[Federal Register: June 13, 2003 (Volume 68, Number 114)]
[Notices]
[Page 35462-35466]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13jn03-116]
=======================================================================
-----------------------------------------------------------------------
PENSION BENEFIT GUARANTY CORPORATION
Pendency of Request for Approval of a Second Amendment to Special
Withdrawal Liability Rules for International Longshoremen's and
Warehousemen's Union-Pacific Maritime Association Pension Plan
AGENCY: Pension Benefit Guaranty Corporation.
ACTION: Notice of pendency of request.
-----------------------------------------------------------------------
SUMMARY: The International Longshoremen's and Warehousemen's Union-
Pacific Maritime Association Pension Plan has asked the Pension Benefit
Guaranty Corporation (``PBGC'') to review and approve a second
amendment to a special withdrawal liability rule that PBGC approved in
initial and amended form in 1984 and 1998. See Approval of Special
Withdrawal Liability Rules (``Notice of Approval''), 49 FR 6043
(February 16, 1984) and Notice of Approval at 63 FR 27774 (May 20,
1998). Under section 4203(f) of the Employee Retirement Income Security
Act of 1974, as amended (``ERISA''), PBGC may prescribe regulations
under which plans in industries other than the construction or
entertainment industries may be amended to provide for special
withdrawal liability rules, and PBGC has prescribed such regulations at
29 CFR Part 4203. The regulations provide that PBGC approval is
required for a plan amendment establishing special withdrawal liability
rules, as well any modification to a previously approved plan
amendment. This notice describes the amendment and invites any
interested person to submit written comments about it to PBGC.
DATES: Comments must be submitted on or before July 28, 2003.
ADDRESSES: Comments may be mailed to the Office of the General Counsel,
Pension Benefit Guaranty Corporation, 1200 K Street, NW., Washington,
DC 20005-4026, or delivered to Suite 340 at the same address. Comments
also may be sent by Internet e-mail to reg.comments@pbgc.gov. The PBGC
will make the comments received available on its Web site, http://www.pbgc.gov.
Copies of the comments and the request for approval may
be obtained by writing the PBGC's Communications and Public Affairs
Department (CPAD) at Suite 240 at the above address or by visiting or
calling CPAD during normal business hours (202-325-4040).
FOR FURTHER INFORMATION CONTACT: Gennice D. Brickhouse, Office of the
General Counsel, Pension Benefit Guaranty Corporation, 1200 K Street,
NW., Washington, DC 20005-4026; 202-326-4020. (For TTY/TDD users, call
the Federal Relay Service toll-free at 1-800-877-8339 and ask to be
connected to 202-326-4020).
SUPPLEMENTARY INFORMATION:
Background
Under section 4201 of ERISA, an employer that withdraws from a
multiemployer pension plan incurs liability for a share of the plan's
unfunded vested benefits. Section 4203(a) of ERISA provides that a
complete withdrawal from a multiemployer plan occurs if an employer
either (1) Permanently ceases to have an obligation to contribute under
the plan; or (2) permanently ceases all covered operations under the
plan. Section 4205(a)(2) of ERISA states that a partial withdrawal
occurs if an employer either: (1) Permanently ceases to have an
obligation to contribute under one or more but fewer than all
collective bargaining agreements under which the employer has been
obligated to contribute under the plan, while continuing to perform
work in the jurisdiction of the collective bargaining agreement of the
type for which contributions were previously required or transfers such
work to another location; or (2) permanently ceases to have an
obligation to contribute under the plan for work performed at one or
more but fewer than all of its facilities, while continuing to perform
work at the facility of the type for which the obligation to contribute
ceased. Under section 4205(a)(1), a partial withdrawal will also occur
if the employer reduces its contribution base units--the factors
[[Page 35463]]
that determine plan contributions, such as hours worked by employees--
by seventy percent or more for three consecutive plan years.
