be changed based on your estimates and 

calculations. 

• The appeal disputes the Appeals Board J s conclusion that, under 

all reasonable scenarios, the preparation of a Special 

Schedule would not result In increased PBGC benefits for 

Retirement Plan participants. You assert that whether a 

special schedule is needed is "too close to call," and 

therefore PBGC must do a participant by participant 

calculation. You state that PBGC should have sufficient 
17 

information to do this, since, in 2001, data was compiled by 

OMC and Hewitt to obtain insurance annuity bids. 

On page 21 of the 2007 Decision, we stated as follows: 

"The Board recognizes that precise, separate actuarial 

valuations of the benefit liabilities of the two Plans as 

of the merger date never were undertaken (or, if they 

were done, are no longer available). We found, however, 

that it is not reasonable to expect any new attempts by 

PBGC to value separately the two Plans as of the merger 

date would lead to more reliable results than Milliman's 

analysis, given the quality of the information that PBGC 

obtained from OMC. We further concluded that, even if 

such attempts were successful, the likelihood of a 

different outcome with respect to the need for a Special 

Schedule is, at best, remote." 

We further have decided, after considering your second appeal, that 

the above-stated conclusions continue to be valid. Accordingly, we 

denied your request that PBGC make additional participant-byparticipant calculations of benefits liabilities at the merger date 

for the purpose of determining whether a Special Schedule is 

needed. 

B. PBGC's Chanqe of its Proposed Termination Date and the 

Decrease in Plan Assets after February 28, 2001 

Your appeal asserts that your PBGC benefit amount adversely 

was affected by PBGC's decision not to terminate the Retirement 

plan as of February 28, 2001, as PBGC initially had proposed. 

Instead, the plan terminated as of August 17, 2001. You also claim 

that you were harmed because the Retirement Plan's assets decreased 

substantially between those two dates. You assert that, based on 

information provided to you, the Retirement ~lan's assets declined 

by $52 million between February 22, 2001 and August 17, 2001. You 

suggest that PBGC should have taken actions that would have 

prevented such a large reduction inOassets. 

As you state in your appeal, the PBGC Notice of Determination 

issued on February 22, 2001 said that PBGC was initiating 

proceedings to terminate the Retirement Plan, to have it trusteed 

by PBGC, and to have February 28, 2001 established as the 

Retirement Plan's termination date (DOPT). On February 27, 2001 

and in a confirming letter dated March 15, 2001, OMC's management 

informed PBGC that it was exploring arrangements under which an 

insurance company would issue annuity contracts to provide 

Retirement Plan benefits. PBGC agreed to suspend its efforts for 
18 

trusteeing the Retirement Plan while OMC pursued this alternative 

private sector arrangement. 

OMC's efforts to complete a private sector termination through 

the purchase of insurance annuity contracts were unsuccessful. On 

September 20, 2001, PBGC issued a Notice of Determination stating 

that: (1) the February 21, 2001 Notice of Determination was 

withdrawn; and (2) PBGC was proceeding under ERISA section 4042 to 

have the Retirement Plan terminated, trusteed by PBGC, and August 

17, 2001 established as DOPT. Through an agreement between OMC and 

PBGC effective October 3, 2001, the Retirement Plan was terminated, 

trusteed by PBGC, and August 17, 2001 was established as DOPT. 

The Appeals Board is authorized to review certain initial 

determinations made by PBGC, including determinations of benefits 

payable to individual participants. 29 Code of Federal Regulations 

(,"CFR") §§ 4003.1 (b), 4003.51. Issues relating to plan termination 

or the plan termination date are outside of the scope of what the 

Appeals Board may decide. 29 CFR §§ 4003.1, 4003.61(b) (1); 29 

United States Code §§ 1342(c); 1348. Therefore, the Appeals Board 

does not have the authority to decide whether or not the Retirement 

Plan should have been terminated as of a different date. 

