| 84-2 |
| January 17, 1984 |
| REFERENCE: |
| 4021(a) Plans Covered. Requirements of Coverage |
| 4021(a)(1) Plans Covered. Tax Qualification in Practice |
| 4021(a)(2) Plans Covered. Tax Qualification by IRS Determination |
| 4042 Termination by PBGC |
| 29 CFR 2615 Reporting & Notification Requirements for Reportable Events |
| OPINION: |
| In a * * * order, Judge * * * of the United States District Court, * * * of * * *, remanded this case to the Pension Benefit |
| Guaranty Corporation ("PBGC") for a final decision as to whether the * * * * * * Fund * * * is a single pension plan or an |
| aggregate of separate plans. PBGC has carefully reviewed the materials in the administrative record n1 and the additional |
| information that has been submitted by counsel for the Fund and for the * * * Company (A). For the reasons stated |
| below, PBGC affirms its prior determination that the Fund is an aggregate of plans, and that * * * cessation of participation |
| therein constituted a plan termination under Title IV of the Employee Retirement Income Security Act ("ERISA"). |
| n1 Hereinafter "R" denotes references to the PBGC administrative record and "Supp." refers to the supplemental record |
| that PBGC submitted in * * *. |
| On * * *, B Inc. * * * and * * * Union (Local O) entered into a collective bargaining agreement which required them to |
| establish a pension plan. B and LOCAL O thereafter executed a trust agreement which created the B * * *, * * * Union |
| Pension Plan * * *, effective * * *. The name of the plan was changed to the * * * Fund ("the Fund") in * * *. |
| In * * *, A joined the Fund as a participating employer. At that time, A made contributions to the Fund pursuant to its |
| collective bargaining agreement with Local O, which represented A employees in the * * *, * * * area. In * * *, pursuant to |
| its collective bargaining agreement with * * * Union (Local X) * * *, A agreed to bring its * * *, * * * employees within the |
| In * * *, A closed all of its stores in the and * * * areas and ceased its participation in the Fund. The Fund thereafter |
| notified PBGC that A pension plan had terminated. |
| After several years of fact finding, consultation with the parties, review and negotiation, PBGC determined that the Fund |
| was an aggregate of separate pension plans, and that the plan established by A had terminated on * * *. On * * *, Matthew |
| Lind, then PBGC's Executive Director, sent a letter to the parties stating PBGC's decision. On * * *, PBGC applied to the |
| United States District Court, * * * of * * *, for an order to terminate the A Plan pursuant to 29 U.S.C. § 1342, and to |
| appoint PBGC trustee of the plan. The parties filed motions for summary judgment on the question of whether the Fund is |
| a single plan or an aggregate of plans. The court subsequently remanded the case to PBGC for a final determination on |
| The court ruled that the proper standard for PBGC to apply in this case is: |
| "Plan" means a single plan (whether it be a single employer, multiemployer or multiple employer plan), as opposed to a |
| number of plans, 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. [29 C.F.R. § 2615.2 (1982) (previously codified as 29 C.F.R. § 2617.2 |
| n2 PBGC has recently proposed an amendment which simplifies this provision, although it makes no substantive changes |
| in the definition of "Plan": |
| "Plan" means a single-employer plan as defined in section 4001(b)(2) of the Act. |
| 48 Fed. Reg. 37231 (1983). This proposed version of 29 C.F.R. § 2615.2 does not apply in this case. |
| PBGC's November 16, 1977 comments on this definition of a single plan provided in pertinent part: |
| A plan will not fail to be one plan solely because: |
| (1) The plan has two or more distinct benefit structures that apply either to the same or different groups of participants; |
| (2) The plan has several plan documents; |
| (3) Several employers, whether or not "affiliated" contribute to the plan; |
| (4) The assets of the plan are invested in several trusts or annuity contracts; |
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(5) The plan has purchased irrevocable commitments from an insurer to pay all or part of the participants' benefits; or |
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(6) Separate accounting is maintained for purposes of costs allocation, but not for purposes of providing benefits under the |
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plan. |
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* * * |
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[T]he PBGC would view a multiple employer plan-a plan to which more than one employer makes contributions, which does |
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not meet the full statutory definition of a multiemployer plan-as a single plan if, on an on-going basis, all plan assets are |
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available to satisfy all participants' benefits, even though the plan contains restrictions on its obligations to participants in |
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the event their employer withdraws from the plan. |
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* * * |
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In contrast, more than one plan exists if, on a going concern basis, a portion of the assets is not available to pay some of |
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the benefits, irrespective of whether each plan has the same benefit structure or plan document or if all of part of the |
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assets are involved in one trust. |
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42 Fed. Reg. 59285, 59286 (1977). n3 |
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n3 These PBGC comments demonstrated that PBGC had effectively adopted the Internal Revenue Service's counterpart |
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regulation, 26 C.F.R. § 1.414(1)-1(b)(1). See 42 Fed. Reg. 33770, 33771 (1977); 42 Fed. Reg. 59285, 59286 (1977). The |
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letters which were exchanged between the two agencies in 1977 confirmed that the intent of the drafters was to coordinate |
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their policies by promulgating consistent regulations. (R. 98-101, 104-105). |
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In the August 20, 1980 comments on the final version of 26 C.F.R. § 2617.2 (recodified as 26 C.F.R. § 2615.2), PBGC |
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further explained that: |
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Our determination as to the nature of an entity-whether it is a single plan or an aggregate of single plans-is based on its |
