[Federal Register Volume 62, Number 65 (Friday, April 4, 1997)]
[Notices]
[Pages 16204-16205]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-8606]


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PENSION BENEFIT GUARANTY CORPORATION


Exemption From the Bond/Escrow Requirement Relating to the Sale 
of Assets by an Employer Who Contributes to a Multiemployer Plan; 
Dunham-Bush, Inc.

AGENCY: Pension Benefit Guaranty Corporation.

ACTION: Notice of exemption.

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SUMMARY: The Pension Benefit Guaranty Corporation has granted a request 
by Dunham-Bush, Inc. for an exemption from the bond/escrow requirement 
of section 4204(a)(1)(B) of the Employee Retirement Income Security Act 
of 1974, as amended, with respect to the Sheet Metal Workers' National 
Pension Fund. A notice of the request for an exemption from the 
requirement was published on December 20, 1996 (61 FR 67355). The 
effect of this notice is to advise the public of the decision on the 
exemption request.

ADDRESSES: The non-confidential portions of the request for an 
exemption and the PBGC response to the request are available for public 
inspection at the PBGC Communications and Public Affairs Department, 
Suite 240, 1200 K Street NW., Washington, DC 20005-4026, between the 
hours of 9 a.m. and 4 p.m., Monday through Friday.

FOR FURTHER INFORMATION CONTACT: Thomas T. Kim, Office of the General 
Counsel, Pension Benefit Guaranty Corporation, 1200 K Street NW., 
Washington, DC 20005-4026; telephone 202-326-4020 ext. 3581 (202-326-
4179 for TTY and TDD). These are not toll-free numbers.

SUPPLEMENTARY INFORMATION:

Background

    Section 4204 of the Employee Retirement Income Security Act of 
1974, as amended by the Multiemployer Pension Plan Amendments Act of 
1980 (``ERISA'' or ``the Act''), provides that a bona fide arm's-length 
sale of assets of a contributing employer to an unrelated party will 
not be considered a withdrawal if three conditions are met. These 
conditions, enumerated in section 4204(a)(1)(A)-(C), are that--
    (A) The purchaser has an obligation to contribute to the plan with 
respect to the operations for substantially the same number of 
contributions base units for which the seller was obligated to 
contribute;
    (B) The purchaser obtains a bond or places an amount in escrow, for 
a period of five plan years after the sale, in an amount equal to the 
greater of the seller's average required annual contribution to the 
plan for the three plan years preceding the year in which the sale 
occurred or the seller's required annual contribution for the plan year 
preceding the year in which the sale occurred (the amount of the bond 
or escrow is doubled if the plan is in reorganization in the year in 
which the sale occurred); and
    (C) The contract of sale provides that if the purchaser withdraws 
from the plan within the first five plan years beginning after the sale 
and fails to pay any of its liability to the plan, the seller shall be 
secondarily liable for the liability it (the seller) would have had but 
for section 4204.
    The bond or escrow described above would be paid to the plan if the 
purchaser withdraws from the plan or fails to make any required 
contributions to the plan within the first five plan years beginning 
after the sale.

[[Page 16205]]