Furthermore, under ERISA and PBGC regulations, entitlements to 

PBGC benefits, which are based on (1) a plan asset allocation under 

ERISA section 4044, (2) PBGC's guarantee, and (3) PBGC's recoveries 

on its claims (as specified under ERISA section 4022 (c) ), are 

determined based on the pension plan's DOPT. Also, for the plan 

asset component of the ERISA 4044 and 4022 (c) calculations, assets 

are valued as of DOPT. ERISA and PBGC regulations do not provide 

for the use of alternative dates or asset values that would be 

based, for example, on actions that PBGC could have taken (but did 

not take) in the plan termination process. Accordingly, the 

Appeals Board concluded that it lacks authority to provide you with 

relief on your claims that relate to the Retirement Plan's DOPT and 

to pre-DOPT changes in plan asset values. 

C. Your Claims Concerning PBGC' s ERISA section 4022 (cl Recoveries 

In your March 24, 2008 appeal and December 15, 2008 

supplemental filing, you presented extensive information, which you 

obtained from both PBGC and other sources, concerning PBGC's 

recoveries on its bankruptcy claims for the Retirement Plan's 

Unfunded Benefit Liabilities ("UBLs") You claim that PBGC Uwas 

not diligent in recovery of UBL's from the [OMC] owners." You 

further question whether PBGC's settlement of its bankruptcy claims 

in November 2005 was in the best interest of Retirement plan 

participants. You assert that other unsecured creditors in OMC's 
19 

bankruptcy are receiving a higher percentage recovery on their 

claims than the percentage recovery PBGC obtained through its 

bankruptcy settlement. You contend that PBGC should have recovered 

$20 million on its unsecured claims, which would have increased 

significantly the amounts PBGC could pay to you and other 

participants pursuant to ERISA section 4022(c). For this reason, 

you request that PBGC increase the UBL recovery amount of 

$2,512,169 that it used for determining ERISA section 4022 (c) 

benefits. 

As you indicate in your appeal, section 4022 (c) of ERISA 

authori2es PBGC to pay additional benefits based on the monies that 

PBGC recovers from employers that maintained underfunded pension 

plans. Thus, PBGC allocates additional money (the IIsection 4022 (c) 

amount") to pay otherwise unfunded benefits that are in excess of 

guaranteed benefits. For pension plans like yours, in which the 

outstanding 'amount of unfunded non-guaranteed benefit liabilities 

exceeds $ 20 million, the section 4022(c) amount is based on PBGC's 

actual recovery on its claims against the plan sponsor. Thus, for 

the Retirement Plan, PBGC needed to value its recovery on its DBL 

claims in the OMC bankruptcy so that it could calculate the amounts 

it will pay based on ERISA section 4022(c). 

Although PBGC had timely filed its claims ln OMC's bankruptcy, 

PBGC had not received payment on its claims at the time the 

actuarial valuation of the Retirement plan otherwise was completed 

in November 2004. Thus, in the DOPT valuation, PBGC relied upon 

estimates of its future bankruptcy recoveries. As is shown in 

documents already provided to you, on February 27, 2003, PBGC 

estimated its total recoveries for UBLs in OMC's bankruptcy as $3.2 

million, with a likely payment date of May 2005. Additionally, as 

is provided in Chapter 8.2-1 of PBGC's Operating Policy Manual, 

titled "Valuation and Allocation of Recoveries," PBGC discounted 

this $3.2 million estimated recovery amount payable in May 2005 to 

reflect its value if the recovery had been paid at DOPT. The 

discounted value of the $3.2 million recovery is $2,512,169.00, 

which is the amount PBGC used in the DOPT valuation. 

In November 2005, PBGC and OMC's Bankruptcy Trustee entered 

into a settlement (Enclosure 7) that resolved in full all of PBGC's 

claims against the Trustee and the Debtors. 27 The settlement 

27 On October 28, 2005, the Bankruptcy Trustee had filed a motion in 

Bankruptcy Court seeking approval of the compromise with PBGC. The Bankruptcy 

Court entered an order on November 1, 2005 that authorized the Trustee to enter 

into settlement. 

We note that the Settlement provided, as a sole exception to the release 

of claims, that "PBGC expressly retains any claims arising from breach of 
20 

provided that PBGC would receive, in full payment on its claims, 

the sum of $3 million. As provided by the settlement, part of the 

$3 million amount was to be paid from the proceeds from the sale of 

Principal Financial Group, Inc. ("PFGU) stock, and the remainder 

was to be paid in cash. 