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structure and how it actually operates on an ongoing basis. We look to the documents governing the entity and to relevant |
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evidence of how it has operated and continues to operate. Such evidence may include the reasonable expectations and |
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intent of the parties. |
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The availability of funds held by an entity to provide benefits on an ongoing basis is a central factor in our analysis. |
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Ongoing restrictions on the use of such funds indicate that the entity may be an aggregate of single plans . . . . If the |
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evidence shows that payments are effectively restricted, by whatever means, so that there is a minimal risk of funds |
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attributable to the contributions of one employer being used to pay the benefits of another employer's employee- |
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participants, then the entity is an aggregate of single plans. |
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45 Fed. Reg. 55636, 55637 n.2 (1980). |
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Thus, the test which PBGC must apply in order to determine whether a given plan is a single plan or an aggregate of |
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separate plans is whether all of the plan assets are available to pay all benefits under the plan on an ongoing basis. The |
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guidelines which PBGC has published in the Federal Register will be followed. PBGC will evaluate the plan documents and |
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other relevant evidence of how the plan has operated or continues to operate, including evidence of the intent of the |
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parties and their reasonable expectations. |
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The first step in our analysis of the Fund is to review the documents under which the Fund was administered at the time A |
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ceased its contributions: the * * * Pension Fund Agreement and Declaration of Trust ("Trust Agreement"), and the * * * |
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Pension Fund Rules and Regulations ("Rules"). |
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The relevant provisions of the Trust Agreement state: |
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(1) each employer shall contribute to the Fund the amount required by the applicable collective bargaining agreement |
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between the employer and its union local (Article V, Section 1) (R. 337); |
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(2) an employer or union local may adopt and become a party to this Trust Agreement by executing a counterpart of it |
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(Article IX, Section 2) (R. 341); and |
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(3) the termination of an individual employer occurs when such an employer no longer is obligated to make contributions to |
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the Fund pursuant to a collective bargaining agreement with the union local, or when the trustees determine that such an |
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employer is delinquent in his contributions or reports to the Fund (Article XII, Section 1) (R. 344). |
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In addition, the Rules provide: |
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(1) an employer may be accepted by the trustees as a contributing employer if they determine that such acceptance will |
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not adversely affect the actuarial soundness of the Fund after they review the name, sex, date of birth and employment |
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history for each employee covered by the collective bargaining agreement between the union local and the employer |
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(Article II, Section 2) (R. 350); |
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(2) prior to acceptance of a new employer, the trustees must designate the benefit level that will be supported by the |
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contributions the employer will make for that employee group (Article III, Section 3(a)) (R. 351); |
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(3) a new employer's acceptance may be conditioned upon any special terms (to be incorporated in the standard |
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participation agreement it is required to sign) necessary to preserve the actuarial soundness of the Fund and an equitable |
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relationship between the employer's contributions and the benefits provided to each employee group (Article II, Section 4) |
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(4) the pension benefits payable to an employee who has worked for more than one contributing employer shall be the sum |
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of the amounts attributable to employment with each contributing employer (Article III, Section 3(h)(i)) (R. 369); and |
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(5) if a contributing employer ceases his contributions, the Fund will be liable for benefits to the employees of that |
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employer only to the extent that benefits can be provided by the contributions that employer has made (Article II, Section |
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There are no express requirements in the Trust Agreement or in the Rules that benefit payments must be restricted to |
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certain assets of the Fund in all circumstances; nor are there express requirements that all assets of the pension plan |
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must be available to satisfy all participants' benefits on an ongoing basis. As noted above, Article II, Section 6 of the |
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Rules limits the Fund's liability for the payment of benefits to participants after their employer has stopped contributing to |
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the Fund. This provision is not dispositive of the question here, however, because PBGC will view a plan to which more |
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than one employer contributes as a single plan if all plan assets are available to satisfy all participants' benefits on an |
