[Federal Register Volume 74, Number 180 (Friday, September 18, 2009)]
[Notices]
[Pages 47979-47981]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-22537]


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PENSION BENEFIT GUARANTY CORPORATION


Approval of Amendment to Special Withdrawal Liability Rules for 
Service Employees International Union Local 1 Pension Trust Fund

AGENCY: Pension Benefit Guaranty Corporation.

ACTION: Notice of approval.

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SUMMARY: The Service Employees International Union Local 1 Pension 
Trust Fund requested the Pension Benefit Guaranty Corporation 
(``PBGC'') to approve a plan amendment providing for special withdrawal 
liability rules for employers that maintain the Plan. PBGC published a 
Notice of Pendency of the Request for Approval of the amendment on 
March 2, 2009 (74 FR 9114) (``Notice of Pendency''). In accordance with 
the provisions of the Employee Retirement Income Security Act of 1974, 
as amended (``ERISA''), PBGC is now advising the public that the agency 
has approved the requested amendment.

FOR FURTHER INFORMATION CONTACT: Eric Field, Attorney, Office of the 
Chief Counsel, Pension Benefit Guaranty Corporation, 1200 K Street, 
NW., Washington, DC 20005-4026; telephone 202-326-4020. (TTY and TDD 
users may call the Federal relay service toll-free at 1-800-877-8339 
and ask to be connected to 202-326-4020).

SUPPLEMENTARY INFORMATION: 

Background

    Under section 4201 of ERISA, an employer who completely or 
partially withdraws from a defined benefit multiemployer pension plan 
becomes liable for a proportional share of the plan's unfunded vested 
benefits. The statute specifies that a ``complete withdrawal'' occurs 
whenever an employer either permanently (1) ceases to have an 
obligation to contribute to the plan, or (2) ceases all operations 
covered under the plan. See ERISA section 4203(a). Under the first 
test, an employer who remains in business but no longer has an 
obligation to contribute to the plan will incur withdrawal liability. 
Under the second test, an employer who closes or sells its operations 
will also incur withdrawal liability. The ``partial withdrawal'' 
provisions of sections 4205 and 4206 impose a lesser measure of 
liability upon employers who reduce, but do not eliminate, the 
obligations or operations that generate contributions to the plan. The 
withdrawal liability provisions of ERISA are a critical factor in 
maintaining the solvency of these pension plans and reducing claims 
made on the multiemployer plan insurance fund maintained by PBGC. 
Without withdrawal liability rules, an employer who participates in an 
underfunded multiemployer plan would have a powerful economic incentive 
to reduce expenses by withdrawing from the plan.
    Congress nevertheless allowed for the possibility that, in certain 
industries, the fact that particular employers go out of business (or 
cease operations in a specific geographic region) might not result in 
permanent damage to the pension plan's contribution base. In the 
construction industry, for example, the funding base of a pension plan 
is the construction projects in the area covered by the collective 
bargaining agreements under which a pension plan is maintained. Even if 
the amount of work performed by a particular employer fluctuates 
markedly in any given year, individual employees will typically 
continue to work for other contributing employers in the same 
geographic area. Consequently, the withdrawal of an employer does not 
remove jobs from or damage the pension plan's contribution base unless 
the employer continues to work in the geographic area covered by 
collective bargaining agreement without contributing to the plan.
    This reasoning led Congress to adopt a special definition of the 
term ``withdrawal'' for construction industry plans. Section 4203(b)(2) 
of ERISA provides that a complete withdrawal occurs only if an employer 
ceases to have an obligation to contribute under a plan, but 
nevertheless continues to perform previously covered work in the 
jurisdiction of the collective bargaining agreement or resumes such 
work within five years after the date on which the obligations to 
contribute ceased.\1\ There

[[Page 47980]]

