| 89-02 |
| February 14, 1989 |
| REFERENCE: |
| 4201 Withdrawal Liability Established |
| 4203 Complete Withdrawal |
| 4205 Partial Withdrawals |
| 4208(d) Reduction of Partial Withdrawal Liability. Building & Construction Industry Exemption |
| 4212(a) Obligation to Contribute - Definitions |
| 4231 Mergers & Transfers Between Multiemployer Plans |
| 4234(c) Written reciprocity agreements |
| OPINION: |
| We write in response to your request for opinions of the Pension Benefit Guaranty Corporation ("PBGC") regarding the |
| application of certain provisions of the Employee Retirement Income Security Act of 1974 ("ERISA") to the adoption of a |
| reciprocity agreement by a multiemployer defined benefit pension plan. |
| The reciprocity agreement in question is an agreement among several multiemployer pension plans maintained pursuant to |
| collective bargaining agreements involving locals of a single construction industry union. Under the agreement, upon the |
| request of an employee covered by one of the participating plans (the employee's "home fund") who is working temporarily |
| in the jurisdiction of another participating plan (the "temporary fund"), the temporary fund must transfer to the employee's |
| home fund contributions "made on his behalf" to the temporary fund by the temporary employer. The home fund must |
| treat the transferred amounts "as the equivalent of Contributions" and grant the employee vesting and benefit accrual |
| credit for the hours worked for the temporary employer. The agreement also contains the following provisions: |
| For purposes of the Pension Benefit Guaranty Corporation (PBGC), the Temporary Employee shall not be considered a |
| participant in the [Temporary] Fund if [contributions on the employee's behalf] are transferred to the Temporary |
| Employee's Home Fund. |
| No Participating Fund shall be liable to any other Participating Fund for any sum whatsoever except to the extent |
| Contributions made on Temporary Employees are in fact collected. |
| No employer shall be considered a contributing employer in any Participating Fund or Funds other than the Fund or Funds |
| to which he is bound to contribute pursuant to the terms of a collective bargaining agreement which he has signed or |
| One of your questions is whether the requirements of section 4231 of ERISA apply to transfers under the reciprocity |
| agreement. Section 4231 prescribes rules governing the transfer of assets and liabilities generally between defined benefit |
| multiemployer plans. However, section 4234(c) of ERISA provides that -- |
| [t]his part [part 2 of subtitle E of Title IV of ERISA, including section 4231] shall not apply to transfers of assets pursuant |
| to written reciprocity agreements, except to the extent provided in regulations prescribed by the corporation. |
| The PBGC has prescribed no regulations on this subject, and thus section 4231 is inapplicable to transfers of assets (and |
| any accompanying liabilities) under any reciprocity agreement. |
| Your other question is whether the adoption of the reciprocity agreement by a defined benefit multiemployer plan makes |
| that plan's contributing employers potentially liable for withdrawal liability to other defined benefit multiemployer plans |
| participating in the agreement. When an employer under the adopting plan hires a temporary employee from another plan's |
| jurisdiction, its contributions for that employee may be transferred to the employee's home fund under the reciprocity |
| agreement. As you suggest, the employer might be considered to have an obligation to contribute to the home fund |
| (notwithstanding the language to the contrary in the reciprocity agreement) and thus might be subject to potential withdrawal |
| liability to the home fund if such a contribution obligation ceased. You ask for assurance that employers contributing to |
| one plan would not, because of the reciprocity agreement, be exposed to possible withdrawal liability to other participating |
| Under ERISA, the initial responsibility for determining whether a particular action constitutes a withdrawal from a |
| multiemployer plan, and the amount of any liability resulting therefrom, lies with the plan sponsor. ERISA further provides |
| that any disputes between a plan sponsor and an employer on these issues are to be resolved first through arbitration and |
| then, if necessary, in the courts. Thus it would be inappropriate for the PBGC to interject itself in such a determination by |
| issuing an opinion on the application of the law to a particular transaction. However, the PBGC will continue its practice of |
| answering general interpretive questions regarding Title IV of ERISA. |
|
The reciprocity agreement in issue here purports to provide, in the sections quoted above, that when an employer's |
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contributions for a temporary employee are transferred to a home fund, the employee is not a participant in the temporary |
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fund and the employer is not a contributing employer in the home fund. However, ERISA contains provisions defining the |
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terms "participant," "employer," and "obligation to contribute" that cannot be varied by agreement. Thus, while the |
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provisions of the reciprocity agreement -- and of the collective bargaining agreement, plan, and other documents -- may |
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have a bearing on questions regarding status as a participant or as an employer having an obligation to contribute, they are |
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not of themselves dispositive of those questions. |
|
Section 4201 of ERISA imposes withdrawal liability on employers that withdraw from a multiemployer plan in a complete or |
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partial withdrawal. Under section 4203(a) of ERISA, a complete withdrawal occurs when an employer permanently ceases |
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to have an obligation to contribute under the plan or permanently ceases all covered operations under the plan. ERISA |
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section 4203(b) provides a special rule for employers and plans in the building and construction industry (as therein |
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defined) under which a complete withdrawal occurs only if the employer ceases to have an obligation to contribute under |
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the plan, and either continues to perform work in the jurisdiction of the collective bargaining agreement of the type for |
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which contributions were previously required, or resumes such work within five years after the obligation to contribute |