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ongoing basis, regardless of whether the plan contains restrictions on its obligations to participants in the event their |
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employer withdraws from the plan. See supra at 3; 42 Fed. Reg. at 59286. As these documents do not clearly reveal |
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whether all of the plan assets are available to pay all benefits on an ongoing basis, we must examine evidence of the |
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Fund's actual practices. The administrative record shows the following: |
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(1) In 1969, the trustees adopted an amendment to Rules Article III, Section 3(a) changing the language which conditions |
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the admittance of a new employer group from "will not adversely affect the actuarial soundness of the fund" to "will be |
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supported by contributions to be made for that group" (R. 64); |
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(2) Correspondence between the President of Local O (a union trustee of the Fund) and A in * * * indicates that the Fund |
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had determined that A contributions were not sufficient to satisfy the benefit level set by the trustees for A participants |
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(R. 246, 247); |
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(3) In a * * * letter addressing the plan changes required by ERISA, the Fund's actuarial consultant informed the Executive |
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Officer of Local O (a union trustee of the Fund) that precise asset information would be needed for each participating unit |
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of the Fund (R. 267); |
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(4) The Fund Consultant reported at the * * * trustees' meeting that four employer units were underfunded, several months |
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before the termination of the A Plan (R. 415); |
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(5) Although the Fund's annual Financial Statements did not include allocations of assets to individual employers until the |
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plan year ending * * *, such information had been gathered and retained each plan year (R. 583-589, 672, 775, 960; Supp. |
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(6) The Fund's actuarial consultant stated that investment income and expenses were regularly allocated to employers |
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according to their share of assets and number of participants respectively (R. 775, 787); |
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(7) In 1975, the Fund's actuaries reconstructed their previous financial statements to include an allocation of assets among |
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the various employers (R. 672, 958); |
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(8) The only retire who had worked for more than one of the Fund's contributing employers received two pension checks |
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from the Fund each month which reflected each employer's payment of its proportional share of her benefits (R. 956, |
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(9) Information booklets were prepared for each employee group which stated the benefit level applicable to the particular |
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group, and that the cost of those benefits were to be borne by "your employer's contributions" (R. 123, 286, 322); and |
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(10) Several individuals who were involved in the establishment and operations of the Fund (including the representative of |
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B who participated in the negotiations which resulted in the establishment of the Fund as a successor to the B Plan, and |
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an actuary who was associated with the Fund from its inception) have submitted affidavits to PBGC attesting to the intent |
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of all parties that the Fund was to operate as a group of single plans joined together for administrative ease, joint |
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investment management and portability of benefits (R. 774-777, 947-952, 958-960). |
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The above facts and circumstances relevant to the status of the Fund at the time A ceased making contributions convince |
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us that all of the plan assets were not available on an ongoing basis to pay benefits to all Fund participants. Indeed, there |
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are a number of indications that the Fund restricted the use of assets attributable to a particular employer's contributions |
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when it paid benefits, and that the parties reasonably expected such restrictions. We find significant support for this |
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determination in the 1969 amendment of Rules Article III, Section 3(a); the 1973 correspondence between Local O and A |
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the 1975 report that four employer units were underfunded; the payment of separate benefit checks to a retiree who had |
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worked for two of the Fund's contributing employers; the affidavits of individuals who had been involved in the Fund's |
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establishment and operation; and the Fund's actuarial practices. n4 |
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n4 * * * argues that the Fund demonstrated its intent to operate as a single plan by filing consolidated returns with the |
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Department of Labor, the Internal Revenue Service, and PBGC before 1975. The fact that the Fund chose to file |
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consolidated government reports does not demonstrate whether all of the plan assets were available on an ongoing basis to |
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pay benefits to all participants, and accordingly, is not significant to our analysis. |
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A contends that even if the Fund were an aggregate of separate pension plans and there were a separate A pension plan, |
