-Class 2 1/24/13 Single Employer Plans 1

-Coverage
-You dont worry about the PBGC unless you dael with a PBGC
plan
-Is a threshold question throughout Benefits:
-ERISA Coverage
-Tax Qualificatoin
-Title IV has its own Coverage Rules
-Whenever someone has an issue that is related to employee benefits
there is a mental outline that you developwhatever the issue is it
arising through a covered plan?
-Until you cross the coverage threshold you dont know what your rules
are using. But we dont know we are in title IV coverage unless we
know that we have gotten past it. If we have a covered plan, we have
PBGC premium Issues

-PBGC Premium Issues Hot Area

-Since 1974 when PBGC was created there was always a flat
rate premium. There has always been a variable rate premium,
and now there is a termination premium that has been added.

-PBGC Guarantees
-To talk about how it is limited. It doesnt guarantee whatever
the plan promises. Title IV is a compromise between social
policy and insurance
-On the private sector insurance side you get what you pay for
health insurance life insurance whatever it is. You pay a
premium based on risk to the person selling insurance.
-Title IV doesnt have a profit motive, but what you will see about PBGC
premiums is that there is discussion as to whether it should be risk
based.
-The other way to look at it is that you want to encourage plans even in
risky situations.
-Why is this controversial?

-Back in 74 there was even debate that this shouldnt be some grand
social insuranceor that it should be completely social insurance.

-Reportable Event Issues

-Transactions that are going on with the plan sponsor that (C)
has said and that PBGC has echoed that we want to know
about.
-Wht talk about this?
-Because most of our Clients are operating their businesess that if they
are a private business that this is between them and whomever they
are daeling with. If they are selling the business or buying one, they
have the idea that it is between them and the other party.
-It is an entirely different discussion when they trealize that this deal
has to be reviewed by the government.
-Significant events of the life of the sponsor that the PBGC
wants to know about

-Titles of ERISA
-Title 1 Fiduciary Rules
-Whether the coverage rules apply
-Title 2 Tax Qualification
-The thinnest of the titlesit says go look at the tax code
-Title 3 Administrative Mattres
-Actuarial Rules
-An actuary is very sophisticated mathmetician who calculates how
much something is worth. They make assumptinos to arrive at values.
-In the pension world, (C) decided that some bodynot the
government and not the employer had to sign off on pension funding
-The whole problem with Studebager was that there was no money set
aside.
-If you just let that up to the employer, in a lean year they would just
not fund the plan.

-Joint Board for the Enrollment of Actuaries Kind of like the

ABA. It is a quasi-public body. You have to abide by the
principal that you are doing your job not just for the client but
that you have a public purpose in doing your job.
-Title IV
-PBGC where we are spending most of thre course
-Title 1 Plans
-Employee Pension Benefit Plans and Employee Welfare
Benefit Plans
-> Are employee benefit plans
-And you have the definition in title 1 of employee benefit plans
-Pension Plans
-DB
-Traditional (final average pay gold watch plans), cash balance (you
get a credit every year with a hypothetical account and it will grow at a
treasury rate until you retire it is a DB plan because they were
decided to meet actuarial funding principles).
-DC
-Employee Funded 401(k)
-Employer Funded Profit-sharing kinds of plansalthough we are not
limited to profits anymore
-Title 1 Provisions
-Definitions
-Reporting and disclosure
-Reporting means reporting to govt, disclosure means telling
participants
-Participation and vesting
-If the employer is going to get a tax deduction for the contribution or
employee gets a tax break for funding it then it has to be held in trust
and there are rules for how the employee walks away with the money

-Participation being the ruels that the employee has to meet and the
vesting rules being ownership ruleshow long you have to work to
have ownership in whatever you earned
-Fundign
-If you are going to tell employees that you are going to fund for the
rest of your life you have to have rules for whatever you earn is going
to be funded
-There is a lot of cross reference to the IRC
-Fiduciary Provisions
-If we created a trust, do we view that as employers cash? No.
Fiduciary provision in Title 1 prevent the people who are handling the
plans money from taking action that could put the employees benefit
at risk.
-Administrative and enforcement rules
-Coverage
-Drafted very broadly. The core principle that it is being covered unless
there is an exclusion for the type of plan that you are dealing with. If
the benefit plan affects commerce you have Title 1 Coverage
presumptively, but (C) has gone in and written out a whole bunch of
plans.
-Exempted:
-Government Plans
-Not covered by title 1it says they are not covered
-Church Plans
-Look at title 1 4 of ERISA Plans of church entities not covered
-Unfunded excess benefit plan
-Non-resident Alien Plans

-Summary of Tax Qualification Principles

-Plans, to receive tax preferred status, have to satisfy 401(a)
of the IRC
-IRC 401(a)(1)-(a)(37)

-It is simply a dormat. You work through 401(a) just to know that it
needs to meet minimum funding requirements which are in 410. The
core rules are in other sections.
-Parallel provisions for participation, vesting, and funding
-Other tax-realted askepcts of retirement plans
-A pension plan is NOT afforded tax benefits, unless it meets
the requirements of 401(a)

-Overlap Between Title 1 and Title 2 Issues

-There are ERISA plans that are not tax qualified. Title 1 of
ERISA doesnt say anything about tax qualification being
required. Likewise, a code doesnt require a plan to be covered
by Title 1 to be tax qualified
-There is mostly overlap, but not entirely
-Church plans are exempt from Title 1, but they have to meet some
provisions of the tax code, so they are subject to Title II.

-Title IV of ERISA:
-Establishes PBGC
-Covers most private defined benefit plans
-Guarantees benefits
-Allocates assets in terminated plans
-Provides methods of plan termination
-Creates liabilities for terminated plans
-Includes the Multimeployer Pension Plan Amendments Act of
1980 (MPPAA)

-Title IV Covers - 4021(a)

-That have:
-1. Obtained an IRS determination letter that the plan has met
the requirements of 401(a) of the IRC

-In this world of benefits, you are hearing about IRS determination
letters. The IRS has a staggered remedial amendment cycle. If you
want to rely on the form of the plan about making a judgment about
whether the plan is qualified you need to have a determination letter
and make a fixed determination awith a plan document.
-If you do that correctly, the IRS will send you back a 2 page letter that
says you have reliance on the form of the planif it has one of those
and it is a DB plan it is presumptively covered
-It is a bit of a funny issue because plans dont have to have these
letters. In fact, the IRS is getting close and closer to not issuing
determination letters. They are expensive and tiem intensive.
-2. In practice, met the requirements of 6401(a) for the past 5
years

-Plans that are NOT COVERED 4021(b)

-Individual account plans (aka DC plan)
-But a cash balance is not REALLY accounts.
-Government Plans
-Local governemnts have over promised and underfunded
-Church Plans
-Separation of church and state
-Substantial Owner Plans
-DB plans for small businesses have become hot. It is an area
where small business owners with a decent cash flow can sock
away a lot more. There are strict limits on how much you can
fund themyou have a much higher limit than DC plans.
-If those small privately owned employer meet the requirements to be
a substantial owner plan or professional service employer plan you can
avoid PBGC coverage
-A substantial owner plan covers a sole properiter, capital profits
interest>10%, voting stok or all stock >10%
-Professional Service Employer Plans
-25 active participants or less
-Those rules are found in 4021 of ERISA--4021(b)(13)

-You are talking about services (not manufacturing).

-Professional Srevices are ones that require higher level training to
perform. And they tossed into this category performing artists.
-Attorneys are professional service providers if under 25. You can keep it out of PBGC
coverage.
-Actuaries
Accountants

-PBGC Premiums - 4006, 4007

-Flat Rate Premiums: $42 per participant 2013, up from $1 in
1974
-Multiemploer Plans: $12 per participant

-Variable-Rate premiums (single-employer only)

-$9 per each 41,000 of unfunded vested benefit

-Termination Premiums
-Generally $1,250 per participant, paylbe in 3 annual
installemtns after termianton of a single-emplyoer DB plan
-Special rule for plans terminated during bankruptcy
reogrnizations
-Installemntcs come due after emergence from chapter 11
-If a plan is terminated during bankruptcy, then the installments are
deemed to come due after it comes due in Chapter 11
-Not applicable to Multiemployer plans

-Liability for Premiums

-Sinlge-Employer Plans
-The contributing sponsor and all membres of the sponsor are
the
-Controlled Gropu

-Multiemplor plans
-the Plan

-Reportable Events - 4042

-Post-event notice of certain events
-Pre0event notice of specified events
-Underfunded in exces of $50 million and
-Funded percentage of less than 90 percent
-And a privately held company
-A public company has to make a public filing with the SEC, so that is
why it is only private companies
-Notices generally reported on PBGC form 10

-Reportable Events - 4043

-Reductoin in active participants
-Actives decline to less than 80% at Beginning of Year, or 75%
from preior year
-Why?
-If your active participant base is dropping that much, something has
happened. There is not normal attrition like that.
-May also be an event under 4062(e) if reduction caused by
cessation fo operations ata facility (downsizing liability)
-SEPARATE reporting required under 4063(a)(1)
-So just by filing form 10 you are not free from filing them
-The real reason is that the timing is a little bit different.
-Reportable Events - 4043(c)(5)
-Failure to make minimum funding contribtuiosn
-Includes payments required as a condition of IRS minium funding
waivr

-Notice filed on Form 200 if aggregate unapud contirbtuiosn exceed $1

million
-Notice required within 10 days when aggregate unpaid MFC > $1
million
-Indicative of cash flow problems
-It is usually not an oops we didnt make that payment (but that does happen).

-A statutory lien has arisen

-The PBGC has no authority to determine the existence of the lien. The lien arises by
operation of law.
-The day after the payment is due the lien arises. They dont create it, therefore, they
cant negate it.
-they DO have discretion of whether they file a notice of lien. The ones that creditors
worry about as perfected liens. They may exercise discretion about whether they
notify the world about the existence of the lien.

-Change in contributing sponsor or controlled group member

(aka controlled group breakups)
-Transactions that result in one or more persons ceasing to be
members of the plans controlled group, e.g.
-Single employer plans are a tar babythe employer touches them
and any change to that employer is a threat to the PBGC (merger,
asset sale)
-Stock sale
-Trasnfer of a pesnoin plan in na asset sale
-A merger
-On the multiemployer sidenot so much. There can be a sale of a
business on the multiemployer side and the multiemployer plan may
never know about it. As long as an entity continues to fund the plan it
doesnt matter who owns it.
-So in this way they are VERY different
-Reportable Event 1
-This is 1 employer with 2 plans
-Next Slide
-Company A mves out with Plan A, and Company B has Plan B
with Company C in its control group

-The PBGC wants to know about that because A may be a poorly

funded entity and has a plan that the PBGC ensures.
-Reportable Event 2
-Company Q gets Plan Q
-Assets, emplyoees, and Plan Q to Company R
-Company R gets plan Q
-So now the PBGCs buffer has changed
-Extraordinary Dividend or stock redemption
-If the employer is going to take an extraordinary distribution
you have to tell the PBGC about that
-Spinoffs, mergars, or transfers of benefit liabilities
-All of that, the PBGC must be notified
-Loan default
-These are a big deal, btu any time you are dealing with a
client, there is some kidn of default
Bankruptcy or similar settlement

-PBGC Guarantee - 4001(a)(8), 4022

-Single Emplyer Plans
-PBGC gurantees the payment of nonfrofitable benefits under
a plan that is COVERED by Title IV when it terminates
-The insurable event is that the plan has terminated and the PBGC has
become its trustee. There are documents that create that legal
relationship and they track back to the statute.
-Multiemployer Plans ENTIRELY DIFFERENT GUARANTEE
THEY DONT TERMINATE AND GO TO THE PBGC
-They require financial assistance. The plans borrow from PBGC
(usually with no hope of repaying) but it DOES NOT take over
those plansthey exist as their own separate legal entity. The
insurable event for the multiemployer plan.

-Only 2x in PBGC history have they ever taken over a multemplyoer

plan

-Conditions to PBGC gurantee

-Nonfrfeitable Beenfit
-A benefit for which a participant has satisfied the conditions
for entitlement under the pan or ERISA on the Date of Plan
Terminatoin (DoPT)
-Other than submitting an application, retirement completing a
required waiting period, etc.
-This does NOT mean vesting. Here in Title IV world we are not talking
about vested benefits.
-Guarantee requires non-forefritability
-The exception to that is forfeitable because you had to submit
an application and didnt, or you had to retire and didnt
And if that is the only reason that the benefit is non-forefitable that is
ignored under ERISA
-If the set up is that he particpaitn has to retire and then wait 30 days
and then gets the benefit but the plan terminates after 12 and it goes
to PBGCthat benefit is not nonforetiable even though it has vested
-Other necessary conditions
-the plan is covered under title IV when it terminates, i.e. on the date
of plan termination
-This is the date of the Godfather Law: when all family business is
settled.

-Fetty v. PBGC 915 F.Supp 230

-Copmany called CFI filed Chapter 11 peition on Nov 7 1990
-In March of 1992, PBGC determines that the plan should be
terminated
-March 19 of 1992, Plan terminated by agreement between
PBGC and CFI
-March 3, 1993, old CFI sells assets to New CFI and employees
are laid off including MR. Fetty

The plan has a provision that says that If you are terminated
from emplyometn as a result of the sale you get an enchanced
pension benefit. Fetty says I was here on March 2 1993, on
March 3, 1993 I wasnt working for you anymore. I lsot my job
because you sold all the assets, PBGC guarantee my benefit.
-PBGC says: no. How can that be? The plan says you have to be
laid off as a result of a sale. There was a sale and Fetty was
laid off.
-On March 19, 1992 the plan was terminated. He was not laid off as a
result of an asset sale at that time. By the time he met the conditions
the plan didnt exist anymore. So meeting those kinds of conditions is
not enough. You have to meet the conditions when the plan
terminates.

-Limits on PBGC gurantee

-Accrued-at-normal litigation
-PBGCs gurantee is limited to the amount payable under the
plan as a straight-life annuity at normal retirement age
-Those types of plans gave good benefits to young people and PBGCs
guarantee is expressed as an age 65 straight life annuity guarantee. So
whatever the benefit is that is what they convert it to.
-Statutory Maxmimum
-PBGC gurantee is calculated based on straight-life annuity,
reitrment at age 65
-up to $57500 per year for plans terminating 2013 or after
-Phase-In
-Beenfits and benefit increases are phased in at 20% per year.

-What benefits does PBGC Pay?

-PBGC pays the greater of the following:
-the asset-funded benefits using plan assets, or
-the guaranteed benefits under 4022
-PBGC also pays a portion fo its recovers to participants
-Section 4022(c)

-Accured at normal limitation

-EX: Neds accrued benefit under the plan = $1,000 / month an

Normal Retriement Date
-Ned retired 10 years early
-Benefit reduced by 5% each year (i.e. $1k x 50%/year = guaranteed
$500 year level)

-Special Rules
-Majority Owners - 4022(b)(5)
-Sole props, 50 percent partners, 50 percent sahrehodlers
-Have a longer phasez in. Would be 5 years for others 10 years from
then
-Deemed DoPT - 4022(g)
-Plans terminated during bankruptfcy: petition date will be
DoPT
-Unpredictable contingent event benefit (UCEB) plant
shutdown, layoff, etc.
-Treated as if plan amendment adopted on date of event for purpose of
phase-in
-Deemed doPT
-On bankruptcy date because that is petition date

-Next Week:
-Go over accured limitation
-DB Terminations:
-Standard, Distress, Voluntary, Plan restoration

-Ask Q about when a waiting period applies to when it is

nonforefitable
-were not talking about vesting. Vesting means you have met
the statutorily prescribed vesting schedule. It is not really the
test here for guaranteed PBGC benefitsthe PBFC only
guarantees non-forefitable

-The Title IV test is that it is a benefit for which the participant

has satisfied the conditions for entitleunment under the plan
or ERISA on DoPT
-The issues for nonforfeitable dont usually arise in the basic benefit.
The plan will say that if you retire, you will get 1% of your final average
compensation x years of service. The plan will also say when you vest
typically cliff vesting over 5 years.
-Lets say you have a participant that is 10 years into service, that
participant has a vested benefit. BUT, say the plan terminates. Is the
benefit nonforefietiable?
-The Title IV test is if the participant has satisfied for the conditions of
entitlement other than submitting na application, retirement, or
completing a required waiting period - 4001(a)(8).
-So you would say that the participant has met the conditions for
retirement in that examplethat kidn of benefit is typically always
nonforefitable
-Where the FETI case came in, was that the CF&I plan said that if you
are terminated from employemtn because of the sale of the company
or the sale of its assest, then you will get an additional piece of benfits,
so you have your plan benefit and then there is something extra you
get if your termination from emploeymnt has occurred. In that case the
plan had terminated before the plan sold its asstes, which is when FETI
ost his job.
-He wanted his benefit that he would get because it sold its assets.
-But since it is judged at the plans termination date.
-Age
-Threshold of Service
-Certain transaction of the company
-but not usually basic benefits

-Accrued At-Normal Limitation (A in AMP)

Guaruantee is limited to the amount payable under the plan as
a straight life annuity at normal retirement age
-Statistocally the PBGC pays a high percentage, and you can
start with the idea that 90-some percent of the people arent
giogn to be affected

-But if you are representing Airline pilots, they are a young

demographic. You dont see a lot of 65+ year olds flying. If you want to
move those people out of the cockpit and into some other form of
employment in the economy, you are going to have to have a pension
plan that pays them earlierbut PBGCs retirement age is geared
towards 65 you want them to have a NRA of 55.
-So if the Airlines plan goes over to PBGC that is where the
interruption of the benefit flow to the participant might be. Now, the
accrued at normal limitation may clip that participant.
-Or if another kind fo company company has had a series of layoffs and
uses the retirement plan to soften the blow. So you get some 51 and
52 year olds that go into retirement is normally 62, and then the
company collapsesthat benefit is going to be adjusted.

-Statutory maximum (the M in AMP) - $57,500 per year

-Phase in 20% per yaer

-What benefits does PBGC Pay?

-PBGC pays the greater of the following?
-The asset funded benefits using plan assets, or
-The guaranteed benefits under 4022
-PBGC also pays a portion of its recoveries to participants
-4022(c) Benefits
-When PBGC takes over a plan, the PBGC seeks to collect the claim for
unfunded benefit liabilities. It shares its recoveries with participatns
udner 4022(c)

-Accrued at Normal Limitation (A in Amp_

-Ned has $1k month at NRD (Single Life Annuity)
-If Ned retires 10 years early:
-His plan reduced it because he is retiring 10 yaers early, accrued at
normal for 5% each year ($1k at month normal retirement, then you
reduce by 505%/year = $500 year benefit
-Plan Supplemental benefit = $750 month until 65
-Typicaly you only see supplements as an incentive for early retirement

-Neds total benefit = $1,250

-Limitation on PBGC guaranteed benefit
-$1,250 > $1,000, so only $1,00 Is GUARANTEEABLE until age
65, reduced to $500/ month at age 65

-Statutory Maxmimum Example

-Zoes normal retiremenb eefint is $2,200 motnh (SLA)
-Ttile IV max at age 65: $2,164/ mo SLA
-Zoe retires at age 62
-Zoe and spouse elect 50% joint and survivor annuity
-Plan/PBGC concersion factors
-Early retirement factor .82 (Title IV .79(
-Plan J&S factor .8517 (title IV .8640)
-Limitation on guaranteed benefit
-Calculated plan benefit $2,200 x .82 x .8517 = $1,536,47
-So because she is early and because she has a spouse the plan is
going to pay her $1,536.47
-The joint and survivor and earler retirement cost her money
-Calculate title IC limit: $2,164 (PBGC 2012 maximum) x .8640 =
$1,477.59

-Class 3 1/31/13 Types of Terminations

-Intro
-There is surprisingly more litigation on this than you think.
Hughes caseit took the Sup Ct saying that the only way a
Title IV plan can terminate is through the means provide din
Title IV.

-Will Cover
-Voluntary Terminations 4041
-Involuntary Termaiotn 4042

-Date of Plan Termioant 4048

-Must establish a date of termiantoin
-Restoration 4047
-The last and only plan to do that was in the 1980shappens if
abuses are found

-Timeline
-Adoption of the Pension Plan
-Reportable Events
-Some plans do, most will have to by the time they terminate.
There are some that stay off of the PBGC radar screen.
-Plan Termination
-Restoration of Pension Plan

-title IV of ERISA: ERISA

-SUP CT: Thomas in Hughes said it is the exclusive avenue
you hav to go through the PBGC rules in Title IV
-Plans may not be terminated by the following means (these
are events that may be importantthey are sometimes
necessary but not sufficient)
-Abandonment
-Sometimes this happens
-But the plan will remain ongoingwhich people wil remain fiduciaryes
-Corporate resolution
-Will be NECESSARy 9 times out of 10 unless the PBGC comes in and
does it for youyoull need that in your package of documents
-The establishment of a plan is a settlor fundciotn
-The decision to terminate a plan is a settlor function
-But how do businesses make business decisions? They have a
governing board and LLCs have a managing memberand they are
the repository to do the actions
-Very rarely will you work in a business where this is delegated to a lower level
functionaryusually it is on the board level

-Rejection as an executor contract in bankruptcy proceedings

-Merger
-You may merge one plan with anoher. There is now at leats one case
saying MERGER IS NOT A MEANS OF TERMINATION.