is a parallel rule for partial withdrawals from construction plans. 
Under section 4208(d)(1) of ERISA, an employer to whom section 4203(b) 
(relating to the building and construction industry) applies is liable 
for a partial withdrawal ``only if the employer's obligation to 
contribute under the plan is continued for no more than an 
insubstantial portion of its work in the craft and area jurisdiction of 
the collective bargaining agreement of the type for which contributions 
are required.
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    \1\ Section 4203(c)(1) of ERISA applies a similar definition of 
complete withdrawal to the entertainment industry, except that the 
pertinent jurisdiction is the jurisdiction of the plan rather than 
the jurisdiction of the collective bargaining agreement. No plan has 
ever requested PBGC to determine that it shares the characteristics 
of an entertainment plan.
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    Section 4203(f) of ERISA provides that PBGC may prescribe 
regulations under which plans that are not in the construction industry 
may be amended to use special withdrawal liability rules similar to 
those that apply to construction plans. Under the statute, the 
regulations shall permit the use of special withdrawal liability rules 
only in industries that PBGC determines have characteristics that would 
make use of the special withdrawal liability rules appropriate. ERISA 
Sec.  4203(f)(2)(A). In addition, each plan application must show that 
the special rule will not pose a significant risk to the PBGC. ERISA 
Sec.  4203(f)(2)(B). Section 4208(e)(3) of ERISA provides that a plan 
may adopt rules for the reduction or elimination of partial withdrawal 
liability--under regulations prescribed by PBGC--subject to PBGC's 
determination that such rules are consistent with the purpose of ERISA.
    The regulation on Extension of Special Withdrawal Liability Rules 
(29 CFR Part 4203) prescribes the procedures a multiemployer plan must 
follow to request PBGC approval of a plan amendment that establishes 
special complete or partial withdrawal liability rules. Under 29 CFR 
4203.3(a), a complete withdrawal rule must be similar to the statutory 
provision that applies to construction industry plans under section 
4203(b) of ERISA. Any special rule for partial withdrawals must be 
consistent with the construction industry partial withdrawal 
provisions. Each request for approval of a plan amendment establishing 
special withdrawal liability rules must provide PBGC with detailed 
financial and actuarial data about the plan. In addition, the applicant 
must provide PBGC with information about the effects of withdrawals on 
the plan's contribution base. As a practical matter, the plan must show 
that the characteristics of employment and labor relations in its 
industry are sufficiently similar to those in the construction industry 
that use of the construction rule would be appropriate. Relevant 
factors include the mobility of the employees, the intermittent nature 
of the employment, the project-by-project nature of the work, extreme 
fluctuations in the level of an employer's covered work under the plan, 
the existence of a consistent pattern of entry and withdrawal by 
employers, and the local nature of the work performed. PBGC will 
approve a special withdrawal liability rule only if a review of the 
record shows that:
    (1) The industry has characteristics that would make use of the 
special construction withdrawal rules appropriate; and
    (2) The adoption of the special rule will note pose a significant 
risk to the PBGC.

After review of the application and all public comments, PBGC may 
approve the amendment in the form proposed by the plan, approve the 
application subject to conditions or revisions, or deny the 
application.

Request

    On March 3, 2009, PBGC published a notice soliciting public comment 
on a request on behalf of the Service Employees International Union 
Local 1 Pension Trust Fund (``Local 1 Plan'') for approval of an 
amendment prescribing special withdrawal liability rules that, if 
approved by PBGC, would be effective as of July 1, 2005. PBGC received 
no comments on the notice.
    The Local 1 Plan is a multiemployer plan covering the residential 
building cleaning industry in Chicago, Illinois. It is maintained 
pursuant to collective bargaining agreements with the Apartment 
Building Owners and Managers Association of Chicago (``ABOMA'') and 
independent cleaning contractors. As of July 1, 2006, it had 
approximately 3,800 active participants and was paying approximately 
$5.8 million in benefits to 1,400 pensioners and survivors.
    The Local 1 Plan submitted collective bargaining agreements 
expiring in 2008, indicating that ABOMA had over 200 contributing 
employer members. Total contributions for the 2006 plan year were $7.08 
million. The contributing employers are owners of residential 
apartments in the Chicago area and the number of apartments is unlikely 
to decrease. Between 2002 and 2006, the number of active participants 
remained stable.
    Contributions have increased at a faster rate than benefit payments 
for the last three years in the submission, and as of 2006 were running 
nearly 20 percent higher than payouts. For full-time employees, the 
weekly contribution rate to the Local 1 Plan was $136.67 for the twelve 
months starting December 1, 2005, $156.00 for the following twelve 
months, and $182 for the twelve months starting December 1, 2007.\2\
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    \2\ According to the 2007 Form 5500, obtained after the notice 
of pendency, the monthly benefit accrual rate has held steady for 
several years at $21.50, although it was increased January 1, 2008 
to $23.33.