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the A Plan was not a covered plan under Title IV of ERISA because it did not satisfy the prerequisites to such coverage in |
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§ 4021(a) of ERISA, 29 U.S.C. § 1321(a)(1976). Specifically, A states that the A Plan failed to meet the "qualification |
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requirements" of § 401(a)(2) of the Internal Revenue Code ("the IRS") n5 (incorporated in § 4021(a) of ERISA), because |
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the A Plan had no trust instrument which imposed the necessary restrictions on the use of the corpus or income of the |
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n5 Section 401(a)(2) of the Internal Revenue Code, 26 U.S.C. § 401(a)(2) (Supp. V 1981), provides: |
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if under the trust instrument it is impossible, at any time prior to the satisfaction * * * of all liabilities with respect to |
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employees and their beneficiaries under the trust, for any part of the corpus or income to be (within the taxable year or |
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thereafter) used for, or diverted to, purposes other than for the exclusive benefit of his employees or their beneficiaries |
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(but this paragraph shall not be construed, in the case of a multiemployer plan, to prohibit the return of a contribution within |
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6 months after the plan administrator determines that the contribution was made by a mistake of fact or law (other than a |
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mistake relating to whether the plan is described in section 401(a) or the trust which is part of such plan is exempt from |
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taxation under section 501(a), or the return of any withdrawal liability payment determined to be an overpayment within 6 |
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months of such determination). Section 4021(a)(2) of ERISA provides, inter alia, that a plan is a covered plan if the |
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Secretary of the Treasury has determined that it meets the requirements of § 401(a) of the IRC. Before 1975 the |
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Internal Revenue Service had determined that the Trust Agreement of the Fund met the qualification requirements of the |
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IRC (R. 1367-1369, 1822). When A joined the Fund, it was required, as were all the other contributing employers of the |
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Fund, to execute a counterpart of the Trust Agreement and a participation agreement which incorporated the Rules (R. 341, |
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350). n6 A's execution of a separate Trust Agreement, together with its acquiescence in the Rules which restricted the |
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use of plan assets demonstrate that the A Plan satisfied § 4021(a)(2) of ERISA. Moreover, we note that even if the A |
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Plan had not had a written trust instrument, it could still be a covered plan under § 4021(a)(1) of ERISA. |
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n6 A has claimed that it had no control over the selection of trustees or over the way the trustees operated, but it has |
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failed to show that it was deprived of the control it had agreed to in the Trust Agreement. In any event, A's relationship to |
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the trustees is not probative with respect to the question of whether all of the plan assets were available on an ongoing |
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basis to pay benefits to all participants. A also argues that if the Fund were an aggregate of single plans, then there were |
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two A pension plans, one for each of the two union locals of A employees. A notes that it began contributing to the Fund |
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for its Local O employees in * * *, and for its Local X employees in * * *. A has not explained why this contribution history |
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means that all of the assets of the A Plan were not available on an ongoing basis to pay benefits to the employees in |
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both A union locals. In fact, Local O and Local X employees were not treated separately. The trustees changed the |
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benefit level for A employees in 1971 after they reassessed the actuarial data for the A employees of both union locals, |
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as the Rules required (R. 351, 475, 775); A made contributions at the same rate for both union locals (R. 247, 1851); and |
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actuarial valuations were performed on an employer basis (R. 672, 775; Supp. 38, 40). Therefore, we find that there was a |
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single A pension plan for the two union locals of A employees. |
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In summary, our conclusion that the Fund is an aggregate of separate pension plans is based upon the documents under |
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which the Fund was administered in 1975 and the additional evidence which demonstrates that the Fund's intent and |
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practice was to use the assets attributable to a particular employer's contributions only to pay the benefits of that |
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employer's employee-participants. Accordingly, we find that A's cessation of participation in the Fund constituted a plan |
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termination under Title IV of ERISA. n7 |
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n7 We stated the reasons that A's cessation of participation in the Fund constituted a plan termination in a * * * letter to |
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A's counsel (R. 718). Article XII, Section 1 of the Trust Agreement, see supra p. 5, further supports our determination that |
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a plan termination occurred. |
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Charles C. Tharp |
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Acting Executive Director |