A complete or partial withdrawal of an employer from a pension plan
reduces the plan's contribution base and shifts the burden of funding
plan benefits to remaining employers. The increased costs of
maintaining the plan will in turn encourage other employers to
withdraw, and the cumulative damage to the contribution base may
eventually cause the plan to fail. ``Withdrawal liability responds to
these concerns by deterring withdrawals and by shoring up the
contribution base of a * * * plan when withdrawals nevertheless occur
[and] thus protects the interlocking interests of the PBGC, its premium
payers, the non-withdrawn employers'' and workers and retirees with
vested benefits. Peick v. PBGC, 539 F.Supp.1025, 1046-47 (N.D.Ill.
1982), affd. 724 F.2d 1247 (7th Cir. 1983). Indeed, ``it would be
analytically unsound to adopt an approach'' that allows a withdrawn
employer to escape the costs of reparation to the plan's contribution
base. Calvert & Youngblood Coal Co. v. UMWA 1950 Pension Trust, 6
Employee Benefit Cas. (BNA) 1106, 1112 (N.D. Ala. 1985)(Pointer, C.J.).
Congress nevertheless allowed for the possibility that, in certain
industries, the fact that particular employers go out of business (or
cease operations in a specific geographic region) might not result in
permanent damage to the pension plan's contribution base. In the case
of the construction industry, for example, the work must necessarily
take place at the construction site; if that work generates
contributions to the pension plan, it does not much matter which
employer performs the work. Put another way, if a construction employer
goes out of business, or stops operations in a geographic area, pension
plan contributions will not diminish if a second employer who
contributes to the plan fills the void. The plan's contribution base is
damaged, therefore, only if the employer stops contributing to the plan
but continues to perform construction work in the jurisdiction of the
collective bargaining agreement.
This reasoning led Congress to adopt a special definition of the
term ``withdrawal'' for construction industry plans. Section 4203(b)(2)
of ERISA provides that a complete withdrawal occurs only if an employer
ceases to have an obligation to contribute under a plan, but the
employer nevertheless performs previously covered work in the
jurisdiction of the collective bargaining agreement at any time within
five years after the employer ceased its contributions.\1\ There is a
parallel rule for partial withdrawals from construction plans. Under
section 4208(d)(1) of ERISA, ``[a]n employer to whom section 4203(b)
(relating to the building and construction industry) applies is liable
for a partial withdrawal only if the employer's obligation to
contribute under the plan is continued for no more than an
insubstantial portion of its work in the craft and area jurisdiction of
the collective bargaining agreement of the type for which contributions
are required.''
---------------------------------------------------------------------------
\1\ Section 4203(c)(1) of ERISA applies a similar definition of
complete withdrawal to the entertainment industry, except that the
pertinent jurisdiction is the jurisdiction of the plan rather than
the jurisdiction of the collective bargaining agreement.
---------------------------------------------------------------------------
Section 4203(f) of ERISA provides that PBGC may prescribe
regulations under which plans that are not in the construction industry
may be amended to use special withdrawal liability rules similar to
those that apply to construction plans. Under the statute, the
regulations ``shall permit the use of special withdrawal liability
rules * * * only in industries' that PBGC determines share the
characteristics of the construction industry. In addition, each plan
application must demonstrate that the special rule ``will not pose a
significant risk to the [PBGC] insurance system.'' Section 4208(e)(3)
of ERISA provides for parallel treatment of partial withdrawal
liability rules.
The regulation on Extension of Special Withdrawal Liability Rules
(29 CFR Part 4203), prescribes the procedures a multiemployer plan must
follow to request PBGC approval of a plan amendment that establishes
special complete or partial withdrawal liability rules. Under 29 CFR
4203.3(a), a complete withdrawal rule must be similar to the statutory
provision that applies to construction industry plans under section
4203(b) of ERISA. Any special rule for partial withdrawals must be
consistent with the construction industry partial withdrawal
provisions.
Each request for approval of a plan amendment establishing special
withdrawal liability rules must provide PBGC with detailed financial
and actuarial data about the plan. In addition, the applicant must
provide PBGC with information about the effects of withdrawals on the
plan's contribution base. As a practical matter, the plan must
demonstrate that the characteristics of employment and labor relations
in its industry are sufficiently similar to those in the construction
industry that use of the construction rule would be appropriate.
