Pendency of Request for Approval of Special Withdrawal Liability Rules; International Longshoremen's and Warehousemen's Union-Pacific Maritime Association Pension Plan

PENSION BENEFIT GUARANTY CORPORATION

Pendency of Request for Approval of Special Withdrawal Liability

Rules; International Longshoremen's and Warehousemen's Union-Pacific

Maritime Association Pension Plan

AGENCY: Pension Benefit Guaranty Corporation.

ACTION: Notice of pendency of request.

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SUMMARY: This notice advises interested persons that the Pension

Benefit Guaranty Corporation (``PBGC'') has received a request from the

International Longshoremen's and Warehousemen's Union-Pacific Maritime

Association Pension Plan for approval of a plan amendment modifying

special withdrawal liability rules, which rules were approved by PBGC

on January 30, 1984. See Approval of Special Withdrawal Liability Rules

(``Notice of Approval'') 49 FR 6043 (February 16, 1984). Under section

4203(f) of the Employee Retirement Income Security Act of 1974, as

amended (``ERISA''), PBGC may prescribe regulations under which plans

in industries other than the construction or entertainment industries

may be amended to provide for special withdrawal liability rules. PBGC

has prescribed such regulations at 29 CFR Part 4203. The regulations

provide that PBGC approval is required for a plan amendment

establishing special withdrawal liability rules, as well as any

subsequent modification of a previously approved plan amendment, other

than repeal of the amendment. The effect of this notice is to advise

interested persons of this request for approval of a modification to

special withdrawal liability rules and to invite interested persons to

submit written comments on it.

DATES: Comments must be submitted on or before March 20, 1998.

ADDRESSES: All written comments (at least three copies) should be

addressed to: Office of the General Counsel, Pension Benefit Guaranty

Corporation, 1200 K Street, N.W., Washington, DC 20005-4026, or hand-

delivered to Suite 340 at the above address. The complete request for

approval and any comments will be available for public inspection

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

PBGC's Communications and Public Affairs Department, Suite 240, at the

above address.

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

Office of the General Counsel (22500), Pension Benefit Guaranty

Corporation, 1200 K Street, N.W., Washington, DC 20005-4026; Telephone

202-326-4020. (For TTY and TDD, call the Federal relay service at 1-

800-877-8339 and ask to be connected to 202-326-4020).

SUPPLEMENTARY INFORMATION:

Background

Under section 4203(a) of ERISA, a complete withdrawal from a

multiemployer plan occurs, generally, when an employer permanently

ceases to have an obligation to contribute under the plan or

permanently ceases all covered operations under the plan. Under section

4205 of ERISA, a partial withdrawal occurs, generally, when an

employer: (1) Reduces its contribution base units by seventy percent in

each of three consecutive years; or, (2) permanently ceases to have an

obligation to contribute under one or more but fewer than all

collective bargaining agreements under which the employer has been

obligated to contribute under the plan, while continuing to perform

work in the jurisdiction of the collective bargaining agreement of the

type for which contributions were previously required or transfers such

work to another location; or, (3) permanently ceases to have an

obligation to contribute under the plan for work performed at one or

more but fewer than all of its facilities, while continuing to perform

work at the facility of the type for which the obligation to contribute

ceased. Although the general rules on complete

[[Page 5574]]

and partial withdrawal identify events that normally result in a loss

to the plan's contribution base, Congress recognized that, in certain

industries and under certain circumstances, a complete or partial

cessation of the obligation to contribute does not normally weaken the

plan's contribution base. For that reason, Congress established special

withdrawal rules for the construction and entertainment industries.

For construction industry plans and employers, section 4203(b)(2)

of ERISA provides that a complete withdrawal occurs only if an employer

ceases to have an obligation to contribute under a plan, and the

employer either continues to perform previously covered work in the

jurisdiction of the collective bargaining agreement or resumes such

work within five years without renewing the obligation to contribute at

the time of resumption. Section 4203(c)(1) of ERISA applies the same

special definition of complete withdrawal to the entertainment

industry, except that the pertinent jurisdiction is the jurisdiction of

the plan rather than the jurisdiction of the collective bargaining

agreement. In contrast, the general definition of complete withdrawal

in section 4203(a) of ERISA defines a withdrawal to include permanent

cessation of the obligation to contribute regardless of the continued

activities of the withdrawn employer.