    Additionally, section 4204(b)(1) provides that if a sale of assets 
is covered by section 4204, the purchaser assumes by operation of law 
the contribution record of the seller for the plan year in which the 
sale occurred and the preceding four plan years.
    Section 4204(c) of ERISA authorizes the Pension Benefit Guaranty 
Corporation (the ``PBGC'') to grant individual or class variances or 
exemptions from the purchaser's bond/escrow requirement of section 
4204(a)(1)(B) when warranted. The legislative history of section 4204 
indicates a Congressional intent that the sales rules be administered 
in a manner that assures protection of the plan with the least 
practicable intrusion into normal business transactions. Senate 
Committee on Labor and Human Resources, 96th Cong., 2nd Sess., S.1076, 
The Multiemployer Pension Plan Amendments Act of 1980: Summary and 
Analysis of Consideration 16 (Comm. Print, April 1980); 128 Cong. Rec. 
S10117 (July 29, 1980). The granting of an exemption or variance from 
the bond/escrow requirement does not constitute a finding by the PBGC 
that a particular transaction satisfies the other requirements of 
section 4204(a)(1).
    Under the PBGC's regulation on variances for sales of assets (29 
CFR part 4204), a request for a variance or waiver of the bond/escrow 
requirement under any of the tests established in the regulation 
(Secs. 4204.12-4204.13) is to be made to the plan in question. The PBGC 
will consider waiver requests only when the request is not based on 
satisfaction of one of the three regulatory tests or when the parties 
assert that the financial information necessary to show satisfaction of 
one of the regulatory tests is privileged or confidential financial 
information within the meaning of section 552(b)(4) of the Freedom of 
Information Act.
    Under Sec. 4204.22 of the regulation, the PBGC shall approve a 
request for a variance or exemption if it determines that approval of 
the request is warranted, in that it--
    (1) Would more effectively or equitably carry out the purposes of 
Title IV of the Act; and
    (2) Would not significantly increase the risk of financial loss to 
the plan.
    Section 4204(c) of ERISA and Sec. 4204.22(b) of the regulation 
require the PBGC to publish a notice of the pendency of a request for a 
variance or exemption in the Federal Register, and to provide 
interested parties with an opportunity to comment on the proposed 
variance or exemption.

The Decision

    On December 20, 1996 (61 FR 67355), the PBGC published a notice of 
request from Dunham-Bush, Inc. (the ``Buyer'') for an exemption from 
the bond/escrow requirement of section 4204(a)(1)(B) with respect to 
its January 6, 1995 purchase of certain assets of Allagash Fluid 
Controls, Inc., which was formerly known as Dunham-Bush, Inc. (the 
``Seller''). No comments were received in response to the notice during 
the comment period.
    According to the request, on January 6, 1995, the Buyer acquired 
certain assets of the Seller. The Seller was obligated to contribute to 
the Sheet Metal Workers' National Pension Plan (the ``Plan''). The 
Buyer has assumed the Seller's obligation to contribute to the Plan at 
the purchased operations, and continues to make contributions for 
substantially the same number of contribution base units as the Seller. 
The Seller has agreed to be secondarily liable for any withdrawal 
liability it would have had with respect to the sold operations (if not 
for section 4204) should the Buyer withdraw from the Plan within the 
five plan years following the sale and fail to pay withdrawal 
liability.
    The estimated amount of the unfunded vested benefits allocable to 
the Seller with respect to the operations sold is $3,000,000. The 
amount of the bond/escrow required under section 4204(a)(1)(B) is 
$545,409.29.
    The Buyer submitted its financial statement as of January 26, 1996. 
According to that statement, the Buyer's net tangible assets are just 
over $20 million, which is in excess of the unfunded vested benefits 
allocable to the Seller.
    Based on the facts of this case and the representations and 
statements made in connection with the request for an exemption, the 
PBGC has determined that an exemption from the bond/escrow requirement 
is warranted, in that it would more effectively carry out the purposes 
of Title IV of ERISA and would not significantly increase the risk of 
financial loss to the Plan. Therefore, the PBGC hereby grants the 
request for an exemption from the bond/escrow requirement. The granting 
of an exemption from the bond/escrow requirement of section 
4204(a)(1)(B) does not constitute a finding by the PBGC that the 
transaction satisfies the other requirements of section 4204(a)(1). The 
determination of whether the transaction satisfies such other 
requirements is a determination to be made by the Plan sponsor.

    Issued at Washington, DC, on this 26th day of March, 1997.
John Seal,
Acting Executive Director.
[FR Doc. 97-8606 Filed 4-3-97; 8:45 am]
BILLING CODE 7708-01-P