Request for Determination of Substantial Damage With Respect to the Cessation of the Obligation to Contribute by Kane Transfer Company to the Freight Drivers and Helpers Local Union No. 557 Pension Fund

David M. Strauss
Pension Benefit Guaranty Corporation
January 9, 1998

[Federal Register: January 9, 1998 (Volume 63, Number 6)]
[Notices]               
[Page 1511-1512]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09ja98-103]

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PENSION BENEFIT GUARANTY CORPORATION

 
Request for Determination of Substantial Damage With Respect to 
the Cessation of the Obligation to Contribute by Kane Transfer Company 
to the Freight Drivers and Helpers Local Union No. 557 Pension Fund

AGENCY: Pension Benefit Guaranty Corporation.

ACTION: Notice of No Determination.

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SUMMARY: This notice advises interested persons that the Pension 
Benefit Guaranty Corporation (the ``PBGC'') has declined to make a 
determination of substantial damage under section 4203(d)(4) of the 
Employee Retirement Income Security Act with respect to the cessation 
of contributions under the Freight Drivers and Helpers Local Union No. 
557 Pension Fund by Kane Transfer Company. Section 4203(d) provides a 
special withdrawal rule for the trucking industry, under which a 
trucking employer is not considered to have withdrawn from the plan if 
certain conditions are met, including the furnishing of a bond or 
escrow. After the bond/escrow requirement has been satisfied, the PBGC 
may make a finding under section 4203(d)(4) that the cessation 
(considered together with other cessations) has substantially damaged 
the plan's contribution base. In this event, the employer will be 
treated as having withdrawn from the plan and the bond or escrow will 
be paid to the plan. Alternatively, the PBGC may find under section 
4203(d)(5) that no substantial damage has been caused, in which case 
the bond will be canceled or the escrowed amount returned to the 
employer, and the employer will have no further liability under the 
plan. The purpose of this notice is to advise interested persons that 
the PBGC has declined to find substantial damage in this case.

FOR FURTHER INFORMATION CONTACT: Thomas T. Kim, Office of the General 
Counsel, Pension Benefit Guaranty Corporation, 1200 K Street, NW., 
Washington, DC 20005-4026; telephone 202-326-4020 ext. 3581 (For TTY/
TDD, call the Federal relay service at 1-800-877-8339 and ask to be 
connected to 202-326-4020).

SUPPLEMENTARY INFORMATION:

Background

    Section 4203(d) of the Employee Retirement Income Security Act, as 
amended (``ERISA''), provides a special withdrawal rule for the 
trucking industry. That industry, for purposes of this rule, is 
considered to include the long and short haul trucking industry, the 
household goods moving industry, and the public warehousing industry. 
The rule is limited to trucking industry plans, i.e., plans under which 
substantially all of the contributions required are made by employers 
that have an obligation to contribute primarily for work in the 
trucking industry.
    Under section 4203(d), a trucking employer will not be considered 
to have withdrawn from a trucking industry plan merely because the 
employer permanently ceases to have an obligation to contribute under 
the plan or permanently ceases all covered operations under the plan, 
if certain conditions are met. One condition is that the employer must 
not continue to perform work within the jurisdiction of the plan. 
Another condition is that the employer must furnish a bond or establish 
an escrow account in an amount equal to 50 percent of its withdrawal 
liability.
    After the bond is posted or the escrow established, the PBGC may, 
within 60 months after the cessation of the employer's covered 
operations or obligation to contribute, make a determination about the 
effect of the cessation (considered together with any cessations by 
other employers) on the plan's contribution base. If the PBGC makes a 
finding under section 4203(d)(4) that the contribution base has 
suffered substantial damage, the employer will be treated as having 
withdrawn from the plan on the date when the obligation to contribute 
or covered operations ceased. In that event, the bond or escrow will be 
paid to the plan, and the employer will be liable for the remainder of 
the withdrawal

[[Page 1512]]

liability. If the PBGC makes a finding under section 4203(d)(5) that no 
substantial damage has occurred, or if it does not make a finding of 
substantial damage under section 4203(d)(4) within the 60-month period 
referred to above, then the bond will be canceled or the escrow 
refunded, and the employer will have no further liability with respect 
to the cessation.