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under the plan ceased, without renewing the obligation to contribute. |
|
Under section 4205 of ERISA, a partial withdrawal occurs when an employer has a 70 percent contribution decline in each |
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of three consecutive plan years; or, the employer permanently ceases to have an obligation to contribute under one or |
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more but fewer than all collective bargaining agreements, but continues to perform work in the jurisdiction of the collective |
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bargaining agreement of the type for which contributions were previously required, or transfers such work; or, the employer |
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permanently ceases to have an obligation to contribute with respect to work performed at one or more but fewer than all of |
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its facilities, while continuing to perform work at the facility of the type for which the obligation to contribute ceased. For |
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employers and plans in the building and construction industry (as defined in section 4203(b)), ERISA section 4208(d)(1) |
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makes an employer liable for a partial withdrawal only if the employer's obligation to contribute is continued for no more |
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than an insubstantial portion of its work in the craft and area jurisdiction of the collective bargaining agreement of the type |
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Whether an employer has an obligation to contribute to a plan is thus central to any discussion of whether a withdrawal can |
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occur. An employer cannot withdraw from a plan to which it has no obligation to contribute. Section 4212(a) of ERISA |
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defines "obligation to contribute" broadly as an obligation to contribute arising under one or more collective bargaining (or |
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related) agreements, or as a result of a duty under applicable labor-management relations law. The committees that |
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considered the Multiemployer Pension Plan Amendments Act of 1980, which added sections 4201 - 4225 to ERISA, |
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intended this definition to -- apply to any situation in which an employer has directly or indirectly agreed to make |
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contributions to a plan . . . includ[ing] cases in which the employer signs a collective bargaining agreement or a related |
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agreement such as a participation agreement or memorandum of understanding, and cases in which the employer agreed |
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126 Cong. Rec. 23,287 (1980) (remarks of Sen. Williams) (emphasis supplied). |
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There is, however, other legislative history that may be read as limiting the breadth of this language where reciprocity |
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agreements are concerned. In discussing the provision that became section 4234(c) of ERISA (quoted above), the House |
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Committee on Education and Labor said: |
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The committee has exempted written reciprocity agreements from asset transfer rules, except to the extent the corporation |
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determines application of the rules is necessary. The committee believes that it is important to encourage expansion of |
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reciprocals to enhance pension portability. |
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H.R. Rep. No. 869, 96th Cong., 2d Sess., pt. I, at 70 (1980). The PBGC believes that this comment evidences a |
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Congressional intent that ERISA not be applied to reciprocity agreements in a manner that would discourage their use as |
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aids to pension portability. Clearly, the use of reciprocity agreements might be discouraged if, simply by contributing |
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pursuant to a collective bargaining agreement for employees who elect to have contributions transferred to their home |
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plans under a plan that adopted such a reciprocity agreement, an employer were exposed to potential withdrawal liability to |
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other defined benefit plans to which contributions might be transferred under the agreement. Accordingly, it is the PBGC's |
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opinion that an appropriately structured reciprocity agreement does not in and of itself create in any employer an obligation |
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to contribute, within the meaning of section 4212(a), to any transferee plan. |
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On the other hand, the PBGC believes that circumstances could be created in which a reciprocity agreement -- either alone |
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or in combination with other agreements -- could reflect an undertaking by contributing employers under one plan of an |
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obligation to contribute to one or more other plans. Because it is impossible to predict the kinds of fact situations that |
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might arise in this area, the PBGC considers it unwise to speculate about the nature of the circumstances in which such an |
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undertaking might be found. However, the PBGC believes that the recurrent transfer of relatively large amounts under a |
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reciprocity agreement could suggest the existence of an obligation to contribute; conversely, to the extent that transfers |
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are relatively small and irregular, it would appear less likely that an obligation to contribute exists. |
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If you have any further questions about this matter, you may call Deborah C. Murphy of my office at 202-778-8820. |
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John H. Falsey |
|
Acting General Counsel |