-Effects of Plan Termination: Single Employer Plans

-When a plan terminates, it means cessation of:
-Benefit accruals for participants
-Funding obligations for employer
-Only applies to ongiogn plans
-Reporting obligations for employer
-Issuing SPDs, filing 5500s (although there must be a final 5500 filing).
-Annual premium obligation ceases at termination

-This looks like a good dealget rid of a lot of liabilities, but lets keep
moving
-CREATES OBLIGATOINS
-Termination Premiums arise
-Obligation to pay unfunded benefit liabilities
Assets distributed to participants and benefitciaires (a IRC
requirement)
-For Underfunded Plans: PBGC trusteeship and obligations to
guarantee non-forefetiable benefits
-PBGC substitutes for plan fiduciaries
-Not that PBGC becomes a fiduciary, but it does all of the things that
fidicuairies used to do it replaces the fiduciaries
-Types of Plan TErmioant
-Voluntary (sponsor-intitated)
-Standard Terminations
-Distress Termionats

-Involuntary (PBGC-initaited)
-Mandatory Terminatoins
-Only when assets are not sufficient to pay benefits that are due. The
PBGC has to terminate, otherwise it is a discretionary action:
-Discretionary Termination

-Collective Bargaining Agreements:

-Voluntary Terminations:
-If a termination of a plan would violate the terms of a CBA,
the termination cannot proceed:
-If notified of a challenge before the end of its review period, PBGC will
suspend its approval process until the challenge is resolved
-The termination will end if the union objects that it would violate the
terms of the PBGC
-It is not really self-enforcing, the PBGC doesnt really enforce this
either. For the employer to terminate, one of the requirements si that
the employer notify the participant and notify the unionif they send
out the notices of the termination, it is up to the union to say that
violates the collective bargaining agreement. If the union notifies that
it will cease processing termination. 1341a
-This will even apply if the employer is going through bankruptcy. There
is a process in bankruptcy for CBAs to be rejectedso a company that
is going through bankruptcy, it is not a free pass. What they have to do
is file a motion in the bankruptcy to reject the bargaining agreement
-The bankruptcy wont prevent the unions objection from ending the
processing of the termination on hold.
-Involuntary (PBGC-initated termoation:
-Collective bargianin agreements do nto prevent PBGC from
initaitng termiations
-The PBGC is acting in its own interestone of the requirements of
4042
-PBGC typically acts when it views its insurance funds to be put at risk

-Standard Terminations 4041(b)

-Voluntary Termination: Standard Tremination

-Basic Legal Requirements

-Plan administrator must issue timely and proper notice of
intent to terminate (NOIT) with a proposed Date of Plan
Tremionat (DoPT)
-PBGC does not issue a notice of non-compliance (NONC)
-The plans assets must be sufficient for benefit liabilities when
the final distribution occurs
-Plan sponsor may commit to making the plan sufficient
-The plan can commence or the employer can commecnce standard
termination proceedings for an insufficient planwhich sort of sounds
like it violates the principles of a sufficient termination. The reason for
that is, Title IV recognizes that an employer with some means can
write an IOU to the plan so that it will make an extraordinary
contribution at distrubiton to close out. So the employers IOU is
currency in a Title IV standsadr termination.
-Majority owner may waive benefits to make plan sufficient
-I..E. if someone owns more than 50% of the stock of the company and
is underfunded they can wiave the obligation. If on valuing the benefit
liabilities in the plan the actuary can say that the insuffiency can be
covered by the majority owner waiving all or some of his benfitthey
can do tthis
-it is a backdoor to te 411(d)(6) protectionts that everyone else enjoye.
-While the plan is active, NO participant, even minority owner can waive it. But on
termination the majority owner can take a walk form his bnefit to close it out.

-Benefit Liabilities
-Benefict Liabilties are (quote from statute): the benefits of
emplyoees and their beneficiares under thelpan (within the
meaning of 401(a)(2) of IRC.
-Benefit liabilities are essentially all fixed and contingent
liabilities accrued under the plan, vested and unvested (on this
point it is not nonforfetiable it is vested and unvestedthere
have been cases on this where employers wouldn feel like
they need to fund unvested benefits, but on a termination
those unvested benefits are still nonforefitable)
-Includes benefits not protected under the anti-cutback rules of ERISA
and the IRC but If the plan funds medical benefits, death benefits, SS
supplemetns

-Those benefits are not only not protected under 401(d)(^) anitcutback, they are NON-fundable. But if the employer wants to
terminate the plan they will have to find money for it.
-How do interest rates affect benefit liabilities? How do benefit
liabilities affect contributions?
-Interest rates are inversely related to the value of benefit liabilities.
The process of valuing benefits or benefit liabitlies reflect the present
value of a future promise.
-How do I know that if I promise to pay you $100 10 yaers from now,
how do I know what amount of money to set aside today?
-You need to know how much money you set aside can be expected to
earn and you have to know what conditions might occur during those
10 yaers
-So you need to know how much you need to expect to earn. If the money can earn
at a higher interest rate you need to set aside a greatr amount of money. The higher
the assumed earnigns rate, the less that has to be set aside today.

-The same principle with valuting benfit liabitliessetting aside all of

the money right now that is going to discharge benefit liabilitythe
only way you know how much moeyn to set aside today is to make an
assumption about how much the assets are going to earn.
-It is the inverse relationship between benefit liabilities and interest
rates that have created a lot of bankruptcy litigation.
-The way to reduce the unfunded benefit liability that you might owe
PBGC is to reduce the benefit liability
-one theory that gained a lot of traction was to reduce the benefit liability was to pick
on the interest rate in calculating benefit liability (PBGC assumes a low rate of
earning)not generally reflective of the rate that can be eanred in the private sector.

-Interest rates affect tliabilties because the lower the rate the higher
the liability the higher the rate the lower the liability

-Starndard Terminations: Notice

-Notice ofintent to terminate (NOIT) no later than 60- no
earlier than 90 days before proposed DoPT
-What this means is that you need to sit down with a calendar.
If you issue the notice of intent at 59 days or 92 days before
you dont have a valif termination notice and you MAY not
have a valid termination without a valid notice.
-You want to check it 2-3 times to make sure you are not imissing it

-NOIT issued to affected parties (i.e. participants) beneficiaries

(people who are collecting bnefits form the plan who arent
participatnsspouses, kids, former spouses under a QDRO),
unions, alternate payees (beneficiaries) but not PBGC
-NOIT has to tell the affected parties that the PBGCs guarantee will
end if the plan terminates. That is an important point that the PBGC
added during the years because there came a timeif youve watched
Wall Street they dealt with Blue Star Airliens because it had an
overfunded pension plan, and there were leveraged buyouts done so
that investors could get their hadns on them.
-That wasnt abusive per se, but some of those companies chose
insurance providers that werent well rated, i.e. Equitable Life
Insurance Companywhich failedand so the plans were left without
the promised benefits. The whole point of Title IV was to make sure the
Studebagger didnt happen again. So what has been added to the
standard termiantoin processyou have to notify people.
-One of the remeidies that people could see for the equitable life abuse
was to require on the standard termination that PBGCs gurantee ends
in the standrds termination.
-Standard Terminatoin Notice (on PBGC form 500) within 180
days AFTER proposed DoPT
- Notice of plan benefits no later than form 500
-Before or concurrently with filing form 500, many times apply
to the IRS for determination letter
-You want to know that it is FINALLY terminated and you are not going
to have to dael with potentially adverse rulings from IRS or PBGC

-Considerations before filing NOIT

-Amend the plan to permit lump sum distriubtions
-Otherwise, irrevocable commitments
-If you have a plan that does not permit lump sum pametns and you
want to do it to reduce the cost of termination, you will have to amend
the plan before you issue the NOIT to permit the lump sum distribution
-Amend to remove non-protected benefits
-Do that before NOIT
-Freeze accruals of benfits under ERISA 204(h)

-Some people slipped intho the shoddy practice of using the

same letter to say plan is frozen and termination will
happen. It must be clear that whether the plan terminates or
not benefits will be frozen. If it looks like in the letter that the
benefit freeze depends on the termination that is the problem
-The easiest way to do this is to issue two different letter. You hate to
elevate form over substance: but if the participant has two letters in
their hands they wont conclude hat oen benefist with the other

-PBGC Review
-Once PBGC has its NOPV it has a review periodit is 60 days
but the PBGC will extend that
-PBGC will say it is NONC (noncomplint, NONCed it) if it
determines:
-Plan assets are not sufficient for benefit liabilities
-Plan admin didnt comply with procedural requireemtns
-not within 60-90 days
-Voluntary termionaton would violate an existin CBA
-Issuane fNONC result in ongoing plan

-Standard Termination: Ditstributionof assets

-Distriutibution should occur as soon as practicable following
PBGCs review (180 days by reg to distriubute assets unless
waiting for an IRS determoiant letterbut general guideline is
ASAP after review)
-You want to look at the plan beforehand, because at this time
you CANT change anything. They are now IRREVOCABLE
COMMITMENTS, and in doing that fiduciaries have to comply
with the safest available standard
-Annuities (irrevocable comitments)
-Lump Sums 0f plna permits lump sume
-Other permitted forms
-MORE INFO ON SLIdE

-Post Distriubtion Audits

-Automatic for plans covering more thn 300 participants

-Common Issues:
-Failure to use the correct interst rate (used an unreasonbyl
high interst rate) in calculating lump sum distriubtions
-Distriubtions of assets without filing for 500
=PBGC may issue NONC during post distriubiotn audits to carry
out purposes of Title IV
-Tax conseqeunces for participatns
-Statute of Limitations

-DISTRESS TERMINATIOSN (DT) 4041(c)

-Basic Requiremests
-Timely notice this is still an employer issued termination
-Plan administer satisfies the information requiremnts
-Adminstor carries the burden of proof for DT test for each
control group member
-PBGC determines that each person who is a contributing
s[onsor or member fo the controlled group meets one of the
four DT tests

-DT Notice
-Notce of intetn 60-90
-NOIT to affected party
-Contents of NOIT 29 CFR 4041.43(b)
-Must give PBGC notice at this time on Form 600in a standard
termaiton wouldnt have to do this because PBGC would not be called
upon

-Effect of notice
-Plan Adminsitro must carry out normal duties
-No extraordinary acts by the plan after it issues the NOITso
for starters a plan administrator has to keep peforming his or
her duties.

-Distriubtions in annuity form only no lumps

-They cant even go buy annuities, have to play from plan
assets
-After proposed DoPT, benefits adjusted to PBGC levels
-So there could be an immediate eaffect on the participatns
just be filing the NOIT

-Information REquriemnts
-Form 601 an dactural schedule (EA-D), no later than 120 days
fter proposed DoPT
-Information needed to determine whether plan assets are
sufficient ofr guaranteed benefits
-If so, plan administror will close out the plan under procedures for
standard termination
-If not, PBGC will complete the termination udner 4042
-So a guaranteed benefit sufficient plan will close out in the private
sector
-If the actuary determins the plan will be sufficient, the plan
will still closeout in the priaate sector
-If the actuary or PBGC concludes it ois insufficient then PBGC
takes over

-BREAD AND BUTTER: Distress Tests. Each Member of the

Controlled Group msut satisft AT LEAST ONE of the tests.
-If there is one control group members that cant satisfy any of
the tests it will not termaoitne

-Liquidation in Bankruptcy
-REorgniation in BRanktupct
-Inability to Conitnue In Business
-Declinign Workforce

-Distress Test Table Slid

-Sponsor reorganizing in bankrpuct along wth 2 control group

members
-A defunct member is a shell corporation
-the fourth member of the control group which is foreign
satisfies the inability to continue test

-Dsitress Termioant: Test 1

-Cases under Bankruptcy Code Chapter 7 or Chapter 11
(liquidating)
-Chapter 11 is generally a reorganization mechanicsm. So in
the bankruptcy world chapter 7 ar ealways liquidation
marchallled and liquidated to creditsors. There are also
liquidating chapter 11, both qualify for this distress test.
-In this test, the bankruptcy court approval is not required
-So if they can show that they really are liquidating in
bankruptcy they may not need to get involved in it
-It can alos be satisfied if there is a similar proceeding under
state law
-Assignemnt for the benefit of cerditors under stae law
-Note that the termination premium does not apply for
terminations udner test 1 - 4006(a)(7)(A)
-if the company is liquidating, it will not be around to pay
termination premiums

-Distress Test 2: Reogniztion in Bankruptct Court (usually

ch 11)
-Bankrupcy Court msut decide issue of fact:
-Unless the plan is termiantie, the debtor will be unable to pay
all debts under any plan of reorganization and continue in
busiens outside bankrucpy
-THE ANY is satisfiedwhether there is no plan of reognization is
feasiable that would allow them to continue
-A but for test of causation
-But for termination of the plan, willt he debtor continue to exist

-The debtor may first have to reject or modify its colecitve barginaing
agreement under 113 of Bankruptcy Code
-There have been any number of bankrupcties where the reason of
bankruptcy had nothing to do with the cash flowthey have jut taken
out too much debtthe debt may have matured to a point where ti is
an impediment to the country growing or competing with its major
competitiors.
-That kind of debtor may not need to show that is why it needs to get
out og brankrupct
-Bankrupcy court must approve the termination, but PBGCs
determination under 4041(c) is the final step
-IMPORTANT AND EASILY MISSED IDEA IN A CONTROL GROUP: If there is
only one entity, usually the bankrupcys court finding under test 2
answers the 4041(c) riddle as well. But, if there are MULTIPLE control
group members and one of them or two of them but not all of them
hanve a bankruptcy court filing that they must reorgznie that doesnt
mean that the PBGC will have to terminate
-EX: Enron, you have 1 or 2 organizations in brakrupcy, but have an
out of bankruptcy can support it. They could say that hey cant
continue the plan and emerge fmor abrnkupcy, but the PBGC can say
that he bankruptcy court has made a finding but not every control
group members has satisfied the distress test.

-Multiple Pension Plans

-PBGCs position: tets are a papplied on aplan b y plan basis
-Each plan must be a distress showing
-A showing of sever business hardship.
-Imagine debtors having a number of plans, some biger soms smaller
the company may not be able to support the plan that require greater
resources but may be able to support ones that have lesser
-Third Ct: PBGC v. Kaiser (2006) A plan-by-plan standard is
unworkable
-Costs of plans may be aggregated to meet test 2.
-Sophies Choice

-US Air Bky wanted to terminate all of its plans, there were multiple
unions involved and some of the unions said that you could terminate
this lpan but US Airs decision was that you can ttell us to keep one
plan but not another
-Kaiser says that the debtor doesnt have to make those choices, but
you cant afford the whole nugget

-Look through Hypo on Slides 27 an d28 and 29

-Distress Test 3 Hot Topic A lot fo companies today that
still have DB plans that cant afford them but dont want
to file bankruptcy
-It is an administrative decision within PBGC, meaning that the
plan sponsor doesn tneed to let the world know that it is
doing this.
-Private company can do it without letting the world (Butzle
Long sent out notices of intent to terminate andhas asked
the PBGC to take over its plan it just cant afford its pension
plan today)
-The sponsor has to convince PBGC and PBGC must determine
whether the sponsor will be able to pay its debts and continue
its business whther the plan is termanited. It is a lot like
bankruptcy, except the PBGC is the one to make the decision.
-all of the membres of the control group must satisfy the test
there is a but for test of causation. If the person is unable to
pay ites debts and continue its business regardless of whtehr
the test is terminated the PBGC amy find that th test is not
satised
-The PBGC thinks that the business is in just terrible straits
that it may not be able to terminate in a distress termaitno
-The sponsor may ask for reconisdiearoin 29 CFR 4003.1(a), (b)(3)

-Distress Test 4 Never has Been Used, Maybe

-Adminsitrive Proceeding within PBGC
-PBGC msut determine whether the costs of proviging pension
coverage has become unreasonbel burden,som SOLELY as a
result of decline of a psonsors workforce

-The costs becoming unreasonable burdensome SOLELY bcause of

decline is hard to meet. You need to think of arguments of why it has
not just become too burdensome because there is less cahs in the
bsuesinss.

-INVOLUNTARY PBGC TERMINATIN 4042

-PBGC initiated Termioant

-Discretioanry and mandatory criteria
-Advance notice to participants or emplyoers is not required
-PBGC is not required to notify anyone in adanve of its pcionts
-PBGC may proceed without a CBA
-Some courts will review PBGCs determinations under an
arbitrary and capricious standard, lmited to the adminsitraive
recors; others (7th Cir and UAL) say de novo
-Sometimes the standard of review ends up being the issue in the case
-In United Airliens 7th Cir said de novo review - so that the district
court can weigh evidence just like the PBGC

-PBHEC-initativd ivnolutnary criteria

-Discretionary
-failure to meet the minimu funding sntasrds
-The plan will be unable to pay benefits hwn due
-The plan has distrubted $10k or more to a subatantialowner
-This is probably not a big deal todaythat has been in the statute for
years.
-But if you are in this world you dont want to give this to the PBGC. You
dont want to leave an easy one like this.
-The possible long-run loss of the corpoatoin amy reaosnbly be
expected to increase unreasonably if the plan is not
termioated
-The standard asks whether the possible long-run loss to the PBGC may
be reaonbly be expected to increase nreasonbly if the plan is not
terminated

-We are talking about long run loss not immediate loss, not loss to
participants not loss to particiapts
-Everey sponsor may fail at some pointso it would prove too little to
shoe that there is a possible long run loss
-Thse starndard is the it may REASONABLY be expected to INCREASsE
UNREASONABLY
-So we are drawing a reasonable expectation that there may be a long run loss, and
that it may be an UNREASONABLE increase in long run loss

-Mandatory
-The plan has run out of asstes to pay benfits currently due

-PBGC0initated termination (a)(1)

-Discretinatry 4042(a)(1)
-Failure to meet minimum funding standarsd
-Missed quarterly contibutions: failrs to meet (a)(1)
-No IRS funding deficnency
-If the company THEN misses the catch up contribution, THAT
generates the PBGC termination
-PBGC usually uses the 4042(a)(1) along with other grounds
-It will say it missed a YEARLy payment AND something else happened.

-PBGC-initated termination (a)(2)

-The plan will be unable to apy benefits when due 4042(a)(2)
-Inability because of actual or imminent abandonment
-Inability because plan will, within a reasonable period of time,
run out of assets to pay benefits
-Compare with amndatory tremiations
-If PBGC gets wind of it soon enough, they can see that the plan is
going to run out of money in 6 motnhs it is dsitrcerionatryor, it has run
out of money after 6 motnhs and that is a mandatory termiantion
-Factors
-Significantly underfunded

-Failrue or inability to make minimum contriubtoins

-Benefit payments will exhaust remaining asets in forseeable
future

-Long run Loss (a)(4)

-Will the transaction or event substantially increase PBGCs
liabilities
-Sponsor is about to do something (sell all assets, something
is happening at the sponsor level that the BPGC can be
concerned about)
-Will it likely reduct PBGCs abailty to collect termination
liability
-Nothing is going to happen to the sponsor, but it has 5 contorl
group membres and all 5 of them are going to be sold or it will
be stirtutbued to shareholders int hat it takes them out of the
control grou
-Basis of PBGCs Early Warning Program

-Slide 39 Typical PBGC Concern Issues

-Exampees UAL Case
-PBGC initaed Termioatn
-Mandatory- plan dose not have asset to py

-How does PBGC become staturyo trustee in involuntary

termioations?
-PBGC may terminate the plan by agreemwnt with the plan
administer
-If PBFC and the lpan adminstaro are unable to agree
-PBGC commences action in district corut

-Dopt 4048

-Whyi s DoPT important

-Date of plan tremiain 4048

-Volunatry
-Stadnrd: date proposed by plan admin
-Distress date proposed by PBGC
-Involutnray
-Date propsed by PBGC and agred to by the plan adi
-Absent agreement, the date esbliahed by court
-Mandarorywhen assets are excausted

-Court Established DoPT

-No earlier than when participants expectations of a
countinguin plan are extinguished
-How can reaosnble expectations be extinguished?
-Acutal notice sale of assetse, cessstioan of business, chapter 7
petition
-Courts dont require perfection here, and if that is the standard than
PBGC cant take action
-Construbtive notice 0 e.g. publication in newspapers
-The publication in newspapers Is basically a legal fiction and most
courts saw through it.
-After particianpts expectioan are extinguished, whatever
date serves PBGCs intersts
-The employers intersts are irrelevant
-There are cases on this where the employer wants their interstcourt
said no, PBGCs interst

-Restoration 4047
-Is when PBGC determines that a pension plan that is being
terminated or has been termianated should nto be based on
the stadnarsd that the PBGC considers relevant
-They can issue a termination or issue a sponsor issued
temriaton and stop if it finds some abuse and the plan should
not be terminated or it can restore the lpan

-Limited Use of 4047

-Has been abused to prohibit abusive follow on plans
-UAL: A plan that wraps around the federal insurance program and
gives current and retired employees substantially the same benefits
they would have enjoyed had the original plan not been terminated.
-You are going to terminte the horribly underfunded plan and send that
off to the PBGC and then build a benefit structure AROUND what the
PBGC is going to pay
-This is abusive
-If a company is going to terminate a plan, conintue to exist, and
continue to have a retirement plan, it sohudl be a plain vanilla 401(k)
plan

-PBGC v. LTC Corp

-Is THE restroration case

-Class IV
-Title IV liabilite
-Reversoins
-Asset allocation
-Fiduciary issues

-Class 4 2/7/13 Allocations of Assets,

Termination Liabilities, Reversions, and
Fiduciary Responsibilities
-Review
-Voluntary Terminations (Sponsor Initiated)
-Standard terminations
-Distress Terminations
-Title IV as the Sup Ct has said is the exclusive means of terminateing a
single employer benefit plan (and likely for a multi-employ plan, but
they are NEVER teriminated by the PBGC)
-Involutnary terminations (PBFC-initiated)

-Discretoinary
-Mandatory
-Date of Plan Termination
-Trusteeship
-Restoration

-Overview of Class IV
-Asset Allocation
-Essential to giving people some context for what it means as
a plan ends as an ongoing plan and becomes a part of the
PBGC
-Liabiliities Arising from Terminating an underfunded plan
-Unfunded benefit liabilities
-Shortfall and waiver amortization charges
-Minium funding contriubtions
-Evade or avoid liability
-PBGC just filed a new lawsuit becuas esomen went through a
corporate transaction and said they would do one thing, and then at
the end did something different. And so PBGC is now having to take a
plan Serebus.
-Termination premiums
-Reversions (of plan assets)
-Fiduciary responsibilities

-Timeline
-4044(a) Asset Allocation
-title IV benefit means:
-A PBGC guaranted benefit (AMP) PLUS any additional benefits
to which the plan assets are allocated under section 4044(a) @( CFR 4001.2
-This can be a real wonky areas. If ouy get into a discussion about what
happens if the PBGC takes over a plan. Talking about PBGC benefits is
DIFFERENT than Title IV benefits.

