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Ronald E. Richman, Esq. Schulte Roth
& Zabel LLP 919 Third Avenue New York, NY 10022 Michael S.
Melbinger, Esq. Winston & Strawn 35 West Wacker Drive Chicago,
Illinois 60601-9703
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2002-07A ERISA Sec. 3(37)
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Dear Messrs. Richman and Melbinger: |
This responds to your request on behalf of the Anchor Glass
Container Corporation (Anchor) and the Glass, Molders, Pottery, Plastics &
Allied Workers International Union, AFL-CIO, CLC (GMP) for an advisory opinion
under the Employee Retirement Income Security Act of 1974, as amended (ERISA).
Specifically, you asked whether the Glass Companies
Multiemployer Pension Plan
(Plan) is a "multiemployer plan" within the meaning of section 3(37)
of ERISA. For the reasons discussed below, the Department of Labor
(Department)
has concluded that the Plan is not a multiemployer plan within the meaning of
section 3(37). |
The following facts and representations are based on your
submissions, as well as submissions of the Pension Benefit Guaranty Corporation
(PBGC). Anchor has been in the business of making glass containers for over 50
years. During that time, Anchor has grown into a significant employer in the
glass container manufacturing industry, in part through the acquisition of
other glass container manufacturing companies. Currently, it employs
approximately 3,400 workers. Anchors corporate headquarters are located
in Tampa, Florida, and it has manufacturing operations in at least 10 other
States. A Canadian firm, Consumers Packaging, Inc. (Consumers) owned, directly
and indirectly, 60 percent of Anchor. Consumers also owned, directly and
indirectly, 80 percent of GGC, L.L.C. (formerly known as Glenshaw Glass
Company, Inc.) (Glenshaw). Glenshaws corporate headquarters are located
in Glenshaw, Pennsylvania, and its only manufacturing operations are in that
State. Glenshaw and its predecessors have been making glass containers since
the early 1900s. |
On May 23, 2001, Consumers filed for protection under the Canadian
Companies Creditors Arrangement Act with the Ontario Superior Court of
Justice. As part of this proceeding, Consumers was to sell its interests in
Anchor and Glenshaw. On April 15, 2002, Anchor filed a voluntary petition for
relief under Chapter 11 of the U.S. Bankruptcy Code for the purpose of
confirming its proposed Plan of Reorganization dated April 15, 2002. |
Both Anchor and Glenshaw had long-standing, single-employer
defined benefit pension plans. The Anchor Glass Container Corporation Service
Retirement Plan (including predecessor plans) (Anchor Plan) was established in
1955. It provided benefits primarily to Anchor employees who were members of
the GMP or the American Flint Glass Workers Union (AFGWU).(1)
The Anchor Plan covered
approximately 14,000 participants. As of December 31, 2001, the Anchor Plan had
unfunded vested liabilities of over $160 million. Similarly, the Glenshaw Glass
Company, Inc. Service Retirement Plan for Hourly Rated Employees (Glenshaw
Plan) provided retirement benefits to Glenshaw employees who were members of
the GMP and the AFGWU. The Glenshaw Plan covered approximately 1,000
participants. As of December 31, 2001, the Glenshaw Plan had unfunded vested
liabilities of over $8 million. |
The Anchor Plan and the Glenshaw Plan were maintained pursuant to
collective bargaining agreements with the GMP and the AFGWU. Historically,
these parties have engaged in collective bargaining and reached agreements on a
wide variety of employment matters, including employee benefit levels, over the
course of several decades. |
Anchors bankruptcy filing occurred, in part, due to its
obligation to fund pension benefits that have increased steadily during the
1990s. You indicated that the benefit increases resulted, in part, from
"pattern bargaining" practices in the glass container industry. You
represented that the pattern involves the GMP negotiating for wages, benefit
increases, and other terms and conditions of employment with the primary
employer in the industry and then seeking to impose those same terms and
conditions when bargaining with the other, generally smaller, employers in the
industry. You indicated that the industrys primary employer was willing
to agree to regular pension benefit increases because it could implement those
increases for little or no cost due to its single-employer pension plan being
substantially overfunded. You further indicated that after a decade or so of
negotiated pension benefit increases, Anchor and the GMP agreed that
Anchors financial condition would continue to deteriorate if the
pension-related effects of pattern bargaining were not addressed. |
Anchor, Glenshaw, the GMP, and the AFGWU concluded that merging
the Anchor Plan and Glenshaw Plan to establish the Plan as a multiemployer
plan
would allow for continuation of pattern bargaining practices in the industry
while ameliorating the financial effects on the secondary employers arising
from the primary employer agreeing to negotiated increases in pension benefits.