Congress also established special partial withdrawal liability

rules for the construction and entertainment industries. Under section

4208(d)(1) of ERISA, ``[a]n employer to whom section 4203(b) (relating

to the building and construction industry) applies is liable for a

partial withdrawal only if the employer's obligation to contribute

under the plan is continued for no more than an insubstantial portion

of its work in the craft and area jurisdiction of the collective

bargaining agreement of the type for which contributions are

required.'' Under section 4208(d)(2) of ERISA, ``[a]n employer to whom

section 4203(c) (relating to the entertainment industry) applies shall

have no liability for a partial withdrawal except under the conditions

and to the extent prescribed by the [PBGC] by regulation.''

Section 4203(f) of ERISA provides that PBGC may prescribe

regulations under which plans in industries other than the construction

or entertainment industries may be amended to provide for special

withdrawal liability rules similar to the rules prescribed in section

4203(b) and (c) of ERISA for the construction and entertainment

industries. Section 4203(f)(2) of ERISA provides that such regulations

shall permit the use of special withdrawal liability rules only in

industries (or portions thereof) in which PBGC determines that the

characteristics that would make use of such rules appropriate are

clearly shown, and in each instance, the use of such rules will not

pose a significant risk to the insurance system under Title IV of

ERISA. Section 4208(e)(3) of ERISA provides that PBGC shall prescribe

by regulation a procedure by which a plan may by amendment adopt

special partial withdrawal liability upon a finding by PBGC that the

adoption of such rules are consistent with the purposes of Title IV of

ERISA.

A PBGC regulation, Extension of Special Withdrawal Liability Rules

(29 CFR Part 4203), prescribes procedures whereby a multiemployer plan

may, pursuant to sections 4203(f) and 4208(e)(3) of ERISA, request PBGC

to approve a plan amendment that establishes special complete or

partial withdrawal liability rules. Under 29 CFR 4203.3(a), a complete

withdrawal rule adopted pursuant to Part 4203 must be similar to the

rules for the construction and entertainment industries described in

section 4203(b) and (c) of ERISA. A partial withdrawal liability rule

adopted pursuant to Part 4203 must be consistent with the complete

withdrawal rule adopted by the plan. Pursuant to 29 CFR 4203.3(b), a

plan amendment adopted pursuant to Part 4203 may cover an entire

industry or industries, or may be limited to a segment of an industry,

and may apply to cessations of the obligation to contribute that

occurred prior to the adoption of the amendment.

Each request for approval of a plan amendment establishing special

withdrawal liability rules must contain the information specified in 29

CFR 4203.4(d). In acting on such a request, 29 CFR 4203.5(a) provides

that PBGC shall approve a plan amendment establishing special

withdrawal liability rules if PBGC determines that the plan amendment--

(1) Will apply only to an industry that has characteristics that

would make use of the special withdrawal rules appropriate; and

(2) Will not pose a significant risk to the insurance system.

In making these determinations, PBGC will conduct a comprehensive

analysis of the request, the actuarial data submitted and other

relevant information relating to the industry and the plan. 29 CFR

4203.4. Under 29 CFR 4203.4(d)(7), the plan must provide information on

the effects of the withdrawals on the plan's contribution base, as well

as information sufficient to demonstrate the existence of industry

characteristics that would indicate that withdrawals in the industry do

not typically have an adverse effect on the plan's contribution base.

(These characteristics include the mobility of the employees, the

intermittent nature of the employment, the project-by-project nature of

the work, extreme fluctuations in the level of an employer's covered

work under the plan, the existence of a consistent pattern of entry and

withdrawal by employers, and the local nature of the work performed.)

29 CFR 4203.4(d)(7).

Finally, 29 CFR 4203.5(b) requires PBGC to publish a notice of the

pendency of a request for approval of a plan amendment containing all

the information required under 29 CFR 4203.4(d) in the Federal

Register, and to provide interested parties with an opportunity to

comment on the request.

