Exemption From Bond/Escrow Requirement Relating to Sale of Assets by an Employer Who Contributes to a Multiemployer Plan; Tuscan Dairy Farms, Inc.

PENSION BENEFIT GUARANTY CORPORATION

Exemption From Bond/Escrow Requirement Relating to Sale of Assets

by an Employer Who Contributes to a Multiemployer Plan; Tuscan Dairy

Farms, 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 Tuscan Dairy Farms, 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, with respect to the Local 584 Pension

Trust Fund. A notice of the request for exemption from the requirement

was published on July 24, 1996 (61 FR 38481). 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

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, N.W., Washington, DC 20005-4026, between the

hours of 9:00 a.m. and 4:00 p.m, Monday through Friday.

FOR FURTHER INFORMATION CONTACT: Karen L. Morris, Attorney, Office of

General Counsel, Pension Benefit Guaranty Corporation, 1200 K Street,

N.W., Washington, D.C. 20005; telephone 202-326-4127 (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 4204, available at 61 FR 34002, 34084 (July 1, 1996)), a

request for a variance or waiver of the bond/escrow requirement under

any of the tests established in the regulation (29 CFR 4204.12-4204.14)

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. 4204.22 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 4204.22(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 24, 1996 (61 FR 38481), the PBGC published a request from

Tuscan Dairy Farms, Inc. (the ``Purchaser'') for an exemption from the

bond/escrow requirement of section 4204(a)(1)(B) with respect to its

August 18, 1995, purchase of certain assets of American Farms, Inc.,

Progressive Milk Co., Ltd., and 339 Milk, Inc. (the ``Sellers''). No

comments were received in response to the notice.

According to the request, on August 18, 1995, the Purchaser

acquired certain assets of the Sellers. The Sellers were obligated to

contribute to the Local 584 Pension Trust Fund (the ``Plan'') for

certain employees at operations subject to the sale. The Purchaser is

required to contribute to the Plan for substantially the same number of

contribution base units with respect to employees of the Sellers who

work at operations subject to the sale. The Sellers have agreed to be

secondarily liable for any withdrawal liability they would have had

with respect to the sold operations (if not for section 4204) should

the Purchaser withdraw from the Plan within five years of the sale and

fail to pay its withdrawal liability.

The estimated amount of the unfunded vested benefits allocable to

the Sellers with respect to the operations subject to the sale is

$177,657. The Purchaser does not have an estimate of the unfunded

vested benefits allocable to it for its other operations covered under

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

section 4204 (a)(1)(B) of ERISA is approximately $123,905.

[[Page 53466]]

The Purchaser submitted a financial statement showing the amount of

its net tangible assets. The Purchaser asserted that even though it

does not have an estimate of the unfunded vested benefits allocable to

its other operations, even if the total unfunded vested benefits of the

Plan were allocated to those other operations, Purchaser's net tangible

assets exceed the sum of the unfunded vested benefits allocable to the

Sellers and the maximum amount that could be allocable to its other

operations. The Purchaser has requested confidential treatment of its

financial statements on the ground that they are confidential within

the meaning of 5 U.S.C. 552.

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. Moreover, the PBGC has determined that the

Buyer satisfies the net tangible assets test contained in section

4204.13(a)(2) of the regulation, and would be entitled to a variance of

the bond/escrow requirement from the Plan under section 4204.11 of the

regulation. 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.

Issued at Washington, D.C., on this 7th day of October, 1996.

Martin Slate,

Executive Director.

[FR Doc. 96-26182 Filed 10-10-96; 8:45 am]

BILLING CODE 7708-01-P