                                Summary of Actuarial Valuation Results, 2003-2006
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                                                                            Valuation date (July 1)
                            Item                             ---------------------------------------------------
                                                                  2006         2005         2004         2003
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Active participants.........................................        4,063        4,157        4,233        4,259
Retirees....................................................        1,761        1,749        1,705        1,694
Monthly benefit accrual rate ($)............................           22           22           22           22
Max. monthly benefit ($)....................................          645          645          645          645
Contributions ($000)........................................        7,081        6,525        5,864        4,689
Benefits ($000).............................................        5,812        5,606        5,501        5,391
Accrued liability ($000)....................................       97,335       93,606       92,923       90,274
Market value of assets ($000)...............................       83,630       77,743       72,138       64,582
Net min. funding charge w/o credit bal. ($000)..............        6,269        5,982        6,026        6,284
Normal cost ($000)..........................................        2,138        2,251        2,279        2,302
Unfunded accrued liability* ($000)..........................       13,705       15,863       20,785       25,692
Present value of vested benefits ($000).....................      103,744       98,711      100,736       92,276

[[Page 47981]]

 
Unfunded liability, vested benefits * ($000)................       20,114       20,968       28,598       27,694
Valuation interest rate (%).................................          7.5          7.5          7.5          7.5
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* Using market value of assets.

Decision on the Proposed Amendment

    The statute and the implementing regulation state that PBGC must 
make two factual determinations before it approves a request for an 
amendment that adopts a special withdrawal liability rule. ERISA Sec.  
4203(f); 29 CFR Sec.  4203.5(a). First, on the basis of a showing by 
the plan, PBGC must determine that the amendment will apply to an 
industry that has characteristics that would make use of the special 
rules appropriate. Second, PBGC must determine that the plan amendment 
will not pose a significant risk to the insurance system. PBGC's 
discussion on each of those issues follows. After review of the record 
submitted by the Local 1 Plan, and having received no public comments, 
PBGC has entered the following determinations.

1. What Is the Nature of the Industry?

    In determining whether an industry has the characteristics that 
would make an amendment to special rules appropriate, an important line 
of inquiry is the extent to which the Local 1 Plan's contribution base 
resembles that found in the construction industry. This threshold 
question requires consideration of the effect of employer withdrawals 
on the Local 1 Plan's contribution base.
    As the Local 1 Plan has asserted, covered work must be performed at 
a residential building located in Chicago. The work is local in nature 
and generally continues to be covered by the Local 1 Plan regardless of 
the employer retained to do those services. An employer ceases to have 
an obligation to contribute when it loses a cleaning or security 
contract because the building owner outsources the work or retains a 
different service provider, or when the employer closes its business 
due to bankruptcy, retirement, or business relocation. Over the past 10 
years, cessation of contributions by any individual employer has not 
had an adverse impact on the Local 1 Plan's contribution base. Most of 
the employers that have ceased to contribute have been replaced by 
another employer who begins contributions for the same employees at the 
same location for the same work.

2. What Is the Exposure and Risk of Loss to PBGC and Participants?

    Exposure. The bargaining parties had maintained the same benefit 
accrual rate for several years. The benefit liabilities have grown by 
11 percent from 2002 to 2006. However, over the same time period, 
contributions nearly tripled and assets grew by 28 percent. Thus, the 
parties have worked to preserve an adequate cushion against market 
downturns.
    Risk of loss. The record shows that the Local 1 Plan presents a low 
risk of loss to PBGC insurance funds. The Local 1 Plan's active 
participant population has been stable, hovering around 4,000 actives 
for several years. Additionally, the Local 1 Plan and the covered 
industry have unique characteristics that suggest that the Local 1 
Plan's contribution base is likely to remain stable. Contributions to 
the Local 1 Plan are made with respect to Chicago residential 
buildings. This contribution base is secure and the departure of one 
employer from the Local 1 Plan is not likely to have an adverse effect 
on the contribution base so long as the number of buildings covered 
does not decline.

Conclusion

    Based on the Plan's submissions and the representations and 
statements made in connection with the request for approval, PBGC has 
determined that the plan amendment adopting the special withdrawal 
liability rules (1) will apply only to an industry that has 
characteristics that would make the use of special withdrawal liability 
rules appropriate, and (2) will not pose a significant risk to the 
insurance system. Therefore, PBGC hereby grants the Local 1 Plan's 
request for approval of a plan amendment modifying special withdrawal 
liability rules, as set forth herein. Should the Local 1 Plan wish to 
amend these rules at any time, PBGC approval of the amendment will be 
required.

    Issued at Washington, DC, on this 11th day of September 2009.
Vincent K. Snowbarger,
Acting Director, Pension Benefit Guaranty Corporation.
[FR Doc. E9-22537 Filed 9-17-09; 8:45 am]
BILLING CODE 7708-01-P