Request

PBGC has received a request from the International Longshoremen's

and Warehousemen's Union-Pacific Maritime Association Pension Plan

(``Plan'') for approval of a modification to a plan amendment providing

for special withdrawal liability rules, which rules were approved by

PBGC on January 30, 1984 (Notice of Approval, 49 FR 6043 (1984)),

pursuant to section 4203(f) of ERISA and 29 CFR Part 4203. Pertinent

information provided by the Plan is summarized below.

Applicant

The Plan is a multiemployer plan, with 114 employers contributing

in 1996, maintained pursuant to collective bargaining agreements

between the International Longshoremen's & Warehousemen's Union

(``ILWU'') and the Pacific Maritime Association (``PMA''). The Plan,

which is located in San Francisco, covers the loading and unloading of

all dry cargo for ocean-going vessels arriving at or departing from

ports along the Pacific coast of the United States, including all ports

in the states of California, Oregon and Washington. The only cargoes

not covered by the Plan are petroleum products and other liquid cargoes

and certain cargoes handled by inland boatmen.

Employer Association

The PMA is an employer association whose principal business is to

negotiate and administer maritime labor agreements with ILWU. The PMA

is composed of American and foreign flag vessel operators, and

stevedore and

[[Page 5575]]

terminal companies that operate in California, Oregon and Washington

ports.

Plan

As of June 30, 1996, the Plan covered 8,185 active workers, was

paying benefits to 9,049 pensioners and survivors, and had 87 inactive

participants (or survivors) with vested entitlements. As of June 30,

1997, the market value of Plan assets was approximately $1.631 billion

and the present value of vested liabilities was approximately $1.640

billion. For the Plan year ending June 30, 1995, the Plan received

$99.7 million in contributions, and paid out $95 million in benefits

and $1.9 million in operating expenses. As of June 30, 1996, Plan

assets were more than 13 times total Plan disbursements during the July

1, 1995--June 30, 1996 plan year.

Plan benefit levels are set in negotiations between the PMA and the

ILWU. Contribution rates to the Plan, which are on the basis of man-

hours, are determined annually, solely by the PMA. Only the stevedoring

firms, which are the direct employer of covered employees, contribute

to the Plan.

The total number of contributing employers has remained relatively

stable since 1971. There were 110 contributors in 1972, 107 in 1979,

and 114 in 1996. Forty-two percent of the 1996 contributors were not

contributors in 1979, and nearly 40 percent of the 1979 contributors

were no longer contributing by 1996.

Special Characteristics of the Plan

Since 1938, the Pacific coast has been certified by the National

Labor Relations Board as a single bargaining unit, with the ILWU

certified as the exclusive bargaining representative. Every Pacific

coast port is under the jurisdiction of the ILWU-PMA Pension Agreement

requiring contributions to the Plan for covered work. The Plan states

in its request that, because of this characteristic, ``the [Plan] is

dependent on the vitality of the west coast shipping industry as a

whole, and not upon the continued existence of any given employer.''

According to the Plan's request, over the past four decades the

west coast shipping industry has grown steadily and it looks forward to

increased growth in the future. Total dry cargo at all covered ports

amounted to 29 million tons in 1960, 114 million tons in 1980, 182

millions tons in 1990 and 216 million tons in 1996. Because of dramatic

productivity gains, this increased shipping activity did not result in

increased manpower utilization. For a time, the industry did not

require new workers to replace those retiring from the work force. This

accounts for the current high ratio of retirees to active employees

covered by the Plan. However, the gains in productivity and the

consequent drop in unit labor costs did make it possible to increase

wages, contribution rates and total contributions during a period in

which the utilization of labor decreased.

It now appears that productively gains alone can no longer keep

pace with the increase in shipping activity. Covered man-hours have

remained relatively consistent with prior periods from less than 16

million in 1975 to more than 18 million in 1980. However, with the

recent growth in trade, covered man-hours have increased from as few as

15.6 million in 1993 to over 18 million in 1996.