-The owners benefit may be far and excess of the PBGC guarantee of
a closely held corporation. So the owner in that situation amy talk to
you about the PBGC guarantee, so now you can tell the person that the
PBGC guarantee benefit is below the plan benefit.
-But, you Title IV benefit might return the rest of it
-It is essentially taking the PBGC piece and adding ot it other benefits that would not
be guaranteed by the PBGC

-When a company is in its death throes, as people are leaving is that

companies are sending people off to retirement to give them benefits.
Sometims using DB plans. If the plan provides benefits in the form of a
lump sum, as the company is trying to get older workers who are
usually more costlythey are doing it by using the plan assets and
allowing these odler workers to take their benefit in a lump sum you
are leaving less benefits in the plan
-This is more of a concern under Title IVthe Title IV benefit is the
PBGC benefit plus stuff that is not guaranteed but what plan assets will
apy
-What happens when a lot of those assets go out the door to people
who were not yet retirement elegible
-People in lower PCs are taking plan assets and you are paying a

-Benefits and assets are valued as of DoPT

-The present value of benefits calcuatele don the basis of PBGC
assumptions
-Plan assets are valued at the FMV
-If one of the assets consists of a lottery ticket and it hits and it wasnt
worth tht on DoPT that is just a gain for the PBFC
-And if it loses, it is a PBGC loss

-Asset Allocaiton 4044(a)

-On termination, plan assets must be allocated (differentiated
form distributionis only a bookpeeing concept where money
is earmed but not distributed) to participants in the following
order. PC stands for Priority Category.
-PC 1: Benefits from voluntary employee contributions
-PC2: Benefits from mandatory employee contributions
-PC3:

=PC4:
-PC5:
-PC6: All other benefits
-Plan assets may not be allocated to a lower category until the benefits
in the next higher category are satisfied
-No assets will pour into PC2 until PC1 is satisfied

-Sources of Plan Assets for Allocations

-Two sources of assets for allocations
-Plan assets held by a plans trust on termination (less pretermination liabilities)
-Valuing assets is an exercise in meticulous recordkeeping and
judgment. If shortcuts are taken in an evaluation then people can
suffer harm.
-Less Pre-Termination Assets
-We are not talking about benefit liabilitieswe re talking about assets
that have liabilities. If the plan bought into a real estate trust, mayn
times those assets come with asset call obligation or even more
liquid types of investments will require an exit fee
-So when allocating the assets, the assets are only as valuable as they are at market
value minius the liabilities that are associated with them

-Assets derived from PBGCs post termination recoveries

-4022(c); Participants Share PBGCs Recovery (SPAR

Recovery Ratio)
-Provides partial recovery of non-guaranteed benegits (NGB)
when PBGC has recovered som assets on the plans claims
-To calculate the particpants share
-NGB under plan * applicable recovery ratio
-That recovery ratio applies to all plans terminating in a particular year,
and is determined years later on how PBGC collected claims this yaer.
-Lets say the PBGC took over 200 plans and its best recovery was 15%
of claims and 1% in some other barnkuptcy, but maybe on average it
recovered 7%--that is going to be the small plan recovery ratio and
apply to the guarantee of benefits

-So all of those participatns will get their BPGC benefits and the rest
will get 7% of those non gurautneed benefits
-If the on-guratneed benefits exceed $20 milion
Only for that plan
-FORMULAS on SLIDE

-PC1 and PC2

PC1: Benefits derived from voluntary employee contribtuions
-Treated as held in separate account
-VERY RARE
-May only be a couple of plans left like this
-Prior to 401(k) in the tax code
-PC2: Benefits derived from mandatory employee contirbutions
-Mandatory plan contriubtions
-Hughes v. Jacobsenone of the stron undercurrent and major beefs in
the case,
-Hughes changed benefit formula and began to tap into that surplus to
provide benefits to other particiants, which is fine in a DB program
because a participant had paid into it doesnt mean that they have a
higher call
-Then you get into Title IV and find out that when there are mandatory
contributions and that effectively becomes a highest call on plan
assets.

-PC3
-Congress policy decision that certain retirement elegible
persons are preferred over the active workers
-The retiree is retired. They are locked into that income. It is a
big deal to tell someone who no longer has a means of making
a living in the economy that we are going to cut against their
income.
-Allows recovery of non-guranteed benefits in an nderfunde
plna
-2 Step Processes:

-Identify eligible participants

-Those in pay status or eligible for pay status at the beginning of the 3
year bankruptcy endeing before DoPT
-If plan terminates in bankruptcy, DoPT is bankruptcy petition date
4044(e)
-Creats a lot of tense moments at the window before the company files
for bankruptcy if the people running the retirement plan if they know it
is going to be terminated and sent to the PBGC
-You know that the satute is going to prefer the retiree and the people who will retire
within 3 years
-If you have someone coming to the window who is just coming to the window

-You have to be eligible at the BEGINNING of the 3 year period, people

who become eligible after tha are not in PC3
-If termination is Fe 7 2013, if you were eligible for retirement on Feb7,
2010 you are in PC3
-Compute benefit based on lowest benefit under plan
provisiosn in effect for 5 years
-EX:
-Plan assets at DoPT: $118k
-No benefit liabilities in PC1 or PC2
-Present value of benefits in PC3
-PC3 is 90% funded 118 /132
-PC3 Example Slide
-Zoe who was in PC3 for $48,000 would have been cut back to $720 if
we were just allocating to PC3
-Ned, who is going to get clipped, is still doing better than the PBGC
benefit, so he gets the PC3 benefit

-PC4
-PBGC Guaranteed Beenfits, i.e. all nonforfeitable benefits
under the plan after applying the AMP
-Accrued at normal
-Statutory maximimum

-Phase in limitations
-Benefits of majority owners that would be guaranteed byu for
the phase in limits under 4021(b)(5)(B)
-But assets are allocated first to the benefits of participatns
whoa re not majority owners
-Convoluted, but, it pushes the owners to the back of the line. It
doesnt leave them out in the coldC could have just had no sympathy
for owners. These majority owners get a guaranteed benefitbut in
terms of allocating the assets in the plan, before the owner gets
allocated the rank and file get first call on the assets
-PC4 Ex:
-Ned has accrued a benefit under Oldcos pension plan based on 20
yaers of srviece
-PBGC initiates termination in 2012, and the plan administer signs a
trusteeship agreement establishing June 30 as DoPT
-Does he have a nonforetifable benefit If the plnas NRA is 65?
-The concept of nonforefitability is that you met the plans
requirements for retirement, and so he has a nonforfeitable benefit
-WTF???
-If the plan provi
-PC5, PC6
-PC5 All other nonforeitable benefits, not otherwise payable under PC1
through PC4
-PC6 All other benefits
-Non-VestedBenefits
-Social Security Supplements
-UCEBs
-PBGC may find itself paying non-vested benefits or social security
supplemetns if they can recover enough OR if these benefits are in 5
and 6 they are not guaranteed Small Plan Recovery may help you

-Relevance of Section 4044(a) in ONgiong Plans

-Any time a plan is involved in the kind of transaction that is

covered by IRC 414(l)prevents people from being able to
subvery the requiremetns of 401(a) by doing a merger
-So 414(l) says that when the plan engages in a marger or
transfer, you have to compare each partiicants benefit on a
termianation basis immediately after the merger with the
participants basis on a termination basis immediately BEFORE
the merger
-Benefits on a termination basis means the benfits that would be
provided exclusively by plan assets under 4044
-So no social security adjustemnts
-If employee asks Am I going to be OK?
-Have to come up with a different answer than youre fine. This could
be a title 1 problem.

-Termination Liabilities - 001(a)(16)-(19), 4006(a)(7),

4042(d)(1)(B), 4062, 4068, 4069
-4062(b)(c)
-Liability for unfunded benefit liabilities (whole enchilada)
-Liability for shortfall amortization and waiver amortization
charges
-4042(d)(1)(B)(ii)
-Liablity for amoutns due the plan, including due and unpaid
minium fundinf contributions
-shortfall amortization sounds like minimum fundion
-MORE ON SLIDE

-4062(a),(b): Liability for Unfunded Benfit Liabilitel

-UBL: The xcess of the present value of benefit liabiltis on
termination date calculated under PBGC assumptions over the
value of the plans assets
-We will talk about withdrawal liability next week
-Joint and Seveal Liability
-Contributing sponsor

-All membrsof the SPONSORS CONTROLLED GROUP

-PBGC Assumptions
-PBGCs calculation of UBL
-Intended to replicate the price of purchasing annuities in the
private market
-There has been a push-pull with the bankruptcy bar with what interst
factors should be sued in calculating the unfunded benefit liabilities
-PBGC goes out to insurance companies and cleanses all of the
identifying information from the submissions it gets to the
insurance companies
-IT will ask them about the prie of varying kinds of annuities.

-Key Role of PBGCs Assumptions

-You cant calculate the liability without calculating the interest
factor
-By reducing the interest rate assumption from 8.75 to 6.4 (or
235 basis points) increases the liability from 16.5 to 49.7
million
-Prudent Investor Rate - $1.8 million = 10% rate

-Lien for Liability 4068

-When companies dont pay the liability under 4062, after
demand, a lien arises in favor of PBGC on all property of liable
persons (control group)
-Limit
-Amounts due and owing and lien are limited to 30 percent of
the collective net worth of all persons described in section
4062(a) PBGC can demand only the amount of the liability
that exceeds 30% of net worth. That amount is immediately
due and payable and PBGC can demand that. The rest is still
due, but has to be paid under commercially reasonable terms.
If $5 is immediately payble and there is a line for $5.
-The whole amount is owed, but what is DUE and PAYABLE immediately
is up to 30% of net worth, the rest is still owed but not immediately.
-A contributing sponsor or a member of the contributing
sponsors controlled group

-Colelctive net worth means, generally, the sum of POSITIVE

individual net worths
-So if you have a negative net worth, it is just $0
-Makes PBGC more likely to collect liability

-Section 4062(c)
-Technical corrections necessary
-There are 2 spearate claims for the same liability in Title IV of
ERISA and both of those liabilities are also subsumed in the
amount of unfunded benefit liabilities.
-So you ahv this claim for unfunded liaiblities.
-PPA amended 4062(c) The amendment was intended to
change the wording and preserve liability. It was just meant to
reflect changes on the funding side
-It used to impose liability for the accumulated funding
deficiencies i.e., the excess of charges over credits in a plans
funding standard account (FSA) at plan year end
-PPA eliminated the FSA for single-employer plans, the basis
for computing a plans minium funding contributions
-Quareterly installemtnts of minimum funding contributions
wre usually required, with a catch-up payments due 8
motnhs after end of plan year
-This used to create an accumulated funding deficiency
-But now under PPA, we talk about the plans funding target
or FTAP.
-A plans FT is the present value of all benefits accrued before
the frist day of the plan yaer (this sounds a lot like value of
benefit liabilities). So before PPA this was done on the basis of
contriubtoins you missed
-So post-PPA congress now says that the lcaim is goig to be for funding
target
-If the plans FT exceeds the plans assets, the plans minimufm
funding contribution is limited to simply normal csot plus
shortfall amortization charges and waiver charges

-Shortfall amortization charge

-Amortizigiont of waiver charge
-Minium Required Contribtuion
-Target Normal Cost
-PV of benefits expected to accrue during plan year
-Plan-related expenses paid from plan assets
-Shortfall amortization charge
-Funding Shortfall (FS) = FT Plan Assets (less prefunding balances)
-FS amortized over seven years in level annual installmetns
-So every year the sponsor has to pay the plan the target normal cost
PLUS 1/7th of the amount that represents the total benefit promise
minus the assets
-Minimum required contributions must be made within 8
months after the close of the plan year
-Plans having a FS for preceding year must make quarterly
contriubtions
-Unpaid wautererly contribuoin accrues interst at the plans funding
rate plus 5 points
-Review: A statutory lien arises when the aggregate unpaid
contriubtions exceed $1 million
-Section 4062(c): after PPA
-Liability to PBGC, as statutory trutee, for the following sum
-Shortfall amortization charge (FS), and
-Waiver amortization charge
-So not only does the sponsor owe the unfunded benefit liabilities, ti
also owes for the funding shortfall
-So instead of changing the terminology they changed the character of
the liability
-So Funding-Related Liability to PBGC for:

-Minimum required contriubtions under a statutory trustee 4042(d)(1)

(B)(ii) that is still owed, so every one of those misses gives rise to a
calim that the PBGC trustee can claim
-And ALSO under 4062(c) has a claim for a funding shortfall
-Congress did not mean to give to the PBGC 3 claims that overlap
-The statutory scheme before PPA was to give them a lciam for the
total UBL plus a claim for the unpaid amoutns
-But in effectuating the change to the funding rules and trying to
reflect that, they added this liability that grossly exceeds the true
measure

-4069 Now PBGC has a lawsuit about this

-Enacted to preclude employers from avoiding termination
liability by transferring underfunded pension plans to
undercapitalized company
-Elements of liability
-A principle purpose (not THE principle purpose) of any person
in entering into any transcation s to evade liability under Title
IV
-You did all of this to egt off the hook now you are right back on the
hook
-Slide 34 EX

-Termination Premiums 4006(a)(7)

-General Rule
-If the plan terminates in either a distress or voluntary
termination, then the sponsor has to pay 3 annual installment
payments in the amount of $1,250 times the number of
participatns immediately before termination
-The sponsor has to pay $3,750 times the number of participants
-The liability arises immediately after the bankruptcy discharge

-If the idea is to bring mony into PBGC and give it a claim that can
result in tis collection, a bankrupt company is going to pay in tiny
bankruptcy dolalrs. If all you do is give PBGC one more claim, a
termination premium is not going to be seen as a big deterrent, but if
you say that the liability doesnt arise until discharge, then the
reorganized company is being created with that liability.

-Reverions 4044(d)
-A plan sponsor can bring the assets back to the company after
a plan termination if all benefit liabilities have been satisfied,
it is not contrary to law, and if the plan PERMITS reversions
(there were a number fo plans that went into termination
mode and wanted to get money back, but the plan didnt
provide it, and the cases were all over the board as to whether
it was allowed). Now you will see that provisoin in most plans
that are drafted today.

-Excise Taxes
-Of all of the obstacles that become an issue in a portential
reversion is the showstopper
-Thereis a 50% excise tax of 50% of the reversion
-You are doing this to get what is back in the plan, but you only get
back half of it because you have to pay a tax on half of it
-20%, if the employer establishes a qualified rplacement plan

-Fiduciary REsponbiilites
-The Title 1 definition of fiduciary is revolving, and the DOL is
changing the definition of fiduciary to EXPAND it
-The entities that are fiduciary are going to be more after the
DOL comes out with its regs. The rationale is that the DOL
definition of fiduciary.
-If you exercise authority or control respecting the managemtn or
disposition fo plan assets you are a fiduciary.
-Why is that important in Title 4?
-Settlor decisions and fiduciary activities
-The decision to terminate was a settlor decision, so if there is going to
be a decision about reversions, that is a decision about plan assets

-Allocation decisions are a core fiduciary responsibilityif you are the

person monkeying with plan assets, you are probably acting as a
fiduciary
-Selecting annuities
Interst rates in calculating the lump sums on distrubiotns
-Beck v. Pace Read
-PBGC is not a fiduciary but can sue fiduciaries
-PBGC Can Bring Actions ans a Stauttory Trustee for Fiduciary
Breach
-Remedies
-Civl Actions for damages and injunctive relief
-4003 of ERISA
-Beenfit offses udner ERISA 206(d)(4)

-2/14/13 Class 5 Mutli-Employer Plans:

Complete Withdrawal, Partial Withdrawal,
Exemptions, and Transactions to Evade or
Avoid Liability Next 3 Weeks
-Whats Hot
-Healthcare Reform
-Fiduciary Issues
-401(k) plans and Revenue Sharing
-With a DB plans the assets are professionally invested and are held in
trust. And as the assets perform the trust improves or erodes. The
professionals are compensated for their work and the plans suffer all of
the benefit or detriment of their investments
-401(k) plans tend to be self-directed vehiclesso as the 401(k) plans
offer participants the menu and as the mutual fund takes the plan
assets and invests them in whatever the funds focus would be, there
were all sorts of fees associated with mutual funds.
-There are managmenet fees 12(b)(1) fees, floating fees
-As the IRS herded people towards prototype plans

-Complete Withdrawal ERISA 4203

-Remember
-In single employer plan world, plans terminate, single
employer takes over a planhell to pay
-Multiemployer plans CAN terminate, but termination is not
the big event. There are consequences to termination. In the
multi world, it means it has become a wasting trustthere
arent contributiosn beign made by workers and the fund is
just sitting there to pay benefit liabilities: unless it can find a
way to close out in the private sector
-It doesnt mean the end of the mutl-employer plan and PBGC DOESNT
TAKE OVER mutl-employer plans
-The real issue happens on withdrawal
-The mutli-employer plan has many sources of revenueso one
employer leaving the fund is not a major event in the life of the fund
at least in theory. It has all of these sources of revenue and
contribtuions.
-So the issue is when they have withdrawan. The emplyeor may
withdraw but the plan still exists, the board still runs the plan, the plan
makes its benefit payments, just because one employer leaves it
doesnt mean that it is necessarily moribound or it is the end of that
fund.
-Comlpete Withdrawal is the END of the employers experience
in the fund
-Remember when we talk about employerit is the control
group
-Keep that in the back of your mind. The employer for mutli-emplyeor
withdrawal liability means the controlled group. You can have a parent
and subsidiary both contributing to the fund and both singing off and
will look like two different entities: in the mult-employer world they are
one in the same employer.
-Complete Withdrawal IS Permanent Cessation of 1 of 2 things:
-1. Obligation to contribute to the plan OR
-2. All covered operations under the plan
-One usually means the otheror involves some aspect of the toher
but this is the definition.

-Prof cant think fo an example of one but not the other

-There are special rules for construction, trucking and other
industries
-Know they are out there. Just because you are dealing with a trucking
or construction company doesnt mean you are dealing with those
rules. Those rules apply to PLANS that are primarily in those industries.

-The Obligation to Contribute Can Arise Under ERISA

515, 4212(a)
-If the obligation to contribute ceases there is complete
withdrawl
-So what doses it mean?
-One or more collective bargaining agreements Class 1
-MultiEmployer plans are DEFIND by CBAs. That is part of the
definition. To have a multiemployer plan you have a plan that
involves a CBA. If the definition of the plan involves a CBA that
is obviously going to be one of the sources for the obligaoin to
contribute
-But that is not all
-How does this all play out? In a single plan the actuary tells the
employer what the minimum funding/funding target attainment
percentage is/what the assets are, and therefore what its net
underfunding is to fund on a 7 year schedule
-In the multiemplyeor world that changes for the employer. You dont
get the AFTAP Assets. Th actuary gives that information to the board
of trustees, and they have to work with their employer base to get that
requirement satisfied. If it doesnt there is going to be an excise tax on
the employers
-So when they tell them there needs to be $500k of contriubtiosn, then
the board of trustees will set with the employerswhatever the
workers are doing x some dollar amount, how many of those units
each employer plans to have this year. The employers give that
infomraoitn back, and there is an amount set and assuming those
targets are met the plans funding account will be fine.
-So the CBA reflects that. The employer will sign on the bottom
line and say we will pay $1 per hour.
-That is the obligation to contribute

-NOT every employer will sign it. The national union will sign the
agreementand then they will take the CBAs to the locals and the
individual emplyoyers. The CBA is done, but they will get to sign a
participation agreement. This is known as a short form agreement.
-New employers may come into the plan and sign a memorandum of
understanding with the union or the fund that they are abiding by the
collective bargaining agreement that gives rise to an obligation to
contribute as well.
-Applicable Labor-Management Relationhs Laws
-Taft-Hartley (etc) dont allow employers to just change the
conditoisn of the work once the CBA is over. It will have a term
and start on X date and end on X date, and when you get to
the end date: the employer cant just go we arent putting
anything into the fund. Just because the CBA expires doesnt
maen that the employer gets to do whatever it wants.
-ERISA 515: Years after signing the CBA and realizing it is
miserably under-funded the employer wises up and says this
is fraud, the union defrauded me, they told me the fund is fine.
That CBA shoulndt bind me. 515 says that it may be and
there may be remedies, but that doesnt erode the obligation
to contribute, even if the employer is correct that it was
induced by fraud to sign the CBA.

-Covered Operations: If there are no more it is also

complete withdrawl
-Covered Operations are the operations that give rise to
contributions
-The term operations generally is regarded as the work done
within the jurisdcitoin of the CBA, no matter who is doing it
-In the single-employer context, PBGC loved these terms that are in
multi-employer plans so much that it uses the term in operations and
PBGC in its proposed reg calls it a set of activities that calls it an
orgainziaotnally, operationally or fundcitonalyl distinct unit of the
employer.
-So operation is becoming a term of artit is used in the caselaw,
PBGC is trying to define it in the old multi employer sections.
-If it is hauling freight it is the freight hauling mechanisms, if it is ships
it is the port

-Youll look in vain in the CBA for a tightly drafted provisoin

that says what the jurisdiction of the Union is. But youll
never find that cleanly in the CBA, but there is practice over
the years that people know what the jurisdiction is.
-So if the operation that you are looking at happens to go beyond the
jurisdiction, the fund is the fund of local 1482and it generally covers
the electricians in Baltimore and Hartford County and maybe a few in
some other countries. You are left to piecing it together.
-Generally is geographical jurisdictionbased on the unions
jurisdiction.
-Cessetation of VIRTUALLY ALL ocverd operations (e.g. you still
have the janitors)
-Lefisltaive history supports this
-Cessation of ALL covered opertoins, no active workers
-Iron Workes v. Allied Products
-7th Cir: Are not dissimilar from Scalia (Posner) and they say ALL means
ALL. They were not impressedif there are 1 or 2 workers left you
dont have a cessation of operations.
-But if you are sitting their with a board of trustees and they really
want to get an employer but they know that there are still 1 or 2so
all means all.