PBGC's Financial Operations Department has informed the 

Appeals Board that, between October 2005 and October 2006, PBGC 

received payments totaling $2,990,005.80, of which $739,682.55 was 

for the sale of the PFG stock. PBGC did not receive any additional 

recoveries with respect to the Retirement Plan's termination, nor 

are any future recoveries anticipated. Thus, PBGC's actual 

recoveries were somewhat less than the amount estimated in the DOPT 

valuation, since the actual recoveries were for a smaller amount 

(approximately $210,000 less than estimated) and occurred at a 

later date (i.e., between October 2005 and October 2006, compared 

to the estimated payment date of May 2005) . 

PBGC, however, is paying ERISA 4022(c) amounts based on the 

larger estimated amount. Accordingly, when the estimated recovery 

amount in the DOPT valuation is compared to the amounts PBGC 

actually received, there is no basis for increasing payments under 

ERISA section 4022 (c) . 

Your appeal essentially asks the Appeals Board to resolve 

whether PBGC's settlement on its claims was prudent. You Eurther 

suggest that, if PBGC imprudently had settled its claims on 

unfavorable terms, PBGC should compensate you and other Retirement 

Plan participants based on the higher amounts that PBGC would have 

received under more favorable terms. The Appeals Board, however, 

lacks the authority to provide administrative review of the 

prudence of PBGC's settlement, nor may it increase ERISA section 

4022(c) benefits based on "recoveries" that PBGC did not actually 

receive. As PBGC's Office of General Counsel already has informed 

you, PBGC's business decisions regarding claims settlernent are not 

subject to administrative review. See September 11, 2008 letter to 

you from Nicole C. Hagan (Enclosure 8) .28 

fiduciary duty by individuals who may have administered the m1C Pension Plans." 

PBGC, however, did not recover (nor does it anticipate recovering) any funds 

based on fiduciary duty claims. 

29 In your correspondence to PBGC, you also suggest that PBGC's Recovery 

Valuat.ion Group ("RVG") should reconsider its valuation of the PBGC' s recoveries. 

You refer to Chapter 8.2-1 of PBGC's Operating Policy Manual (titled "Valuation 

and Allocation of Recoveries"), which provides in section H.2 for adjustment of 

recoveries in the case of a material mistake of fact or if there has been an 

extraordinary material change of circumstances. The RVG, however, has not 

reopened its valuation of PBGC's recoveries with respect to the Retirement Plan. 
21 

In your December 15, 2008 supplemental appeal filing, you 

express concern that, if the Appeals Board or another entity within 

PBGC cannot rule on some of the issues you raised, you and other 

Retirement Plan participants are left without effective recourse. 

You further assert that you are in a difficult position because 

some of these matters are still unresolved even though OMC's 

bankruptcy occurred more than eight years ago .. As I previously 

informed you, you are entitled to raise your concerns to PBGC 

officials, as you already have done in your August 28, 2008 letter 

to former PBGC Director Charles Millard. You may also pursue other 

remedies, including filing a court action. 

Decision 

For the reasons explained above, we have denied your appeal. 

This decision is PBGC's final Agency action with respect to the 

issues you raised and you may, if you wish, seek review of this 

decision in an appropriate federal district court. 

If you need other information from PBGC, please call our 

Customer Contact Center at 1-800-400-7242. 

Sincerely, 

Charles Vernon 

Chair, Appeals Board 

Appendix and Enclosures (8) 

We further note that, under section H.2 of Policy Manual Chapter 8.2-1, the RVG 

"has sole discretion in determining whether a valuation was based on a material 

mistake of fact or whether there has been an extraordinary change of 

circumstances concerning a valuation, and whether or not to adjust the recovery 

value." Thus, the Appeals Board does not have the authority to decide what 

actions (if any) the RVG should take. 
APPENDIX 

This Appendix provides an explanation concerning the benefits 

PBGC guarantees and ERISA's requirements for the allocation of 

pension plan assets. 

