Exemption From the Bond/Escrow Requirement Relating to the Sale of Assets by an Employer That Contributes to a Multiemployer Plan; San Francisco Baseball Associates, L.P.

PENSION BENEFIT GUARANTY CORPORATION

Exemption From the Bond/Escrow Requirement Relating to the Sale

of Assets by an Employer That Contributes to a Multiemployer Plan; San

Francisco Baseball Associates, L.P.

AGENCY: Pension Benefit Guaranty Corporation.

ACTION: Notice of exemption.

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SUMMARY: The Pension Benefit Guaranty Corporation has granted a request

from the San Francisco Baseball Associates, L.P. for an exemption from

the bond/escrow requirement of section 4204(a)(1)(B) of the Employee

Retirement Income Security Act of 1974, as amended, with respect to the

Major League Baseball Players Benefit Plan. A notice of the request of

exemption from the requirement was published on April 14, 1994 (59 FR

17803). The effect of this notice is to advise the public of the

decision on the exemption request.

ADDRESSES: The non-confidential portions of the request for an

exemption, public comments, and the PBGC response to the request are

available for public inspection at the PBGC Communications and Public

Affairs Department, Suite 240, 1200 K Street, NW., Washington, DC

20005-4026, between the hours of 9:00 a.m. and 4:00 p.m., Monday

through Friday.

FOR FURTHER INFORMATION CONTACT:

D. Bruce Campbell, Office of the General Counsel, Pension Benefit

Guaranty Corporation, 1200 K Street NW., Washington, DC 20005-4026;

telephone 202-326-4125 (202-326-4179 for TTY and TDD). These are not

toll-free numbers.

SUPPLEMENTARY INFORMATION:

Background

Section 4204 of the Employee Retirement Income Security Act of

1974, as amended by the Multiemployer Pension Plan Amendments Act of

1980 (``ERISA'' or ``the Act''), provides that a bona fide arm's-length

sale of assets of a contributing employer to an unrelated party will

not be considered a withdrawal if three conditions are met. These

conditions, enumerated in section 4204(a)(1) (A)-(C), are that--

(A) The purchaser has an obligation to contribute to the plan with

respect to the operations for substantially the same number of

contribution base units for which the seller was obligated to

contribute:

(B) The purchaser obtains a bond or places an amount in escrow, for

a period of five plan years after the sale, in an amount equal to the

greater of the seller's average required annual contribution to the

plan for the three plan years preceding the year in which the sale

occurred or the seller's required annual contribution for the plan year

preceding the year in which the sale occurred (the amount of the bond

or escrow is doubled if the plan is in reorganization in the year in

which the sale occurred); and

(C) The contract of sale provides that if the purchaser withdraws

from the plan within the first five plan years beginning after the sale

and fails to pay any of its liability to the plan, the seller shall be

secondarily liable for the liability it (the seller) would have had but

for section 4204.

The bond or escrow described above would be paid to the plan if the

purchaser withdraws from the plan or fails to make any required

contributions to the plan within the first five plan years beginning

after the sale.

Additionally, section 4204(b)(1) provides that if a sale of assets

is covered by section 4204, the purchaser assumes by operation of law

the contribution record of the seller for the plan year in which the

sale occurred and the preceding four plan years.

Section 4204(c) of ERISA authorizes the Pension Benefit Guaranty

Corporation (``PBGC'') to grant individual or class variances or

exemptions from the purchaser's bond/escrow requirement of section

4204(a)(1)(B) when warranted. The legislative history of section 4204

indicates a Congressional intent that the sales rules be administered

in a manner that assures protection of the plan with the least

practicable intrusion into normal business transactions. Senate

Committee on Labor and Human Resources, 96th Cong., 2nd Sess., S.1076,

The Multiemployer Pension Plan Amendments Act of 1980: Summary and

Analysis of Considerations 16 (Comm. Print, April 1980); 128 Cong. Rec.

S10117 (July 29, 1980). The granting of an exemption or variance from

the bond/escrow requirement does not constitute a finding by the PBGC

that a particular transaction satisfies the other requirements of

section 4204(a)(1).

Under the PBGC's regulation on variances for sales of assets (29

CFR Part 2643), a request for a variance or waiver of the bond/escrow

requirement under any of the tests established in the regulation

(Secs. 2643.12-2643.14) is to be made to the plan in question. The PBGC

will consider waiver requests only when the request is not based on

satisfaction of one of the four regulatory tests or when the parties

assert that the financial information necessary to show satisfaction of

one of the regulatory tests is privileged or confidential financial

information within the meaning of 5 U.S.C. 552(b)(4) (the Freedom of

Information Act).

Under Sec. 2643.3 of the regulation, the PBGC shall approve a

request for a variance or exemption if it determines that approval of

the request is warranted, in that it--

(1) Would more effectively or equitably carry out the purposes of

Title IV of the Act; and

(2) Would not significantly increase the risk of financial loss to

the plan.