-Permanance
-Doesnt Mean Forever
-IT doesnt mean that the factory burned down and there is no
money to rebuild itbut it still has to be a permanent
cessation
-Facts and Circumstances Test
-Relevant Consideration
-Sale/Retantion of business facility
-If it has been sold, how likely is it that you are going to have covered
operations
-Sale/retention of substantially all operating assets
-The factory is not producing the widgets today but the stuff is still
there

-Auto Industry: Hot Idle Mode. The auto industry was renting out
closed facilities in Lorraine and Akron and producint Accords, putting
them on carriers, and shipping them.
-So there was a halt called to production of SUVs. It did not mean that
those faciltiies had permanently lcosed. The cessation probably went
on but it was not a permanent closure of the facility
-Revocation/Retntion fo government permits or licesnces
-So if an entity has sold its facilities
-Communciation from/notices provided by employres

-Date of Withdrawal
-Cuyamaca Meats v. Pension Funds READ IT
-There is really no question that there is a withdrawal, but the
question is WHEN there is a withdrawal.
-This is the REAL question.
-You dont get clean facts that tell you employer ceased
operations on Day X
-Slide 9
-Contributions on March 1 Thery are due on the 1st
-CBA expires March 31
-Negotiations begin on new CBA
-April 1 Contrubtion Is made
-April 22 Emplyoer puts final offer on table and says that they are
not going to make any more contribtuoisn to the plan
May 1 Makes a contribution
-May 5 It revises its final offer and says that it is going to make its
contriubtions until August 1
-May 22 There is an impassethe employer is now free to implement
its revised final offer under labor law
-June 1 Makes a contribution (remember revised offer says
contribution to August 1)

-July 1 First day of new plan year, and employer makes next
contribution
-Augaust 1 final contriubtoin
-Parties agree; September 1 is date of thi
-When is Withdrawal?
-Caselaw says that employer and union cant agree to date of
withdrawal. So August 1 is last contribution.
Does it change your mind if I tell you that the employer
withdrew on June 30 its withdrawal liability is $100k and if on
August 1 it is $50k.
-Wtihdrawal liability is calculated as of the last day of the previous plan
year. So July 1 is a bewithching date. So withdrawals after July 1 you
use the June 30 funding status of the plan, and if it is before hten you
use the previous June 30.
-In Cayamuca there had been a great return on lpan assest between
Cayamuca wanted to capture that asset appreciation. So it is heading
into collective bargaining as March knowing that it wasnts that asset
approved and it doesnt want to withdraw before July 1. IF it wtihraws
before then it
-They knew as long as they had an obligation to contribute it could tno
be
-PROBABLY BEST TO LISTEN TO ABOUT AN HOUR INTO CLASS HERE GOT DISTRACTED

-The fundamental principle in all of these rules is that the employer

should be neutral in this

-Partial Withdrawal 4205

-2 Types:
-1. 70% Declien
-2. Partial Cessation of Employers Contribtuion Oblgation

-70% Contribtuion Decline

-A 70% contribution delince partial withdrawal happens IF
-Furing each plan year, in the 3 year testing period, the
employers contribution base units do not exceed 30 percent
of the employers contribution base units for the high base
year. 4205(b)(1)

-The high base year is the average of the two highest years within any
given 5 year base period immediately preceding the beginning of the
testing period.
-Never guess what something means by the term that (C) has given it
-3 Year Testing Period
-The plan year being tested and the immediately preceding 2 plan
years
-Section 4205(b)(1)(B)(i)
-Why is it 3 years? Employer is in control of whether it has complete
withdrawal. It can pay the contributions, it can extend the CBA and can
contribute.
-So the employer may deduct the complete withdrawal and is back to
a 70% contribtuoin declineit is either paying minimum funding
contributions.
-So if you are not paying your contributions as you historically have not been doing,
you are not going to get nailed for 1 bad year

-It Is 3 years during which the contribution based units you are testing
against the high base year which are the 5 years immediately
preceding the period, taking the 2 highet years, taking 30% and
comparing 30% in the following 3 years
-One begins where the other ends
-Whever one is, the other is found adjacent to it

-Slide 13: Contriubtion History for Employer X

-Plan Years 1-10
-Contribution Limits for Each YErs
-The employer started at 130 and is down to 5.
-You dont have a complete withdrawal when this is what you are
staring at. If you are in yaer 10 you do nto have a complete
withdrawal. There is still an obligation to contribute.
-BUT, there is a huge decline130 down to 5
-Is there a 70% declineover the 10 years, yes.
-But this is not necessarily with the smoothing concepts1
year does not make a test period 3 years

-You are going to test 10 9 and 8 to get to a 70% decline

-There have to be contributions no more tha 30% of the high base year
for those 3 consecutive years
-32 30 and 5
-So you test for the 3 year period. Then from that 3rd year, you look at the next 5
before it to find your high base year.

-High base year is yerst 3-7

-100 CBUS in 3 and 5
-Add up and divide by 2 = 100
-So high base year is 100

-30% of 100 is 30, so you need to see contributions below 30

-You have that in 10
-9 and 8 you are ok
-So no partial withdrawal

-During each plan year in the 3 year testing period. The Contribution
base units do not exceed 30. In Year 8 32 exceeds 30. So you FAIL the
requirement that each year in the periodso it is not good enough to
get a 70% decline.
-If you are advising the employer in this scenario, you are
telling the employer that the last 2 years meet the statutory
requirement, except the fund would need 1 more year at 30
percent or below to impose liability.
-IF you look at it, you are going to lose one of the 100 years when you
go to year 11. So it is going to go down to 100 + 80 / 2 = 90 *.3 we are
not in danger of a partial withdrawal in year 11 either. But at the end of
12 we might have a partial withdrawal if they continue to be bad year.

-Partial Cessation of the Employers Contribution

Obligation
-2 Types:
-1. If the employer ceases the obligation to contribute under
one or more but not all of the CBAs IF the empoyer continues
the same work in the jurisdiction of the CBA or moves the work
elsewhere, or to another entity owned or controlled by
employer

-It is going non-union to get the work done

-The CBA ended
-2. Permanent cessation of the obligation to contribute for one
or more but fewer than all facilities if the employer continues
to perform work at the facility of the type for which the
obligation to contribute ceased
-Here it just closed the facility and moved to a facility that employs non
union work
-both of these are looking for work going non-union
-The reality of today is it is not so much union vs. non-union, it is now
US vs. Foreign Country.
-Facilicology An installation at a single geographic location or
a grouping of installations that is treated as an economic unit
-What is a facility?
-You cant know whether the 2nd test has happened unless you know
what the facility is.
-Facts and circumstances prevail
-A single store ro factory lends itself ot a facility
-A single division that porduces a consolidate difnanicl statement

-Exemptions PBGC Opinon letters, 82-4, 82-40, and 91-3

-In the multiemployer world the employer is the control group.
It is not just the entity that appears on the CBA. It is that
ENTITY and EVERY OTHER ENTITY that is in its control group.
-Control Group Rules are bright line rules
-The control group is the employer
-Izzy Goldowitz: Pervasive concept in ERISA
-IF you start with the idea that the emplyeor is all of that
-No complete withdrawal upon a parents sale of stock of a
subsidiary if the subsidiary had and continues tohave the
obligation to contribute and has covered operations

-Because the employer is all of the tntity. And as long as the subsidiary
continues to make contributison and continues to be obligated to
contribute, the employer is still contributing to the fund
-We may have lost a piece of the employer and in the single employer
world that can get PBGC all in a tizzy.
-Here, the multiemployer plan sees solvent parent sell barely solvent
subsidiary is the contributor to the multiemployer plan and they know
every year that the parent has made a capital contribution to the
subdiary, but the multi-emplyoer plan cant jump in and do a thing.
-Technicalyl under the statute, after the sale, the employer is still
contributing and still has an obligation to contribute so there has not
been a omplete withdrawl
-IF you read PBFC Op Lts 82-4: PBGC went on record and said
no, that is not a complete withdrawal. And you wonder if in
2013 if they were re-visiting this. In 1982 they applied a strict
reading of the staute.

-Controlled Group Restructuring 4069 and 4218

-Entities that result from the following types of restructuring
are regarded to be the original employer. It can do all of the
following things and ist still same employer:
-change in identity, form, place of organization
-liquidation into parent organization
-merger, consolidation, or division
-change to an unincorporated form of business
-There is no withdrawal if there is no interruption in the
resulting entitys contributions ro obligation to contribute
-the mere change form Acme Corp to Acme LLC is disregarded.
But the statute says that Acme LLC better behave and think
that it is not going to pay contribtuoins anymore and wont
recognize the CBA or make contriubtions or have covered
operations
-Then 4218 will say Acme LLC you are the same as Acme Corp and you
withdrew.
-The resulting entity inherit the contribution history of the
previous employer

-Sales of Assets Can be a Withdrawal

-General Rule: There is a withdrawal upon the sale of
substantially all assets of seller to purachser
-True even if the purchaser takes SELLERs name, plant,
employees and inventory and continues to make contriubtoin
to plan
-PBGC Op Ltr 82-40
-The indestructability of contribution historybut it belongs to the
legal entity the employer. If ACME corp sells assets to New Acme Corp
and it is owned by different peoplethey are different corporations.
Acme Corp still owns its contribution history, New Acme Corp doesnt
own that.
-You will see savvy practicioners attempt to use it. They dont see why
it mattersbut what you are leaving the seller with is withdrawal
liability. They will argue that they are signing the CBA that there is no
withdrawal liabilityit DOESNT MATTER
-Exception: No withdrawal upon sale of assts IF ERISA 4204
-Purchase has an obligation to contribute for substantially the
same CBUs as the seller, AND
-Purchaser posts a bond equal to one years contributions AND
-Contract of sale provides that seller has secondary liability if
purchase withdraws within 5 years
-Last point is vitally important for us. The K of sale must provide that
seller has secondary liability. The Attorneys control the document.
-The contract better say these things, if they dont, there is a
deficiency in the document and that is malpractice.
-IF you are representing the buyer and you want to leave the seller
with withdrawal liability but oyu know you need to sign the CBA, you
can try to not have those provisions in the sale document and argue
what does it matter, we are going to sign the CBA and retain
whatever. And If you can get that one over on it, you just left them
with withdrawal liability.

-Suspension of Contributions
-If there is a withdrawal, there is no withdrawal due to a
suspension DURING a labor dispute

-There has been a work stoppage related to an impasse and as

a result there is no work being preformed and as if there is no
work being perofmed there is no contirubtion sbeing padi
-The statute provides that there is no withdrawwl due to a
suspension during a labor dispute
-This suggests that there has been a work stoppage related to
impasse
-you cant amek it anymore and there is NO WORK being performed
and the CBA says that you pay by work being performed

-Transactions to Evade or Avoid Withdrawl Liability

4212(c)
-the statute disregards ANY transaction if A principal purpose
of the trnascatoin is to avoid Title IV liability
-Cases look for economic substance to the transction
-Then you are at risk of the transaction being disregarded
-Cuyamaca Union argued that bad employer kept stringing us
along for months, bargaining, contributing and even went to
the tactic of putting a final offer on the table and revising it.
But the court looked at what was going on there; were workers
working? Yes. Were workers being paid? Yes. Were
contributions being made? Yes. Was stuff being produced in
the normal course? Yes.
-So was there economic substance to what Cuyamuca was
doing duringt heat time? Yes. IT wasns just being done to
reduce Title IV liability

-Even though the statute says A PRINCIPLE purpose,

underline PRINCIPALthe employer CAN be motivated to
reduce its liability, that is jut human nature and good
prudent management. Business people are naturally
trying to minimize expenses and maximize income. So
trying to make money is not illegal, having a purpose in
mind of avoiding liability is not illegalbut having the
PRINCIPAL purpose is getting to the point of being
disregarded.
-Is there any substance there?

-If you keep ALL production one more day to get into the next
plan year that is substantive
-BUT, if you tu kept the janitor or just produced the product
with no buyer to just sell it as scrap
-Those are the facts and circumstances that are central in this analysis.
All of these cases are going to be motivated by a desire to reduce,
evade or avoid some camont of withdrawal liability.

-Class 6 2/21/13 Allocation of Unfunded

Vested Benefits, Adjustments to Allocable
Share, Free Look, and Abatement
-LOTS OF MATH
-Review of Class 5
-Complete Withdrawal
-Covered operations
-Obligation to Contribute
-Date of Withdrawal
-Permanence
-Partial Withdrawal
-70% Decline
-Partial Cessations of Obligation to Contribute
-Exemptions
-Changes in Control Group
-How changing a control group doesnt lead to withdrawal generally
-Selling assets does lead to withdrawal except if sale of assets is
documented under 4204you do have an exemption to withdrawal
-Types of Transactions to Evade Title IV Liability
-Transactions Disregarded
-Facts and Circumstances

-Allocation of Unfunded Vested Benefits

-Once you know that you have a complete withdrawal or a

partial withdrawalnow you have fair warning that there is an
important event under MEPA
-This is the board of trustees of mutli-emplyoer fund
First need to allocate unfunded vested benefits
-UVB Unfunded Vested Benefits: Statutory deifiniton in
4217(c) speaks in terms of non-forfeitable benefits: were not
talking about nonforfeitable in a single employer PBGC sense,
this is more of a Title 1 Benefitso when the actuary cacluates
what the plan-wide withdrawal liability is, it is not applying the
non-forfeitable definitoint hat we would employ on the single
employer side. So when we are talking about withdrawal
liabilitythe statute talks about the value of non-forfeitable
benefits, we are talking about unfunded bested beenfits.
-This means the differences between:
-The presence value of nonforfeitable benefits MINUS
-Value of plan assets
-What if plan assets exceed value of vested benefits? If that is the
case, the multiemployer fund has no fund-wide withdrawal liability
-There are only a FEW multi-employer funds that are not in asset
insuffiency. If that is the case and you are an employer and you have
expereiencd a withdrawal you stand a better chance of not having to
pay an exit fee. If the fund is better funded the employer withdrawing
from the fund stands a better chance of not having withdrawl liability.
Just because there is no asset insuffiency at a aprticular point in time
is not deteminiative in the multi=employer world.
-So when they have experienced a withdrawl it is up to the trustees

-Calculating the Present Value of Nonforfetiable Benefits

-Value of the lump sum that would be sufficient to ay all vested
benefits as they become due: How much money we are going
to need TODAY to pay the promise throughout time knowing
that we dont know when the promise will be fulfilled. As new
entrants keep coming in, people keep working, all of that lends
itself uncertainty. There are so many variables there that we
need to make assumptions.

-The actuary is going to make assumptions and has methods

for avluaing liabilities. Some of the assumptiosn include
mortality and interest rates.
-Actuarial assumptions and methods - 4213(a)
-Must be reasonable in the aggregate and
-Must represent the actuarys best estimate of anticipated
experience under the plan
-The actuary can assume an unreasonable factor on any one
PARTICULAR factor (can assume 15% earnings, looks pretty
unreasonable). It is not the end of the story, because that is going to
be one of a number of assumption that the actuary makes in valuing
the liability.
-Compare the current funding rules for plans in making assumptions
about the same types of factors for the purposes of calculating the
amount of minimum funding contribtuison for each year.
-They must ALSO represent the best estimate of anticipated experience
under the plan. If the actuary knows that the average participant will
live 20 years in retirement and then uses a mortality table that has
everyone dying after 5 yearsit may be a commonly accepted
actuarial mortality table.
-Cant probably say that this is the experience of the plan.
-Remember inverser relationship between interst rates and
present value
-The higher the interest rate that you use to dtermien present values,
the lower the value is
-If I promise to give you $100 in a year, Ill need to put away less if I
assume a 10% interest rate, versus if I assume 1%

-How to Measure the Value of Assets:

-MEPA allows 2 Ways: EITHER
-Present Market Value of the Assets OR
-All of these measurements are done at the end fo the plan year, so a
plan can take a single snapshots of the rmarket value of its assets as of
the end of the year and that can be the value of the assets for the
purposes of withdrawal liability calculation. That can be harshthe
value of the assets on Dec 31 could be higher or lower than the assets
over the average of the year.

-This is easier, but it can lead to harsh or too rosy results

-Actuarial Value A smoothed value that takes into account
the average of several years of market values
-5 Year Smoothing
-Not in plan document, whatever the trustees want to do in terms of
methods of valuing the assets

-How to Calculate a Withdrawn Employers Share of UVB

-Every employer in the fund now has contingent liability for a
plan-wide unfunded benefit
-There is an ongoing effort within the accounting
community/financial community to have this liability reflected
on the balance sheets of financial statements of companies
that are involvined in mult-employer plans. It has always given
people who know multis some pause. The funded status of the
plan does flow directly into the statement does flow down to
S/Hsthere have been mandates of enhanced disclosure of
funded status of single employer plans.
-It is an easier connection in the single employer plan to connect the
funded status of the plan to the financial statmetn of the sponsorif
the plan is horrible underdunfdd, the sponsor ought not look like a
great investment
-This is very different for multi-emplyer plans. A small
contributor to a large fund is not reporting it in the same way.
-1. Determine the UVBS under one of four methods in 4211:
-Spend some time looking at 4211find where the methods
resides (there are not neat sub-headins that say rolling
method.)
-3 Pro Rata Methods:
-Presumptive
-Modified Presumptive
-Rolling 5
-Looking to assess withdrawal liability based on a share of liability
based on the share of contributions that the employer has made

-The grand scheme is supposed to make the employer indifferent as to

whether it stays in the plan or has to pay withdrawal liablilty. These
methods operate under that principal.
-Direct Attribution: Trying to attribute the withdrawal liability
directly to the employer that CAUSED it. It doesnt rely on a
pro-rata portion of contribution. It seeks to treat each
employer as having its own single employer fund. It seeks to
trace the liability of that employers emlpoyees and measure
one against the other.
-This was not popular, but it has become en vogue and so there is a
return to it.
-PBGC ruling that a plan can asses UVBs under 3 of the
methods, even if there is no UVBs in the year before
withdrawal. 56 Fed Reg 12288.
-When an empoyer withdraws from the fund the withdrawal liability is
measured form the year before. So if from the year before there are no
plan wide UVBs that would mean that they are not responsible for
anything. That might give an employers an incentive to try and time
their jump out of the plan.
-This says even though that there are no UVBs this yearif under
direct attribution there are no UVBs last year the employer is off: but if
under the Pro Rata methods there can be

-Date of Withdrawal
-Complete Withdrawal:
-Date of cessation of the obligation to contribute, or
-Date of the cessation of covered operations
-In the concept of date of withdrawal and complete withdrawal that
there is a permanence issue. On the obligation to contribute, is
reflected on a CBA, that CBA has a termif you reach the end of that
term and the bargaining agreement is over, labor law can fill in and
require people to fill in that bargain. When the CBA expires, if the
employer put its final offer on the table and said no more contributions
to the fund on the date of the CBA expiration the emplyeor
implements its last offer, but the parties are still negotiating other
things, the employer has implemented its last offer to stop contributing
to the fund, but the parties are still bargaining and some day later they
reach complete impasse and the question being raise isis the
cessation permantent?

-While the parties were barginign even though the employer was
making a final offer (Cayamuca Meets made a revised final offer).
-The borad of trustees has every right not to calculate the withdrawal
because the partis are bargaining. Now the board of trustees may say
it is permanent.
-If it is permanent the date can relate back to the date that the CBA expired
because you were waiting for it to be permanent

-Partial Withdrawal -4205

-Last day of the plan year in which there is a 70% decline, or
-The last day of the plan yeat in which you have that 70% decline
(measured over 3 yaers)
-Date of the partial cessation of the obligation to contribute

-Adjustment To Allocable Share 4201

-Now that we know there is fund wide liabity, we know that the
employer has withdrawn, we know the date of wirdhdrawal, we
know how to calculate allocable share (next week), and have
allocated the plan wide UVBs to the employeron the single
employer side that would be the end of the day. Here, it is not
that simple.
-4201: Requires some adjustments to the employers allocable
share. If oyu ever want to know why we do this it is simply the
product of legislation. It is a compromise.

-Order of Adjustments: ORDER IS IMPORTANT it is IN THE

STATUTE LISTEN IN AT 1:10
-1. Section 4209 forgives de minims amounts
-Moer than 50, less than 100 make it 50subtract 50 and stop
at zero. If above $100k, then the de minimis forgiveness
phases out dollar for dollar every dollar owed over $100k,
entirely disappears at $150k
-The de minims reduction is only of 1% of UVBs is less then you use
that number throughout
-Why is it here? Small Businesses
-So this deminis rule is really pro-small business

-2. In the case of a partial withdrawal 4206 specifies the partial

withdrawal fraction
-3. Next apply the 20 year cap in secion 4219(c)I(i)(B)
-4. Finally, there is a special forgiveness rule in 4255 for
employer that are underoigng liquidation or insovlend

-Example: Employer Xall employer Xs participation in

Plan Y
-Plan Year 1 2 3 4 5 6 7 8 9 (in millions)
-Plan Wide UVB $4, $4, $4, $4, $4, $4, $4, $4, $5, $5, $5, $4,
-Xs CBUs 60, 60, 60, 30, 20, $15, $15, $15, $20, $5, $5, $0
-All CBUs 300, 300, 300, 300, 300, 300, $300, $300 $300, $300
-As X is withdrawing some other employer is picking up (year 4)
-X is out in year 3/31/11th yera
-R5->UVBs for the Plan Year Ending Before The Withdrawal x
(Fraction = Employers Required Contributions for 5 Plan Years
Before Withdrawal / All Employer Contributions for Same 5
Plan Years Before Withdrawl)
-So we know that X withdrew before 11th, so look at year 10
so that is 5 = 5 x (70k /$1.5 mil = $233,333)
-So rolling 5 is arbitrarily picking out 5 yers]
-The first adjustment is de minimis
-It phases out completely at $150k
-and if you do of 1% of UVBs
-1. De minimis $375 means the adjustment phases out at $137.5

-Adjust further for a partial withdrawal for a partial withdrawal

fraction
-Were there 3 years where contribution base units were less than 37%
of high base year?
-So you have a partial withdrawal In year 8

-The statute is there to make sure that you are either paying your
contributions or you are paying your liability
-Calculate the withdrawal liability for the partial withdrawal
ofr a 70% you begin with the allocable unfunded vested
benefits if there was a complete withdrawl on the last day of
the first year of the 3 year testing period
-In a fade-out situation, to eliminate the incentive to fade out they put
in partial withdrawal liablilty. And to incentivize them to come back in
you have the partial withdrawal fraction is to juice up the CBUs to
potentially eliminaye or reduce partial withdrawal liability.
3. Apply the 20 year cap found in 4219(c)(!)(B)take the
highest rate in the 10 years before withdrawal an dmultiply
that by the average 3 years higher cBUSinherent in there is
an interest rate,

-Class 7 Multiemployer Plans: Determination

of UVB and Allocation 3/14/13
-Review
-Allocation of Withdrawal Liability
-Developing Slide-Deck: 4201 and how you calculate unfunded
vetsed benefits by taking the present value of benefit
liabilities, subtracticing assets, and arriving at the unfunded
vested befits, and how to adjuste them to find the employers
allocable share
-Minimum reduction
-Partial withdrawal transaction
-Ended talking about the 20 year cap on withdrawal liability
any withdrawal liability payable after the 20th year is forgiven

-Left at 4225: Limitation on Wtihdrawal Liability

-Provisions that essentailyl reduce or limit the widhdrawal
liability that gets allocated to employers that get withdrawan.
To provide relief in circumstances where the funds claim gets
wiped out people and congress shouldnt be completely wiped
out.
-This is a way of leaving something on the table for a business
owner.

