[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