Specifically, with the establishment of the Plan, the GMP could continue to
bargain with the industrys primary employer on all employment issues,
including pension benefit levels. When an agreement between those parties was
struck, the union could calculate the actuarial cost of any pension benefit
increases, express that cost as a monthly contribution rate increase, and
negotiate that rate increase with Anchor and Glenshaw. Even though the Plan
would inherit a substantial level of underfunding from the Anchor and Glenshaw
Plans, as participating employers in a multiemployer plan, Anchor and Glenshaw
would be able to limit their contributions to the Plan to the amounts agreed to
in the collective bargaining process rather than having to make contributions
sufficient to meet the minimum funding requirements otherwise applicable to the
Anchor and Glenshaw Plans as single-employer plans under ERISA and the Internal
Revenue Code.(2) |
The Plan was established on December 31, 2001, pursuant to
amendments to existing collective bargaining agreements between Anchor and
Glenshaw and the GMP and the AFGWU. Specifically, the parties agreed to merge
the Glenshaw Plan into the Anchor Plan and, simultaneously, to establish the
Plan by amending and restating the plan documents. The parties also designated
a board of trustees to assume sponsorship of the Plan and take control of the
Plans assets and liabilities. Anchor and the GMP each appointed two
trustees and Glenshaw and the AFGWU each appointed one trustee. |
The Plan is currently funded through contributions from
participating employers and investment earnings. Presently, the only two
participating employers are Anchor and Glenshaw, although you indicated that
the Plan is negotiating with two other unrelated employers about merging their
single-employer pension plans into the Plan. Under their respective collective
bargaining agreements, Anchor and Glenshaw are required to make monthly
contributions based on a fixed amount per hour of service for each of their
covered employees. In this regard, Anchors estimated annual contribution
requirement for 2002 is approximately $12.5 million. But for the establishment
of the Plan, however, Anchors accelerated deficit funding requirement
under the Anchor Plan for 2002 would have been over $80 million. In fact,
Anchors Disclosure Statement for its Plan of Reorganization states that,
based on certain projections, without the successful establishment of the Plan
as a multiemployer plan, the Anchor Plans underfunding would likely lead
to accelerated deficit funding requirements of Anchor Glass of $90
million, $40 million and $30 million in 2003, 2004 and 2005,
respectively.(3) |
Section 3(37)(A) of ERISA defines the term
"multiemployer plan" to mean a plan to which more than one employer is required to
contribute, which is maintained pursuant to one or more collective bargaining
agreements between one or more employee organizations and more than one
employer, and which satisfies such other requirements as the Secretary of Labor
may prescribe by regulation. Additional requirements were prescribed by
regulation at 29 C.F.R. § 2510.3-37. Paragraph (c) of § 2510.3-37
provides, with respect to plans established on or after September 2, 1974, that
a plan “must meet the requirement that it was established for a
substantial business purpose. In addition to recognizing that [a]
substantial business purpose includes the interest of a labor organization in
securing an employee benefit plan for its members[,] paragraph (c) sets
forth four factors to be applied in determining whether a substantial business
purpose exists, noting that any single factor may be sufficient. |
For purposes of your request, we have assumed that the Plan is a
plan to which more than one employer is required to contribute and that it is
maintained pursuant to collective bargaining agreements between one or more
employee organizations and more than one employer. At issue, therefore, is
whether the Plan meets the "substantial business purpose" requirement
of the regulation. Consistent with legislative intent, it has been the
Departments long-standing position that the establishment of a plan
merely to obtain the statutory advantages of multiemployer plan status will not
satisfy the substantial business purposes test.(4) |
The four factors described in paragraph (c) of § 2510.3-37 to
be considered in determining "substantial business purpose" are:
(1) the extent to which the plan is maintained by a substantial number of
unaffiliated contributing employers and covers a substantial portion of the
trade, craft or industry in terms of employees or a substantial number of the
employees in the trade, craft or industry in a locality or geographic
area; (2) the extent to which the plan provides benefits more closely related to years of
service within the trade, craft or industry rather than with an employer,
reflecting the fact that an employee's relationship with an employer
maintaining the plan is generally short-term although service in the trade,
craft or industry is generally long-term; (3) the extent to which collective
bargaining takes place on matters other than employee benefit plans between the
employee organization and the employers maintaining the plan;
and (4) the
extent to which the administrative burden and expense of providing benefits
through single employer plans would be greater than through a multiemployer
plan.