Relevant factors include the mobility of the employees, the
intermittent nature of the employment, the project-by-project nature of
the work, extreme fluctuations in the level of an employer's covered
work under the plan, the existence of a consistent pattern of entry and
withdrawal by employers, and the local nature of the work performed.
PBGC will approve a special withdrawal liability rule only if a
review of the record shows that:
(1) The industry has characteristics that would make use of the
special construction withdrawal rules appropriate; and
(2) The plan in question would not be aversely affected by the
adoption of the special rule. After review of the application and all
public comments, PBGC may approve the amendment in the form proposed by
the plan, approve the application subject to conditions or revisions;
or deny the application.
Request For Comments
On March 28, 2003, the International Longshoremen's and
Warehousemen's Union-Pacific Maritime Association Pension Plan
(``Plan'') asked PBGC to approve a second modification to a previously
approved plan amendment that adopted special withdrawal liability
rules.\2\ The regulation on Extension of Special Withdrawal Liability
Rules provides that any interested party may file comments with PBGC
about the request. See 29 CFR 4203.5(b).
---------------------------------------------------------------------------
\2\ PBGC approved to the original plan amendment in 1984, and
the agency approved a revised amendment in 1998. See 49 FR 6043
(1984) and 63 FR 27774 (1998).
---------------------------------------------------------------------------
The remainder of this Notice contains a synopsis of the application
and the various legal arguments and factual representations that were
submitted in support of the application.
Applicant
The Plan is a multiemployer plan whose headquarters are in San
Francisco, California. The Plan was established in 1951 pursuant to
collective bargaining agreements between the International
Longshoremen's & Warehousemen's Union (``ILWU'') and the Pacific
Maritime Association (``PMA'').
The PMA
The PMA is an employer association whose principal business is to
negotiate and administer maritime labor agreements with ILWU. The PMA
is composed of American and foreign flag vessel operators, and
stevedore and terminal companies that operate in
[[Page 35464]]
California, Oregon and Washington ports.
The ILWU
In 1938, the National Labor Relations Board certified the ILWU as
the exclusive bargaining representative for a bargaining unit that
includes all longshore workers employed by PMA members on the Pacific
Coast. See Shipowners' Association of the Pacific Coast, 7 NLRB 1002,
1041 (1938), review dismissed, 103 F.2d 933 (D.C. Cir. 1939), affirmed,
308 U.S. 401 (1940) (certifying the ILWU as the exclusive bargaining
representative for ``all workers who do longshore work in the Pacific
Coast ports of the United States''). Thus, the PMA-ILWU bargaining
agreements cover all workers employed in the loading and unloading of
all dry cargo for ocean-going vessels arriving at or departing from
ports along the Pacific coast of the United States, including all ports
in the states of California, Oregon and Washington.\3\
---------------------------------------------------------------------------
\3\ Vessel operators who are not PMA members must contract with
a stevedoring company or terminal operator that belongs to PMA in
order to unload cargo.
---------------------------------------------------------------------------
The Plan
The Plan was established in 1951. Plan benefits are established as
part of the collective bargaining process. Plan contributions are
determined under a system, established in 1983, that governs all fringe
benefit costs under the PMA-ILWU agreement. The system allocates
assessments between man-hours and tonnage based on a membership
agreement filed with the Federal Maritime Commission. The system works
as follows. A man-hour rate is established by dividing a divisor that
is established by the agreement into the total annual projected cost
for all ILWU-PMA benefits. The result is a man-hour rate that is then
multiplied by the total hours expected to be worked during the year to
determine the amount of the benefits and costs that will be funded by
man-hours. The remaining funds are collected from tonnage. To the
extent that man-hours are less than the divisor, assessments are
collected on tonnage to fund the benefits in an order of priority
established by the agreement. The pension benefits have the highest
priority on man-hour contributions. Contributions on tonnage would not
be used to fund pensions unless the annual assessments on man-hours
were insufficient to meet the annual pension funding obligation
required by the Internal Revenue Code.