Section 4204(c) of ERISA and section 2643.3(b) of the regulation

require the PBGC to publish a notice of the pendency of a request for a

variance or exemption in the Federal Register, and to provide

interested parties with an opportunity to comment on the proposed

variance or exemption. The PBGC received one comment on the request for

exemption.

The Decision

On April 14, 1994 (59 FR 17803), the PBGC published a notice of the

pendency of a request by the San Francisco Baseball Associates, L.P.

(the ``Buyer'') for an exemption from the bond/escrow requirement of

section 4204(a)(1)(B) with respect to its purchase of the San Francisco

Giants (the ``Seller''). According to the request, the Major League

Baseball Players Benefit Plan (the ``Plan'') was established and is

maintained pursuant to a collective bargaining agreement between the

professional major league baseball teams (the ``Clubs'') and the Major

League Baseball Players Association (the ``Players Association'').

The Clubs have established the Major Leagues Central Fund (the

``Central Fund'') pursuant to the ``Major League Agreement in re Major

Leagues Central Fund.'' Under this agreement, contributions to the Plan

for all participating employers are paid by the Office of the

Commissioner of Baseball from the Central Fund on behalf of each

participating employer in satisfaction of the employer's pension

liability under the Plan's funding agreement. The monies in the Central

Fund are derived directly from (i) gate receipts from All-Star games,

(ii) radio and television revenues from World Series, League

Championships, intradivision play-offs and All-Star games, and (iii)

certain other radio and television revenues, including revenues from

foreign broadcasts, of regular and exhibition games. During the 1992

Plan year, approximately $34.1 million was paid into the Plan on behalf

of all major league clubs. In that year revenues to the Central Fund

exceeded expenses, including contribution to the Plan, by approximately

$354 million.

Effective November 20, 1992, the Buyer and Seller entered into an

Asset Sale and Contribution agreement under which the Buyer agreed to

purchase substantially all of the assets and assume substantially all

of the liabilities of the seller relating to the business of employing

employees under the Plan. The contract of sale provides that the Buyer

agrees ``to contribute to the Plan substantially the same number of

contribution base units which the Seller had an obligation to

contribute to the Plan.'' The contract of sale further provides that

``[i]f the Buyer thereafter, but prior to the end of the fifth plan

year commencing after the closing, partially or completely withdraws

from the Plan, the Seller will be secondarily liable for any withdrawal

liability it would have had to the Plan * * *.'' the final closing of

the transaction occurred on January 14, 1993. The amount of the bond/

escrow that would be required under section 4204 (a)(1)(B) of ERISA is

$1,412,077. The estimated amount of the withdrawal liability that the

Seller would incur if not for Section 4204 is $4,796,483.

The Comment received by the PBGC suggested that the request for

exemption be denied based on the possibility that revenues payable to

the Central Fund may not be sufficient to provide contributions to the

Plan in the future. In support, the commenter cited an expected

decrease in revenues under the terms of a new network television

contract, the primary source of revenue for the Central Fund; the

possibility of a work stoppage during negotiations to implement a

salary cap as part of a new collective bargaining agreement; and

diminished fan loyalty and attendance due to high player salaries,

inflated ticket prices, poor management, and other factors.

The PBGC notes that the bond/escrow requirement is intended to

assure the payment of the Buyer's withdrawal liability if the Buyer

withdraws from the Plan in the five plan years following the sale of

assets, and the Buyer is unable to pay withdrawal liability that would

otherwise have been paid by the Seller had section 4204 not applied to

the transaction. The factors cited by the commenter do not

substantially affect the Plan's ability to collect withdrawal liability

from the Buyer, as compared with the Plan's ability to collect

withdrawal liability from the Seller had section 4204 not applied to

the transaction. We also note that the Seller remains secondarily

liable under section 4204(a)(2) for withdrawal liability, regardless of

whether the Buyer receives an exemption from the bond/escrow

requirement.

In addition, the Plan's public filings indicate that the Plan is

financially sound. The Plan's most recent annual return/report (Form

5500) states that the Plan had approximately $708 million in assets as

of the close of the plan year on March 31, 1993. While the plan

incurred approximately $63 million in expenses for that plan year, the

Plan's investment earnings were nearly $100 million.

Accordingly, based on the facts of this case and the

representations and statements made in connection with the request for

an exemption, the PBGC has determined that an exemption from the bond/

escrow requirement is warranted, in that it would more effectively

carry out the purposes of title IV of ERISA and would not significantly

increase the risk of financial loss to the Plan. Therefore, the PBGC

hereby grants the request for an exemption for the bond/escrow

requirement. The granting of an exemption or variance from the bond/

escrow requirement of section 4204(a)(1)(B) does not constitute a

finding by the PBGC that the transaction satisfies the other

requirements of section 4204(a)(1). The determination of whether the

transaction satisfies such other requirements is a determination to be

made by the Plan sponsor.

Issued at Washington, DC, on this 14th day of July, 1994.

Martin Slate,

Executive Director.

[FR Doc. 94-17641 Filed 7-19-94; 8:45 am]

BILLING CODE 7708-01-M