-You see a provision in 4225(a)(1) that discusses the sale of

assets in a bona fide arms lenth sale to an unrelated party
that is not in bankruptcy.
-In that circumstance, the withdrawing employers assets are
sold in that bona fide sale to an unrelated party not in
bankruptcy, you allocated the UVB after applying the other
adjustments (de minimis, partial withdrawl etc) you limit it to
the lesser of:
-The unfunded vested benefit attributed to the employees or
withdrawn employer (but sometimes you dont have the raw data to do
that) OR
-A percentage set out in 4225(a)(2) of the liquidation or distribution of
the employer
-i.e. not more than $5 milllion limitation is 30%
-EX: If the employers assets are woth $500k, and the employer has
liabilities to its creditors of $300k, then the liquidation value would be
$500k - $300k or $200k. the liabiltiies measured in this allocation are
without regard to the withdrawal liabilities (all other liabiliites
because allocable share of UVB usually swamps everything else).
-The withdrawal liability then is limited to 30% ($60k, less than $5 million) of
whatever the amount would otherwise be after the other adjustments
-What this means is that the owner of the liquidating business is going to keep some
portion of the liquidation value of the company.
-The portion grows as the value of the business grows.
-Recognition of small business value and trying to give that value to the owner

-Technically Insolvent Employers: If adding the withdrawal

liability renders the employer insovlent, the claim that the
fund will receive is limited by 4225(b): 1)50% of the allocable
share of UVB (you can reduce the UVBs by 50%, or what is 1
claim turns into 2 claims1 claim for 50% and another claim
for liquidation value minus 50% of withdrawal liability)

-EX: $500k assets - $300k liabilities without regard to

withdrawal liability, but employer has $230k of withdrawal
liability. So now is technically insolvent in excess of $30k. But
it is only insolvent to pay all of its creditors 100 cents on the
dollar. One way to approach is to say tough on creditors, and
there should be a haircut. But that is NOT the way that statute
works, instead the multi employer fund is going to take most
of the brunt of the hit. The way it is going to do that is limiting
the value of the withdrawal liabilityif that is $230k, one of
the claims will be $116k. then you take the liquidation value of
the business which is $200k and subtract 50% of the
withdrawal liability, and the fund will get the claim fro that net
of liquidation value minutes the 50%. So if the value of the
business is $200k and the 50% is $116k then the funds other
claim is about $83k, and add those lcaims together you get
$200k. That is enough. but the plans distribution si going to
be limited.
-The idea is that if a small business has to withdrawal at a very bad
time from a big fund, whether than hit the kids who inherit the
business or hit the creditors, hit the fund harder

-4210 Free Look Rule CAN apply (option for fund) if the
fund is looking to get entrants to new fund
-3 Requirements: Must meet either a 8:1 ratio of assets to
benefit payments, and the employer can be in the plan for no
more than 6 years or the plans vesting period AND the
emplyeor can account for less than 2 percent of contributions
-Most plans have gone to 5 year cliff vesting or even shorter
-But the free look cant last longer than the vesting period, and the
ratio of payments to assets cant be less than 8:1
-It cant be a large employerwhy cant the employer be in the free
look for longer than the vesting period, if after the free look the
employer wants out the past service for the employees is cancelled,
which is consistent with the vesting provision.
-There is a conforming rule in 203(a)(3)(1) of ERISA
-If there is a partial withdrawal, and then a subsequent partial or a
completeit is credited against the subsequent withdrawal liability and
it is not dollar for dollar, but it amortizes the liability for the earlier
withdrawal and the remaining balance will be a credit against the
subsequent withdrawal.

-What happens when the employer withdraws and wants

to come back into the fund? 4207 and 4208
-4207 Abatement of future payments for a complete
withdrawal if the employer re-enters the plan of at least 30%
of the average contributiosn based units of the 5 years before
withdrawal. So take a 5 year period before the withdrawal,
multiple the contribution units by 30% and if the employer
comes back in at a level of at least 30% then future withdrawal
liability payments are abated.
-If the employer thought this through it may not have ceased
all operaions, but if there is a complete thiwdrawal
-it is a little bit of a punishment for not having thought this through.
-Client wont be too happy: why didnt you tell mye when I was
thinking about withdrawing.
-4208 Adjustment - Bases for abating partial withdrawal
liability. Afeter a 70% decline an employers decline level that
is at 90% of the high base year CBUS and it stays at that level
for 2 consecutive years, ti can abete the partial withdrawl
payments.
-There wer probably lesser measues that you could have
arrived and and avoid the partial withdrawal. If the client still
wants to come in to abate partial withdrawl, IF you can
determine that all employer CBUs are at least at 90% of CBU
for the year of the partial withdrawal and your particular client
comes back in at 30% of the CBU of the particular year and
stays at that level for 2 consecutive years there can be
abatement.
-The rules in 4208 to abate liability of the partial cessation of the
obligation to contribute.

-Withdrawl Lability Easy Methods Doc

-4211 4 Methods for allocating withdrawal liability:
1)Direct Attribution 4211c4, Rolling 5 4211c3,
Presumptive 4211b1, Modified Presumptive 4211c2
-This can be daunting statute because there are no headings
that tell you these things.

-Presumpted is called because it is presumed

-Rollign 5 is called that because it moves every 5 years
-Direct Attribution is called that because it simply attributes
the withdrawal liability directly based on contributions that
were made and liabiltites racked up for the workforce
-Modified presumptive simply takes some potshots at the
otherwise presumptive methodit is a different method that
the employer can elect into that is not in the 4211b1 method
-Catchall 4211 The fund can use any method that the PBGC
approves of
-tHEre are some methods that they have approved, btu we arent going
to talk about them because the PBGCs mindset starts where we start
with the statute.

-Basics
-4213: Defines the plans UVB as the value of nonforfeitable
benefits minus the value of plan assets
-PBGC may perscrive regulations to gover reguatlins but has
not done so. So the standard is that the assumptions and
methods that are used msut be reaosanble in the aggregate
and represent the actuarys best estimate of experience under
the plan. All actuarial variations are done as of a snapshot
date
-A fund is an organic creature that has a perpetual existence and yon
dont know assets and benefits are paid out, but a valuation is a tool to
take a snapshot on a day of the present value of liabilities and assets.
For funding purposes the valuations are done on the first day of the
plan yaer. It is a good day to pick. For withdrawal liability purposes,
valuations are done as of the close of the plan yaer. Because
withdrawal liability is calculated on the last day of the plan year before
day of withdrawal. So when you have that valuation as of the last day
of the plan year you get into the year and know the withdrawal liability.
-Joint Board of Enrolled Actuaries Credentials the actuaries
who do the evaluation
-Withdrawal Liability; Although we use UVBs as a term, but
what we actually talk about is nonforfeitable benefits.
-There is usually a years of service requirement.

-United Foods Case: Explores when the actuary for a particular fund
(United Foods) fund, was the western conference of teamster funds. UF
was upset because it felt that the fund actuary had improperly valued
certain benefits. It included the values of death benefits and disability
benefits.
-Are death benefits vested benefits? How do you know you have
vested in the death benefits upon death?
-Title 1 doesnt mention death. Amny plans add that you are fully
vested upon death (you dont want to tell the survivors that someone
didnt vest on death). But title 1 dosent require.
-Nonforefitability is what we talk about. Nonforefitability talks about in Title IV is that
you satisfied all of the conditions for the benefit except for retirement. How could a
death benefit become nonforefitable?

-HELD: These beenfits have to be valuedyes and no though. The

actuary was proably correct invaluting death benefits for people who
were dead. The actuary was probably right in valuing the disability
benefits for people who were disabled and adding that into the
calculation of libailities. Both of those kinds of benefits were benefits
for which conditions were satsisfied, btu probably wasnt right in
adding death benefits for people who werent dead or disability
benefits for people who were disabled.
-In calculating the UVB, the case is in the materials to show you how it
is nonforefitability again.
-In getting to the top=line value of benefit liabilities were are
talking about the value of benefit liabilities. You need
everyone to die and then tally up what you paid. You cant
actually calculate the benefit liabilities when someone is alive
because youdont know how long you are going to be paying it.
So the actuary takes the present value of the payment stream
and maeks an estimate of when people in general are going to
die/retire and apply the plan provisiosn to that time of
payment, and when it gets a huge value of how much the plan
has to pay in perpetuitynow has to bring that liability value
back to present day.
-The paper goes through detail of higher the value and higher
the interest rate used, the lower the present valueand the
higher assumed rate the less money needed today to get to
the ultimate value. The actual value of present liabilities is the
number built by present assumptions to calculate the present
value of the benefits payment stream. That pice of the
calculation has given rise to loads of litigation over the yaers.

-There is a tenion between a withdrawling employer base that wants to

reduce liabilities and a board of trustees who wants to be consverative
because the benefit promise is not being shaken ever.
-Plan asset liabilities also have to be valued Masters and
Mates v. USX: Clients tell you this, these are sort of funny
numbers. We are talking about the present value of the
liability, you realize that It is funny numbers being put on the
paper. In the USX case the case is being fought over $200k of
withdrawal liability.
-Each multiemployer plan is each going to have its own
characteristics based on its unions and contributing
emplyoers. The contribution-based units which are also going
to be chosen based on those characteristics may not make
sense of other unions and other themployers. If the
employees job is to move tons of dirt, then you may not care
how long he takes do it, but how much dirt he is moving. So
the plans contribution based unit may be based on the tons of
dirt. Or hours worked may be important. On the backend, how
do you true up for an employer that is leaving that fund or
industry. That is what these four allocation methods come into
play.
-There are industries and occupations where it is really difficult
to measure things like hours worked for an employee for an
employer. In the shipping industry, theoretically you could
have ships pulling into the port form a half dozen or more
companies. Each of those ships has a certain amount of cargo
and the employers to get skilled labor have to bargain with the
unions to get the cargo off. The union has incentive to make
sure that no employee gets penalized for an employer ship.
Some emploeyrs may have easy cargo to unload, some may
have hard, and both may be important to the survival of the
port.
-But that minimum may be used for some purposes and not others.
Then it comes down to the pension plan and it gets hard to know how
many hours or tons a particular employee moved for a particular
employer.

-What we call direct attribution

is what the fairest attempt to the exit fee analysis. If you are
the employer and you are in the fund you want to stop making
contributions to the fund. How are we going to calculate that?
We are going to tally up all of the credit liabilities that he fund
is providing to works and subtract the allocable funds assets.
-That is what 4211(c)(4) of the statute gets you under the
direct attribution method. You allocate UVBS to the withdrawn
emplyeor based on the percentage of contribtuions made by
the emplyero.
-Then you subtract the share of the attributable vested
benefits OR the contriubtions OR the contributions minus
attributable benefits
-This is becoming more en vogue these days because employers want
fairness and they also want the ability to control their exit fee.
-In contrast, if you cant assemble that massive amounts of data (and
these rules were written in 1980)today, this has been made more
feasible by technology.
-You want something that is pretty basicyou always know the
employer contributions to the fund and you always know all of the
employer contributiosn to the fund, and it doesnt take mounds of data
ot keep that information for a long time, but even if it does, you dont
have to use that information for every single employer.
-That is what we covered last week with the rolling 5 method.
It is a simple method.
-You start with the unfunded vertsed benefits in the year of
withdrawal with a single snapshot. And then, it allocates that
on the basis of the employers required contribtuiosn for the 5
years before withdrawal divided by all of the employers
contributiosn fro the 5 years. The numberator over the 5 years
over all required contributions for 5 years times the UVbs at
the close of the plan year yields allocable unfunded vetsed
beenfits. It moves with every year.
-You don tneed a lot of data here. You dont need to go back 50 years.
Youve got data for 5 years.
-But what happens if the plan had a miserable year in the market as of
the close of that year? You are going to get hammered. The assets are
really low, and you are taking that single snapshot. What if you are
exiting the fund after the best year ever? Your numberator of the
fraction is going to go up quite a bit.

-You dont have the data for direct attribution and dont want the
crudeness of rolling 5if you dont elect any method you get the
presumptive method
-What the presumptive method tries to do is take the
percentage of UVBs just like rolling 5 to allocate the UVBs, but,
rather than using a single years unfunded vetsed benefit
snapshot in the rolling 5 method in the yare before withdrawl,
so it goes back over a 20 year period. Over the course of that
period it is going to get charges and credits
-Modified Presumptive: What it trie to do is take the pre-MEPA
1980 unfunded benefits and net them out. For the years after
1980 it uses the same liability after 1985(?)
-So starting in 1986 or so what is left of that formula it had
already been amortized was the rolling 5, so the modified
presumptive in 1996 had morphed into rolling 5. Today, the
plan is
-It is sort of in between

-Class 8 (Topic 10) 3/21/13: Withdrawal

Liability Disputes
-4219(b) of ERISA: Arbitration is CORE Concept
-9/10 you are doing arbitration
-Has been found over and over will start with the central
proposition that MEPPA provides for arbitration
-How you then get to arbitration is interesting in its own right

-4219: Notice, Colelction and Withdrawal Liabiltiy

-a: Curious provision. Says within 30 days of written request of
fund employer will provide relevant requested information
-One of the things the fund will need is information to get a
fair arbitration.
-So knowing that we are going to be headed to an arbitration first
enforcement scheme, the statute has a provision to start this whole
process that eliminates the funds need to jump into court right away.

B1: As soon as practicable after an emplyoers complete or

partial withdrawal, the plan sponsor shall: (A) notify the
employer of (i) the amount of liability AND (ii) the schedule for
liability payments AND (B) Demand payment in accordance
with the schedule
-So the plan sponsor is going to decide that the employer has
suffered a complete and partial withdrawal, and is going to
send the emplyeor a notice, and in that letter they will be told
the amount of the liability and schedule for making the
payments.
-Notice there is no inherent discussion of the employer. There is no
requirement that the emplyeor consent to that notice.
-Remember this point
-Notice there is no time frame provided in 4219(b)(1). The stattue says
as soon as practicable.
-The position that amicus cases have taken is that as soon as
practicable doesnt create a time limit
-The MEPPA has a 6 year statute of limitations like the rest of ERISA, so
inherent in this is that the board of treustees cant take forverer.
-There is another practical limitation: Furbar Sup Ct Case: Is there an
inherent right in MEPPA for a multi-employer fund to assess interest in
unpaid withdrawal liability before the notice and demand is sent.
-When there is a withdrawal, the amount of the withdrawal liability is determined on
the last day of the previous plan year.
-Dec 31 withdrawal, fund gets word of this and notifies emplyeor of withfraawl and
demands payments, but lets say that they dont begin until June 30 of year 2.
Otherwise, the employer has the use of all of that money within 6 months

-Sup Ct says that nowhere in the statute is there a provision that

provides for interest in that gap.
-So 4129(b) talks about as soon as practicalbe, but the board of trustees practicably
as they are running the withdrawal liability program that they know that the fund is
not going to be able to get any interest on the claim of withdrawal liability at least
until
-Any lendign, grant of credit, use of plan assets by the emplyor sponsoring the plan is
a prohibited transaction. So if a plans claims are an asset of the plan and they are
not earning anything and some of those claims are against employers could it be
argued that they are giving an interest free loan?

-So once the fund has met its burden and has issued this notice in
demand move on to 4129(b)(2)

-B2: Commended to our reading. Things the presumptively

withdrawing employer can be asked to do.
-C1: Most interesting. Except as provided in B and D, the
employer shall pay the amount under 4211
-C2: Withdrawal Liablity shall be payable in accordance with
the schedule set forth in b1 beginning no later than 60 days
after the date of the demand notwithstanding any request for
review or appeal of determinations of the amount of scuh
liability or of the schedule
-So if you are the employer and you get a notice out of left
field that you have withdrawan that fund and you dont think
you have ever even been involved in that fund, except that it
says beginning next month pay $X you have a statutory
obligation to pay that amount as on that date.
-This is why MEPPA talks about Pay First, Dispute Laterthis is 180
degrees different for what happens in courtrooms across America.
-So everyrone has a story about a client who got an idiotic notice and
looked at it and then threw it in a drawer, and then later they bring in a
lawyerand every lawyer has a story about how this screws it up.
-Pay First, Dispute Later, Arbitration, Dont get to just jump into court
and dispute it.
-Emplyoyer must raise disputes within 90 days
-Interim payments must be made within 60 days
-Payments will be prescribed by the fund in the notice. The fund will be
quarterly or more payments.
-90 Days to raise issues, board of trustees can demand payments
within 60.
-Requires:
-Statemetn that employer has withdrawn
-Statement of lump sum that is owed
-Amount and schedule of the payments
-4221e provision allows the empleyro to request an estaimte of wts
withdrawal liability, was taken out in PPA 06, 101l was created in PPA
06 and this now provides the employer to request
-Sanction is that the employer can go to the DOL.

-The caselaw under 4221e is that an employer is not at risk sending in a request of
fund to get an estaimte of withdrawl liability (it can do that without having to go
through dispute resolution), Prof assumes this will apply to 101(l).

-The employer can wake up one day and find this noticebut what
about a situation where two companies are in common control
-The president of the non-contribtuing sponsor opens its mail and sees
a notice in demand, puts it in a drawer and moves on with his day.
Does that cause potential consequences for both employers?
-In the outside of ERISA world there is the corporate veil. If GM owns a division that
produces cars and you finance it through their finance company, and your car sucks,
can you tell GM finance Im not paying you? Generally no, separate transactions.
-FOR ERISA: Courts have decided that notice to one constitutes notice to the other.
Its like torching the corporate veil.
-Centeral States v. Slotzky

4219(b): Trustees have an obligation to review matters and

give the emplyeor a decision. Look fro the deadline that the
trustees have to issue their decision.
-The trustee review process is not an adjudicatory proceeding.
It is not like they are going to end up with any legeal
entiteldment that they would otherwise have. They dont get
deference or a better litigating positionat least an iron clad
one. It is a weeding out process. The fund believes that there
has been a withdrawal and something happened in the
employer base and the trustee review process is there to keep
it from maturing.
-So a prudent employer responds to a notice within the 90 days. Are
you done until the fund responds? Can you now say that Ive hit the
ball across the net and it is up to the board of trustees if they choose
to pursue the dispute?
-Since the trustees have no deadline for respingind to dispute they
continue to calendar this and when the dealine comes for arbitration,
the employer has the obligation to initate arbitration.
-Counsel has eben paid the first paymentstill there is an obligation to
initiate arbitration within a hard and fast deadline
-This is a malpractice issuethe people who worry about dealines are us.
-Chart in materials that tells you this.

-You outside date is 60 days after 120th day after the request for review
-Miss the ability to conduct arbitration and you will unleash the hounds of hell

-4221: Resolution of Disputes (Arbitration, not court yet)

-(a): Procedures. The Regs provide a procedure for conducting.
-PBGC regs provide discovery (remember the fund has gotten
its whack at the employer, btu 4219 entitled them to ask
questions, and now in arbitration there is discovery again). so
if the employer blew off the fund in the 4219(a) request, they
should re-visit. There is a trial-type hearing where there are
written conclusions of fact or law like a bench trial. The
arbitrator is to act like a judgethey find facts and apply the
law to the facts. The arbitrator is not supposed to be in the
room to resolve the dispute, their job is to act like a judge.
They make decisions.
-Youll see this in the caselaw and it remains true in arbitration. They
are allowed to borrow from the FRCP.
-The fund may go out with a really whacky number to get the whole
process moving, because the caselaw built up on the backend says
that no matter how whacky the law is
-They act like a magistrate: find facts, apply facts to law. Use
procdures. Liberal leave granted to amend.
-What standard of review do they give to the funds decision? 4221(a)
(3)(a): for purpoeses of any proceeding under this section, any
determination made by a plan sponsor under 4201 and 4205
(adjustmetns etc)any determination and all determinations by the
sponsor PRESUMED CORRECT unless the party contesting the
determination shows by a PREPONDERANCE OF THE EVIDNECE that the
determination was UNREASONABLE or CLEARLY ERRONEOUS (appellate
standard).
-This crazy standard gave rise to lots of litigation. Mixing up stnadars
(should they look fot a 50.1% standard or something much bigger).
-If you parse the statute the mention of clearly erroneous doesnt
come into play except in reference tho the funds determination. So as
the courts have tressled with the inconstitent standards, what they
have melded together is a standard where they look to the employer
with the burden of going forward with some reason for challenging the
decision on which the fund is made.
-The arbitrator is not sitting there with a completely open mind.
-Given that the arbitrator is to presume correctness, when the fund comes into the
room it is coming in with a decsioin that it will be the result.

-So presumed correct knows that the fund walks into the dispute knowing that if
nothing happens it wins. This is how the arbitrator approaches it.
-Through the magic of the notice and demand statute it flips the burden of proof
basically.

-There is always a de novo standard of law. No judge ever gets

deference or slack on the law that is applied. So this twisted
preponderance/clearl/presumed as applied ot the facts
-Special Element: Actuarial Assumptions: 4223: Employer must
show that the actuarial assumptsion are not reasonable in the
aggreagate. In maing the assessment the requirement was
that they be reasonable in the aggregate.
4221(c) of ERISA: Arbitrators award is now reviewable in
Court.
-The court doesnt give deference on the law
-Factual questions: there is a deferential standard
-MEPPA: Presumed correct unless rebutted by a clear presumption of
the evidence.
-MEPPA is the only place that uses this standard. We know
preponderance is 50.1 but what does celar mean?
-It is a firm conviction

-Flying Tiger:
-EL PASO CGP company case. Chicago truck drivers dared to differ.
-Clinton Decisions Case
-Has a 100%
-If they have an absolute defense to itthey have to pay withdrawal
liability
-They did no arbitrate.

-Central States vs. Oneal in 2010

-Make them change the notice of the date of demand, and then they
issue it.
-If a payment is not made, it is in default if it is not notified
within 60 days of default.

-UNLESS the employer intiates arbitrationif it does that it as excepted

from arbitration and debt payable. Arbitrating doesnt relieve the
employer of the obligation to make the payments.
-Was a payment due? Was a payment made?those are the issues.
-If the employer prevails in arbitration or in the district court
proceedingultimately if the employer is successful it will prevail in
the arbitration and they must order a refund of excessive payments or
future payments.
-If it ultimately prevails it gets the credit
-So the employer is not out anything in the pay first litigate later scheme, but f you
dont arbitrate there is a risk.

4301: Civil Actions

-Provides for nationwide service of process
-D can be served anywhere. Article 3 permits that.
-Remember how under 502 if the fiduciary breaches a duty owed to
the fund he or she can be held liable. The fiduciary is held accountable
in almost every single one of them.
-You wont find in 502 the employer mentioned as a potential plaintiff. Look at Title 4
of ERISA that an employer can sue for harms under Title 4.

-Missed Class on Funding Rules for

Multiemployer Plans Bruce Pearlman
-Class 8: 4/4/13 Control Group Rules
-Recap
-Last 5 classes we have been working in Multi-Employer Plan
-We are playing with the rules now and add some other rules
that play with results

-Control Group Rules

-Define the contours of the box
-Where do the obligations go? Who owns them?

-Up to now we have really talked about the employerthe obligation

necessarily resides there but it doesnt stop there. And, in fact, gauging
whether there has been a withdrawalgauging whether a single
employer plan meets the obligation depends on a control group
analysis.
-Primarily are going to talk about regs under 1.414. Corportions used
to rule the day on this.
-Today, LLCs and Partnerhips and other business forms that werent
dominant back in the day when these rules were draftedbut the rules
still apply.
-Piercing the corporate veil is hard, but it gets paper thin on
constructive ownership and rules of attribution
-Why It Matters
-Title IV imposes joint and severak liability on a plan sponsor
and all embmers of the sponsors controlled group:
-PBGC or a multiemployer plan may choose what member of a
controlled group against which to pursue its claim
-The fund gets to choose who it goes after in what order
-You will have clients that will say that this isnt fair. That may have
been the way it was set up but thats not necessarily the way that the
law regards it
-The PBGC or a multiemployer plan may pursue its entire claim from
each liable member of a controlled group
-But both are entitled to only one satisfaction
-Joint and severalseveral means each one is responaible for the
whole thing.
-One satisfaction principle.

-If the allocable share of unfunded bested beneifts or PBGc claim for
beneit liabilities si $15 million they can put the claim on all 3 entities.
There are 6-12 cases where controlled group members have had to
litigate against each other for contribution when they get the whole
liability satisfied against one entity.
-The courts of appeals have been all over the place on this one. Unless
you can find the words that you want in the text of the statute you
dont get what you want. There is no text in the statute that allows one
control group member for anoher control group member.