The total number of contributing employers, based on federal tax
identification numbers, has remained stable over several decades. There
were 100 contributors in 1972, 107 in 1979, 114 in 1996 and 114 in
2002. The contributors in 1996 that remain contributors in 2002
represent over 99% of the total contributions to the Plan.
Current Financial Status of the Plan
The Plan operates on a July-June fiscal year. The Form 5500 filed
for the 2001-02 plan year reports the Plan covered 10,526 active
workers, paid benefits to 4547 pensioners and 3759 survivors, and had
only 9 inactive participants (or survivors) with vested entitlements.
The Plan received $23.9 million in contributions, and paid out $134
million in benefits, as well as $7.8 million in administrative
expenses. At year end, plan assets were approximately $1.943 billion.
Under the current version of the special rule, the Plan actuary
must provide the PBGC with annual certifications that at least 85% of
the Plan's liabilities for vested benefits (determined using specified
set actuarial assumptions) are covered by Plan assets. The
certification must also show other information about plan contributions
and benefit payments. The following table presents this data for the
plan years since the PBGC last considered the withdrawal liability
exemption.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Plan year ending Plan year ending Plan year ending Plan year ending Plan year ending Plan year ending
June 30, 1997 June 30, 1998 June 30, 1999 June 30, 2000 June 30, 2001 June 30, 2002
--------------------------------------------------------------------------------------------------------------------------------------------------------
Assets.......................... $1.63 billion..... $1.91 billion..... $2.16 billion..... $2.40 billion..... $2.22 billion..... $1.93 billion
Vested Benefits................. $1.69 billion..... $1.66 billion..... $1.63 billion..... $1.83 billion..... $1.99 billion..... $1.84 billion
Active Participants............. 8,315............. 8,859............. 9,572............. 9,395............. 10,070............ 10,113
Contributions................... $104 million...... $35.0 million..... $28.8 million..... $32.5 million..... $26.9 million..... $23.5 million
Benefit Payments................ $101.5 million.... $108.0 million.... $110.6 million.... $126.4 million.... $132.9 million.... $154 million
Plan Assets As Multiple of 16.1.............. 17.7.............. 19.6.............. 19.0.............. 16.6.............. 12.5
Benefits.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Future Industry Prospects
The application lays great emphasis upon the fact that PMA members
handled ``virtually all of the over 263 million revenue tons of dry
cargo that went through West Coast ports in 2002. It is estimated that
this cargo had a value of $320 billion and generated ocean shipping
revenues of approximately $14.7 billion.'' The application asserts that
the financial health of the Plan ``is not tied to the fortunes of any
one member. Rather, Plan contributions are dependent only on the amount
of cargo shipped through West Coast ports. The Plan is thus not at risk
even if some of its largest employers both cease operations and are not
replaced by another contributing employer (which * * * is highly
unlikely in any event).
The application reported that ``the West Coast shipping industry
has grown steadily over the past five decades. Total dry cargo at all
covered ports amounted to 29 million revenue tons in 1960, 114 million
revenue tons in 1980, 182 million revenue tons in 1990 and 263 million
revenue tons in 2002. This change is reflected in the number of covered
hours by ILWU-represented employees. Such hours increased from 15.6
million in 1992 to more than 24 million in 2002.'' Thus, the
application contends that the PMA-ILWU ``lock'' on all shipping imports
resembles the geographic coverage that is said to typify the
construction industry.
The application asserts that ``the mobility of longshore workers is
quite similar to that of many construction industry workers. Many West
Coast longshore workers do not typically work for the same employer on
a regular basis.'' The application uses the payroll system to
illustrate the extent of employment mobility. ``[W]ithin a single
week,'' the application states, ``a longshore worker often has more
than one employer.'' For this reason, ``PMA acts as the payroll agent
for all of its members. The employers remit cash wages and collectively
bargained-for employee benefit contributions to PMA, which in turn
issues weekly payroll checks to ILWU members and transmits
contributions to various benefit funds. Because of this system, a
worker tends
[[Page 35465]]
to regard PMA as his or her employer, and may have little awareness of
who is his or her actual employer.''