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On the basis of the facts and circumstances surrounding the Plan's
establishment, the Department concludes that the Plans establishment as a
multiemployer plan does not meet the "substantial business purpose"
requirements of the regulation. With regard to factor one, it is the view of
the Department that the number of participating employers, under the facts
presented, do not constitute a substantial number of unaffiliated contributing
employers. With regard to factor two, it does not appear that employee
relationships with an employer maintaining the Plan are generally short-term.
With regard to factor three, we note that, although the sponsoring employers
and employee organizations bargain collectively on a broad range of employment
matters, and have done so over many years, until now, such bargaining has
always been in the context of maintaining single-employer plans. As a result,
the Department can give little weight to this third factor as a basis for
finding that the Plan is a multiemployer plan. Finally, with regard to factor
four, the information provided to us about the administrative cost of
maintaining the Plan relative to maintaining separate single-employer plans,
does not indicate that the administrative burden and expense of maintaining the
single-employer plans is significantly greater than maintaining a
multiemployer plan. In fact, it appears that some of the projected savings could be realized
through joint management of the single-employer plans. Moreover, it is
difficult for us to conclude, on the basis of the information provided, that
the significant reduction in funding and liability that would be achieved
through operating under the statutory provisions governing multiemployer
plans
was not the primary factor in the establishment of the Plan. For these reasons,
it is the view of the Department that the Plan would not constitute a
"multiemployer plan" within the meaning of section 3(37) of ERISA.
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This letter constitutes an advisory opinion under ERISA Procedure
76-1 (issued August 27, 1976). Accordingly, this letter is issued subject to
the provisions of that procedure, including section 10 thereof, relating to the
effect of advisory opinions. |
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A plan covering certain Anchor salaried
employees had been merged into the Anchor Plan in 1998, but the benefit levels
in that salaried employee plan had been frozen since January 1, 1995.
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We note that
PBGCs maximum annual guarantee of benefits applicable to the Anchor and
Glenshaw Plans if they terminated as single employer plans is currently
$42,954. For multiemployer pension plans, the current monthly guarantee level
is 100 percent of the first $11 of the plan-designated dollar amount multiplied
by the participants years of service under the plan plus 75 percent of
the next $33 of the dollar amount multiplied by the participants years of
service. Accordingly, the benefit guarantee for a worker with 30 years of
service in a multiemployer plan is $1,072.50 per month, or $12,870 per year.
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You recently
indicated that based on recalculations made after filing the Plan of
Reorganization the actual deficit funding requirements, although still quite
substantial, may be lower than the projections in the Disclosure Statement.
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See H.R. Conf. Report No. 1280, 93rd Cong.,
2nd Sess. 265 (1974); 39 Fed. Reg. 42234 (Dec. 4, 1974); Advisory
Opinion 83-05A (Jan. 19, 1983).
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