-The core principle is that each entity is liable for the whole amount
and can recover the entire amount from any more particular entity.
They are going to pursue the company with the deepest pockeit. This
is hwere because it increases the chances of getting a full recovery.
Joint For:
-UBLs
-Minimu funding contribution
-Annual Premiums
-TERmination Premiusm
-Minimum Funding Liens
-Section 4069 nrt worth liens
-Withdrawal Liability
-Downsizing laiblity
-Trmerionat
-ERISA 4001(b): All business under common control treated as
a single employerthe employer is the control group
-ERISA 4001(a)(14): This is n here twice. It is in 4001(b)and
then added 4001(a)(14).
-4001.3(b) Case of Single Employer Plan Group it s
controlled group
-Treasury Regulation 1.414:
-1.414 A controlled group is in 1.414(b)
-Two or more businesses under common control - 1.414(c)-2
-Parent Subsidiary
-Brother Sister
-Combined Group
-Tax Exempt Orgainzatoins Udner Common control - 1.414(c)-5
-The meaning of organizations - 1.414(c)-2(a) Means
-Corporaiotn

-Partnership
-Trust
-Estate
-Sole Proprietorship
-They dont have any state statutory protection
-Parent-Subsidiary Control groups 1.41(c)-2(b)
-One or more chans of organizations conducting trades or
businesess connecting through an ownership of a
CONTROLLING INTEREST with a common parent organization if
(you need two organizations, one owns the equity of the owner
it is not a human being ownerif indivdidaul X owns
company Y that is not parent subsidiadry, it is if organization X
owns organization Y) :
-(i) A controlling interest in each of the organization, except the
common parent organization, is owend by one or more of the other
organiziaotns and
-(ii) The common parent organization owns a controlling interstin at
least one of the other organizations, excluding, in computing such
controlling interest, any such ownership interst by such other
organizations.
-Controlling Interst: Defined differently for each organization
types
-Corporations: 1.414(c)-2(b)(i):
-Onwership of STOCK:
-At least 80% of total combined voting power (TCVP) of all classes of
stock entitled to vote of such corporation or
-At least 80% of the total value of shares (TVOS) of all classes of
stock of such corporation
-Trustss or Estates: 1.414(c)-2(b)(i)
-Onership of an actuarial interest of at least 80 percent of such trust
or estate:
-The actuarial interst of each beneficiary of trust or estate shall be
determined by assuming the maximum exervise of discretion by the
difuciary in favor of the beneficiary

-Partnerhsips: 1.414(c)-2(b)(2)(i)
-Onwership of eat least80 percent of the profits intersts or capital
interest of such partnership
-Partnerships can be and usually are structured so that individuals
have a capital interest
-EX: If you have a partnership with A with 100% capital, and B has
100% of the profits.
-A also owns Y and Z with 100% cap.
-Y has a DC plan.
-B also gets 100% profits in YY and ZZ.
-ZZ has an underfunded DB plan.
-A has invested his capital in a control group with an underfunded DB plan. Hopefully
he knew that. Because his capitaldebt comes before equityis going to be a lower
priority in the distribution scheme than the DBs plan claim against X.

-Proprietorship: 1.414(c)-2(b)(2)(i)
-Onweship fo such sole proprietorship
-Rules of Exclusion: 1.414(c)-3(a)
-You begin to weed out stock that doesnt count. That is the
first thing that you do.
-In determining who owns the stock, stock does not include treasury
stock.
-The term stock does not include nonvoting stock that is limited and
preferred as to dividends (preferred stock)
-Parent-Subsidiary Rules of Exclusion: 1.414(c)-3(b)(1)
-If a parent-subsidiary relationship exists between two
organizations (i.e., ownership of 50% or more), then, for
purposes of determining if either is a member of a parentsubsidiary group, exclude an interest in, or stock of the
subsidiary:
-Held by a trust that is part of a funded plan of deferred compensation
-Owned by an indvidiaul who is a principal owner, officer, partner, or
fiduciary of the parent
-Owned by an employee of the subsidiary

-Owned by a tax-exempt organization whether tax qualified or not

-APPLY THIS RULE BEFORE LOOKING FOR 80%. Once you start
excluding stock it actually can create LARGER ownership shares (see
example 3 in slides).

-Brother-Sister Controlled Groups

-Means group of treades or busiensses under common control
means towo or more organizations conducting trades or
business, if:
-(1) the same five or fewer persons who are individauls,
estates, ro trusts OWN (directly or by attribution) a controlling
iinterst in each organization, and
-(2) taking into account the ownership of each such person
only to the extent such ownership is identical with respect to
each such organization, such persona are in effective control
of each organization
-In the case of a corporation, such persons (people or corps)
own stock possessing more than 50 percent of the TCVP of all
classe of stock entitled to vote or more than 50 percent of the
TVOS of all classes of stock of such corporation
-Essentialyl, the same five or fewer persons msut own more
than 50% of the boting power or ornwership of the stok to
have effective control
-MORE than 50%
-In the case of a truts or estate, such persons own an
aggreagate actuarial interest or more than 50 percent of scuh
trust or estate
-Essentialyl, the same five or fewer preson must have an
actuarial interst of more thean 50% of the trust or estate to
have effective control
-Partnership
=Proprietorship
-Example: 1.414(c)-2(c)(1)(ii)
-Only identical interst: LOWEST COMMON INTERST in all the
businesess
-Interpretive Ruels

-In determining controlling interst and effective contrl, use the

same five or fewer prson sunder each test
-In determining controlling interst, DO NOT USE ANY PERSON
WITH 0 PERCENT INTEREST IN ANY ONE OF THE
ORGANIZATIONS
-They dont count even if you need them to make a control group.
-Rules of Exlusion: Was a Parent-Sub now aslo a Brother Sister
-In determining control
-Stok does not include treastury
-stock does not include nonvoting stc
-Combined Group: 1.414(c)-2(d)
-Combined group of trades or businesses under common
control means any group of theree or more orgs
-Contructive Ownership Rules of Attribution: 1.414(c)-4
-In determining the ownership of an interst in an organization,
the constructive ownership rules apply (subject to the
operating rules)
-The term interts means, in the case of:
-Corporations
-PArtnerhsips
-Trust/eState
-Proprietorship
-Options
-You can end up with 200% outstanding this way because you have
100% when you have an option to buy 100% of the businesss.
-Attribution from Organizations
-Corporations
-Partnerhsip
-Trusts and Estates
-Attributoin from family membres:

-Spouse
-Children, Grandchildren, Parents, Grandparents
-No sibling atributions

-Attribution from a Spouse: 1.414(c)-4(b)(5)

-An individual shall be considered to own an interest owned,
directly or indirectly, by or for his or her spouse, other than a
spousewho is legally separated from the indivdiaul under a
decree of divorce

-Family Attribution: Children and Parents

-An individual owns an interst owned by the individuals minor
children (i.e. udner 21 years_
-If the individual is a minor, the indivdiaul owns an interst
owned by the individuals parents
-If an individual is n effective control of an organization, then
the individual shall be conxidered to wn an interst in such
organizaiotn owend directly or idnidtectlby by those who have
over 21
-So now if you are in effective control even your adult children
are attributed

-Construvitce Owenship OPeraitng Riules

-If an interest is consrtuctivley owned under both the option
attribution rule and any other attribution rule, the interst is
considerd to be owned by virtue of option attribution

-Trade or Business Level

-The regs dont define trade or bueinss. So that is up to
caselaw. Passive investment is not T/B and shouldnt be ina
control group. An dif private equity groups are a member of a
control group that means that their portfolio companies can be
in a control group.

-Class ?? 4/11/13 - DC Plan Terminations;

Bankruptcy Issues for DB Plans
-DC Plans: Have a Beginning, Middle and End

-Beginning
-Like DB plans involves a board of directors authorization to
have the plan, and then the creation of plan documents to
memorizlie its terms.
-The decision to have a plan is a settlor function. The design of the plan
is a settlor function. The decision to have a DB, DC ot bothis a settlor
decision
-Subsequent decisiosn tend to be fiduciary unless they realily relate to
te design and terminate
-End
-Like the deicion to create, the decision to terminate is a
settlor function. The participatns dont have an ERISA beef on
that.
-You cant be sued for the decision to terminate, but if you botch the
termination you can be sued as a fiduciary. Implementing the decision
to terminate tends to involve a number of fiduciary duties.

-How to Terminate a DC Plan

-None of the DB Stuff applies here, beucase under 4021 DC
plans are not covered by Title IV.
-The first important issue to look for is permanence
-Permanent meaning expected duration of a long time. On the
DC Plan, plans are terminated more regularly. It is an easy
regime and there are more of them. But to have it be tax
qualified it must be permanent (1.401-1b(2) IRC REgs).
-Permanante as distinguished from temporary programs. What
does it eman to have a permanent plan?
-If it is a DC Plan, if it has bene in operation for less than 2 years you
likely have an issue, and you will have to address it one way or
another.
-The IRS can see all of this through the 5500s. The first year you have a
plan it hits the IRS radar screen. When you terminate the plan you
check a box on the Form 5500 to terminate the plan.

-Reason for the Rule: At the end of an owner business owners time
with a company, the owner may decide he or she wants to create a
plan, save a whole bunch of money for retirement and then get out. It
is not being established for the empoyees, it is beign established for
the tax benefits of the owner.
-IRS doesnt like that. 2 years.
-10 Years:
-If the plan has been operating for less than 10 years, ti may
raise an issue with the IRS. You are asked on the Form 5500
why the plan has terminated and you get to check a box about
the reason for the termination.
-There is a facts and circumstances test.
-It is not in the regulations
-Many times plans will want to get an IRS letter that the plan
form was proper and consistent with the IRC (Determination
Upon Termination Letter)
-If your clients are looking for the best form of assurance that
the IRS is not going to come in sometimes later, submitting a
plan for termination on determination is the best way to
ensure the CL that this will happen.
-The IRS will never rule that the plans operation was consistent with
the code, but it will say that it sayisfied all of the code rules on
termianto
-To get that, you file a form 5310it excplicitly asks why the plan is
being terminated.
-If you are in this realm and you find that you are

-Distribution: Applies to both DB and DC Plans: But more

important on the DC Side
-In terminating a DB plan the regs tell you when to distribute.
You are not going to be able to distribute on Day 1. You cant
distribute during PBGCs review period
-A plan under IRS rules is not terminated until all benefits are
distributed. The plans remain ongoing so long as the trust is
holding assets. No plan is terminated until all assets have been
distributed to pay benefits. With a DB you have Title IV rules
about distriubtions, but those rules dont apply.

-Nevertheless, you still have to distribute

-How do you distribute to people that you cant find?
-On the DB plan side the BPGC has a program to find those
people and they will do it for you
-The PBGC does not accept DC plan assets for termination. If
people left the service and left their account balacnes in
theplan it is going to be harder to find people.
-Yet, the Code requirement is that all assets have to be distributed to
pay the benefits. So that is going to be an issue .you cant say the plan
is terminated until you distribute all of the assts, and until you
terminate the plan the plan is ongoing.
-Until all of the asssets of the plan have been distributed to pay the
benefits, the plan is ongoing: meaning, there is still a named fiduciary.
It means that no one can simply walk away form the plan.

411(d)(3): Upon Termination of the Plan, Benefits Vest to

the extent Funded
-All benefits are by definition are 100% funded except for the
possibility that a participant has not met the vesting schedule.
In a profit sharing or 401(k) plan the benefit is the account.
The account cant represent that it has a value that isnt
reflected by a value in the trust.
-You cant give the participant an IOUthey dont have to be
funded on a statutory schedule and an employer will have until
they file the tax return to put in the contribution, but until
they put it in, the employees account is not goint to reflect
the distribution.
-By definition, we are talking about all plan benefits being 100% funded
by nature.
-So this boils down to mean that terminating the plan may
have a financial consequences to the employer. A cash-flow
consequence to the employer.
-If you have a $10k deferral, matching up to 50%. Lets say the
employers practice is to put in the employer matching
contribution

-An employer wont file its tax return until April of the following year. If
the practice is to put the plan money in when the tax return is filed and
if the decision is made during the year to terminate the planthe
employers matching contribution is an asset but it is not going to be
put into the plan under normal operating prinicpoels until the employer
files its tax return. Simple answer is that it cannot tremiante the plan
until it files its retursn and put in the money.
-To terminate the plan then, the employer is going to have to fund
earlier. So maybe the empyoer also uses plan foreftireus to pay
adminsitatrive expesnesis and maybe even offsetting its own
forfeitures.
-In terminateing the plan, all benefits vest to the extent funded. That
means no forefituers. So that means when they make a decision to
terminate. So there is a cash flow component to this discussion.
-You must file a final form 5500 and check the box to say it is
the final form

-NASTIEST RULE: 401(k)(10): If it is a 401(k) plan and you

know it is if there are employee salary deferrals in the
plan, if the employee has his option to defer some of his
money into the plan it ia a CODA (cash or deferred
arrangement).
->401(k)(10) applies. This Code section says that you may not
distribute employee salary deferrals if the employer has a
401(k) plan in operation. No distribution of employee salary
deferrals may occur if the employer has in operation another
401(k) plan. Why is that rule in the Code? Because salary
deferrals are not supposed to be cycled through ona taxdefrred basis. They dont want you to defer the money, takei
tout, and keep doing that.
-Once you make the employee makes the decision to defer the
money, it is in the plan until a legitimate 401(k) distirubtion
happens. So even if you have a 401(k) plan you cannot
distribute employee salary deferrals.
-How does this rule get you? If one business acquires another
business, and the business being acquired has a 401(k) plan
and the business doing the acquiring has a 401(k) plan and the
buyer has no desire for the sellers 401(k) plan, and the deal
closes, and the seller has not terminated its 401(k) plan it will
never terminate.

-To terminate a 401(k) plan you have to distribute all of the

assets, including the salary deferrals, and you cant
-You are left triyng to do an asset transfer which, if there are
plan defects, can create liability in the transferee plan.
-IT can be a merger under 414(l), and you can also have the
employees assets transferred outside of 414(l)the assets
can be transferred over.

-Notice: To cease benefit accruals in any lpan (DC or DB),

204(h) of ERISA requires that participants get advance
notice. I
-n a DB plan, it would be malpractice for council not to tell the
client about sending a 204(h) notice. Unless the plan is hard
frozen, the decision to terminate the plan and the termination
wont necessariy end the accrual . the liability will be a moving
target as long as people are earning service that reults in
additionl benefit accruals.
-So it is malpractice to not talk to the CL about the 204(h)
notice and tell the employees that benefits will be frozen
-Title IV also requires there to be notice. This means that participants in
DB Plans get plenty of notice.
-On the DC Side, if you are going to end the employer portion
of the benefitthe CL doesnt care so much aobut the
employee savings aspectbut the CL probably does care about
its liability about the plan benefit. To end the employers
matching requirement or profit sharing contribution
requirement you are likely going to need the 204(h) notice.
-There are plans that have employer contribution requirements
(safe harbor) that cannot be changed during a plan year. It is
almost impossible to cut short the employers contribtuions.
Those plans require a notice to go out ot particiapnts before
the beginning of the plan years that tell the particianpts tha
they will make a contribution of 3% to salary.
-By giving that notice, those plans get out of certain kinds of
discrimination testing. All the other plans have some element of
discretion in the employer contribution, and that discretion can be
ended by the 204(h) notice. So there is a reason why the employer
might want to go out ot the employee base and announce the
termination of the plan before it is treminted.

-AS a matter of HR, you are going to find that most CLs want
to be given notice.
-To termaitne the plan, you need the participant to make a
distribution. The reason that they are getting the distribution
right is that because the plan is termiantiong. So pracrically,
you probably want people to know that the plan is terminating.
-Theres no 4041 analgoues in ERISA that requires participants
to get advanced notice of the tmertiano, but there are a whoel
bunch of IRC rules that lead you to the point of having to tell
participants at some point that the plan is terminating.

-Practice Tips: Always read the plan docuent and SPD. The
provisiosn on plan termination tend not to be robust and
boiler-plate-ish.
-You might find a surprise saying that it cannot be terminated
without the union consent. The over-arching code and ERISA
principle is that you have to administer the plan in accordance
with the plan terms. Termination is on the razors edge with
adminsitartion.
-There was a Sup Ct case where the plan language was
missing. The plan never said that the plan can be terminated.
Before you assume

-Bankruptcy
-Bankruptcy Policies
-Pension Plan sponsors options in bankruptcy
reoganizzations or liquidations
-Bankruptcy claims arisinsg form pension lpans
-Single-employer plans
-Multiemployer plans
-Excise Taxes

-Conflicts over PBGCs bankruptcy claims

-Bankrptcy Policies

-(1) Equality of distribution among similarly situated cerditors

-A fairness principle. It is the kind of thieng you dont think
needs to be said but it does. The first choice the bankruptcy
code mandates is that you should have a policy of similarly
situated bankruptcy code for all sellers.
-(2) Preventing a race of diligence among creditors
-The most diligent creditor should not get a leg up for being
diligent.
-(3) Favoring a debtors fresh start
-The idea is that no company will re-organize or be able to pull
itself out of dire economic circumstances if it gets out of relief.
The bankruptcy codes idea is that we dont necessarily want
the liquidation: we want debtors to get a fresh start,
-(4) Favording reorganization
-This is an important point. You have to remember that when
you are in bankruptcy land. it may be in your clients best
interst to liquidate the darn thing. It might be a relationship so
that your client can move on.
-(5) Maximinizign the value of the debtos estates
-(6) Discouraging secret liens

-Implementing Bankruptct Policies

-To Achieve Equality of Distriubtion
-Priorities in distribution will be tightly construed
-Weeding out dubious priorities
-To achieve Prevenitng a Race among cerditors
-Automatic stay under Section 362 gives debtor breating room
and stops al collcation efforts
-Fresh Start
-Discharge of debts under the plans of reorganization under
section 1411
-Discharge of debts ofr individuals under section 727

-Notice there is no discuarge for debts for a liquidation. For an entiy

liquidating udner Chapter 7 doesnt get a fresh start.
-To facilitate the Favoring of REognization
-The Supreme Court has said the fundamentanl purpose of
reogzniation is to prevent liquidation, with an attendint loss of
jobs and possible misuse of economic resources.
-To discourage secret liens
-The bankruptcy code is going to empower the trustee to avoid
liens that become enforceable when the debtors case is
commenced
-To implement the policy of maximizing the value of the estates
-The trustees broadly construed avoiding powers under
sections:
-541 (defined the property of an estate to include all legal and
equitable interests of a debtors property, with exceptions
-If the debtor has an equitable interest in property
-544 (strong arm clause)
-545 (avoiding liens)
-547 (avoid preferential transfers)
-Watch for the large retainers paid to you on the eve of a companys
filing for bankrtupcy
-548 avoiding fraudulent transfers

-Options for a Pension Plan Sponsor in Bankruptcy

-A plan sponsors bankruptcy options:
-Chapter 11 Reorganization
-Chapter 11 Liquidation
-If you are moving the business outside of the business?
-Cahpter 7 liquidation

-Chapter 11 Reorganization: Plans Continue

-It can elecnt to continue the plan in reognization

Once the bankruptcy is commenced, what used to be the

company is now a debtor in possession. It is a new entity in
the eyes of the bankruptcy code. So the debtor in possession
may elect to continue the pension plan (single employer plan)
and if it does, it is required by the same applicable laws to
make contributions, pay premiums
-OR the debtor may institute adistress termination of the
plension plan
-If there is a CBA and if the CBA person rejects the termaition,
the PBGC must stop the termination
-If the plan termination violate the CBA and the CBA unit objects it is
another matter. The PBGC msut stop processing the termination
appliaciont
-The PBGC may initate termination of pension plans
-Liquidations: 363 of the bankruptcy code
-Talks about the sale of substantially all of the assets of the
debtor: this is a means of rehabilitating the debtor without
conitnueng to shell the entity that holds and runs the assets. If
there has been a sale of assets under 363 of the code:
-1. Just like ian a nonbarnkupcy situation, the asset purchaser has no
obligation to asuem the debtors pension plan
-2. If a debtos pension plan is not assumed by asset purchaser, the
plan will likely wind up abandoned with the liquidating corporate shell
of the debtor or trusteed by the PBGC
-3. PBG may initate termaitnon in advance of controlled group breakup
-Chapter 7 Liquidaiton
-Who controls a Chapter 7 bankruptcyt case?
-Chapter 7 trustee msut continue to perform the duties of the
plan administratorbankrupcy code 704(a)(11)
-What happesn to a chapter 7 debtors pension plan
-Trustees are supposed to be individuals who can bring about an
abandoned DB plan termination, but as of right now, bankruptc
trustees cannot use the DOL procedures tfor bandinong the plan
-So there will be a change in DOL Regs to allow them to ergard a plan
as abandoned

-Controlled Group Issues in Bankruptcy

-Plan Termiantion
-What if debtor is a member of a controlled group?
-Bankruptcy protectes the debtor, ti wont necessarily protect an entity
that is in the contlled group that has not filed for bankruptcy. All of the
ERIsA requiremnts have to be met by the non-control group membres
-Pension Liabilityes
-Joint and Severable liability of non-debtor controlled group
-May be subject to liens for termination liability upt o 30% of controlled
group net woth
-Foreign Entities
-PBGC v. Ashia Tech Corp: PBGC decided to sue Asahi tech for nothing
more than having purchased the stock of a company that had an
underfunded DB plan. The PBGC shod the distrubtct court that Asahi
knew that its subsidiary had Metaldyne. Asahi said that US court
shoudnthave jurisdiction, because they are a Japanese company. The
district court said that because Asahi purchased Metaldyne with
knowedge of the underfunded DB plan it was OK for the court to
exercise specific jurisdiction.
-It raises an interesting due diligence point, we pracrticioners are all
100% programmed to want unearth everything in due diligence.
-Maybe if they had purchased the company and didnt know.
-PBGC Op Ltr 97-1: There is not yet a pubslihed case that says tha the
controlled group rules do not apply to foreign entities. There are cases,
however, such as GCIU:
-GCIU-Emply Ret Ftu v. Goldfarb: 7th Cir faced a multiemployer fund
trying to asset withdrawal liability against a Canadian corporation. It
owned a contributing employer to a multi, and the fund tried to bring
the parent in Canada to answer for the withdrawal liabilityand the 7th
Circuit said no

-Bankruptcy Claims
-What is a bankruptcy claim?
-Everything. A right to payment wheher or not such right is
reduced to judgment, liquidated, unliquidated, fixed,
continengent, matured, unmatured, disputed, undisputed

-What law defined the elements of a claim?

