Exemption From the Bond/Escrow Requirement Relating to the Sale of Assets by an Employer Who Contributes to a Multiemployer Plan; Dunham-Bush, Inc.

PENSION BENEFIT GUARANTY CORPORATION

Exemption From the Bond/Escrow Requirement Relating to the Sale

of Assets by an Employer Who Contributes to a Multiemployer Plan;

Dunham-Bush, Inc.

AGENCY: Pension Benefit Guaranty Corporation.

ACTION: Notice of exemption.

-----------------------------------------------------------------------

SUMMARY: The Pension Benefit Guaranty Corporation has granted a request

by Dunham-Bush, 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 Sheet Metal Workers' National

Pension Fund. A notice of the request for an exemption from the

requirement was published on December 20, 1996 (61 FR 67355). 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 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 a.m. and 4 p.m., Monday through Friday.

FOR FURTHER INFORMATION CONTACT: Thomas T. Kim, Office of the General

Counsel, Pension Benefit Guaranty Corporation, 1200 K Street NW.,

Washington, DC 20005-4026; telephone 202-326-4020 ext. 3581 (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

contributions 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.

[[Page 16205]]

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 (the ``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 Consideration 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 4204), a request for a variance or waiver of the bond/escrow

requirement under any of the tests established in the regulation

(Secs. 4204.12-4204.13) 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 three 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 section 552(b)(4) of 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 Sec. 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 December 20, 1996 (61 FR 67355), the PBGC published a notice of

request from Dunham-Bush, Inc. (the ``Buyer'') for an exemption from

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

its January 6, 1995 purchase of certain assets of Allagash Fluid

Controls, Inc., which was formerly known as Dunham-Bush, Inc. (the

``Seller''). No comments were received in response to the notice during

the comment period.

According to the request, on January 6, 1995, the Buyer acquired

certain assets of the Seller. The Seller was obligated to contribute to

the Sheet Metal Workers' National Pension Plan (the ``Plan''). The

Buyer has assumed the Seller's obligation to contribute to the Plan at

the purchased operations, and continues to make contributions for

substantially the same number of contribution base units as the Seller.

The Seller has agreed to be secondarily liable for any withdrawal

liability it would have had with respect to the sold operations (if not

for section 4204) should the Buyer withdraw from the Plan within the

five plan years following the sale and fail to pay withdrawal

liability.

The estimated amount of the unfunded vested benefits allocable to

the Seller with respect to the operations sold is $3,000,000. The

amount of the bond/escrow required under section 4204(a)(1)(B) is

$545,409.29.

The Buyer submitted its financial statement as of January 26, 1996.

According to that statement, the Buyer's net tangible assets are just

over $20 million, which is in excess of the unfunded vested benefits

allocable to the Seller.

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 from the bond/escrow requirement. The granting

of an exemption 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 26th day of March, 1997.

John Seal,

Acting Executive Director.

[FR Doc. 97-8606 Filed 4-3-97; 8:45 am]

BILLING CODE 7708-01-P