PBGC Opinion 82-34 & 83-19 and withdrawal liability calculation

[Guest Keith N]

Under the presumptive method we have been under the impression that you need to go back to 1980 and determine the change in UAL in each year. The "buckets" are then amortized and each employer is allocated a percentage of each year’s change.

The result of this calculation is that a w/drawal liability could be assessed against a w/drawing employer even if the plan had no UAL. (I recognize this would be very rare.) Therefore, if the plan was overfunded since inception, but is now underfunded, a w/drawing ER would still have 20 buckets of unamortized gains/losses and their ultimate w/drawl liability would be the sum of all of the buckets.

Recently we came accross these two opinion letters. They seem to say that if the UAL was always

I realize that these opinions were written in the early 80's, shortly after MPPAA was passed. Are these two opinion letters binding in any way? Have there been any court decisions related to this? How do others calculate the liability?

[JanetM]

Keith,

I would do this

1980 - UVB was 0

1981 - UVB was 0 - the change in UVB was 0

keep going each year - carryforward the 0

As long as the plan has no unfunded vested benefits for a year there would be no problem. Note the U in UVB - unfunded. If the plan is fully funded from 1980 to 2000 - the UVB is 0. If the first plan year there is unfunded vested benefits is 2001 - that is were you start.

example - UVB for 2001 is $100

2001 = $100

UVB for 2002 is $150

now you have a change in UVB for 2002 of $50

you would see

2001= $100

2002= $ 50

[KJohnson]

I don't know the answer to your question, but I remember that the the whole notion in 83-19 that you could have withdrawal lialbility with no UVB's was a big issue in the late 1980's and early 1990's. I think the PBGC "flip-flopped" on issues related to 83-19 but ultimately came back around to support it. I am not sure what the current status is:

Here is a quote from a case ARTISTIC CARTON COMPANY, et al., v. PAPER INDUSTRY UNION-MANAGEMENT PENSION FUND > 971 F.2d 1346 a 7th Circuit decision in the early 1990's

In 1983 the PBGC issued an opinion letter (No. 83-19) concluding that a pension fund need not have net unfunded benefits for a particular employer to have an "allocable amount of" unfunded benefits. Section 4211, > 29 U.S.C. § 1391, gives funds several ways to define each employer's responsibility. One way to understand § 4211 is to say that "allocable ... unfunded vested benefits" means the amounts produced by application of the statutory formulae. One of these is direct allocation. If some employers have chipped in more than the amount necessary to pay for their employees' vested benefits, while others have paid less, the latter group may have "allocable" unfunded benefits even though the pension trust as a whole is solvent. Pension funds that allow firm-by-firm negotiation of benefits may find that this is a common situation. The Paper Industry Fund allows the employer and union to negotiate over both contribution and benefit levels. So although the Fund spans many employers and protects workers against transitory or insolvent businesses, there is not a common contribution rate or benefit level for the entire industry. Some employers may be contributing too little to pay for benefits they agreed to provide, while others are over-funding their promises.

Allowing withdrawals without collecting employer-specific shortfalls acts as a tax on the payments by other employers. It also creates a discontinuity. Suppose a method prescribed by § 4211 requires a given employer to pay $500,000. If the pension fund's net worth is a penny less than the present value of vested benefits, it may collect the whole half million; if its net worth is two cents greater, it collects nothing. Such considerations led one court of appeals to agree with the PBGC's opinion. > Ben Hur Construction Co. v. Goodwin, 784 F.2d 876 (8th Cir.1986).

Although the PBGC persuaded the eighth circuit, the eighth circuit did not persuade the PBGC. After reading > Ben Hur, the agency did an about-face and concluded that an amount is "allocable" only if the plan as a whole has "unfunded vested benefits." Notice of Interpretation, 51 Fed.Reg. 47342 (Dec. 31, 1986). If the plan is solvent, there is less risk of "runs" by employers seeking to avoid future obligations and no need to regulate private activity in order to reduce risk to the insurance pool. Plans get their choice of actuarial assumptions; if they cannot find even one set of assumptions that causes the value of benefits to exceed current assets, they must be secure indeed. Just as there are anomalies in saying that the fund may not assess employers with sums computed under § 4211, so there are anomalies in allowing collection while the fund as a whole is above water. When a plan is terminated, no employer pays anything extra so long as the fund has the assets to meet vested obligations. > 29 U.S.C. § 1399©(8). As withdrawal is termination at retail rather than wholesale, it is hard to justify different treatment. Moreover, > 29 U.S.C. § 1381(B)(1)(A) cuts down a withdrawing employer's liability via the "de minimis reduction applicable under" > 29 U.S.C. § 1389, an amount determined by reference to the shortfall in the fund as a whole. Considerations of this kind persuaded the first circuit that the eighth circuit was wrong, and that the PBGC had grasped the brass ring on the second try. > Berkshire Hathaway, Inc. v. Textile Workers Pension Fund, 874 F.2d 53 (1st Cir.1989).

What the first circuit found persuasive, the fourth circuit found illiteral. > Wise v. Ruffin, 914 F.2d 570 (4th Cir.1990). > Wise reminded the agency that § 4201 refers to § 4211: the "withdrawal liability of an employer ... is the amount determined under > section 1391 of this title [§ 4211 of MPPAA] to be the allocable amount of unfunded vested benefits". > 29 U.S.C. § 1381(B)(1). Funds' net valuation fluctuates with the interest rate. If employers that have contributed less than the value of vested benefits enjoyed by their workers can get out free of charge when the fund's ink is black, the deficit will be all the greater when a future change in interest rates turns the balance sheet red. After reading > Wise, the PBGC concluded once again that it should switch sides. Notice of Interpretation, 56 Fed.Reg. 12288 (Mar. 22, 1991). At least for the moment, then, the PBGC believes that pension trusts may collect from withdrawing employers whose own accounts show a shortfall, even though assets of the fund exceed the value of all vested benefits. Artistic Carton wants us to embrace > Berkshire Hathaway and scorn the agency's latest gyration.