-A claim is a right to apymetn arising pre-petition under nonbankruptcy law.
-Bankruptcy does not give rise to claimsbreach fo K, Tort, the
applicable non-bankruptcy law applies to create the claim

-Classifying Bankruptcy Claims

-Secured Claims
-ADministartive Expense Priority Claims
-Priority claims
-Uneseucred Claim
-Go from better to worst

-Claims arising form termination of single-employer plans

-UBLs (unfunded benefit liabitiles) asserted by PVGC, the
corporation
-IF a single employer plan does termaitne the PBGC gets a
claim from the UBL
-PBGC will also assert a claim for due an unpad employer
contribuiotns (DUEC) asserted by PBGC, as statutory trutes,
or theplans trutee
-Unpaid statutory presmiumsassered by PBGC, the
corporation

-UBL 4062 4068

-Secured Claim
-If plan is terminated before petition is filed, secured claim
limited to 30% of net worth of employer
-Adminsitatrive priority (tax) claim
-IF the plan terminated during bankruptcy, claim limited to
30% of net worth of employer
-Priority (tax) claim
-Claim limited to 30% of net worth of employer
-Unsecured

-Any amount not given secured or priority treatment

-To get priorty status the PBGC has to show that there is net worth in
the control group. The problem in bankruptct ist hat most bankrupt
companies donthave net worth.

Minimum Funding Contribtions ERISA 302 303

-Sercured Claim
-IF notice of lien filed pre-petiton, statutory lien for missed
contribution in excess of $1 million
-Administrative Expense Priorty Tax Claim
-Post petntion statutory lien fo DUEC in excess of $1 million
-ADministrve Priority Claim
-Due and unpaid contribtuions (DUEC) arising post-petitoin
-Unesecured Priority claim
-DUEC arising within 180 ays of petition, as limted
-Unsecured

-SEE CLASS 11 PPT

-4/18/13 Class 12 - Sale of a Business

-Guest Lecturer: David A. Cohen
-Introduction
-Sale of a busiensse
-Gets translated to getting a loan from a business as well

-Overview
-How do corporate reorgs affect title IV liabilities?
-Sale of assets or stock involving plan sponsors of singleemployer and multiemployer plans
-Mergers ,trasnfers, and spinoffs of sinle-emplyeor plans
-PBGC Early Warning Program
-Analyzing pension assets and liabilities

-Effect of Corporate Reorganization 4069(b)

-A successor corporation resulting from a change in identity,
form, or place of organization shall be treated as the person to
whom this subtitle applies --4069(b)(1).
-The successor corporation is treated as athe person to whome
titlt IV applies. If Acme Corp changes itself to Acme LLC,
remember that just changing the name is not an asset sale.
Tax partners will talk about reorgs where assets really are
moving around.
-A parent corporation into which a person liquidates shall be
treated as the person to whom this subtitle applies--4069(b)
(2)
-Not so much an issue for single employer plans, but on the
multi-side withdrawal liability will not result when a parent
shuts down a subsidiary and upstreams everything aback up to
the parent.
-A successor corpoariton in a merger, consolidation, or division
shall be the person to whom this subitilte applies - 4069(b)(3)

-Meger Consolidation within a Control Group Slide

-Z is the Parent, X is the intermediate subsiadiary, Y is the
bottom subsidiary. Maybe Y was created for a aprticular
venture and it is going to fold, so Y is going to be upstreamed
into X.
-Next Slide: You have Corpoation Z with Corpairiton X and the
lpan has gone from Y to X.
-This is just a prent folding a subsidiary sub into itself, and so
corp X has the plan obligation for Y. because X was so noninvestmetn grade, its assets dont help it, so the result is a
non-investmetn grade spsonor of the plan.
-You may get a call from the PBGC about it being non-investment
grade. There are certain PBGC reportable events that apply.

-Sales of Stock or Assets Involving Plan Sponsors (Asset

Sales)
-These arent really Title IV principles, these are genral
principles of doing transactional work.

-Asset Sales

-Genreal Rule
-Buyers of assets may assume the liabiltiies thaey wish to
assume and not assume the liabilities they dont want. This is
just a result of the freedom to K.
-There is no legal principle that requires the DB plan to go over in the
salethe DB plan could be left. But if the princpple or purpose of the
transaction was to avoid title IV liability, it can be ignored by the PBGC
-So if you are representing the selleteer and the CL says that this is the
perfect way to shake loose of a DB plan, this is a transaction to evade
liability.
-EXCEPTION: Successor Liability
-Options in Asset Sales
-Buyer elects not to assume pension plan from Seller
-Seller retains Title IV liabilities
-If there is a multiemployer plan there could end up being liability for
the buyer because it is an exit from the business and it wont
necessarily be on the disclosure letter because the accoutnign rules
dont rquire you to disclosure withdrawal liability until you exit.
-Once it withdraws it will have a liability
-Sale of assets under 363 of the Bankruptcy Code
-Last week we talked about the liabilities that can result from
bankruptcy, one of the other powerful tools in BKY that will attract
companies towards bankruptcy
-Bankruptcy sales under 363 can be a way to rehab the business but
leave the liabilities behind
-Buyer assumes pension plan liabilities from Seller
-Pension plan is divided between seller and buyer
-IRC 414(l)

-Asset Sale Graphics: Can Look At tHem

-Slide 10 on Stock Sales:
-General Rule

-A corporation is a person with perpetual existence, so a

change in ownership doesnt affect its rights or obligations
-In a stock sale, liabiltiies of a subsidiary, including pension plans,
follow the subsidiary
-You dont want to be the benefits lawyer who goes: oh shoot there
was a DB company.
-Options
-The pension plan is divided between parent and subsidiary

-Combinations and Divisions of Pension Plans: IRC 414(l),

1.414(l)
-Treas Reg
-Applicailibty
-Combingaiotns and divisions of SINGLE Plans
-Not applicable to multiemployer plans
-What is a single plan?
-A plan is a single plan if and only if, on an ongoing basis, all of the
plan assets are available to pay benefits to employees who are
covered by the plan and their beneficiaries. 1.414(l)-1(b)(1).
-A single pool of assetsthis can look very different. The GM pension
plan has a trust. It is a single pool of assets, but when you get into it,
there is a lot of stuff in there. If you get too myopic you think that it
might not be the same pool of assets, big plans can get very
sophisticated in their trust accounting and how they divide up their
fiduciary responsibiltieis.
-Also ERISA REg 401-0: talks about what a single plan is.
-Multiple employer plans and aggreagtes of single plans
-They are NOT multiemployer plansno CBA. Multiple employer plans
are plans where related employers or unrelated employers without the
benefit of a CBA are contributing into a plan. That is still a single
employer plan.
-414(l) is going to apply

-General Rule: In the case of a merger or a transfer of asets or

liaibiltiy, each participant must receive benefits on a
termination basis from the plan immediately after the merger
or transfer that are equal to or greater than the benefits the
participant would receive on a termiatnion basis immediately
before the mergre or transfer
-Otherwise, a plan will not be trated as tax-qualifeid plan
-you do two snapshots immediately before the transaction and imem
Benefits on a Termination Basis Pursdunt to 4044 of ERISA
-Does not include the benefits provided by PBGCs guarantee
under 4022
-There is controversy about whether you have to use PBGC
assumptions versus regular assumptions. As it stands, 414(l) doesnt
say measure on a 4044 basis using PBGC assumptions. It opens up a
little flexibility to sign off on the idea that the actuary has done a 4044
allocaiton but may not have used all of PBGCs assumptiosn but is
going to need a good reason.
-But you dont get to use the PBGCs money

-Dividing a Pension Plan: 414(l)

-When are oyu dividing?
-A transaction when selling a pprtion go fthe business and
some portion of the plan is going
-Under 4044, PC3 gives the benefits of retirees a priority call
on plan assets
-IF the plan isnt fully dunded, relatively more assets will be
allocated to the benefits of retriees and other older workers
-Buyers may think it is cheaper to leave behind with the
seller the benefits of retirees and older workers
-Doing so will result in the buyers plan receiving relatively fewer
assets to cover the liabiltiesi it is assuming

-In a business mindset, if a buyer is looking to acquire a portion of a

business, the buyer wants and needs to take workers with it: a buyer
will be most attracted to younger workers because they are likely to
work longer for you and likely ot be less costly. The lay-buyer rep
where you are buying some but not all is likely to be attracted to the
younger workers. If you are going to divide the DB plan and the assets
hav to be allocated under 4044, and the buyer wants active workers,
what is going to happen on the division of assets?
-You are going to end up with less assets taking the emplyoees. If the
seller is retaining the larger portion fo the plan to cover retirees, the
seller is going to hold onto the assestbecause you have to allocate
udner PC3 you have to allocate to retirees
-SO THERE IS HIDDEN LIABILTIIES HERE. The buyers mindset is: young workers Im
going to reduce healthcare expenditues,
-So if you are taking only the active workersbut you end up taking more less asset
-So adjuste the purchase price

-Combination and Divisiosn

-Merger
-Spinoff
-Trasnfr of aSsts Or liabiltiyies

-PBGCs Oversight of Corporation Transactions: Early

Warning Program - 4042(a)(4)
-Risk Mitigation
-PBGC seeks to prevent terminatinon of pension plans by
obtaining financial protections from corporate transactions
that may significantly increase the risk of loss
-In 2012:
-PBGC monitored more than 1,000 companies
-Opened 37 investigations where PBGC believed a transaction
weakened the pension lpans
-Reached settlements in two of the investigations
-There were 35 agreements where the PBGC couldnt reach
agreements with people. In previous yers, there is a better proportion
of agreeements.

-Settled 27 investigations under 4062(e)wont test us on 4062(e)

-4042(a)(4) of ERISA
-PBGXX may incstute proceedings to terminate whener
itdetermiends the possible long-run loss o the corporation with
respect to the plan may be expected to increase unreasonably
if the plan is not terminated.
-So to protect a plan it can terminate the plan. This is all they can do to
protect it, and they dont really have any other intermediate waeapons,
they protect plans by threatening to terminate them.
-Compare PBGCs risk in terminating the plan before the
transction with after the transaction:
-Will the transction substnatailyl increase PBGCs liabitlies?
-So if we are transferring a bunch of active works and only leaving
beheid retirees and the seller is in trouble and the seller plan
isunderfunded, the PBGC may say that the transaction increases the
PBGC liability
-Collection risk: will the transaction be able to collect the
liability?
-E.g. controlled group breakups
-Transactions of Concern:
-Control Group Breakups
-Transfers of significantly underunded liablitlies with the sale
of a bsuienss
-Leveraged Buyouts
-You took a company that had little to no debt before and added debt
on it
-Major diverstitute by an employer who retains significant
underfunded pension liabilities
-Substituting secured debt for unsecured debt
-Companies get to a point where they cant borrow on an unsecured
basis anymore. The bond market will dry up. No one will want the
unsecured paper. So, the common sources of funding for the company
will want only to fund on a secured basis.
-Payment of extraordinary dividends

-You wont see that very often.

-How do they find out about it? Repotrable events udner

4043
-Criteria for monitoring
-$25 of underfunding which isnt a lot of liability today

-Protections for Pension Plans

-Excess Contributions
-Combined with agreements not to elect prefunding balances
-Which would allow them to say that hey have met the minimum
funding contributions without having to put cash in.
-Letters of Credit
-To secure promise that contriubitons will be made
-To secure undefunded pension plan liabilities
-Guarantees
-In breakups, guarantees by the stronger departing controlled
group members to assume a pension plan or to remain liable
for termination liabilities
-Security Intersts
-A pledge of specific assets to secure undefunded pension plan
liabiltiesi
-Security has to be attached to an obligation.

-Multi-Emplyoer Plan Issues - 4024, 4218

-Effect of Corproate Reorganization on LIabiltiy - 4218
-An employer shall not be considered to have withdrawn from
a mutliemploye rplan solely because:
-An employer ceases to exist by reason of:
-A change in corporate structure described in 4069(b) or
-A chance to an incorporate dform of business enterprise
-If the change causes no interruption in employer ocnitrbutions or
obaltision under the plan

-Issues: solely because of the transction

-What if those events are combined with someithng else like a 3rd year
of a 3 year decline of more han 70% and then changes its name from
Acme Corp to Acme LLC.
-IF you do it, as employer counsel you can argue to the fund that there
is no withdrawal. The fund will say Thats nice, but 4218 transactions
only covers those that are SOLELY because.
-Transactions not mentioned in the languae of 4218, such as
sale of partnership intersts
-Acme Busienss becomes ACME LLCpartnerhips status
-Allocatoin of contribution history where there are mutliepl
successors
-Dumping of pension obligation son a buyer
-Sham transactions
-4218 ifALONE is disregared, but used in the context of other
transactions can create liability

-Effect of asset sales on withdrawl laibliity: 4024

-A withdrawal dose not occur solely because as a result of a
bona fide, arms length sael of assets to an unrelated party the
seller ceases covered operations or ceases to have an
obligation to contribute if:
-1. The purchase has an obligation to contributiefor
subatntailyl the same number of CBUs
-2. The purchase procides for 5 plan years a bond or escrow in
an amount equal to the greater of.
-3. The contract MUST RPVODE that if the purchase withdraws
ina compleye or partial withdal duinr 5 years ethe selrlrs I
ssondary iablie

-This is hwere you can sell assets form seller to buy and not
trigger withdrawl liablitiy if youmeet these conditions

-4024 Areas of Scrutiny:

-Solely because of sale?

-Are thers substantially the same CBUS as before

-The amount of credit seller receives sfor contribution history
of sold operations/fairness to other eplyers

-Central States v. Georgeia Pacific LLC

-Central States argued withdrawl not solely because of the
sale of assets
-7th Cir: Affirmed arbitrators finding that transactions were
indepnednt, not a scheme to withdraw in stages

-Class 13 4/25/13 Review

-Wants to See Memo Format when he asks for memos

-Title IV
-Tax Qualified Define dBenefit Plans (not individual account,
nonqualified) List of exclusions in 4021(b) that dont fall into
ERISA
-4021(a) talks about the rules that it has to be a tax qualified
plan
-Could be multi or single
-NOT COVERED:
-Individual Accout
-Governemnt
-Church
-Professional Service Plans (small companies with owners that have not
had a chance to save enough for retirement) 4021(b)(13)

-PBGC Premiums
-Mandatory for covered plans
-But the payment of premiums neither gives no takes away
Title IV coverage
-They do not result in noncoverage if not paid

-Single Employer PBGC Premium

-Mix of Flat Rate and Variable Rate Premium
-Flate Rate per Head
-variable rate component based on risk ($9 per $1k of UVB)
-Joint and Several Liablity among control group membrse
-Reportable Events
-Events that sponsors must provide within 30 days of
knowledge. 4043 ERISA. There is a list of transactions/events
the PBGC must be notified of.
-Some PRE-event reportable event notices for plans that have more
than $50 million in UVB in the control group: advance reporting
requirement if not public companies
-They are exempt beucase of SEC rules that the public companies have
to obeygenerally the SEC filings will substitute to the PBGC for the
advance notice of reportable event requirement
-Bankruptcy
-Liquidation of Sponro
-Failure to fund DB Plan
-If you fail to fund and there is a PBGC lien under 430 of IRC there is a
corresponding obligation to report to PBGC
-4071 applies penalties to sposnors that fail to report
reportable events

-TErmiation for Single Emlpyeor Plan

-IS THE INSURABLE EVENT
-Remember that Title IV provides the EXCLUSIVE means for
terminaotin. 4041. Scalia Hughes v. Jacobson
2 Voluntary Sponsor Initiated
-1. Standarsd
-2. Distress
-There are notices that have to go out to participants
-Must have a termination date

-The notice has to be no more than 16 no less than 90 days of

termioatino
-It is prudent to freeze accruals separately from termination (if the
termination doesn occur or is withdrawn fi your freeze was part of the
termination then your freeze was invalid, so you dont want the freeze
to depend on the termiaton).
-IF the spsonor really is intent on getting the plan terminated, you
should do the freeze separately.
-A spsonor-intiated voluntary termination may not proceed if
doing so violates a CBA. 4041a
-There are fiduciary responsibilities
-The decision to termiatne is not a fiduciary decision (Erlenborn Letter)
-Settlro Function
The decision to select one annuity over another if annuitizing, IS a
fiduciary
-How the plan is administaterd during the termaination is a fudciary
decision
-Locating participants is a fiduciary
-Involutnary Termination 4042 PBGC initiated termination

Standard or Otherwise Sufficient Terminations

-sufficient assets to cover benefit liabilities:
-The plna must be sufficient to provide all accrued and
ancillary benefits under the exclusive benefit rule
-If the plan is not sufficient, there is a mechanism in the PBGC fro the
sposnro to make a commitment or to make a top up contribution and
majority owners may waive part or all of their benefits to facilitate
sufficiency
-The plan is closed out by distributing benefits
-This segueyed into DC plans as well. IRS guidance is that a
plan is not terminated until benefits are distributed. ALL PLAN
assets must be distributed. If there is anything left (even $1)
the plan is not terminated.

-In the DC context it is really more of a simple/unregulated process of

fidnign the participant, wheras in the DB area there are tight time
deadlines on how you can make distriubtions
-In the DC area you are simply trying to get the assets distrubted so it
can be the final form 5500 and have the plan no longer involve
fiduciary duties
-On the DB side if you delay beyond the distribution date in the PBGC
regs, then the paln doesnt terminate

-Upon Distriubution fo all Assets: PBGC Gauaratnee

Ceases
-The PBGC does not insure the insurers. If the plan buys an
annuity with an insurer to fufillt he benefits, the PBGCs job is
over.

-If The Plan Proves to be Insufficient, the Termination is

Null and Void:
-Cant have a standard termination for insufficient assets

-Reversoins: If there are still assets after all benefit

liabilitiesthe IRS taxes them at a pretty high rate
-In addition 4044 of ERISA provides a rule for how to distribute
surplus assets in a DB plan to plan participants.

Distrress Terminations Plans That are Not Sufficient

-Remember:
-For a distrsss termination to be effectuated, each sponsor and
each member of the sponsors control group must meet a
distress test provided in Title IV of ERISA. There are 4
potential test. EACH member has to me A TEST, but not THE
SAME TESTthey each have to meet SOME TEST:
-1. Liqudiation
-2. Reorganization (court determines liquidation of sponsor will cocur
absent a termationbut for termination sponsor will cease to exist,
bankruptcy ct makes that decision)
-3. PBGC determination that liquidation will occur absent termination

-4. PBGC determines that the cost of the pension plan is unreasonably
burdensome solely as a result of the decline of the sponsors workforce
covered under all single employer plans sponsored by that company
-It is a mirror image of the reogzniatsion test that the bankruptcy court
uses
-Failrue to demonstrate distresss means the termination is null
and vvoid
-If distress is demonstrated, then the plan is underfunded for
guaranteed benefits, the PBGC becomes the plan trustee
4042
-If it I sunderfunded for benefit liabilities but is sufficient to
pay all guaranteed benefits, the administrator is instructed by
the PBGC to close out the guaranteed benefits in a distribution
outside of PBGC
-PBGC takes over only the non-guaratneed benefits to pay
them
-So there is a distribution made by the sponsor, but what remains goes
over to PBGC
-We re talking about insufficiency at PC4then the plan just goes over
to the PBGC. No distribution for participants by the plan or sponsor.
-If the plan is insufficentnt for all benefit liabiltieis but is PC4 sufficient
(PC1, 2, 3) then the PBGC is not going to take over the assests that
cover through PBGCs guaratente. Instead, they will instruct the plan
adminsitator to close out the benefits for PC4 outside of PBGC
trusteeship (buy annuities or lump sums, whatever) and turn over 5
and 6 which are by nature underfunded (otherwise it would be a
standard termination). Then PBGC takes over that part of it.
-Not many plans are PC 4 compliant.
-Asusmign the distress test is met by everyone in the control
group, the termination may be obtained by going to district
court and getting an order or an agreement by the PBGC
adminsitartor. If they adminsitartor cant agree to the plan
being turned over to the PBGC then they can agree to do that.
-It is a means of getting the plan over to PBGC when that is
appropriate.

-Involutnary (PBGC) Initiated: The Sponsor can be

vigoriously opposed, and that doesnt block it. Union cant
block it anymore either (not in 4041 anymore) now in
4042 where it is a matter of PBGC determination.
-The PBGC has two types of involuntary termation:
-1. Mandatory 4042(a)
-Whenever the PBGC determines that the plan does nto have assets
available to pay benefits currently due.
-This is mandatory
-2. Discretaionary 4042(a)1-4
-How the PBGC is able to demeonstarte th eened for termioant
-a1 Plans that fail to emet minimum funding
-a2 Plans that are unable to pay benefits when due
-This is different than mdandate, because mandatory is paying benefits
that are due immediately
-A2 is being able to pay benefits that are due whenever
-Any plan that is underfunded at any point in time can be said to not have assets
payable when due.
-It may be underfunded but with a solvent spsonr it might be able to do it

-a3: the plan has distribted more than $10k to a substantial owner
after which the plan is no longer funded
-If a substantial owner was taking this much out in 1974 that was a
sign that a plan is going to be terminated (he is going to be retiring_.
-a4 WHERE THE ACTION IS It measures the PBGC possible long run
loss. If the loss to PBGC can reasonably be expcted to increase
unreasonably abesnet termination.
-This is the tool that the BPGC uses regularly to bring about negotiation
and discussion.
-This is a clumsy tool and it may be counter intuitive to think that they are going to
threaten to terminate the lpan to get sponsor to negotiate, but there isnt a lot of
power absent the power to terminate.

4042c IF PBGC has demonstrated a 4042(a) category:

-Where the PBGC must show that a termination is necessary to

protect the interst of participants or avoid unreaosnbel
detremiorisation or avoid unreasonable increase in liability
-Obviously If it is going under a4 it is going to say c that It is
unreasnboe liability
-But this must be shown to show the case for PBGC
-IF underfunded for guaranteed benefits it becaomse the
trustee
-If it is undefunded for benefit liabilts but assets are sufficient
to apy benefits, the PBGC can instruct the adminsitator to pay
the benefits tha the assets will reach
-IF it is a involuntary terminationis there a likelihood that the
adminsitator is going to cooperate? That is a different question, but the
PBGC can close a GB sufficient plan in the private sector
-Termination and trusteeship can be obtained by agreement or
court 4042 and 4048

-DOPT
-Standard TERmioant DOPT is proposed date by administrator
placed in notice of intetn to termiatne
-Distress termination- Date propsoesd in intent to terminate, if
PBGC agrees to it
-Or the date that the PBGC coutner-propsoed and adminsitator
shet
-Absent any of that, date set by court
-Involutary Termaitnos either agreement or court
-When Courts are asked to set a termination date under 4048
they consider the reaonbly expectation of participants and
PBGC
-They do not consider the interests of the employer/sponsor.
Mise Case. Setting April 30 2013 might be the worst possible
date for employer, but that dose not matter

-Power to Restore:
-If PBGC determines that as a result of circumstances tha the
plan should not temriante

-PBGC Guaratnee
-4042 and 4061: Nonforefitable (all conditionshave been
satisfied other than apliation, retirement, and waiting period if
one is required) and Basic Pension Benefits (life annuities, paid
in lieu of annuityies, relateid to annuities)
-Limits on Guaratnee:
-AMP:
-Accrued At Normal
-Maximum Benefit
-Remember under 4022(b)(3) the Cap is the Actuarla Value of the
Beenfit at Termiation Date (life annuity commencing at age 65)
-That cap is measured by taking the value of a monthly benefit commencing at age
65. If the benefit is going to commence at age 65, the cap is not going to be what is
stated in the statute, PBGCs cap will reduce for every year younger than 65
-Measured as a lige annuity at 65 paid as a life annuity.