PBGC's Guarantee and Its Limits 

PBGC does not guarantee all benefits provided by an insured 

plan. To be guaranteed, a benefit must, first, be 

"nonforfeitable./t See 29 United States Code ("U.S.C.") § 1322(a) 

(definition of nonforfeitable). This means that the participant 

must have satisfied the pension plan's requirements to be eligible 

for the benefit by the date on which the plan terminates. 29 

U.S.C. § 1301(a) (8) i 29 Code of Federal Regulations ("C.F.R.") 

§ 4022.3 (a). Not all nonforfeitable benefits are guaranteed; there 

are a number of statutory and regulatory limits on PBGC's 

guarantee. These include the maximum guaranteed benefit ("MGB") 

limit, the phase-in limit, and the "Accrued at Normal Retirement 

Age" limit, each of which is discussed briefly below. 

The MGB is a statutory cap on the amount of PBGC's guarantee. 

29 U.S.C. § 1322(b) (3). The amount of an individual's MGB depends 

on a number of factors, including the year in which the pension 

plan terminated, the age of the participant at the later of DOPT or 

when benefits begin, the form in which the benefit is paid, and the 

age of the participant's spouse if the benefit will provide 

surviving spouse benefits. 29 C.F.R. § 4022.23. For plans 

terminating in 2001, as the Plan did, the MGB is $3,392.05 per 

month for a participant who begins receiving PBGC benefits at age 

65 in the form of a straight life annuity with no survivor benefit. 

If the person is younger than 65 and if survivor benefits will be 

paid (for example, to a spouse), the MGB limit is lower. See 29 

C.F.R. §§ 4022.22 - .23 and Appendix D to Part 4022. 

The phase-in limit provides that PBGC's guarantee of benefit 

increases is phased in over five years from the later of the 

adopted or effective date. 29 U.S.C. § 1322 (b) (1), (7) i 29 C.F.R. 

§§ 4022.2, 4022.24, 4022.25. To determine the phase-in limit, PBGC 

must scrutinize all plan amendments made during the five years 

before a plan terminates. 

The "Accrued at Normal Retirement Age" limit generally limits 

PBGC's guarantee with respect to temporary supplemental benefits. 

PBGC's regulation provides that, in general, PBGC "will not 

guarantee that part of an installment payment that exceeds the 

dollar amount payable as a straight life annuity commencing at 

normal retirement date, or thereafter, /I 29 C.F.R. 

§ 4022.21 (aJ (1) . 
2 

The Statutory Scheme for Allocating a Pension Plan's Assets 

The six-tier asset allocation scheme in ERISA section 4044 (29 

U.S.C. § 1344) determines how a pension plan's assets are 

distributed among various categories of benefits when the assets 

are insufficient to pay all promised benefits. We refer below to 

each of the priority categories as UPC1," "PC2," "PC3," etc. The 

highest priority categories (PC1 and PC2) are reserved for benefits 

derived from a participant's own contributions. The next priority 

category (PC3) covers a participant's benefits that were "in pay 

status" (i. e., were being paid) three or more years before the 

plan's termination date, or that would have been in pay status 

three years before termination if the participant had retired. 

Thus { a participant who retired (or could have retired) three 

or more years before plan termination may receive his or her full 

plan benefit{ even if it is not all guaranteed by PBGC, if (1) all 

of the benefit is in PC3, and (2) the plan assets are sufficient to 

cover all benefits in PC3. In many instances, however, not all of 

a participant's plan benefit is in PC3. This is because PC3 is 

limited to the benefit amount earned as of three years before the 

Plan's DOPT based on the plan provisions in effect five years 

before DOPT. See 29 U.S.C. § 1344(a) (3); 29 C.F.R. § 4044.13. 

PC4 generally is for benefits guaranteed by PBGC. PC5 is for 

other nonforfeitable benefits; generally, these are benefits that 

are not included in PC3 and also are not guaranteed because of the 

limits described above. And PC6 covers all other benefits under 

the plan (i.e., non-vested benefits). Chapter 5.10-1 of PBGC's 

Operating Policy Manual, entitled "Benefit Liabilities in Priority 

Category 6" ("PC6 Policy," which is Enclosure 2 to this decision) I 

provides detailed information concerning PC6 benefits.