Special Withdrawal Liability Rules
When approving the amended special withdrawal liability rule, PBGC
gave the following synopsis of the original special rule.
Under the special rules, a complete withdrawal occurs if an
employer who makes contributions to the Plan for longshore work
permanently ceases to have an obligation to make contributions to the
Plan, and: (1) Continues to perform work of the type for which
contributions to the Plan are currently or were previously required at
any Pacific Coast port in the United States, (2) resumes such work at
any time during the Plan Year in which the contribution obligation
ceased through the end of the fifth succeeding Plan Year without
renewing the contribution obligation, (3) sells or otherwise transfers
a substantial portion of its business or assets to another person that
performs longshore work without having an obligation to make
contributions to the Plan under the collective bargaining agreements
under which the Plan is maintained, or (4) ceases to have an obligation
to contribute in connection with the withdrawal of every employer from
the Plan or substantially all of the employers within the meaning of
section 4219(c)(1)(D) of ERISA. A partial withdrawal occurs if an
employer incurs a partial withdrawal within the meaning of section 4205
of ERISA and, in addition, at any time from the date of the partial
withdrawal through the succeeding five Plan Years: (1) Performs work of
the type for which contributions to the Plan are currently or were
previously required at any Pacific Coast port in the United States
without having an obligation to contribute to the Plan for such work,
or (2) sells or otherwise transfers a substantial portion of its
business or assets to another person that performs longshore work
without having an obligation to make contributions to the Plan under
the collective bargaining agreements under which the Plan is
maintained.
The special withdrawal liability rules were subject to the Plan's
satisfying certain funding requirements. In 1998, PBGC approved the
Plan's request to modify the funding requirements in connection with an
amendment adopted by the PMA and the ILWU. The funding requirement, as
amended in 1998, is as follows:
PBGC hereby grants the Plan's request for approval of a plan
amendment modifying special withdrawal liability rules, as set forth
herein. PBGC grants approval under the condition that such approval
will expire, and the Plan's special withdrawal liability rules will be
void as of the first day of the Plan Year following a Plan Year for
which the Plan is not at least eighty-five percent (85%) funded, and
during said following Plan Year the Contributions are less than the
least of (a) total administrative cost and benefits for said following
Plan Year or (b) the amount required to increase the Funding Percentage
to eighty-five percent (85%) for said following Plan Year or (c) the
maximum tax-deductible contribution to the Plan. The Plan has agreed to
certify to these conditions annually. Should the Plan wish to again
amend these rules at any time, PBGC approval of the amendment will be
required.
The 2002 Collective Bargaining Agreement
After protracted disagreements and work stoppages, the PMA and ILWU
solicited and obtained the assistance of the Chairman of the Federal
Mediation and Conciliation Service in an effort to reach a new labor
agreement. With his assistance, the parties reached a six-year labor
contract that allows for cost savings due to improvements in
technology. The new labor contract provided for a gradual increase in
Plan benefits from $95 per month per year of service (for a maximum of
35 years of service) to $150 per month per year of service. The entire
labor contract (and not just the increase in pension benefits) is
contingent on PBGC approval of the pending request. The application
represents that the labor agreement must be renegotiated from scratch
in the event PBGC denies the request.
The Proposed Amendment
The Plan has requested approval of several amendments to the
existing rule. In particular, the Plan seeks to:
(1) Revise certain actuarial assumptions (relating to mortality,
disability, marital status, and expected retirement dates) in order to
reflect emerging actuarial experience. The Plan does not propose to
change other assumptions used for the annual actuarial certification to
PBGC.
(2) modify, on a temporary basis, the 85% funding requirement
instituted in 1998. The Plan requests that this requirement be lowered
to 65% through the end of the plan year ending June 30, 2008. The
percentage would then increase by 3% per plan year until it again
reaches 85%.