Phase In: At 20% a yaer from the later of the plans adoption or the
effective date of the amendment.
-Successor Plan Tracking Rule 4022(b)(2)
-If the plan you are looking at is the successor of the plan listed then
you can tack the later plan to the earlier plan, but that is the successor
plan.

-Asset Allocation (The Funnel PC Categories)

-This scheme in 4044 is designed by Congress to favor retirees.
-It is a Congressional Policy Judgment that plan assets ought
ot go first to people that are retirmenet eligible or that are
retiredprobably because those people are less likely to go
back into the economy.
Because of these rules, individual participants may receive more than
PBGC guarantee. So if someone asks you that if a PBGC trustee plan all
participatns are limited by the PBGC gauratee, you know that anser is
false.
-Though PBGCs guaratenee is limited, it does not necessarily limit the
benefits of individual participatns. As oyu pour the assets in the funnel
PC1 first

PC2 secont
PC3 Thidr
PBGC Guarantes
456

PC3 Retirees that may have a benefit that exceeds the PBGC
guarantee. If the plan sufficiently funded well enough, that young
retiree may get allof his or her money whereas an dolder retiree who is
not eligible for retirement may not.
-this can sound counter intuitive but dont equate the PC categories
with age, it si equated with retirement. Retirement is favored
Pc1 Volutnary Employee Contriubtion
-PC2 Mandatory melpyoee contriubtions
-PC3 Reitreee Benefit Priority
-PC4 PBGC guaranteed benefits
-PC5 All other non-forfeitable benefits
Not in catoegry 3
-PC6 All other benefits provided

-Control Groups: ARE PERVASIVE

-Parent-Subsidiary
-Brother Sister
-Combined Groups

-Excluded Interests
-We talked about a qualified plan having employer stock. That
stock will be excluded.
-If the corpoatoin has treasury stock, that stock will be excluded.
-When employer stock ends up in the plan, for control group purposes
it is excluded and is trated like it no longer exists
-Joint and Seveal Liability is not Primary/Secondary

-all control group members have joint and several, so just

because a particular entity is the sponsor does nto make them
the primary obligor. All control group membrs are jointly and
severally liabile.
-Mulitemployer plans are not limited to a certain order for collecting
withdrawal liability. All CG membres are the same.
-The only limitation is that PBGC can only have one recovery.
-If a parent owns a majority of subsidiary stock, and puts stock
in another subsidiary
-You exclude that stock
-The control group deck desecibes this
-Attribution Rules
-You can attribute from spouses, corporations to majority
owners, within a family (from minor children to parents), from
parents to minor children, from children who have reached
majority to parent if certain conditions are met.
-The control group has alto of the detail on control grup attribution.

-Plan Termination Claims: PBGC has a number of claims

-Claims of Uunfunded bnenfit liablityes measured by
termination date by PBGC
-4068 there is a lien for up to 30% of collective net worth
within a ontorl group
-In determining collective net worth, it is the sum of positive net worth
of all control grup membrs (negative value does not offset the positive
value of another control group member).
-IF there is positive net worth than the lien under 4068 will be in the
amount of 30% of net worth
-The claim is still the ENTIRE Unfunded benefit liability
-If you have a $10 mil Unfunded Benefit Liability
-The claim is not limited. What PBGC can collect immediately is the lien
limited to 30% net worth, but that doesnt make the claim disappear.
-So the cliam is not limited ot that amount

-What happens if the plan terminates after bankruptcy?

-we have a situation where the plan did not terminated until we had a
ankrupcty. Much of the Title IV operation is skewed in barnkutpcy. The
DOPT is the date of the bankrupct but that is still a date when the
sponsor is in bankrupct. The Ufnudende benbficat liability claim is still
measured the same wy.
-The idea of a lienbankrupt entities dont have net worth. But it is
COLLECTIVE net worthif there is a control group member with
positive net worth then the ENTIRE control group has net worth and
there is a potential lien.
-But the plan could not terminate prior to bankruptcy. B/C the plan
termiatned DURING bankruptcy, the BKY code will prevent the lien
from arising.
-You cant have post petition liens unless the BKY court authorizes it.

-The PBGC could theoretically go to BKY court to allow it to arise, but

without thatERISA allows the lien, but the bankruptcy court will
prevent it from arising because of the stay.
-To the non-debtor, generally speaking, does not benefit from the stay.
The claim arises against the Bbankrupt, and the claim AND the lien
arise against the non bankrupt.
-In ENRON, beucase there were non bankrupt control group members
because the plan terminates they have alien against them because
they were solvent entites, the PBGC chased them awhile.

-Bankruptcy
-We talked about various types of bankruptcy:
-Liquidation or Reorganizatoin
-Liqutationd: ubsiness ceasesa nad assets are reduced to cash and
distruibted
-Reorg: business continues under reogainzation
-This has gotten blurred with liqudiationg plans or reoganizations, but
those re still reoagainozat
-Claims Hierarchywhere the Title IV action is

-The assets of the estate are marshaled and there is equality

of distribution btu the BKY code decides priorities.
-The higher the priority the more likely will be paid
-PBGC has fough tot have pension claims elevanted on priority
distirubtion scale, BKY professioanls have sought ot bring
them in line with other creditors
-PBGC UBL Claim in BKY
-Scenario: sponsor files, plan terminates, PBGC trustee, PBGC
files claims under 4062a and b, and also files a claim for Title
IV premiums, also files a claim for contributions not paid prior
to BKY (and maybe some not paid during BKythere is a glitch
in the statute that says that PBGC can double up on that claim
-When PPA was passed in 06 PBGC got a claim for funding deficiency as
well as funding target deficiency (which is a surrogate for UBL).
Subtract the plan assets, and oyu ahv the thing that you are funding
for.
-That can be read to duplicate unfunded benefit liabilitiesunder both
measurements you are measuring total liabilities subtracticng assets
and are left with the residue.
-It can even file claims for breach of fiduciary duty. Any of the plans
that are going to terminate or turned over to PBGC are turned over to
PBGC to pursue for breaches of fiduciary duty.
-Just additional claims tht the PBGC can bring. Case says that PBGCs
contribution based claims in BKY duplicate its UBL claim
-Litigation on PBGC Claims:
-1. Over Priorty
-The priority bankruptcy disputes have been about whether the
contributions claim when the unpaid amount of contribution exceeded
$! Mlllion become a priority. CF&I. The PBGC argued it should be treted
as a tax (gets a priorty in BKY)
-10th Cir: BKY code dose not say that a claim for pension liability is a
tax. The IRC says that. But the BKY does not. Since the BKY court
dosent say it is a tax it isnt. It is a pre-petition claim. No priority.
-2. PBGC will, however, and has been supported by BKY courts in
claiming priority treatment in the minimum funding claims attributable
to the post petition period

-When was the consideration rendered and did it give a benefit to the
state
-The post petition minimum funding payments can be viewed as
benefitting the estate and, generally, has been given priority
treatment in a BKY.
-3. Litigation over the AMOUNt of cliam prudent investor litiagaition
where for a number of years BKY courts were saying (remember the
sattute defined UBL as measured by PBGC assumptions). BKY courts
ruled early on that no creditor should have the power to define or
calucalte its claims
-The later cases applying a case called Raliegh out of SCOTUS is that
the non-BKY law wnis and the measure of UBLs is measured under
PBGC regulations not under a prudent investor rate.
-So when you measure liabilities that go out by a number of years, the
issue is what discount ratewhat are ou assuming the assets will
earn? The greater the rate you will assume, the less the principle
amount of the lcima the lower assumed rate, the higher the claim. The
investor rate tended to be higher rate.

-Multiemplyoer Review
-Bankrupcy
-withdrawal liability claims in BKY Mcfarlans Case
-It is the consideration that gave rise to the claim hat
determines whether it is priority ot not. For multi,
consideration is rendered pre-petition. Under all calcuations of
withdrawal liability, it is calculated as of the last day of the
plan year preceding withdrawal. If the employer files
bankruptcy berfore withdrawing, the claim is going to be
calculated as fo the end of the year beofer bankruptcy.

-It is almost impossible as the Macfarline case shows for there to be

atransaction with the estate that benefits the esatatethat meakes it
a pre-petition, unsecured non priority debt
-But case on courseware where debtor continued to employer workesr
and participated in CBA and did hat long enough that the courts said
that there was an actual transction with the debtor, and the
consideraiont for the lciam is beinge rdenredf b post penttion and prat
of the lcaim is given prioiy
-So if the withdrawal occurs in BKYappl yMacfalrnes no priorty
-iIF withdraw occurs after filing, some of the withdrawal claim may be
prioy

-Sale of a Business
-In a stock purchase, for withdrawal liability purposes it is
a non event.
-The owners of a business that is a signatory to a CBA can be
swapped out. They dont matter. Th ebusiness that is the
signatory matters.
-So sellt he stock of a business there is no event for
withdrawal liability
-Likewise on Single EMlpoyer Side: Sell the stock of a business,
the ubsinsss still has the rseponsiblity for the plan. But, that
can trigger PBGCs concerns under 4042(a)(4).
-In the multi world just look at CBA signaturoy, whereas PBGC
looks at whole control group.

-Asset Purchases: buyer is taking the assets it wants to

purchase, it is not obligaed to take any liabilities. If it
does it chooses what it wants to take
-Both Single and Multi Employer Issues are raised
-Single: If assets are sold out of a business, that is viewed as
reducing the pool available for PBGCs first line of defense
unless the porcessd remain in control grou
-Multi: sell the assets of a business and the obligation to
contribute may be severd. If substantially all of the assets of a
business are sold, most likely the business is not producing
the CBUs it used to procued

-Affect the CBUs and oyuv eaffected the obligation to contribute and
you may have triggered iwthdrawl liability

-Mergers and Spinoffs (414l)

-Compare the benefits on a tmreiantoin benefits before and
after the tranactions. The participatns must receive the same
or greater benfits after as they did before, or else the plan is
in jeaportdy of lising its qualified status.
-In a meger spinoff a DB plan has to keep the special
sechedule so you can show that the benefit after is greater or
rqualt to the benfit before.\

-Information Available on Financial Statemtns

-A massive amount Is publicly available for benefits
practicioners when we go into a deal
-Form 5500s are online so we can immediately get information
about all of the qualified plan sthat have a 5500 requirement.
-If the company is public, and you sawon the 10k a huge amount of
information on the pension plansall of that helping you to get your
bearings on how many plans are inovled, funded, underfunded, and
how the plan affects the companys financial statements.

-MULTIEMPLOYER PLANS
-Definitional Issue: 4001(3)
-A plan with more than one contributing sposnro that are not
in the same control group. NOT IN THE SAME CONTROL GROUP.
That are signatories to a CBA agreement with a Union (CBA
agent).
-If you have 2 or more employers without a union you have a
multiple employer plan which is a form of single employer plan

-Pensions are a mandtry subject of bargaining unde NLRA,

an multiemployer plans are a subject of Taft-Hartley
meaning equal vote of management and union
-CBUs CORE ELEMENT of Multi Emlpoyer Analysis

-CBU is the measurement/concept that is used to measure how

the employers are going to fund the plan. It is usually
expressed as cents/hour, dollar/hour, cents/ton, dollar/widget
-Something that is being done by the workers given rise to
contribute in the plan.

-Are Pools of assets: there are inherent subsidies among

the employres
-Usually the employes in these plans are willing to put up with
subsidies because they get some benefits:
-Unified recordkeeping
-Lower administrative oblitaoins
-Portability of service credit among the workers
-Some employers will put up with that inherent subsidiary in order to
get at a skilled pool of workers

-PRE-MEPPA there was no immediate claim for withdrawl,

but upon a PBGC termination of the plan (multiemployer
plans dont terminate in PBGC trusteeship, but the rules
under 4063 4 and 5 appliesd before MEPPA)

-NOW we have MEPPA- there IS immediate liability for

withdrawal leading and little PBGC inovlemtns
-2 Typse of Withdrawal:
-1. Complete Withdraawl 40203(a)
-All covered obligations or the obligation to contribute permanently
ceases (facts and cirumsatnces test)
-Includes the obligatin under the CBA or realted agreements or
obligation imposed by law
-Defenses such as fraud as the inducement in the union, misconduct,
duress, are no defense against the plan.

-2. Duty to Bargain Post Collective Bargaining Agreement

expiration under NLRA
-You have to bargain until impasse and that duty to bargina maintains
the duty to bargain until impasse. If you mtainin the stauts quo, even
though a CBA may have expiresd, there may be no withdrawl so long
as there has been no impasse.
-Covered Operations:
-CAsess are split on whther All or substantially all
operatinos need to cease
-Modern ternd: ALL MEANS ALL
-Probably ocnsisten with what SUP CT would say because that is the
language of the statute
-Permanance doesnt mean forever

-Partial Withdrawal:
-70% CBU decline
-You measure the contribution based units for 3 consecutive
years (testing period), during that testing period CBUs must
be 30% or less of the average CBUs for the high base year.
-The high base year is the average of the two highest base yers, and
he high year base period is measured in the 5 years preceeding the 3
yers tesing period
-Find your 3 years testing period
-The five years before that is your base period
-Take the two highest yers and average them: high years
-The CBUS neeed to be 30% or less of the high base yers to have a
70% partial withdral.
-Control Group: If one employer in a control group ceases to have an
obligation to contribute, but other mebmers have it,there is not a
complete withdrawal. Complete and partial withdrawal are measured
on a control group basis.
-Facility or CBA Takeouts
-The obligation to contribute for a particular facility has
endede

-Expiration of a CBA, but not all CBAs

-Business Reorgs under 4069 and 4218

-They do not result in withdrawl so long as the obligation to
contriute is not interrupted
-4218: selling the stock of a subsidiary where subsidiary
continues to cintrubtie. PBGC Opinon Letter on this.
-Swapping out the parent fo a subsidiary that has an obligation to
contribute is irrelevant

-Sale of Assets MIGHT result in withdrawal UNLESS the

parties meticulously abide by 4204
-If you sell the assets of a business, you are disturbing the
oblgiatoin to contriubute. If it is not producing anything it is
not employing anymore. So generally speaking if you sell
substantially all the assets of the business, without workers
being employed there are no CBUs, and there is no oblgation
to cintrube and there is withdrawwl
-But if you proceed under 4204 there doesnt need to be:
-1. Parties must agree that buyer is obligated to contriubet same as
seller
-2. Buyer has to post the bond for 5 years equal to 1 year of
conttributions
-3. The sale contract must provide that the seller will remain
secondarily liable if the buyer withdraws withn 5 yesr
-then you can sell substantially all asssets without withdrawl
-then the buyer inherits 5 years worth of contribution history. The
seller may have been in the fund for more than 5 years, but the buyer
will only inherit 5 years of contribution history. The other years are
absorbe by the others in the fund.
-4204, hwoever, requires a solely bseucas of requirement buttressed
by the transaction to evade or avoid caveat:
-If the principle purposes is to jettison more then 5 years of
contribution base history you create the possibility of litigation

-No assessment of withdrawl liability if contriubtiosn are

suspended duing labor dispute 4218
-No exceptions for voluntary withdrawls: if union
decertifys that is still voluntary withdrawl 4212(c)

-4021dtermine allocable share under 4211. Plan adopts

a method of determining benefits upon withdrawl:
-Presumptinve, Modfieid, Rolling 5: Direct Attribution is the
only that is the outlier seeking to create a fund within a fund.
-4213: UVB: Actuarlal value of future vested benefit payments
minus the actuarial or market value of assets.
-Test is whether the actuary has used assumptions and methods that in
the aggregate represetnt the best setoiamte under the plan and
whether he made a significant
-REASONBLY IN AGGREAGTE one assumption can be a little off so
aggregate is the gauarge
-Plans allocation method yields positive UVB even if the plan
might have no UVB under a different method. This usually
happens when you compare presumptive methods to rolling 5
allocations.
-Rolling 5 is a crude snapshot, presumptive is dividdd over 20
years
-The plan may be amortizing some portion of a large UVB under 12
years ago and therefore may be positive withdrawa liability der
porsumptive and have no iablity under rolling 5
-Date of withdrawal determines record date
-Date of complete withdrawl is date of obligation stopping?
-Once the cessation matures into permanency the withdrawlal
date relates back ot that
-There may be a union on strike, mediatin etc. ubt at the end of that
everyone fails and no CBA then the withdrawal reaches back to the
date when all of that started, and that is the date when the cessation
happened.

-But if contriubtions were bineg made that whole time then it dosnt
reatle back
-Date of a 70% partialwithdrawl is tha last day of the plan year
in which there is a 70% decline. The last day of the 3rd year.
But, though that is still the date of withdrawl, the UVB record
date is determined as if thre had been a complete withdrawal
of the last day of the frist years of the testing period.

-Remebmer, there are adjustments: once you have arrived

at allocable share of UVB
-De minimus-less than 50 grand phased out over $100k over
UVb
-Partial withdrawal fraction if there has been a partial
withdrawl
-The partial withdrawl liability fractionthe numerator of the
fraction is the employer CBUs after the partial and the
denominator is for the 5 years after the partial, and the partial
withdrawal fraction is to take that fraction and to substract it
from one to determine who you adjuste for partial withdrawal
-The greater the numerator (the CBUS for year after partla) the closer it
gets to one so the closer to 0. And you are multiplying the partial
withdrawal CBUs by that fractionso the more you are reducing the
partial witherawal liability
-The higher the CBUs after the year after withdrawal the lower
the withdrawal liability therte will be topay
-Then you apply the 20 year cap under 4219
-The allocable share of UVBs is then expressed as a lump sum
and will be payable based on amortiazation of the highest
years after withdrawlthen you decide if the payment strea
extends beyond 20 yearstehn everything after 20 yers is
forgivable?
-The point here is that everything beyond 20 is forgiven.
-Finally, Apply the 4225 limitaions:
-You can sell a mom and pop business and leave some money
for them even though they have som withdral ailbity
-For a bsueinss that is liquidated outside of bky for $5 million or less,
than what is payable in withdrawal liability is 30% of the claim.

-The whole purpose of 4225 gives certain types of creditors like mom
and pops a preferred call on asest when buseinss ends.
-When amounts are forgiven under a 20 year cap they get
reallocated to other employers. They will pay it as they
withdraw or as contributison as they apy forward
-4210 appliays a free look rule where an emplyoers enters
the plan and not have withdraw liability if certain criteera is
met and leaves within 5 yers
-Liability on a partial withdrawal will be credited on a
subsequent partial or subsequent complete
-ABATEMENT: even though there has been a complete
withdrawal, or it couldnt be avoided. It is not the end of the
world. There can be abatement funder 4207 and if there is:
-The criteria is tight:
-If leaves in a complete withdrawal and has partial and comes back has
to enter the plan at a higher levl.

-Collection Rules:
-The process is triggered by notice and demand. Those
payments are then due within 60 days. The obligation is on het
sponsor to seek review within 90 days. Payments are due
notwithstanding ARBIRTRAION or requrest to review
-Failure to do so may give rise to laches defense or may be
categorized by other employres as a no interest loans to the
meplyeor that has withdrawan brining up fiduciary concer.s
-Notice to one control grup member is notice to all
-Plan sponsor review is considered a type of consiliatoin
-Arbitration has to be initated within 60 days of the earlier of
the date of decision of review of 120th day after request of
review
-Arbitration is a trial type proceeding or under AAA rules.
-Arbirtator is to find the facts and apply the law:
-PRESUMES THE PLAN DETMRINATINONS ARE CORRECT unless
EMPLYOER SHOWS BY A PREOONDERAND COE VERINCE
UNDEARSONAV 4221

-Employer must proce it is unreasonable on aggregate basis

-an action to review tha rbitation award has to be brought

within 30 days, and the arbitatros findigns of facts are
presumed correct unless the losing party shows by a clear
preponderance of the evidence that the courts say is basically
clealy erronesous stands
-conclusions of law throughought this whole process are de
novo.
-Arbitration is MANDATORY YOU CANNOT PROCEED WITH
DISPUTE RESOLUTIN UNLESS YOU ARBIRTATR
-Giong to court does not toll the deadlines for arbitration.
Courts can look at jurisdictional factsbut no toolling
arbitration deadlines

-IF employer misses arbirtaion dealing:

-Amoutns are due and owing and mpleoyer has waived
defenses. It is all accelerated and all due immediately

-If the interim paynets are not paid on time:

-Plan can sue for missed payments and interest on missed
payments and liquidated damages and fees and almost no
defense for anyone and emplyoers
-Courts are not allowed to look at underlying disputewas
there a demand? Was there an interim payment? Was it paid?
-Unless there is a review or abrutaiotn pendingyou have to arbitrate
or esles it accepaes

-If the plan overpays it is entitled to refund with interst

-What washes awy the pay irst arbitrate second rule

-SOL: on MEPPA COAs is 6 yers and sup Ct says the statute

doesn accrue until emplyeor misses payment and it is a
new staute on each missed interim apyemtn

-4204: Buyigng and Selling: LOOK FOR AVOIDIGN LIABILTIY

TYPE ISSUES
-Soelly because of issue

-Issue of whether the buyer is taking the substantially the

same CBUS as seller
-The amount of the credit that the seler is going to receive will
be only the 5 years

=-4218: Solely because of transaction issue

-Always looking for whether there are sham transactions
-Solely Because of rewuirement.
-Eeven though the employer may claim that 4218 shields liabilityyou
also did these other things that constitute wihtdrawal

-In BKY Withdrawal Liaibilty Issues:

-The notice and demsd is porbably vioaltive of the
automatic stay, the notice is not
-So the fund can send out a notice of withdrawl liability but
probably cannot demand payment. So if the notice went ot the
employer in BKY all other employers are jointly and secerally
liable.

-Proof fo claim submits the fund to BKY jurisdiction

-BKY court may notthe arbitration is going to be necessary ot
resolve liability disputes. To get paid you have to file proof of
claim, and that gives the BKY court the ability to decide what
the amount is.
-Then you to go BKY court and file a proof of claim and defend
it in BKY court. Which means like the PBGC funds ac ertina
withdrawl liability they are subject ot the preudent investor
disount issue.