The Request

    The Freight Drivers and Helpers Local Union No. 557 Pension Fund 
(the ``Fund'') has requested that the PBGC find that the cessation of 
contributions by Kane Transfer Company (``Kane''), together with 
cessations by other contributing employers, has resulted in substantial 
damage to the Fund's contribution base. The Fund represents that over 
90 percent of its contributing employers are trucking employers. It 
also asserts that Kane is a trucking employer and ceased all covered 
operations under the Fund in December 1993.
    On June 9, 1997, the PBGC published (at 62 FR 31465) a notice of 
the pendency of the Fund's request. The notice solicited comments by 
interested persons; Kane submitted the only comment in response to the 
notice. The factual data in this notice are derived from information 
submitted by the parties.

The Decision

    Over the 1980-1995 period, the contribution base of the Fund, i.e., 
the number of hours for which contributions are required, fell by 
nearly 60 percent, from 5.5 million in 1980 to 2.3 million in 1995. In 
the 5-year period ending with 1995, the contribution base declined by 
13 percent (although the contribution base increased by about 3 percent 
between 1994 and 1995). The number of active employees declined from 
3,496 in 1980 to 1,287 in 1995, a drop of over 60 percent. The number 
of active employees fell by just over 20 percent in the 1991-1995 
period.
    During the 1986-1994 period, 29 contributing employers withdrew 
from the Fund, leaving 28 employers in the Fund as of the end of 1994. 
Since 1990, 13 employers have withdrawn.
    As the Fund's contribution base declined, its contribution rate 
increased. In 1980, the highest hourly rate was $1.13; in 1986, that 
rate was $1.95; and in 1995, it was $2.93. Net employer contributions 
have declined from nearly $8 million in 1986 to $6.3 million in 1995. 
However, since 1992, contributions have increased slightly. In the 
1986-1995 period, benefit payments exceeded net contributions in all 
but one year. Plan assets increased by nearly 70 percent during this 
period.
    The Fund's unfunded vested benefits in 1992, the year prior to 
Kane's withdrawal, was $12 million; in 1993, it rose to $18 million. 
Since 1993, unfunded vested benefits have declined. In 1994, the figure 
was $5.8 million, and as of the January 1, 1996 valuation, the market 
value of assets slightly exceeded the actuarial present value of all 
accumulated benefits.
    The January 1, 1996 valuation indicates that projected employer 
contributions for 1996 would exceed the sum of normal cost, 15 year 
amortization of unfunded liabilities, and administrative costs 
(collectively, ``scheduled costs'') by 26 percent. In 1994 and 1995, 
contributions exceeded scheduled costs by 14 percent and 23 percent, 
respectively.
    Kane has filed a response urging the PBGC to reject the Fund's 
request on the basis that the Fund has not shown that it has suffered 
substantial damage to its contribution base. Kane asserts that the 
Fund's contribution base has been stable or even increasing, ``having 
grown by 3% between 1994 and 1995.'' Furthermore, according to Kane, 
the documents submitted by the Fund show ``no unfunded liability * * * 
projected contributions exceeding projected costs by more than 20% in 
1996, and tremendous income to the Fund from investment growth.''
    After reviewing the information submitted by the Fund and by Kane, 
the PBGC concludes that it is unable to find that the Fund has suffered 
substantial damage to its contribution base as a result of Kane's 
cessation of contributions considered together with other cessations. 
Although the information submitted shows that the Fund has experienced 
a significant decline in contribution base units (``CBU's'') and total 
contributions since the 1980's, these declines must be considered in 
the context of the Fund's overall financial condition, which has been 
improving. Unfunded vested benefits have declined since 1993 and annual 
contributions are in excess of the amount required to meet the minimum 
funding standard. Furthermore, the Fund's assets have increased by 
nearly 70 percent during the 1986-1995 period. Those conditions 
militate against a finding of substantial damage to the contribution 
base.
    Nevertheless, the facts presented do not demonstrate that the Fund 
has suffered no substantial damage to its contributions base as a 
result of employer cessations. Accordingly, the PBGC declines to find 
either substantial damage or no substantial damage, under ERISA 
sections 4203(d)(4) or (d)(5), respectively. The effect of this 
decision is that the bond or escrow furnished by Kane shall remain in 
place until the expiration of the 60-month period described in section 
4203(d)(4), unless and until the PBGC should hereafter be requested to 
and make a finding of either substantial damage or no substantial 
damage as a result of Kane's cessation considered together with other 
employer cessations.

    Issued at Washington, D.C., on this 30th day of December, 1997.
David M. Strauss,
Executive Director.
[FR Doc. 98-536 Filed 1-8-98; 8:45 am]
BILLING CODE 7708-01-P