Exemption From Bond/Escrow Requirement Relating to Sale of Assets by an Employer Who Contributes to a Multiemployer Plan; Associated Wholesale Grocers, Inc.

PENSION BENEFIT GUARANTY CORPORATION

Exemption From Bond/Escrow Requirement Relating to Sale of Assets

by an Employer Who Contributes to a Multiemployer Plan; Associated

Wholesale Grocers, Inc.

Agency: Pension Benefit Guaranty Corporation.

Action: Notice of exemption.

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SUMMARY: The Pension Benefit Guaranty Corporation has granted a request

from Associated Wholesale Grocers, Inc. 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. A notice of the request for

exemption from the requirement was published on July 14, 1995 (60 FR

36316). The effect of this notice is to advise the public of the

decision on the exemption request.

ADDRESSES: The nonconfidential portions of the request for an exemption

[[Page 55745]]

and the PBGC response to the request are available for public

inspection at the PBGC Communications and Public Affairs Department,

Suite 240, at the address below, between the hours of 9:00 a.m. and

4:00 p.m.

FOR FURTHER INFORMATION CONTACT: Gennice D. Brickhouse, Attorney,

Office of General Counsel (22550), Pension Benefit Guaranty

Corporation, 1200 K Street NW., Washington, D.C. 20005; telephone 202-

326-4029 (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 to result in 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). Such questions are to be decided by the plan

sponsor in the first instance, and any disputes are to be resolved in

arbitration. 29 U.S.C. 1382, 1399, 1401.

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 (29

CFR 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. section 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 Sec. 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 Decision

On July 14, 1995 (60 FR 36316), the PBGC published a request from

Associated Wholesale Grocers, Inc. (the ``Buyer'') for an exemption

from the bond/escrow requirement of section 4204(a)(1)(B) with respect

to its April 21, 1995, purchase of certain assets of Homeland Stores,

Inc. (the ``Seller''). No comments were received in response to the

notice.

According to the request, the Buyer and Seller entered into an

Asset Purchase Agreement for the Buyer to purchase, among other things,

assets of the Seller in the form of a distribution center located in

Oklahoma City and a number of retail stores located in Oklahoma. The

final closing of the transaction occurred on April 21, 1995.

Pursuant to a collective bargaining agreement, the Seller

contributes to the Central States Southwest and Southeast Areas Pension

Fund (the ``Plan'') for employees at operations subject to the sale.

Pursuant to collective bargaining agreements, the Buyer is also a

contributing sponsor under the Plan.

It is anticipated that the Buyer will enter into a collective

bargaining agreement whereby the Buyer will be required to contribute

to the Plan for substantially the same number of contribution base

units with respect to employees of the Seller who work at operations

subject to the sale. Under a Supplemental Agreement, the Seller has

agreed to be secondarily liable for any withdrawal liability it would

have had with respect to sold operations (if not for section 4204))

should the Buyer withdraw from the Plan within five years of the sale.

The amount of the bond/escrow that would be required under section

4204 (a)(1)(B) of ERISA is $1,000,000.

Based on 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 from 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.

[[Page 55746]]

Issued at Washington, D.C., on this 24th day of October, 1995.

Martin Slate,

Executive Director.

[FR Doc. 95-27200 Filed 11-1-95; 8:45 am]

BILLING CODE 7708-01-P