(3) modify, on a temporary basis, the Plan's 80% funding
requirement instituted in 1984. That requirement provides for
additional contributions as of plan valuation date if the Plan's funded
status is projected to fall below 80% in the 5th year following the
valuation date. The Plan requests that this requirement be lowered to
65% through the end of the plan year ending June 30, 2008. The
percentage funded status requirement would then increase by 3% per plan
year until it again reaches 80%.
The Plan acknowledges that the benefit increases promised under the
2002 collective bargaining agreement, combined with ``the disappointing
stock market performance in the past few years'' will be likely to
cause the Plan to fall below the 85% funding requirement set in the
1998 agreement with the PBGC. This would evidently require substantial
contribution increases over the next several years, and these costs
would reduce investment needed, among other things, to reduce shipping
costs and thereby improve the long-term funding base of the Plan. The
PMA and the ILWU jointly posit that this ``temporary reduction'' in the
85% funding requirement ``will help the West Coast ports to obtain
long-term benefits that will long outlast the six-year term of the
collective bargaining agreement''.
The Plan also maintains that experience from 1984 through the
present confirms the accuracy of the PBGC determination that the West
Coast shipping industry shares the salient characteristics of a
construction plan. In the words of the application:
So long as the work of ILWU members is necessary for the movement
of all types of cargo, the contribution base of the Plan rests upon the
amount of cargo shipped. The amount of cargo shipped through West Coast
ports is independent of the existence of any particular longshore
employer.
In addition, like the construction industry, the work is local,
performed at the port of embarkation or debarkation. An employer cannot
withdraw from the Plan while continuing to perform longshore work at
West Coast ports, because longshore work along the entire West Coast
for all ocean-going dry cargo work is covered under collective
bargaining agreements that require contributions to the Plan. Given
that the entire West Coast is one bargaining unit, it is not possible
for cargo to be loaded or unloaded at any point on the coast without
contributions being paid to the Plan. Thus, as a practical matter, it
is not realistic to expect noncontributory, covered work. Nonetheless,
if a former contributing employer were to compete against the Plan's
other employers in this way, thereby diminishing the Plan's
[[Page 35466]]
contribution base, withdrawal liability would be imposed pursuant to
the special liability rules previously approved by the PBGC. Because of
the local nature of the work and the requirement that contributions be
made to the Plan for all longshore work done on the West Coast, the
comings and goings of employers do not have an adverse effect on the
Plan's contribution base, which is dependent upon the vitality of the
West Coast shipping industry as a whole. Thus, the covered industry
evidences characteristics that indicate that cessations by employers do
not have a weakening effect on the Plan's contribution base.
The Plan further contends that past experience and reasonable
future projections show that the relaxation of the current rule will
not pose an unacceptable risk of loss to PBGC or participants.
The Plan's funded status has improved dramatically since 1984,
underscoring the ability of the industry to fund the Plan * * *. And,
even though the Plan's funded status will decline for a time once the
amendment fully takes effect, the Plan and the covered industry have
unique characteristics that suggest that the Plan's contribution base
is likely to remain stable * * * [Actuarial projections show that] the
Plan's funding policy will return the Plan to 85% funding in a little
over ten (10) years * * *. The Plan's continuation is dependent only on
the continued activity in the West Coast shipping industry as a whole.
Consequently, the Plan's contribution base is secure and the departure
of one employer from the Plan is highly unlikely to have an adverse
effect on the contribution base so long as the level of shipping does
not decline.
Comments
All interested persons are invited to submit written comments
concerning the pending request to PBGC at the above address, on or
before July 28, 2003. All comments will be made a part of the record.
The PBGC will make the comments received available on its Web site,
http://www.pbgc.gov. Copies of the comments and the pending request may
be obtained by writing the PBGC's Communications and Public Affairs
Department (CPAD) at Suite 240 at the above address or by visiting or
calling CPAD during normal business hours (202-325-4040).
Issued in Washington, DC, on this 10th day of June 2003.
Steven A. Kandarian,
Executive Director, Pension Benefit Guaranty Corporation.
[FR Doc. 03-14969 Filed 6-12-03; 8:45 am]
BILLING CODE 7708-01-P