Industry Characteristics

Work covered under the Plan is dependent on the comings and goings

of ocean-going vessels at west coast ports. The work done by a covered

stevedoring company may fluctuate drastically from month to month as

well as from year to year. A particular company obtains its work force

through a dispatch hall system, which is jointly maintained by the ILWU

and the PMA, and in one week the employer may need a workforce large

enough to unload five ships, and then have no ships to unload the next

week. Under the dispatch hall system, employees may be shifted daily

from company to company based upon shifting work requirements. On the

average, a covered longshoreman worked for more than five stevedoring

companies in 1996.

Wages are paid to workers not by the individual employers directly,

but rather by the PMA, which maintains a coast-wide, computerized

payroll system. The stevedoring company remits wages and funds for

benefits to the PMA, which in turn issues weekly payroll checks to all

ILWU members and transmits contributions to the various benefit funds.

The work of loading and unloading ocean-going vessels must be

performed where they call. So long as west coast shipping continues,

the work covered by the Plan will continue to be performed.

The Plan stated in its summary that its situation is one where

neither the special rules nor the proposed modification imposes any

risk to the multiemployer insurance program. The Plan states in its

request that ``[Plan] contributions are made with respect to all west

coast cargo. The [Plan] is dependent, therefore, only on the continued

activity in the west coast shipping industry as a whole. This industry

has shown tremendous growth over the past decades, and the growth is

projected to continue. For those reasons, the [Plan's] contribution

base share is secure, and employers that go out of business on the west

coast will not pose a risk to the [Plan] or the PBGC.''

Actuarial Data

As part of its request, the Plan submitted copies of its six most

recent actuarial valuation reports. Plan costs for funding purposes are

determined on the entry age normal, level dollar method. Benefits are

subject to collective bargaining, and contributions are allocated among

contributing employers on the basis of the ERISA minimum funding

requirements.

The reports show that during the 6-year period spanned by the

reports (7/1/91-6/30/97), the Plan population was relatively stable.

During that period, the number of retirees decreased 1.8 percent, while

the number of active participants decreased 3.4 percent. However,

during this same period, tonnage handled increased nearly 20 percent.

And, as of the end of the June 30, 1996 Plan year, annual contributions

had increased from $71.1 million to $99.7 million, and Plan assets rose

from $747.0 million to $1.329 billion.

There were three benefit increases under the Plan during the period

covered by the reports. The first, effective July 1, 1992, increased

the unfunded accrued liability by $49 million. The second increase,

effective July 1, 1993, increased the unfunded accrued liability by

$500 million. Finally, the third increase, effective July 1, 1996,

increased the unfunded accrued liability by $52 million. Specifically,

the Plan's monthly accrual rate for each year of service went from $37

to $70. PBGC notes that the Plan's benefit level exceeds the maximum

benefit guaranteed by PBGC under section 4022A(c) of ERISA, which is

$16.25 per month per year of service.

From 1991-1995, contributions increased at a faster rate than

benefit payouts. In 1991, benefit payouts were 97% of contributions,

and in 1995, they were 95% of contributions.

A summary of the six actuarial valuations is set forth below.

[[Page 5576]]

Summary of Actuarial Valuation Results \1\

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Valuation date

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7/1/96 7/1/95 7/1/94 7/1/93 7/1/92 7/1/91

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No. of active participants........ 8,185 7,896 7,682 8,141 8,339 8,469

No. of retired participants....... 9,049 9,236 9,244 8,979 9,132 9,214

Monthly benefit accrual rate...... 70 69 69 69 39 37

Max. monthly benefit.............. 2,450 2,415 2,415 2,415 1,365 1,295

Contributions (000)............... N/A 99,696 99,023 87,316 74,139 71,074

Benefits (000).................... N/A 94,963 92,437 85,293 71,321 68,848

Market value assets (000)......... 1,329,082 1,143,335 957,661 950,030 835,063 746,993

Net min. funding charges w/o

credit bal (000)................. 79,154 85,787 81,247 80,034 47,307 43,987

Normal cost (000)................. 20,527 19,176 18,441 19,162 12,821 12,334

Unfunded accrued liab. (000)...... 534,416 637,646 710,802 664,096 341,037 360,009

Unfunded liab.--vested benefits

(000)............................ 354,821 462,132 530,092 476,168 N/A N/A

Valuation interest rate........... 6.5 6.5 6.5 6.5 6.5 6.5

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\1\ Taken from actuarial reports submitted with request.

Approved Special Rules

The complete text of the Plan provisions containing the approved

special withdrawal liability rules is set forth in the Notice of

Approval, 49 FR 6043 (1984). Interested persons may obtain a copy of

that notice by contacting PBGC. Following is a summary of the special

withdrawal liability rules in effect and the text of the proposed

modification to those rules.

Under the special rules, a complete withdrawal occurs if an

employer who makes contributions to the Plan for longshore work

permanently ceases to have an obligation to make contributions to the

Plan, and the employer: (1) Continues to perform work of the type for

which contributions to the Plan are currently or were previously

required at any Pacific Coast port in the United States, (2) resumes

such work at any time during the Plan year in which the contribution

obligation ceased through the end of the fifth succeeding Plan year

without renewing the contribution obligation, (3) sells or otherwise

transfers a substantial portion of its business or assets to another

person that performs longshore work without having an obligation to

make contributions to the Plan under the collective bargaining

agreements under which the Plan is maintained, or (4) ceases to have an

obligation to contribute in connection with the withdrawal of every

employer from the Plan or substantially all of the employers within the

meaning of section 4219(c)(1)(D) of ERISA. A partial withdrawal occurs

if an employer incurs a partial withdrawal within the meaning of

section 4205 of ERISA and, in addition, at any time from the date of

the partial withdrawal through the succeeding five plan years, the

employer: (1) Performs work of the type for which contributions to the

Plan are currently or were previously required at any Pacific Coast

port in the United States without having an obligation to contribute to

the Plan for such work, or (2) sells or otherwise transfers a

substantial portion of its business or assets to another person that

performs longshore work without having an obligation to make

contributions to the Plan under the collective bargaining agreements

under which the Plan is maintained.

The amendment adopting the special withdrawal liability rules also

added funding requirements to the ILWU-PMA Pension Agreement (``Pension

Agreement''). Paragraph 4.042(c) of the Pension Agreement requires a

``Special Contribution Amount'' and specifies the funding goals that

the Plan must meet for plan years beginning July 1, 1984:

(i) The ``Special Contribution Amount'' shall be the level

annual amount which, on the basis of a Certified Actuarial

Projection, the Plan Actuary certifies will, when added to the

amounts otherwise required by law (determined without regard to any

credit balance in the funding standard account) * * * be sufficient

to make the Funding Percentage as of the Applicable Funding Goal

Date at least equal to the Applicable Funding Goal.

(ii) The term ``Funding Percentage'' shall mean for any Plan

year, the percentage derived by dividing the market value of the

assets of the Pension Fund by the present value of the

nonforfeitable benefits within the meaning of ERISA section

4213(c)(A), both values to be as determined in the Certified

Actuarial Projection as of the end of such Plan year.

(iii) For the first through the fifth Plan Years commencing on

or after July 1, 1984, the term ``Applicable Funding Goal'' for each

such Plan Year shall mean 50 percent (50%), and the ``Applicable

Funding Goal Date'' for each such Plan Year shall mean the last day

of the tenth such Plan Year; for each succeeding Plan Year, the term

``Applicable Funding Goal'' shall mean the percentage set forth in

the Accelerated Funding Schedule for the Plan Year commencing four

years after the end of the Plan Year in question, and the

``Applicable Funding Goal Date'' for each such Plan Year shall mean

the last day of the Plan Year commencing four years after the end of

the Plan Year in question.

(iv) The ``Accelerated Funding Schedule'' shall be the following

schedule:

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

Plan year Percent

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

10........................................................... 50

11........................................................... 53

12........................................................... 56

13........................................................... 59

14........................................................... 62

15........................................................... 65

16........................................................... 68

17........................................................... 71

18........................................................... 74

19........................................................... 77

20 and over.................................................. 80

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

(v) The ``Certified Actuarial Projection'' shall be a

projection, which is prepared as of each actuarial valuation date so

as to derive the Funding Percentage on the Applicable Funding Goal

Date, by using the actuarial assumptions and methods utilized in the

December 31, 1982 Actuarial Valuation of the Plan and the then

current assets and census data, which projection shall be certified

to in each Plan Year by the Plan actuary. This projection shall be

on the basis of: (1) The benefit levels in effect during the Plan

Year for which the projection is made, and (2) the Contributions

required for such Plan Year * * * together with any Special

Contribution Amounts. When the Applicable Funding Goal is met for

the twentieth or subsequent Plan Year, the Special Contribution

Amount may be limited to the amount necessary to maintain such

Applicable Funding Goal for each subsequent Plan Year.

Notice of Approval, 49 FR 6043, 6046 (1984).

An additional funding requirement is contained in paragraph 4.011

of the Pension Agreement. That provision requires that:

``Notwithstanding any other provision of this Plan, the Contributions

for each Plan Year shall be not less than the total administrative

[[Page 5577]]

costs and benefits to be paid by the Trustee during the Plan Year.''

Notice of Approval, 49 FR 6043, 6045 (1984).

Proposed Modification to Special Rules

On July 21, 1997, the Plan adopted an amendment to the approved

special withdrawal liability rules, which amendment eliminates the

requirement under paragraph 4.011 of the Pension Agreement that

contributions for each Plan year shall be at least equal to benefits

and administrative costs paid in the year. In lieu of that requirement,

the parties to the Pension Agreement signed a Letter of Understanding

on July 21, 1997, whereby the parties agree that:

[S]hould the Funding Percentage for the ILWU-PMA Pension Plan (as

defined in paragraph 4.042(c)(ii) of the Plan) fall below eighty-five

percent (85%) as of the beginning of a particular Plan Year, the

Contributions in the following Plan Year shall not be less than the

lesser of: (a) The total administrative costs and benefits to be paid

by the Trustees during said following Plan Year, or (b) the amount

required to increase the Funding Percentage for said following Plan

Year to eighty-five percent (85%).

Because the requirement that contributions be no less than

administrative costs and benefits paid in a given year is no longer

specifically set out in the Plan or the Pension Agreement, PBGC has

advised the Plan's representative that if PBGC should approve the

amendment modifying the Plan's special withdrawal liability rules such

approval will be under the following condition: ``The Plan's special

withdrawal liability rules will be void as of the first day of the Plan

Year following a Plan Year for which the Plan is not at least eighty-

five percent (85%) funded, and during said following Plan Year the

Contributions are less than the least of (a) total administrative cost

and benefits for said following Plan Year or (b) the amount required to

increase the Funding Percentage to eighty-five percent (85%) for said

following Plan Year or (c) the maximum tax-deductible contribution to

the Plan.'' The Plan has agreed to certify to these conditions

annually.

No other changes are proposed to the special withdrawal liabilities

rules as approved by the PBGC on January 30, 1984.

Reason for Modification

According to the Plan's request, the funded status of the Plan has

improved significantly since 1984, and, based on the Plan's improved

funded status, ``the potential has now arisen for unpredictable and

volatile contributions to the [Plan] under certain investment

scenarios'', and ``if the current contribution requirements were to be

continued, there is a significant risk that, under certain investment

scenarios the plan could potentially reach the tax deductible

contribution limit in the near future.'' Depending on fluctuations in

the investment market, annual contribution requirements under the Plan

could range from zero to over $100 million, depending on the tax

deductibility of each year's contributions. According to the Plan's

request, the proposed modification to the current contribution

requirement allows the Plan ``to better forecast contribution

assessments * * * by reducing the contribution volatility as the plan

nears the tax deductible limit on contributions.'' The request goes on

to state that: ``[r]educing contribution volatility is important in

maintaining a secure and soundly funded retirement program. These are

the same valid arguments that prompted Congress to enact legislation

this year to allow private plans greater contribution flexibility in

dealing with the full funding limit.''

Comments

All interested persons are invited to submit written comments

concerning the pending request to PBGC at the above address, on or

before March 20, 1998. All comments will be made a part of the record.

Comments received, as well as the application for approval of the plan

amendments, will be available for public inspection at the address set

forth above.

Issued at Washington, DC, on this 23rd day of January, 1998.

David Strauss,

Executive Director.

[FR Doc. 98-2730 Filed 2-2-98; 8:45 am]

BILLING CODE 7708-01-P